Uptick for FMCGs is insufficient

Research firm Kantar delivered some good news last week when it said that household consumption of fast-moving consumer goods (FMCG) such as food and beverages, beauty, health and personal care products in is picking up in rural markets, and will grow faster in FY 25 at 6.1%, ahead of urban India at 4.2%. Rural demand is expected to get a lift from good monsoon, higher minimum support price and non-farm employment, said K. Ramakrishnan, managing director, South Asia, Worldpanel Division at Kantar.
For several quarters now, slow offtake of daily essentials in India’s villages has been a concern for large companies since half of FMCG volume and value is generated by the rural markets. Several large companies such as Hindustan Unilever Ltd, Marico and Dabur, have reported muted growth in the past.
Ramakrishnan said that this increase in FMCG consumption is still underwhelming. “It could have been much better. In most countries in South East Asia or even the UK, FMCG growth is in line with the growth of GDP. But not here,” he said.
Kantar also released its annual Brand Footprint India report that ranks the ‘most chosen’ (in-home and out-of-home) FMCG brands based on Consumer Reach Points (CRPs) where Parle was the most chosen in-home brand. CRP considers the actual purchase made by consumers and the frequency at which these purchases are made in a calendar year. Overall, FMCG’s growth in Consumer Reach Points – a measure of consumer activity – saw a very marginal decline in 2023 over 2022. Lower consumer reach points means that a brand has been bought less frequently and reached fewer households, Ramakrishnan said.
Though inflation impacted sales of packaged consumer goods with people cutting back on volumes, they are spending on other things like telecom, utilities, technology, entertainment and lifestyle. “FMCG growth may also have been stifled by lack of breathtaking innovation that could drive consumers to expand their purchase basket,” Ramakrishnan said.
However, some categories grew on account of a strong policy push by the government: The Swachh Bharat Mission drove sales volumes for toilet and floor cleaners. Feminine hygiene products took off on the back of government campaigns, Ramakrishnan said.
But the fact is that large FMCG firms in India need to worry about their share of wallet getting squeezed. They need to be nimble like local brands or smaller startups that are nibbling away at their market share, he added. “They need to worry about, track and respond to the plethora of regional and local brands chipping away at their share in different corners of India,” Ramakrishnan said.
Shiv Shivakumar, former chairman of PepsiCo and former CEO, emerging markets at Nokia, who once famously called the fast-moving consumer goods companies as “slow-moving”, said that the legacy advantages of traditional FMCG firms don’t hold any more. They had the brand, a strong distribution, and negative working capital. “Today’s new-age D2C companies are doing a better job at brand building and have partnered with e-commerce and quick commerce firms for distribution. So legacy firms do not have that distribution advantage either,” Shivakumar said.
“Going forward, large FMCG companies should focus on partnerships, consumer experiences and top-end innovation and services,” he added. “You cannot sell the same shampoo, hair oil and soap. You need a premium sensory experience for all,” Shivakumar said.
Ramakrishnan, however, feels that ‘premium’ will always be a smaller segment for FMCG firms. But it is increasingly an important part of every organization as consumers are inclined to pay more for products that improve the quality of their experience and deliver better margins for companies. However, for volume growth, FMCG brands should not lose sight of smaller packs even if they are becoming harder to sustain owing to margin pressures, he said.
Traditional FMCG companies need quick decisions and faster turnarounds to fight off smaller and younger companies launching newer categories with newer and healthier ingredients. The Kantar study said acceptance of new players is increasing and if a brand is meaningfully different, it has a fair chance of winning a sizable share of consumers.