The FMCG/ CPG sector in the country is poised for good growth this year with the emergence of digital channels and overall positive consumer sentiment. The buoyant outlook comes close on the heels of a good festive period in October last year. This is although inflationary pressures have forced companies to hike prices. 

Growth in the FMCG Sector 

October 2021 was a significant period for the FMCG/ CPG sector with the festive season shoring up sales in packaged foods, commodities, and discretionary categories like beverages. 

According to retail intelligence platform Bizom, the FMCG sector saw sales grow by 21 percent from a year ago. This growth was observed not just in the urban centers but also in rural areas, which had a good monsoon season and an improved harvest. The primary factors contributing to the growth are volume expansion, due to increased consumption, and a rise in value owing to higher product prices. 

For the rest of the months in 2021, the FMCG sector experienced growth of 10-20 percent, though there was some revenue decline in September. The sector experienced a see-saw in its trajectory last year, with sales in some categories (like homecare) dipping or plateauing. 

The challenges caused by the pandemic and the resultant restrictions no doubt had a role to play in this, but FMCG companies managed to tide over them and hold their ground. Now the sector is geared up for better growth on the back of pent-up consumer demand and revenge shopping, driven by Covid-induced fatigue.

Currently, the Indian FMCG sector is said to be the fourth largest sector in the country with household and personal care accounting for 50 percent of total sales. Food and beverages are also a large contributor to the FMCG sector in the country; according to the customer marketing company Hansa Cequity's report, at 42 percent, it would top the household consumption expenditure in India by 2021.

The FMCG market in India is estimated to grow at a CAGR of 14.9 percent to touch $220 billion by 2025, from $110 billion in 2020.

Trends in the FMCG Sector

E-commerce Boom: E-commerce got a big shot in the arm after the pandemic outbreak with many consumers forced to buy online. This trend continued even after the lockdown restrictions were relaxed. In the last one-and-a-half years, many FMCG companies saw revenue share from the e-commerce channel double. Going forward, rising digital connectivity and internet penetration in urban and rural areas will drive demand for FMCG goods through e-commerce portals. 

Online shopping and shopping via mobile apps are expected to see a surge in the coming months and e-commerce will continue to contribute significantly to the overall sales of FMCG companies. Several start-ups are aiding Kiranas and local grocery stores to expand their presence through e-commerce and digitization, thus boosting the fortunes of the FCMG sector. 

The Emergence of D2C Players: With consumers rapidly embracing the digital channel, brands that have not taken digital business and the omnichannel approach seriously are losing out in a big way. If they don’t want to be left out in the race, they must pull up their socks and up their digital game. Brands must also strengthen their digital infrastructure to shrink response time and improve supply chain efficiency.

While market leaders like Revlon and Lotus took more than 20 years to reach Rs 100 crore in revenue, nimbler D2C-focused brands like Mamaearth and SUGAR took just 4 years and 8 years respectively to achieve the same growth.

Brands that have adopted digital and online channels stand a better chance of meeting challenges and clocking good sales numbers. For instance, top FMCG players such as Hindustan Unilever, ITC, Nestle India, and Britannia Industries, which have adopted digital business models, registered 20 percent YoY growth in FY2021.

Technology Disruption: Technologies such as Internet of Things (IoT) sensors and devices and 3D printing technology are helping FMCG firms in their efforts indirect distribution. FMCG companies have turned to technology in the areas of sales, dealer and vendor management, inventory management, and distribution systems to improve efficiency and productivity in the long term. Automated warehouses and digitized factories are increasingly powered by data and analytics. Companies like Britannia, HUL, Dabur, and Marico are trendsetters in this regard. 

On the front-facing consumer side, thanks to disruptive technologies like big data analytics, blockchain, and artificial intelligence (AI), FMCG companies can now offer a better experience to customers, backed by consumer-led insights, and ultimately gain a competitive edge in the market. 

Blockchain helps brands customize and manage loyalty and rewards programs, while AI enables voice-activated systems that help customers find items on e-commerce platforms, signaling a potential shift from traditional text-based search to an audio interface.  

Understanding Consumers: In the post-pandemic world, consumer demands and expectations are changing and evolving rapidly. In the new normal, brands need to understand consumers deeply to better serve them. Successful brands always keep customer sentiment and their overall satisfaction in mind. 

Consumers of today are largely seeking a balanced life that leads to self-development and overall wellness. Brands riding the wellness wave, focusing on customer experience, and creating products that offer health benefits and peace of mind, will certainly create a positive impression in the minds of millennials and Gen Z consumers. 

Big data, predictive analytics, and social media offer brands the power to understand consumer needs and sentiments and forecast trends and buyer behavior. 

Need for Digital Engagement: Understanding consumers is only half the game won. The other half lies in engaging with consumers in a meaningful manner using insights and digital technology. 

How the FMCG Sector can Leverage Insights

●    Create a 360-Degree View of Every Customer: Brands can create a comprehensive and centralized view of every customer and enable enterprise-wide access to customer insights. All transactional data and offline data from physical stores can also be integrated into this dashboard. 

●    Slice and Dice Data to Get Rich Insights About Customers: Once a 360-degree view is available, customer data can be dissected and analyzed thoroughly using a plethora of technology tools. This data is a treasure trove of valuable insights and information on buyer behavior, their likes and dislikes, preferences and tastes, and why customers churn.  

This will in turn help brands segment customers based on the recency and frequency of their activities and the monetary value of their transactions, into different buckets and cohorts - champions, loyalists, promising buyers, frequent buyers, habitual customers, active/inactive/dormant customers, sale hunters, budget-conscious, premium shoppers, and those about to drop off.  

●    Design and Deliver Personalized Communication: Once customer segmentation is done, brands can cherry-pick and engage with customers using targeted marketing campaigns and personalized communication via their preferred channel. 

For instance, the FMCG brand Dabur engaged in contextual engagement with viewers on YouTube through the storytelling format. Based on the previous interaction of viewers and using intent signals, Dabur delivered either multiple messages on the ingredients, usage, and benefits of its hair oil brand or built awareness only on the key benefits of the brand. Depending on whether a video ad was viewed or skipped, the next video was served. 

Omnichannel and hyper-personalization are also possible using dynamic, rich-looking messaging that grabs attention and integrated channels of communication. Specific product updates and messages related to discounts and offers can be planned effectively using customer history and behavior patterns. 

For example, if a customer exhibits an affinity for wellness products, brands can make relevant product recommendations, such as probiotic yogurts, almond milk, immunity supplements with natural ingredients, and organic products. The messaging has to be on-point and slick, with gentle nudges towards action, as opposed to aggressive or tacky communication for irrelevant products. 

The channel of communication also matters. Hyper-targeted message and push notifications delivered over the smartphone or via the in-app channel may have a greater impact than emails among customers who tend to shop on the go; while an omnichannel approach may work better with customers who look for a seamless shopping experience. 

●     Optimize for More Effective Engagement: AI-based campaigns, personalized content, and time optimization - i.e. sending the right content/message variant to the right segment, through the right channel, at the right time - lead to a higher and more fruitful engagement with customers. If customer churn can be predicted, brands can deploy win-back programs at various drop-off points to delight customers who need attention and get them back into the fold. 

●    Predict Customer Behavior: Using data and technology, brands can predict consumer behavior and needs. For instance, HUL uses software that incorporates AI techniques to assess demand and volume predict customers’ grocery needs under various simulated scenarios. 

The Bottom Line 

If brands can harness the extensive amounts of data available to them in unique ways, they will be able to engage better with the customer. This will ultimately lead to better business outcomes - in the form of repeat business, improved conversion rate, greater transactional value, more upselling, and reduced churn and margins of error.