2017: A mixed bag for Indian FMCG

The FMCG sector, with barely 4 per cent growth in the last two years (primarily due to three consecutive years of bad monsoons), has witnessed the slowest growth this decade. The growth just about seemed to comeback during Diwali of 2016,  but demonetisation and GST bruised it again. What is heartening though is that most FMCG companies have posted a healthy growth in the last quarter. This surely is an indication of revival of consumption. However, it is only the established FMCG brands which saw growth. Most of the smaller regional brands post demonetisation and GST were not to be seen in the shop shelves of the rural and semi-urban markets.

Rewind to August-September of 2016. A kirana store in a rural and semi-urban market was flooded with regional food and even personal care brands. They shared shelf space with brands from the HUL and ITC stable. It was the same with consumer durable brands. LG, Videocon and Godrej shared shelf space with local brands such as Hilton, Melbon etc, and the latter actually had more takers as they had a 30%-40% price advantage over the established brands. The kirana stores offered consumers a whole bunch of locally packed snacks, which were priced at par with brands such as Lays and Bingo, but offered greater quantity. The distributors of these local brands offered the retailer higher margins and the latter was more than happy to push these products to the consumers. The scene was quite different when one visited these markets post demonetisation and GST. The local brands, which thrived on cash transactions were nowhere to be seen. The local consumer durable brands had also vanished.

The established companies on the other hand increased their direct distribution muscle manifold. A company such as Britannia Industries for instance, has increased its direct distribution to 13,200 outlets in rural markets. The point to be noted here is that with monsoons being normal in the last two years, the urge to consume in the smaller markets has been there and that is what the established FMCG majors have tried capitalize on. The big brands have definitely made a comeback post the roll out of GST.

In the urban markets bulk of the consumers have shopped online especially in categories such as apparel, footwear etc. They have preferred shopping online more for the fact that it is convenient and not so much for discounts.  While modern retail stores were sought after  for big ticket monthly grocery shopping, bulk of the consumers preferred their neighbourhood kirana stores for day-to-day shopping. They unanimously agreed that no modern retailer can ever give them the level of service that their neighbourhood store offers.  

It's not that urban India has stayed away from malls. They did visit malls to experience and touch and feel brands and more for retail therapy. Now we know why both online and offline retailers are hurriedly going the omni-channel route. Even sari and salwar-kameez store owners in places such as Indore or Amritsar, today, flash their Facebook pages even before they start hard-selling their merchandise. Retail is certainly going omni-channel. The Maharashtra Government has recently allowed retail stores to be open 24/7. If retail is moving omni-channel, will it make business sense for stores to be open 24/7?

The other big trend in 2017 has been the growth of new age brands in the food and personal care sector. Most of these brands are start-ups that have smartly tried to fill gaps where the traditional brands don't have a presence. So, there are brands such as Epigamia, which is into Greek yogurt, Raw Pressery, which does cold pressed juices or Fingerlix, which sells dosa and idli batters, ready-to-cook parathas, biryani and so on. Similarly, online beauty retailer, Nykaa, has put together a whole range of colour cosmetics which it is selling not just online but also through physical retail.

Future Group Chairman, Kishore Biyani, has often said that India is largely unbranded and there is enough scope to build brands provided one is able to find the right gap. The start-up FMCG companies have definitely taken Biyani seriously. The retail king himself is in the midst of scaling up his own FMCG business to a whopping Rs 20,000 crore entity by 2021.

There are a plethora of reports indicating job losses in urban India and consumerism moving to smaller markets. Only time will say where Indian consumerism is headed to. But the year that went by definitely witnessed interesting consumption