Covid-19 impact: Online sales bring cheer to FMCG majors' top line

Contribution to total sales stands at 8-9% for consumer goods behemoths

The online channel is fast becoming an important segment for fast-moving consumer goods companies (FMCGs), especially those in personal care and health care divisions. 

While the Covid-19 pandemic has given a fillip to digital adoption in general, the growing contribution of online within total sales for some FMCGs suggests companies are taking this segment seriously.

Online includes sales from marketplaces such as Amazon Pantry, BigBasket, and Grofers, as well as online platforms of modern traders.

The third-quarter (Q3) results of Marico, Dabur, Hindustan Unilever (HUL) shows that the contribution of online to total sales is now at 8-9 per cent. Analysts say this is a steady climb in terms of sales in a year.

“Pre-pandemic, the contribution of online to total sales for FMCGs was under 3 per cent. This climbed to 5 per cent by the September quarter as digital adoption increased significantly, following the lockdown. Some firms are now clocking sales in the region of 8-9 per cent,” says Kaustubh Pawaskar, associate vice-president-research at Mumbai-based brokerage Sharekhan.

In a recent interaction with media, following the company’s December quarter results, HUL Chairman and Managing Director Sanjiv Mehta had said that the shift to online in grocery shopping was irreversible in the post-pandemic world.

What is aiding the growth of online as a channel is the slow revival of modern trade in urban areas. While the economy has fully unlocked, footfalls continue to be lower in organised retail stores, as consumers exercise caution while stepping out. 

This has come as a boon to e-tailers who have seized upon the opportunity, offering everything from sharp discounts and premium bundled products to home deliveries.

Modern traders, such as Reliance Retail, Big Bazaar, and DMart, are pushing their respective online platforms — JioMart, bigbazaar.com, and DMart Ready — aggressively in a bid to capitalise on this growing online trend.  

Saugata Gupta, managing director and chief executive officer, Marico, says there has been a permanent reset as far as the online channel goes for FMCGs. “What would have grown in three years has grown in one year, and companies who have been ahead of the curve in investing in this channel are reaping the benefits of this strategy now,” says Gupta.   

Mohit Malhora, chief executive officer, Dabur India, says companies are now setting up dedicated teams, launching new packs and price-points as well as digital-first brands. Firms such as HUL, Dabur, Marico, ITC, and Reckitt Benckiser have all taken the lead in this area.

The effort is similar to the one companies invested in a decade-and-a-half ago when the modern trade channel emerged, in addition to traditional trade in FMCG.

“For us, e-commerce is a very important channel. We have carved it out as a separate vertical with a full-time business head. The reason we are doing this is because consumer-buying behaviour is altering. The path of purchase of the consumer is moving towards convenience. Moreover, Covid has added this element of hands-free and hygiene. Online takes all these factors into account,” said Malhotra.

For personal care and health care companies, the shift to online has become the preferred strategy, given that modern trade will take time to return to normalcy. 

“The shift has happened because online saliency for personal care products has grown significantly. So personal care companies to a large extent and premium health care to some extent are getting the response online that they would in modern trade earlier. Which is why the number of launches by personal care companies online has also been high over the past few months,” says Sumit Malhotra, director, Bajaj Consumer Care.

Analysts expect the share of online sales to total sales for some FMCGs to cross the 10-per cent mark by early 2021-22, though some experts warn it could slow down if modern trade returns to normalcy next year.