Digital focus, premium products to drive FMCG growth: BCG

Branded FMCG market size to grow 3.6 times to US$ 240, from US$ 65 currently, by 2025; households with income above Rs 1 million to form half of the consumer market?

The future of consumer goods companies in the country depends on how they evolve in digital communication, e-commerce and premium products, according to the Boston Consulting Group (BCG).

India’s fast-moving consumer goods (FMCG) industry faces slowing sales growth, increasing distribution costs and higher attrition rates, and redrawing organisational structures, integrating market strategies and adapting to emerging trends will be critical, says a report published by BCG and the Confederation of Indian Industry (CII).

The branded FMCG products market in India will touch Rs 15,60,000 crore ($240 billion) in 2025 from Rs 4,22,500 crore ($ 65 billion) now, growing at 14 per cent a year, the report says. Households with yearly incomes above Rs 10 lakh are expected to form 48 per cent of the market by 2025 from 24 per cent now.

ROSY OUTLOOK

• Branded FMCG to become a Rs 15.6-lakh crore ($240-billion) sector by 2025 from Rs 4.23-lakh crore ($65 billion) currently
   
• 70% increase in income level, 100 million youth joining workforce, urbanisation (35%) to aid growth
   
• 200 million consumers (with buying power of Rs 2.93 lakh crore or 35% of the market then) will be influenced by digital medium by 2025
   
• Branded packaged food grew fastest at 13% during 2005-15
   
• 90% of the consumer health products are branded – followed by beverages (86%), home & personal care (82%) and packaged foods (76%)

“Companies will need to invest in building premium brands, delivering superior products through packaging, design and experience,” the report adds.

Over 200 million consumers, with a buying capacity of Rs 2,92,500 crore ($45 billion) — or 35 per cent of the branded FMCG market in 2025 — will be influenced digitally, BCG argues.

“A third of the FMCG products’ market will be driven by the online platform by 2020. However, companies in India are yet to establish their online presence,” said Abheek Singhi, senior partner and director, BCG India.

According to the report, nearly 15 per cent of the FMCG market will be driven by e-commerce in 2025. “E-commerce in Indian FMCG will be bigger than the modern trade channel in the next few years,” Singhi added. Major FMCG companies have teams for modern trade but not for e-commerce and digital communication.

Slowing sales and high attrition are other factors that need to be addressed. “Growth in FMCG is coming down, from 22 per cent in 2009 to 8 per cent in 2014, slowest in a decade,” said Rakshit Hargave, managing director, Nivea India.

Staff attrition for some players is 15 per cent due to increased complexity and distribution costs. “The benefits of first-level penetration in the rural markets are over now. To sustain desired growth, companies need to reach out to more villages, which will not be as easy as it was during the past 10 years. Only 50,000 of the country’s 6,00,000 villages are served by the major companies today,” Singhi said.

“Attracting and retaining talent is becoming difficult for the industry. Every year, 100 new companies are entering the sector and digital retail is bringing in new challenges. The industry needs to change the way it functions,” said D Shivakumar, chairman and chief executive, PepsiCo India.