Imperative for FMCG, retail bodies to balance caution with investment: CII -BCG Report

Uncertainty in the global economy is increasing. On an average, rank changes in U.S. food and grocery have been 3.2 times in the decade of 2010 vs. the 1960s.

Short term uncertainty in India is also increasing. GDP projections for India have also been cut to five to six per cent and companies are dealing with the "new normal".

However, in the long term, consumption in India is set to triple, going from USD 900 million in 2010 to USD 3.6 trillion in 2020.

Hence, it is imperative that FMCG and retail organizations balance caution due to short term uncertainty with investment required to drive long term growth.

The report titled "Winning with Uncertainty" by CII and The Boston Consulting Group highlights the need for FMCG and retail companies in India to prepare for an increasingly uncertain future and proactively take measures to leverage market volatility to create competitive advantage

According to the report, uncertainty in business environment in India is primarily being driven by six structural factors:

Changing macroeconomic scenarios in the country

Heightened volatility in commodity prices

Uncertainty in policy making

Rapidly evolving consumer base and behavior

Emergence of new breeds of competitors within industries

Development of game-changing technology

FMCG and retail sectors have shown strong resilience in the face of this uncertainty, a trait that has been rewarded by investors. The BSE FMCG Index gained approximately 150 percent in the last five years, almost 15 times the growth achieved by the bellwether Sensex. Organized retail has also been growing at a CAGR of approximately 14 - 15 percent over the last five years.

The report lays out frameworks that can be used to create winning business models in the face of uncertainty. It takes a value chain view of businesses and talks about embedding flexibility into every element of the value chain.

It suggests measures that companies can implement to ensure that agility is encoded in their DNA. For example, companies should look to source raw materials locally and directly to shorten lead times and variability in the supply chain.

The report recommends a 3-P approach that companies can use to ensure that they are equipped to leverage uncertainty:

Perform an uncertainty audit: Companies need to perform a health check across their value chains and stress test them against extreme shocks

Prepare for multiple future scenarios: Companies should conduct periodic exercises to identify potential future outcomes for the business based on a range of internal and external business conditions, and pressure test their strategies against these outcomes

Prime the organization to exploit uncertainty: Organizations need to internally embed a culture of viewing uncertainty as an opportunity rather than a roadblock.