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Consumption in India is expected to rise from $900 billion to about $3,600 billion in the coming decade, presenting an unparalleled opportunity for FMCG and retail companies. The FMCG sector with a five-year CAGR of 17 per cent and steady margins, has been a safe haven for investors. The report, Winning With Uncertainty by the Boston Consulting Group (BCG) and the Confederation of Indian Industry (CII), released recently, looks at the uncertainty that these industries have to tackle in India. Following is an edited excerpt:
FMCG players have to deal with consumer preferences shifting rapidly due to increasing choice and access to information. Volatility in commodity prices and the emergence of new competitors have squeezed margins, forcing most players to cut costs in order to protect earnings. Uncertainty can, however, create opportunities.
One of the factors feeding the uncertainty is the emergence of new competitors. Fragmentation has increased across industries in India since 2008. For example, in the FMCG sector, competitive landscape has expanded with the entry of new players (multinational corporations and regional players) and industry players foraying into new market segments. As a case in point, Danone made its Indian debut in 2009 with a foray into dairy and baby food. Reckitt Benckiser entered the personal care space through the acquisition of Paras Pharmaceuticals in 2010, before selling the latter's personal care brands to Marico in 2012. Regional players, too, have begun expanding their presence-companies like Panjon, Wagh Bakri, Bisk Farm and Mapro are planning to ramp up their product portfolios, as well as geographical reach. Panjon hopes to increase its sales tenfold within two years by launching new products and tripling its distribution network. Increasing consumer focus on health and wellness has led to the creation of new categories in the food and beverages space, such as sugar substitutes (for example, Sugar Free and Equal).
According to a survey of executives of leading FMCG and retail companies in India, conducted by BCG and CII for this report, 50 per cent of those polled expect challenges due to rising competition over the next five years.
Though market leaders in most categories have not changed over the last five years, new entrants have been able to grab share and become top five players in some segments (Please see chart). Growth of new categories in the last decade has added to the flux in this sector.
The team at BCG claims that an 'uncertainty' audit could lay bare the vulnerabilities, when done on an annual basis. Some of the questions companies can ask themselves are:
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How have trade spends evolved as a percentage of sales over the last few years?
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Which retail formats have provided highest returns on trade spend across different product categories?
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Which formats are preferred by the target group of customers?
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How often is consumer research carried out to determine evolving shopping patterns?
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Are regional variations in consumer preferences captured during product design?
- How has allocation of advertising and promotion (A&P) spends across different media changed over the last three-five years?
