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It's a battle out there, there is no doubt. No longer can companies expect to grow on the back of the India growth story by simply going through the motions of time-honoured tactics such as penetrating more towns and villages, putting cricket or Bollywood celebrities on their adverts and passing on inflationary price increases. When times get tougher, then out-of-the-box strategic thinking will win through - those companies closest to the consumer and with leadership that can truly focus on what really matters will win through.
If we look empirically at what the fastest-growing companies in the fast-moving consumer goods (FMCG) sector did in 2012, then there are clear lessons on how to win when the market slows down. While five per cent GDP growth may still be the envy of most of the developed world, we all know in India that this has put tremendous pressure on the country. Graduates will no longer be guaranteed that job at the end of their study, uncertainty will prevail around issues such as foreign direct investment and the consumer will think more carefully than ever about the value of her purchase.
Some sectors such as automobiles have particularly felt the brunt of the changed consumer sentiment. Even with FMCG companies, which historically are more resilient, given the everyday essential nature of many of their brands in a shopper's basket, we have seen a slowdown. The 15-18 per cent annual growth rate seen over the last few years has come down by a few points in 2013, and is likely to remain muted for some time to come.
So, what have the most successful companies done to set them apart? Let's look at the differentiating mind-sets of the companies that managed to significantly out-perform the industry norm.
First, they decided that quality is more important than quantity, at least when it comes to distribution. The fastest-growing companies added 400,000 stores, and 70 per cent of the new stores were in rural India - it is Bharat that is going to take India out of slowdown. However, impressive as the expansion of their distribution networks was, it didn't actually set them apart from competition. It was actually the quality of the distribution: The successful companies showed significant growth within these stores by focusing on developing store-owner relationships to build word-of-mouth recommendations, creating the right in-store merchandising and scientifically selecting the right items for the right store by understanding the catchment area. Nowadays, there are tools that allow companies to get smart about quality distribution and the winners took full advantage.
Second, they recognised the increased stress the consumer was under. Inflationary increases without a truly step-change consumer value proposition were never going to fly. While there are some great success stories around premiumisation, the successful companies passed on lower-than-inflation price increases and, as a result, built volume and value. The Indian consumer is the most price-sensitive in the world and this has only increased in recent times.
The successful companies grew their volume on average by 19 per cent, as opposed to average companies that grew about nine per cent in 2012 and in the process, lost some connection points with their consumer base.
Third, they thought medium term and not just short term. One example is innovation - despite the slowdown, the most successful companies invested more in R&D, recognising that the Indian consumer is inquisitive and is constantly looking for new benefits. Innovative products for the successful companies accounted for four times the percentage of sale experienced by the average FMCG player. Another example is modern trade - the winners committed senior resources, invested in the right promotional programmes and in-store theatre, and reaped the rewards as a result. They grew faster in this channel, which will inevitably become the key channel in India in the years to come.
Don't get me wrong, the long-term picture is as rosy as ever - with a per-capita consumption of $31 (Rs 1,911) compared to China's $128 (Rs 7,891), there is incentive to invest. However, leaders will increasingly be judged and rewarded by how they heed the lessons of others, and turbulence provides a terrific learning environment. As the expression goes: "Calm seas do not make great sailors." We are going to see some great sailors emerge in the next few years.
The author is MD - Consumer, Nielsen India
