Inside India’s Fast-Moving Consumer Goods Industry

India’s middle class is booming, and consumer spending is driving the country’s fast-moving consumer goods (FMCG) industry to new heights. Despite high inflation and rising crude oil and fuel prices, several positive trends are emerging in India’s consumer behaviors. That means several opportunities exist for FMCG companies to tap into exponential growth. But finding the right drivers and avoiding challenges will be key for businesses looking to navigate this fertile ground.

To learn more about where the direction of the FMCG industry is headed, GLG’s Alisha Chatterjee, hosted a teleconference with Sharavana Raghava former Assistant Vice President at Godrej Consumer Products.

Can you provide an overview of the FMCG sector in India? Where does it stand as of 2022, and how much has it grown in the last five years?

India’s fast-moving consumer goods industry is strong and growing quickly.

FMCG ranks among the top five contributors to GDP, and the roughly $110 billion industry could double in the next five years.

The past five years have been a bit of a roller coaster, but FMCG — comprising food and beverage, home care, personal care, and healthcare — is one of the industries that did not suffer a significant downturn during the pandemic. In fact, many manufacturers managed to get the ad hoc distribution system right during COVID.

The usual balance between urban and rural consumers in Indian FMCG has held steady at about 55% urban to 45% rural. Growth is largely equitable, which portends good things.

What does the competitive landscape of the sector look like, and who are the top FMCG players in India?

FMCG is crowded and competitive. The top companies are Hindustan Unilever Limited (HUL), ITC Limited, Nestlé, Marico, Godrej Consumer, and Dabur.

Unlike most Western markets, the top 10% of players in India control less than 30% of the market, meaning it’s largely fragmented. There are a lot of local and regional players in India who take care of the non-metro businesses. Maximum retail price (MRP) is a phenomenon unique to India that has driven a lot of local brands to stand up to the giants. Small mom-and-pop businesses still control 70% of the market.

What are the growth and revenue drivers of the FMCG sector in India?

In any FMCG category, growth can happen in two ways: when existing consumers buy more, or when new consumers enter the fold. For existing consumers, it’s about providing innovative value additions and giving them more, giving them new experiences. For new consumers, it’s not necessarily all about affordability but instead providing access via attractive price points, distribution, or unique formats.

If you look at both kinds of consumers, aspiration is the key driver. Aspiration is everywhere in India. Consumers want a better, even luxurious life and are no longer happy to remain middle-class.

What has been the impact of high inflation and rising crude oil and fuel prices on the FMCG sector? How have the product and pricing strategies changed because of these macroeconomic issues?

When cost goes up, either the price goes up or the grammage goes down. Or both. People call it shrinkflation when a company reduces the amount of product within the pack and keeps the price the same. It works.

But when cost goes down, the price does not go back down. So, in categories where the ticket size is important — for example, a 5-rupee, 10-rupee, or 1-rupee SKU — the company will end up dropping grammage when the cost goes up. Then you end up not increasing grammage but offering extra grammage as a promotion.

For example, a pack of biscuits selling at, say, 90 grams for 10 rupees falls to 70 grams for 10 rupees during inflationary periods. When the costs go back down, the business will not immediately start giving consumers 90 grams for the same 10 rupees but will give them 70 grams plus 20 grams free occasionally as a promotion. When consumers are used to paying 10 rupees for 70 grams, why would a company want to change that behavior? So, it is a bit of a manipulation, but it works.

Where do you see the FMCG sector of India heading five years down the line, and what changes in market trends do you foresee?

India will likely become the first place in the world where quick commerce and e-grocery beat modern trade. Modern trade is moving into a bazaar model, selling primarily on price.

Local players, the local regional brands, and the regional start-ups will continue focusing heavily on brand building. In FMCG, brand building is the father and mother of sales and marketing. Those who are in it for the long term need a strong core brand. That’s not the most instinctive skill for Indians, but getting it right will determine who survives.

What challenges does the FMCG sector of India face that are hindering its growth? What threats and opportunities do you foresee in the coming years?

The biggest threat the FMCG industry faces is too many start-up brands catering to the same niche of well-traveled, Western-sensibility-oriented consumers. Amazon has about 10 million Prime users in India, and they are roughly the same people every brand is catering to. That could be detrimental because there’s only so much you can sell to them.

That is going to be dangerous because India has evolved in a different way — not just the Indian consumer but also distribution. The infrastructure isn’t the same, and there are different complexities.

Another challenge for the FMCG sector is the middle class slowing down. Right now, a booming middle class drives growth. If that goes down for any reason, the FMCG industry will face the heat. To avoid that, they need to start building brands and distribution for the average Indian consumer rather than for just the top-of-the-pyramid Indian consumer.

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About Sharavana Raghavan

Sharavana Raghavan is an FMCG industry expert with more than 18 years of experience working in sales, marketing, strategy, and innovation with big-brand FMCG companies across the world. He is the Founder and Chief Consultant at Vitral Brand Expertise — an FMCG brand growth consultancy. Formerly, he was Assistant Vice President at Godrej Consumer Products and Senior Global Brand Manager at Reckitt.

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This consumer goods industry article is adapted from the GLG Teleconference “Fast-Moving Consumer Goods (FMCG) Sector of India.” If you would like access to this event or would like to speak with consumer goods industry experts like Sharavana Raghavan or any of our approximately 1 million industry experts, contact us.

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List of Questions Asked During the Teleconference:

• Can you provide an overview of the FMCG sector in India? Where does it stand as of 2022, and how much has it grown in the last five years?
• How is the sector segmented across various industries, and what changes in the industrial trends have been witnessed in recent years?
• What does the competitive landscape of the sector look like, and who are the top FMCG players in India?
• What are the growth and revenue drivers of the FMCG sector in India?
• What changes have taken place regarding penetration to rural markets of the country? Is there room for growth and development in these markets?
• How did the pandemic affect the FMCG sector in India, which markets were mostly impacted, and what recuperative strategies were adopted by the major players?
• How has consumer demand shifted from the traditional brick-and-mortar to online modules with the rise of e-commerce in the sector? What, according to you, are the pros and cons of consumer behavior change here?
• What has been the impact of high inflation and rising crude oil and fuel prices on the FMCG sector lately? How have the product and pricing strategies changed as a result of these macroeconomic issues?
• What has been the contribution of technology to the FMCG sector? What advancements can be expected in the coming years that could change the industry dynamics?
• Can you tell me about the evolving consumer market landscape of this industry? How has it changed, and what factors have driven the changes in the market dynamics?
• How would you say the supply-and-demand dynamics have changed with consumers willing to spend on quality products rather than on quantity?
• What growth opportunities do you think lie ahead in the FMCG sector with the increasing consumer spending power and changing lifestyle?
• Can you shed some light on the developments made in marketing and distribution strategies in this sector with respect to changes in media platforms or digital marketing, creation of brand communities, and the acceptance of D2C business models?
• What challenges does the FMCG sector of India face that are hindering its growth? What threats and opportunities do you foresee in the coming years?
• Where do you see the FMCG sector of India heading five years down the line, and what changes in market trends do you foresee?