Recently, in a surprising turn, FMCG stocks saw an uptick even as the broader market faced a downturn.
What are the characteristics of FMCGs?
FMCG – They are Fast-moving consumer goods whichrefers to products sold quickly at a low costs and are typically non-durable.
It includes items such as packaged food, beverages, toiletries, over-the-counter drugs, and other consumables.
High demand- FMCG products are in constant demand due to their essential nature in daily life.
Low profit margins- While individual profit margins are low, the high volume of sales makes up for it.
Short shelf life- Many FMCG items are perishable or have a short shelf life, necessitating quick turnover.
High turnover rate- FMCG products are sold and replaced frequently.
Status of FMCG Sector in India
It is the fourth-largest sector in the Indian economy, valued at $200 billion
Employment – It provides employment to around 3 million people and accounts for approximately 5% of total factory employment in India.
Recent trends – Its sales growth (2022-23), grew 7-9% by revenues with 65% sale in urban areas.
Packaged food market growth is expected to grow twofold to US$ 70 billion in the next few years
Measures taken – India have allowed 100% foreign equity in single-brand retail and 51% in multi-brand retail sectors
Union government aims to offer USD 1.42 billion investment through Production-Linked Incentive (PLI) scheme.
How FMCGs are marketed?
E-Commerce- It enables the consumers to purchase FMCG products online, enjoying the convenience of home delivery and often better pricing.
They have expanded the reach of FMCG products, making them more accessible to a broader audience.
For example: Amazon, Flipkart, and others
Q-Commerce- Quick-commerce refers to ultra-fast delivery services, typically within 10-30 minutes.
It focuses on small, high-demand FMCG products like groceries, snacks, and daily essentials.
For example: Zepto, Swiggy Instamart, Blinkit among others
Dark stores- These are small warehouses located strategically within cities to facilitate faster delivery for Q-commerce and e-commerce platforms.
They are not open to walk-in customers but serve as hubs for quick order fulfillment.
Phygital retail- A blend of physical and digital retail experiences, where consumers can shop seamlessly across both channels.
For example, a customer might try a product in a store but order it online for home delivery.
What are its significances?
Economic contribution- The sector is valued at USD 200 billion, reflecting its importance in the economic landscape.
Job creation-They employ millions directly and indirectly, from manufacturing to distribution, contributing significantly to employment across urban and rural areas.
Daily essentials- They are essential for daily living, including food, beverages, personal care, and household products.
Widespread distribution- They have developed extensive distribution networks, reaching even the most remote parts of India.
Adopts to consumer trends- They are key player in adapting to changing consumer behaviors and preferences, such as the shift towards healthier, eco-friendly, and premium products.
Resilience- It is relatively resilient to economic downturns as demand for essential goods remains stable, providing a buffer to the economy during difficult times.
Rural economy- They play a crucial role in the rural economy by providing goods, creating jobs, and stimulating demand, contributing to rural development.
What are their challenges?
Topline growth- The growth of revenue (topline) for FMCG companies is stagnant.
Price pressure- Consumers are challenging premium pricing, and companies are facing pressure on profit margins.
Business model adaptation- Large FMCG companies are adapting their models to trends, while smaller companies are confused or waiting for market conditions to improve.
Shift in consumer preferences - Consumers are increasingly favoring small, niche brands that are perceived as more holistic, green, and healthier.
Thus, small brands are challenging established FMCG giants.
New market entrants- They are asset-light, leveraging outsourced manufacturing and packaging, and relying on digital distribution channels, reducing costs and increasing flexibility.
Logistics challenges- Disruptions in logistics due to pandemics, geopolitical issues, or natural disasters significantly impact the availability of products and the overall business.
Environmental concerns- There is growing pressure on FMCG companies to adopt sustainable practices, reduce plastic usage, and minimize their carbon footprint.
What lies ahead?
Offer products across the economic spectrum, catering to all classes from poor to super-rich.
Offer morehealth-conscious products, organic goods, and clean-label offerings as consumers started shifting focus on healthier lifestyle.
Adopt a portfolio approach, offering products that cater to various segments, from value-for-money to premium and ultra-premium.
Shift towards localized production and sourcing, especially for essential goods.
Use technologies such as AI and IoT to optimize supply chain efficiency, predict demand, and manage inventory more effectively.
Demonstrate ethical practices, including fair labor practices, responsible sourcing, and contributions to social causes, to maintain consumer trust and brand loyalty.
Adopt circular economy models, focusing on reducing waste, recycling, and reusing materials in their production processes.
