“The FMCG sector, with its dynamic nature and extensive reach, is uniquely positioned to collaborate with various industries to drive growth and innovation. These cross-industry collaborations can lead to significant advancements in product development, supply chain efficiency, customer engagement, and sustainability,” emphasizes Sanjeev Setia, Supply Chain Expert & Former VP – Supply Chain, Haldiram Snacks, during this interview…
What has been the role of FMCG sector in India’s journey towards a $5 trillion economy?
Sanjeev Setia
The FMCG sector has a ‘burgeoning economic footprint’, which exceeds Rs9.1 trillion and has a pivotal role in driving India’s economic growth and employment generation. The FMCG sector’s resilience and adaptability, coupled with robust government support and digital transformation initiatives, position it favourably to navigate through uncertainties and emerge stronger. The FMCG, being the fourth largest industry, is predicted to grow at a 14.9% CAGR to $220 billion by 2025, up from $167 billion in 2023. The industry employs a total workforce of 3 million, comprising 8.4% of the total factory employment, with women accounting for 13% of this workforce, equivalent to 390,000 individuals, and representing 18% of corporate leadership positions. With a booming economy, rising consumer spending, and technological advancements, the Indian FMCG industry is poised for further expansion. The FMCG sector is expected to clock a sustained growth rate of 7-9% in 2024, supported by government initiatives to stimulate consumption and create job opportunities.
As India strives to achieve a $5 trillion economy, the FMCG sector will play a pivotal role in this journey. The FMCG sector, with its extensive reach and significant contribution to the GDP, is uniquely positioned to drive economic growth.
TOP TWO ENABLERS WOULD BE AS BELOW:
Job Creation and Skill Development: The FMCG industry is one of the largest employers in India, providing direct and indirect employment opportunities across the value chain. From manufacturing to retail, the sector offers numerous jobs, particularly in rural areas. For example, ITC, a major player in the FMCG sector, has created extensive employment opportunities through its e-Choupal initiative, which supports farmers and rural entrepreneurs. This initiative not only enhances agricultural productivity but also fosters rural development and employment.
Rural Market Penetration: The FMCG industry’s deep penetration into rural markets is crucial for inclusive growth. By expanding its reach to rural areas, the industry can boost consumption, enhance living standards, and stimulate local economies. For instance, Hindustan Unilever’s “Project Shakti” empowers rural women by training them to become direct-to-home distributors of HUL products. This initiative not only expands HUL’s rural reach but also promotes entrepreneurship and economic independence among rural women.
Thus, the FMCG sector is integral to India’s journey towards a $5 trillion economy. Through job creation, rural market penetration, local sourcing, supply chain improvements, innovation, and export growth, the FMCG sector can drive significant economic growth and development.
What has been the impact of ‘Make in India’ on the FMCG Sector in India?
The ‘Make in India’ initiative, launched in 2014 by Prime Minister Narendra Modi, has been a transformative force across various sectors in India, including the FMCG industry. This ambitious initiative aims to turn India into a global manufacturing hub and has significantly impacted the FMCG sector.
Boost in Domestic Manufacturing: The ‘Make in India’ initiative has encouraged FMCG companies to enhance their manufacturing capabilities within the country. For example, Hindustan Unilever (HUL), one of the largest FMCG companies in India, has increased its manufacturing footprint, setting up new plants and expanding existing facilities. This not only helps in meeting the rising domestic demand but also positions India as an export hub.
Innovation and Product Development: The initiative has spurred innovation and product development tailored to the Indian market. For instance, Dabur, a leading FMCG company, has developed numerous products that cater specifically to the needs and preferences of Indian consumers, such as Ayurvedic and herbal products. This focus on local innovation has made these products more relatable and attractive to the domestic market.
The ‘Make in India’ initiative has provided a significant impetus to the FMCG sector, fostering domestic manufacturing, job creation, local sourcing, innovation, and foreign investment. By addressing the existing challenges and leveraging the opportunities presented by this initiative, the FMCG industry can play a pivotal role in India’s journey towards becoming a global economic powerhouse.
What’s the crucial role of infrastructure development in the FMCG sector in India?
Infrastructure development, encompassing rail, road, air, and waterways, is pivotal for the growth and efficiency of the FMCG sector in India.
Efficient Supply Chain Management: A robust infrastructure network ensures the efficient movement of goods from manufacturers to consumers. Roads are the backbone of FMCG distribution in India. For instance, HUL relies heavily on an extensive road network to reach over 7 million retail outlets across the country. Efficient road infrastructure reduces transit times, ensures timely deliveries, and lowers transportation costs. To give you an instance, the Golden Quadrilateral highway network, which connects major cities like Delhi, Mumbai, Chennai, and Kolkata, has significantly reduced travel time and improved logistics efficiency for FMCG companies.
Expansion of Market Reach: Improved infrastructure, including rural roads, enables FMCG companies to penetrate deeper into rural markets. This expanded reach is crucial for companies like ITC and Dabur, which have significant portions of their consumer base in rural areas. The Pradhan Mantri Gram Sadak Yojana (PMGSY) has been instrumental in connecting rural areas to urban centers, allowing FMCG companies to distribute products more widely and tap into previously inaccessible markets.
How do you think digitalization is impacting the FMCG sector?
Digital transformation turns out to be a game changer in FMCG space. With the new technological innovations of AI, the gathering, and analysis of data on consumer behavior, history, market trends, customer customer-friendly interfaces have made it easy to set the demands of consumers. Another interesting trend that we are witnessing is the way in which AI is shaping the traditional shopping experience of customers by quickly and accurately analyzing data and revolutionizing the online purchase of products. Technology such as predictive analytics and machine learning capabilities are facilitating companies in continually monitoring the supply chain and taking quick decisions about potential disruptions, thereby augmenting end-to-end visibility and transparency.
What are the opportunities for collaboration between FMCG and other industries to drive growth and innovation?
The FMCG sector, with its dynamic nature and extensive reach, is uniquely positioned to collaborate with various industries to drive growth and innovation. These cross-industry collaborations can lead to significant advancements in product development, supply chain efficiency, customer engagement, and sustainability.
Collaboration with Technology Industry: Leveraging technology for enhanced customer insights, supply chain optimization, and personalized marketing. HUL has partnered with Google to use artificial intelligence and machine learning to understand consumer behavior better. This collaboration helps HUL tailor its marketing strategies and product offerings to meet specific consumer needs, resulting in increased sales and customer satisfaction.
Collaboration with Agriculture Sector : Ensuring a steady supply of high-quality raw materials and promoting sustainable agricultural practices. Nestlé India has collaborated with local farmers through backward Integration, providing Dairy Farmers with training on sustainable farming practices and modern dairy techniques. This partnership ensures a reliable supply of quality milk for Nestlé’s dairy products while supporting the livelihoods of local farmers.
How can e-commerce be a growth driver for FMCG?
E-commerce has revolutionized the FMCG sector in India, driving significant growth through this channel. This transformation is influenced by several factors, including increased internet penetration, smartphone usage, changing consumer behavior, and innovative business models. Companies like Hindustan Unilever and ITC have ramped up their digital presence and invested heavily in e-commerce platforms. Quick Commerce, Zepto, Blinkit, Big Basket, etc., has seen a significant growth in the recent years on the back of convenience and lightning fast deliveries. During the pandemic, HUL launched its own direct-to-consumer platform, The Happy Shop, allowing consumers to purchase products directly online. This digital shift brings logistical challenges and the need for robust digital infrastructure. Companies can overcome these challenges by investing in advanced supply chain technologies, real-time tracking systems, and enhancing their digital marketing strategies to ensure a seamless online shopping experience.
What are the trends Shaping the FMCG sector in India?
The FMCG sector in India is undergoing a remarkable transformation driven by several key trends. Top 3 trends would be:
Health and Wellness Focus: Consumers are increasingly seeking healthier options. Gauging this latent opportunity, Nestlé India has launched a range of health-oriented products like fortified cereals and organic foods. But there are challenges as well because companies must ensure that these products meet stringent health standards and gaining consumer trust. For this, they must invest in rigorous R&D and collaborate with health experts to validate health claims. Transparent communication about the health benefits and ingredients can build consumer trust and loyalty.
Premiumization and Innovation: There’s a growing segment of consumers willing to pay a premium for high-quality and innovative products. Brands like Cadbury have capitalized on this by introducing premium chocolate lines such as Cadbury Silk and Cadbury Dark Milk. However, high competition and price sensitivity among consumers, can deter this growth. To circumvent this, FMCG companies can focus on differentiating their premium products through unique ingredients, superior quality, and compelling marketing campaigns that highlight the exclusive benefits and experiences their products offer.
Local and Regional Brands: Local and regional brands are gaining popularity due to their cultural relevance and perceived authenticity. Brands like Parle and Haldiram Snacks have a strong regional appeal and continue to thrive by offering products that resonate with local tastes. Having said that, competing with well-established multinational brands might pose a challenge. To mitigate this, larger FMCG companies can adopt a more localized approach by tailoring their products to meet regional preferences. Collaborating with local suppliers and brands can also enhance authenticity and market reach.
Thus, the FMCG industry in India is at an exciting crossroads, driven by digital transformation, health and wellness trends, sustainability, premiumization, local appeal, and personalization. While these trends bring challenges, companies that invest in technology, innovation, and sustainable practices will be well-positioned to overcome them and thrive in this dynamic market.
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