WORKING UP A SIX-PACK - Six ways to muscle up for the changing Indian consumer landscape
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WORKING UP
A SIX-PACK
Six ways to muscle up for the changing Indian consumer landscape
An OC&C Insight Working up a six-pack 01
Growth in the branded FMCG market in India appears to be picking up in 2017 after a couple of less
robust years -- and the longer-term outlook for the market is solid. But competition is intensifying. How
can manufacturers make the most of the opportunities that lie ahead? We propose six `mantras' for
growth that can help FMCG manufacturers capture their share of market growth -- and more.
After a string of strong years around the turn of the decade, when growth was at about 20%, the
Indian branded FMCG market has had to take a step back in recent years as the economy weakened,
inflation rose and monsoon rains faltered. Industry growth slowed to 7% in 2014, before rising to
10% in 2015.
2016 was a year of further recovery and 2017 has started on a very strong footing. Consumer
spending is rising, owing to good monsoons recently, enabling farmers to bring in bumper harvests.
Public sector wages have risen sharply, pumping an additional USD 15 billion into the hands of
consumers. Moreover, the long pending Goods and Services Tax bill was passed in 2016 bringing
clarity and uniformity to taxation.
In view of all these factors combined, the market looks set for increased growth in 2017, adding
short-term opportunities to a fundamentally strong longer-term outlook. Real average household
incomes are expected to grow by 70% by 2025 and urbanisation is expected to increase to 35%. Due
to declining average household sizes, 10 million households will be added by 2020. And 95 million
more people will be added to the work force by 2020.
At the same time, new players have entered the market and competition is intensifying. Consumer
preferences are also evolving. How can consumer product manufacturers build adequate `muscle' to
take on this fast-changing landscape?
We suggest six ways to do this.
1
Find a natural
4
Cast a wider
way to grow brand net
2
Capitalise on
premiumisation 5
Deliver value
through innovation
3
Ride the health and
nutrition megatrends
6
Unlock value through
digitalisation
02 An OC&C Insight Working up a six-pack1
FIND A NATURAL WAY TO GROW
French cosmetics giant As in other markets across the world, Indian domestic players that are focused on natural
L`Or�al has rolled out Ayurvedic consumers, too, are increasingly showing products, such as Dabur and Himalaya,
shampoo, conditioner, oil and a preference for environmentally sound have also grown strongly in an otherwise
cream under its Garnier Ultra
Blends brand. Marico, Dabur
products. When it comes to personal care slow market. Sales of natural products are
and Emami are all products, several studies indicate that growing twice as fast as those of synthetic
building a `natural' product specs such as `Natural', `Organic' or ones.
portfolio. `Free from harsh chemicals' are emerging as
Consequently, multinationals rooted outside
key purchase drivers.
India and Indian FMCG manufacturers
Also, beauty products inspired by India's alike have stepped up their efforts to
age-old `Ayurveda' alternative herbal bring natural products into their portfolio,
medicine practices seem to resonate employing both internal growth and
Hindustan Unilever (HUL)
and Emami have acquired
well with the cultural identity of a large acquisitions. This trend is not only likely to
hair oil brands Indulekha proportion of the Indian population and persist, but can be expected to be driven
and Kesh King, respectively, are increasingly being perceived as `pure' further by the `millennial' generation among
to speed up their `natural' compared with their synthetic peers. Indian consumers. As they become savvier
strategy. about `green' choices, India is likely to see
HUL will launch around The success of Patanjali, an Indian FMCG
20 products - from toothpaste an accelerated shift in preferences in favour
company co-founded by renowned yoga
and skin cream to soaps and of natural products. For manufacturers,
shampoos - under its existing guru, Baba Ramdev, is the biggest testimony
having a solid `natural' strategy is therefore
`Ayush' Ayurveda brand. to this trend. The company has used its
imperative in these changing times in the
natural and `swadeshi' (i.e. native Indian)
Indian FMCG landscape.
positioning to build up annual revenue of
US$ 800 million in less than a decade. Other
2
CAPITALISE ON PREMIUMISATION
Economic growth and the creation of a Industry (CII), some 22 million households
wealthy, urban class of consumers has will be added to the `elite' and `affluent'
boosted demand for products that are categories (annual income over US$ 15,000)
perceived to be superior in quality and in the Indian consumer market by 2025 -
providing greater value than what has raising average household income in India
traditionally been on offer in the Indian by a factor of 1.7. This will significantly drive
mass market. Companies that have invested demand for `premiumised' products.
in building premium products in their
For marketers, the challenge will clearly
portfolio are now benefiting handsomely
be to identify which product segments will
from these efforts.
appeal in particular to aspiring and affluent
India's demographic trends are expected to consumers, and build convincing value
amplify this trend in the future. According propositions in these areas.
to a report by the Confederation of Indian
Double-digit growth in Saffron and cardamom variants from
premium detergents health supplement supplier Zandu A focus on premium
(Surf Excel) is driving (herbal OTC products company) sell products has helped
volume growth in the for twice the price of regular variants Britannia outpace
home care segment and are in demand even in the biscuit industry
for HUL semi-urban and rural areas as a whole
An OC&C Insight Working up a six-pack 033
RIDE THE HEALTH & NUTRITION MEGA TREND
Specifically in food and beverages, at about US$ 1.6 billion and growing by
consumer spending on health-related 10-12% a year (compound annual growth).
products is expected to increase three to
Milk food drinks and fortified products (i.e.
fourfold, respectively, due to the significant
products with added vitamins or nutrients) are
increase in India's prosperous middle and
the leading growth categories in the food and
upper classes.
beverage segment, accounting for 60-70%
A growing incidence of lifestyle-induced of the market. Green tea, oats and breakfast
disease - such as diabetes and obesity - cereals are other fast-growing categories.
has strengthened consumer awareness in
FMCG firms are creating portfolios of `health
India about the ingredients that go into the
plus' offerings (health plus convenience,
products they buy. There is an increasing
health plus fitness, health plus disease
preference for packaged health and
prevention, etc).
wellness foods - a segment currently valued
Contain less sugar,
cholesterol, fats,
etc.
Are made with natural Are dairy-based
ingredients (no artificial with health
preservatives) benefits
Are baked instead Minimise
of deep-fried cholesterol or
other ailments
Are fortified with
FMCG FIRMS ARE Nestl�'s A+ range of products caters to the
vitamins and nutrients
250 ml - in order to help consumers limit
CREATING PORTFOLIOS `indulgence plus health' category. Britannia's their calorie intake.
OF `HEALTH PLUS' `Nutrichoice' brand of low-fat, low-sugar
cookies was first launched in 2007 and
While there is increased consumer
OFFERINGS today has several offerings in this space.
awareness about what goes into food
and beverage products, convenience is
Companies are also introducing innovations also foremost in the mind of the Indian
such as adjusted packet sizes in order to consumer. As a result, healthier products
restrict consumption and thus address which require no marked change in
the health concerns of their discerning consumption patterns are becoming more
customers. For example, manufacturers of and more popular in India. Multigrain flour,
packaged food are limiting portion sizes to healthy biscuits and healthy dairy products
reduce the number of calories they serve are increasingly in demand. Emerging
to increasingly health-conscious Indian products such as snack bars and specialised
consumers. nutrition bars are awaiting category
development efforts by incumbents or the
Hindustan Unilever is aiming to limit at least
entry of new players. Nutritional foods
80% of its packaged ice-creams to 250
clearly represent a rapidly growing segment
calories per portion. And Pepsico India is
that is high on the radar for many FMCG
now planning to launch an SKU of 150 ml -
companies looking for opportunities for
well below its traditionally smallest size of
further growth.
04 An OC&C Insight Working up a six-pack4
CAST A WIDER BRAND NET
While premiumisation within branded growth between 8 and 35% in the year
products will continue, another dimension ended March 2016. Meanwhile, international
of growth will come from consumers who food majors such as GSK Consumer, PepsiCo
move from unbranded to branded products. (food division) and Mondelez struggled to
The unbranded FMCG segment in India is grow their Indian business. It is noteworthy
worth a massive US$ 115 billion (66% of that the impressive growth numbers
the total market ). Even the conversion of a of those five home-grown Indian FMCG
small percentage of this towards branded manufacturers did not come from a very
products would translate into a significant small base either: those five companies
opportunity. For FMCG manufacturers, have combined sales of nearly US$ 570
there are two routes towards tapping this million - more than the size of Nestl�'s
opportunity. Maggi in India (Maggi accounts for ~25% of
Nestle's total sales in India). Some of these
Tapping unbranded categories
Indian companies are larger than Kellogg's
Certain categories, such as packaged in India. This growth of local players can
snacks, are dominated by small and local be attributed to lower price points, better
firms which sell their products, either loose distribution and conversion from the
or packed but without any known brand unbranded market.
name. But Indian consumers are becoming
Tapping markets where national brands
increasingly brand-minded, and this creates
have yet to break through
an opportunity to target the market with
new offerings. The growth achieved by India's `tier 3' and `tier 4' towns are
domestic players in the traditional snacks witnessing growing consumer purchasing
segment serves as a poignant illustration power and increasing awareness of brands
of this trend. These players have graduated and are therefore becoming attractive,
from the unbranded space and created a high-potential targets for FMCG companies.
strong brand name for themselves in the
Many of these markets are mostly served by
packaged food space. Haldiram, a major
local brands, and there is an opportunity to
sweets and snacks manufacturer based
consolidate this demand. Ghari Detergents is
in Nagpur (Maharashtra state), earned
one such example of a local brand growing
revenues of more than US$ 600 million in
into a national player. With the right product
2016 - twice the size of HUL's packaged food
and marketing strategy, manufacturers of
division. Local snacks manufacturers such as
branded FMCG products can create several
Balaji Wafers, Prataap Snacks, Bikanervala,
`Ghari's' within their portfolio.
Bikaji Foods and DFM Foods recorded sales
CONVENIENCE-INCREASING PACKAGING
INNOVATIONS TO EXISTING PRODUCTS 5
DELIVER VALUE THROUGH INNOVATION
Efficacy-enhancing innovation is an such as liquid body wash, liquid detergents,
225 ml pouches are a great
tool to upgrade consumers
Godrej launched a multi-use
facewash sachet as opposed to
effective clutter-breaker in the crowded etc. which are popular globally but have
from dishwashing bars to the regular tube Indian FMCG landscape. Companies are yet to get a foothold in the Indian market.
dishwashing liquids (easy on
hands and easy to use)
increasingly `renovating' products to create India's growing numbers of consumers
a competitive edge. Encouraging consumers with increased discretionary purchasing
to use the same product on more and power are willing to try out new things. The
CONVENIENCE-INCREASING PRODUCT different occasions is one such innovation. time is ripe for innovation that can induce
INNOVATIONS TO EXISTING PRODUCTS In this way, FMCG manufacturers save on consumers to start using such convenience
the investments required to build a new products. Understanding consumer pain
brand. points or evolving needs will be the key to
delivering value through innovation.
Another example of innovation is to provide
convenience. There are several categories,
Horlicks is now `instant' in both The new Amul packaging for
hot and cold milk, increasing desserts has a longer shelf life
usage occasions of up to a year
An OC&C Insight Working up a six-pack 056
UNLOCK VALUE THROUGH DIGITISATION
According to a recent report by the The digital megatrend has major
Confederation of Indian Industry (CII), 150- implications for FMCG companies and they
190 million Indian consumers - i.e. nearly can augment their organisation's digital
one-fifth of the Indian population - will have capabilities in several ways.
access to online channels by 2020.
COMPANIES ARE CONSUMER MEGA TRENDS IMPLICATIONS FOR FMCG
ALSO INVESTING IN UBIQUITY OF ONLINE FMCG players need Dollar ShaveClub rapidly built
DIGITISATION OF THEIR to adapt to be part of
consumers' new worlds
a prominent position in the
market, attracting some two
CORE OPERATIONS million members in three
years' time on the back of a
launch video viewed more
than 20 million times, forcing
Gillette to increase its online
presence
MOBILE LIFE Marketing is closer Lakm� launched Lakm�
to the consumer and Makeup Pro, India's first real-
FMCG players must time make-up app, which was
reach consumers `on downloaded 8,000 times in
the go' the first five days.
E-COMMERCE Direct access to After creating the position
consumers and new of Chief Digital Officer
operating models (2014 ), L'Or�al has gone
provide both risks and digital both commercially
opportunities and organisationally (now
employing over a thousand
digital specialists).
SOCIAL Effective social media Dove experienced massive
INTER-ACTION management is criticism in social media when
required, especially to they refused to remove some
manage the `wisdom of Facebook ads and then failed
crowds' to respond adequately to the
criticism .
Building e-commerce channels: FMCG Digitising operations: Companies are
companies are working on various models also investing in digitisation of their core
involving e-commerce to reach the remote operations. The intention behind this
corners of the country. Dabur (Diversified varies from decreasing costs to improving
FMCG company) has joined hands with consumers' purchasing experiences.
online marketplace Snapdeal to set up an
Many companies - also those in
e-store called LiveVEDA for its range of
FMCG - have managed to reduce
Ayurvedic products.
costs over the years by capturing the
Digital marketing: Companies are opportunities created by the emergence
building digital-savvy marketing teams and of e-auctioning platforms since the early
exploring how best to tap their markets 2000s. The Indian FMCG major ITC, for
``DIGITAL IS REALLY PART through digital channels. Around the example, saves 3% in procurement
OF EVERYTHING WE DO world, companies across the full range of
industries are attracting the staff they need
costs via their e-choupal initiative (direct
linkage with rural farmers for sourcing
AND HAS BEEN ADOPTED to build a `Digital Organisation' using internet)
BY ALL THE `TRADITIONAL L'Or�al now has 1,000+ employees who
are considered `digital experts' - a five-
Johnson & Johnson is actively using
digital channels to connect with channel
TEAMS'. '' fold increase over the past five years partners - the company engages with
Digital Acceleration Director, some 600,000 retailers to educate them
Pernod Ricard appointed a `Digital
about its products and monitors them
Pernod Ricard Acceleration Director' in 2014
with the support of a mobile app
Pernod Ricard started an employee
Supply chain processes are being
exchange programme with Google to get
streamlined using digital tools - Dabur
its internet marketing initiatives going
has online tools for order submission,
and scale up the company's digital skills.
claim submissions, etc.).
06 An OC&C Insight Working up a six-packFMCG GIANTS GLOBALLY ARE LEVERAGING THESE
THEMES TO FIND GROWTH IN SLOW MARKETS
INITIATIVES IMPACT
Dollar Shave Club's online monthly I n the fast-growing online razor
subscription offers a significant discount market, Dollar Shave Club has a
to Gillette. Great example of digitally >50% market share, vs Gillette's 20%.
delivered `Innovation'.
Leveraged an authentic premium brand 20x more cost effectively than Uncle
and delivered superior product high on Bens.
nutrition - Built Brand equity
anufactures fresh convenient food
M C onsistent double-digit growth in a
(prepared salads, prepared fruit, etc.) stagnant market.
Knorr has managed to evolve its Instant This concept has taken off, delivering
Mash Potato into a convenience meal by great results for the brand.
fundamentally redesigning its packaging
TAPPING THE SIX MANTRAS FOR GROWTH
So how does one operationalise these mantras for growth? The first step is to recognise the relative importance of each to your product
categories. Beyond that, here are five initiatives which will enable companies to tap the six mantras for growth:
Improve the segmentation Create an innovation Acquire
Recognise gaps in the portfolio and
of your target group. atmosphere geographies and acquire other companies
Look for unconventional dimensions to Adopt the incubator model within the firm, to gain access where internal development
identify segments that you can target using and encourage the internal team to develop may be too slow.
one or more of the mantras. This will also new ideas into a business stage.
require clear understanding of consumer
behaviour and preferences.
Digital transformation Think medium term
Make serious work of the digital Look further ahead and adopt at least a
transformation and inculcate the digital three-year time frame in allocating staff and
behaviour throughout the company, as this money.
is not just about marketing via social media.
An OC&C Insight Working up a six-pack 077Offices www.occstrategy.com
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+91 22 4946 6600
Naimish Dave, Partner
+91 80 6771 0709
OC&C Strategy Consultants 2017.
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