NEW DELHI: No matter what happens in the economy, people still need certain household items (soap and toothpaste) on a recurring basis. While demand was steady throughout categories in the pandemic year, except for products like refined oil (due to muted demand from restaurants), ice creams and meat (because of fears of virus contraction), consumption levels were hit mostly due to restriction in movements, labour shortage and logistics-related supply chain disruption. In fact, the year 2020 was tumultuous in terms of changing consumer habits, said makers of fast-moving consumer goods (FMCG) expecting most of the behavioural changes to sustain into the new year.
During the year, Britannia Industries emerged winner as food consumption shifted to in-home, health and hygiene became the top priority for all brands and there was a keener focus on e-commerce than ever before. On the other hand, discretionary categories such as skincare and cosmetics borne the brunt of the Covid-led lockdown as well as the rising propensity to save among households,
At least five key themes— stemming from the extremity— will define FMCG next year, say analysts. “i) In-home food consumption would gradually ease off. ii) Consolidation in health and hygiene in favour of innovators and brands. iii) Aggressive e-commerce with exclusive launches. iv) More multi-usage product launches. v) Rural would outshine urban. FMCG companies that are agile to these trends would turn out to be big winners,” said Abneesh Roy, executive vice-president, research, Edelweiss Securities. Some discretionary categories, may revive faster — for instance, skin care has been rebounding faster than colour cosmetics as both offline and online trade return to normalcy, he added.
Thrust on health, hygiene
“I believe a crisis is an opportunity to work harder, strengthen the business with new capabilities and innovations to emerge stronger,” said Dabur India CEO Mohit Malhotra. The maker of Saffola cooking oil and India’s first branded Chyawanprash expects health and hygiene will continue to be a key consumer need in the post-Covid world. Dabur is planning to offer age-old Ayurvedic remedies in convenient and modern formats which will not only increase its repertoire but provide a better connection with millennials in future, Malhotra added.
The company has rolled out more than 50 products since the outbreak of the pandemic. It further plans to increase its R&D spend and invest more in clinical trials to validate the benefits of Ayurvedic remedies in managing Covid-19.
Dabur isn't alone. Companies such as Hindustan Unilever Ltd, Colgate-Palmolive, Amul, Marico and Parle Products have all dipped their toes into health and hygiene products and is expected to strengthen innovation in the segment to sustain growth or create newer markets even as slowing consumption has dragged the GDP growth.
Meanwhile, ITC Ltd has put in place a comprehensive three-pronged approach – 'Survive, Revive and Reimagine’ to deal with the evolving volatility.
“We are learning from the new normal and we will continue to foster innovation, particularly on reimagining digital transformation and providing impetus to agri value-chains and food processing besides health, nutrition, hygiene,” said an ITC spokesperson. Staples, convenience foods and health & hygiene products, which make up 75 per cent of ITC’s portfolio, turned in strong revenue growth of 25 per cent in the second quarter of FY21 over last year.
The size of the packaged food market in India is estimated to double to $70 billion by 2025.
"This is possible with increasing penetration, increasing proclivity of consumers towards more credible, more transparent, trustworthy and scientifically better modulated brands. The trends towards this consumer behaviour is very much evident today,” according to a Nestle India spokesperson.
Industry watchers also expect complete normalisation of demand for the fourth quarter of FY21 for most categories.
“Going forward, we expect staples demand to remain steady with some moderation in packaged food and hygiene products demand to be offset by better trends in discretionary FMCG categories especially driven by continued tailwinds in rural markets and strong traction in winter portfolio," said Himanshu Nayyar, lead Analyst – Institutional Equities, YES Securities.
Despite the second half of the year doing better than the first, the growth, however, will not be enough to turnaround the sector from a full-year perspective. The industry is expected to contract 1-3 per cent in 2020, noted market researcher Nielsen.
E-commerce first choice for buyers
Many consumer companies are using pure-play e-commerce products or test-marketing products via e-commerce that would be scaled up accordingly. Dabur has launched an Ayurveda baby care range, which will be sold only on e-commerce platforms. The company’s e-commerce business has more than doubled over the previous year with its contribution going up from 1.5 per cent to 5.6 per cent. Similarly, Marico’s e-commerce business grew 37 per cent year-on-year (YoY) in the first quarter of FY21, while Emami saw its e-commerce contribution doubled to grow in excess of 100 per cent. For ITC’s FMCG business, e-commerce grew 90 per cent YoY in Q1FY21, according to Edelweiss.
In 2021, FMCG companies will also be focusing on consumer data and investing in tech tools that enable e-ordering, e-invoicing as well as e-collections via digital payment platforms. Companies like CavinKare and Marico have rolled out tele-servicing and app for retailers to cater to demand-driven supply more than supply side drivers. The new year would see more such retailers placing orders over WhatsApp, mobile or an app.
Rural will outshine
Region-wise, rural India has offered the much-needed beacon of hope. “Over the past one year, we have grown our rural network from 44,000 villages in March 2019 to a little over 52,000 villages in March 2020. We will now take it up to 60,000 villages by the end of 2020-21. Alongside, we are expanding our product basket in the rural market by way of newer affordable packs across categories to feed these markets and push demand growth,” said Malhotra. Besides, the company has parked higher investments in consumer activations in rural India to better reach out to consumers in the hinterland, giving them an opportunity to touch, feel and experience our products.
Among other players, Britannia has over 21,000 rural distributors and is logging rural growth thrice that of urban post-lockdown. Marico is adding bottom-of-the-pyramid products to its value-added hair oil portfolio, which will help the company penetrate rural markets. For Godrej Consumer Products Ltd, rural penetration will continue to be critical. The company aims to expand direct presence to 80,000 villages over the next three years, focusing on sub-5,000 population villages in key states.