Brick-and-Mortar or Click-and-Order? Retail just got hotter!

by Mehak Jaggi

Sep 26 2024 | 03 min read

India’s retail market, the fourth largest globally, was valued at $820-840 billion in 2023. Rising disposable incomes, a growing youth population, and increasing consumer brand awareness fueled this growth. FMCG sales were up 13% year-on-year in August and 8% in July. The June quarter had seen 9% sales growth year-on-year, while the March quarter growth was 7%, reflecting a sequential improvement too. The urban FMCG sales saw an 8% rise year-on-year in August and the semi-urban and rural pockets saw a 16% uptick in the same period showing strength in the rural markets gaining momentum.

According to IBEF, “FMCG sales in the country grew 7-9% by revenue in 2022-23. The key growth drivers for the sector include favourable government initiatives & policies, a growing rural market and youth population, new branded products, and growth of e-commerce platforms.”

India’s retail journey has changed significantly over the past few decades. While traditionally a brick-and-mortar market, the advent of e-commerce revolutionised how Indians shopped. First came e-commerce (Amazon and Flipkart), followed by morning doorstep delivery services. Now, quick commerce (Blinkit, Zepto, Swiggy’s Instamart) has emerged as the urban favourite, widely regarded as a game-changer in consumers’ access to goods.

Thus, the quick commerce sector is projected to grow at a compound annual growth rate (CAGR) of 24.33% between 2024 and 2029, and it is expanding 4-5 times faster than traditional e-commerce in India- making an opportunity for brands to catch more eyeballs. As the market evolves, more channels are likely to emerge, tailored to meet the ever-changing needs of India’s diverse consumer base.

Another emerging growth area is rural. According to CRISIL forecasts, “7-9% revenue growth for the FMCG sector in the current FY25, driven by increased volume and rural demand recovery.” This trend sparked a lively discussion during our recent “Chai with CPG Leaders” event in Mumbai, where industry leaders explored how brands can expand their reach and dive deeper into the market over a roundtable.

A key theme from the discussion was how brands strategically define and target stores based on product categories to either penetrate their existing outlet universe or expand into new ones, all without compromising on quality and coverage. Brands are thinking outside the box to make their products available through infrastructure expansion, allowing them to take bigger risks. For instance, many brands in addition to solidifying their current distribution channels also consider further acquisitions in related brands or diversifying into a new one, as seen in ITC’s acquisition of Yoga Bar’s parent company, Sproutlife Foods, Tata Consumer Products’ acquisition of Capital Foods, VLCC’s acquisition of Ustraa and Doms Industries acquisition of Uniclan Healthcare.

Interestingly, brands are also partnering with other brands to drive innovation, as illustrated by Kellogg’s collaboration with Hershey’s to create a new variant, “Kellogg’s Hershey’s Chocos.” According to Vinay Subramanyam, Kellogg’s Sr. Director of Marketing for South Asia, “As part of the expansion strategy, the brand is constantly in search of new and innovative avenues to get the consumers to engage with food.”

The conversation also touched on the importance of benchmarking categories and identifying where to grow distribution while ensuring they target the right outlets. Brands are increasingly adopting a focused approach to expansion, choosing specific states, regions, or pin codes for growth. Some even collaborate with agencies to analyse key factors such as population, footfall, and consumer preferences, using tools like the nighttime light affluence index, which provides insights into economic activity, human development, regional welfare and poverty estimation.

For brands focused on deepening their market penetration, the offtake generated by the outlet often outweighs the outlet type. As the costs of reachability and bandwidth of manpower rise, some brands have even relocated their headquarters to manage these challenges more effectively.

Growing awareness, easier access and changing lifestyles have been the key growth drivers for the sector. The urban segment (which accounts for a revenue share of around 65%) is the largest contributor to the overall revenue generated by the FMCG sector in India. However, in the last few years, the FMCG market has grown at a faster pace in rural India compared to urban India. Semi-urban and rural segments are growing at a rapid pace and FMCG products account for 50% of the total rural spending. According to Business Standard, “FMCG majors, including HUL, ITC, Dabur, Britannia, Nestle and Emami, in their June’24 quarterly earnings reported ‘green shoots’ from the rural markets.”

The discussion concluded with a focus on the omnichannel approach, emphasising the importance of being present across all relevant channels to reach the target audience. With ongoing disruptions in deep tech, the future holds exciting possibilities for brands to engage consumers through new technologies and channels, reshaping convenience, personalisation, and the overall retail experience in India.

After the roundtable concluded, we moved to network over dinner and cocktails. The event was a great success, sparking authentic discussions that provided valuable insights.

Stay tuned for our next event in a new city! For updates on our upcoming gathering, visit the Chai with CPG Leaders page.

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