May 23 | 08 min read
India FMCG Market – 2022 Replay
A nation where FMCG products are sold from malls to makeshift stores or even motorcycles, the India FMCG market is one of the oldest industries that exists in the country. Local stores or Kiranas as they are called, have been carrying out unorganized retail for decades. But Covid altered how FMCG in India operates.
In a country where one can find a grocery store in every 2-mile radius, every shop went completely remote. Shoppers were only allowed on the streets for 4 – 7 hours. FMCG Salesmen didn’t set foot in their territories, but rather started taking orders remotely. Even the neighborhood retailers decided to embrace selling through digital mediums. The consumer on the other hand, went home, literally. Masses of youth left the urban India and travelled home, and then travelled more with the new code of WFH.
Two years zapped by, and right when 2022 began and the world re-opened with General Trade (GT) and Modern Trade (MT) starting to breathe back, another global crisis shook the Earth. Oil, a core ingredient of many FMCG products, faced a global scarcity as Russian troops invaded Ukraine, skyrocketing the prices of oil across all international markets. Soon, Shrinkflation and Price Rise became the strategic armors for FMCG companies in India to stay afloat. Consumers also replied with a bigger cry, with more than 1.5 lakh employees losing their jobs in India. And Covid’s sibling Omicron paid a visit, pushing down demand further below.
In a nutshell, FMCG in India had a challenging year in 2022 with companies going a full circle while starting the year with price-led growth to now bringing the focus back to consumption led growth.
As a result, the India FMCG market witnessed only 7.4+ YoY growth.
Even though global challenges affected prices and food inflation stood extremely high worldwide, India’s agri-economy provided us with some cushion to manage demand resulting in increased supply of essential food items in the local market, like rice & wheat, to manage prices.
Beverages products flew off the shelves in the scorching hot weather across the country, with over half the year’s sales coming in the four months of Summer.
Branded commodity products saw steady demand throughout the year, except in the second quarter of the year, when inflation forced people to postpone purchases.
While inflation did affect prices of many FMCG products like soaps, detergent etc, it led to a drop in size of purchases, and eventually a revision in prices as consumer brands in the Home and personal care space looked to improve consumption.
FMCG brands in the Home Care and Personal Care sector saw demand falling significantly. And with the surging inflation dominating most of 2022, many FMCG companies were forced to tune up prices to match raw material costs. This has been a leading cause for demand spiraling down.
From an economic standpoint, India became the fifth-largest economy and the most populated country in the world, and the country’s Unified Payments Interface (UPI) recorded a 91.11% YoY increase in the total number of transactions (74.83% in terms of value).
Now today in 2023, we stand unmasked (literally), looking at the edge of a resilient Indian FMCG market that has been battling evils like Covid, Inflation and Unemployment, but is yet going strong with the help of innovation and intelligence.
Lets deep dive.
In 2023, FMCG in India is more prepared with a robust, transformed distribution network that is ensuring product availability not matter the adds in order to meet consumer needs.
According to Manish Bandlish, MD of Mother Dairy Fruits & Vegetables Ltd, digitization will be a driving force for growth and development in the FMCG sector in 2023.
A rapid turn towards rural penetration has become evident among other major market players in the FMCG market. The biggest beverage manufacturer Coca-Cola has announced that it’s looking to intensify distribution in rural FMCG market in India through general trade channels. Emami, one of India’s leading product maker also plans to reach the goal of 60,000 tier-3 towns in order to double its rural coverage.
Other leading businesses like Nestle India has also been working towards taking its range of FMCG products to ~1.2 lakh Indian villages by 2023, while TCPL (Tata Consumers Products Ltd) is exploring to increase the number of wholesalers and increase rural market share. Even India’s biggest FMCG company, Dabur is investing in nearly 9000 villages in the second quarter of 2022-23 to boost coverage to over one lakh Indian villages.
By 2025, the FMCG market in India is expected to increase at a CAGR of 14.9% to reach US$ 220 billion by 2025, from US$ 110 billion in 2020.
In the following section, we do an India FMCG sector analysis of 2022, to project how each segment can perform in the coming months of 2023.
The rising heat that led to 23.1% YoY of the Beverages category is expected to soar sales in 2023 too. Additionally, Out-of-Home consumption will grow in full swing, with hybrid work becoming the new normal and the HORECA industry eagerly waiting to gain back the lost traction.
However, with the growing consumerism towards healthy eating and the high penetration of online channels providing marginal discounts and free home delivery, can prove to be a reason for caution for many brands.
General staples such as atta, maida, rice and edible oils have seen a recovery in terms of volume in the first quarter of 2023 which makes us optimistic that this category might grow beyond last year’s 8.9% growth rate. With the prices of commercial gas cylinder coming down significantly, restaurants and shacks are likely to cook more to increase profits and lower costs.
A higher cultivation of wheat, rice and mustard sold at higher market prices, is also likely to place more cash in the hands of farmers, boosting rural spending towards commodities.
To boost and bring back the performance of the Personal Care FMCG sector to green from the -5.0% in 2022, product innovation needs to be at the forefront.
Product innovation is expected to be a crucial part of 2023 strategies for leading market players in this category, as they strive to complete with new and contemporary products catering to more specific consumer needs. To beat the eCommerce scare, rural penetration can prove to be highly beneficial for brands offering pocket-friendly products.
After two years of amplified growth, this category might continue to see lowering demand, like last year’s -8.1% growth. Having spent abundantly on this category since 2020, consumers are now looking for value purchases that can meet their basic daily needs. Techniques such as product bundling can help boost sales, by connecting the consumer’s journey with the products.
New innovative products or packaging that can increase consumer convenience, can help this category grow back demand to an extent.
With the revised GST rate of 0-5% and various government initiatives like Production Linked Incentive Scheme for Food Processing Industry (PLISFPI), Project Shakti, FDI liberalization, etc, the packaged food industry is expected to grow far beyond the 5.1% growth in 2022.
Hybrid work, digital life and chilling outdoors is leaving the youth with no time and interest towards cooking. This is expected to accelerate the consumption of packaged foods. However, with more and more D2C brands entering the arena using the internet, competitive pricing would be a crucial factor in maintaining brand loyalty and market share.
Is India’s sweet tooth losing its power? With a YoY growth of 1.7% is might seem likely so. But a deeper analysis might reveal that consumers are diversifying their palate with more options. From a set of consumers choosing to count the calories they eat, to a large base of consumers looking for variety, the confectionery category is fazed with many new foreign and regional players entering the market.
Additionally, consumers are also curbing spending to match the rising inflation. This makes it difficult for want products like Confectioneries to enter the consumer’s shopping basket. Many consumers are turning to little treats to satisfy their wants.
Source: INDIA BRAND EQUITY FOUNDATION
As the fourth-largest business sector in India, the FMCG industry has surpassed the global market, with a double-digit growth in last two decades, while creating employment for nearly 3 million individuals.
According to CRISIL, India’s FMCG sales are expected to see a 7-9% revenue jump driven by higher prices, while volume growth is expected to negligible at 1-2%.
The Union Budget of 2022-24 by the Indian government is focused on reviving rural demand by boosting disposable income, higher fund allocation to rural infrastructure and farmers, increasing connectivity, promoting more exports and amplifying domestic demand and supply. Funds worth $976 million have been sanctioned as PLI schemes to reduce import costs and increase the cost competitiveness of Made in India products. The government is now allowing 100% FDI in food processing and single-brand retail, while the number stands at 51% for multi-brand retail. This will also help drive growth in 2023 for many FMCG companies in India.
Rural India contributes to over ⅔ of Indian retail and will remain crucial for revival of FMCG sales. Branded products are also seeing increased in demand in the rural heartlands.
Another gradual shift that is becoming visible in the India FMCG market, is the rise of organized trade and the decline of the unorganized sector as consumers become more brand conscious. And in 2023 too, this change will continue to prosper.