How FMCG Brands Can Tap Into the Growing Middle Class & Affluent Consumer Market

Here’s a deep dive into retail consumption trends to study strategies that FMCG brands can use to grow in the Middle Class & Affluent Consumers (MAC) segment, the fastest growing customer segment, poised to account for 40% of all Indian consumption by 2025.

The Indian middle class household today barely resembles the Indian middle class household of 20 years ago. With the world’s largest millennial population entering the Indian workforce and becoming a part of this rising middle class, consumption patterns are changing drastically. Exposure to international brands and shifts in spending habits combined with growing disposable income places the MACs in a unique position to drive India’s FMCG trends. 

To survive this fundamental demographic shift, brands in India need to start adapting and putting in place strategies to appeal to this demographic. What trends is the data showing us?

1) Health Food is the Flavour of the Season.

Research from global market intelligence agency Mintel reveals that nearly half (48%) of consumers in India aim to live a healthier lifestyle. This has not been lost on FMCG companies and measures are being taken to appeal to the health-conscious Indian.

So much so that according to Mintel Global New Products Database (GNPD), “natural” was the second largest claim carried on food launches in India last year. The rising number of organic products being launched can also be seen as a result of companies trying to tap into this segment.

Despite this, there has not been much increase in the variety of healthy foods, especially in the snacks department.  Take for example the biscuits category. The biscuit market in India stood at $3.9 bn in 2016 and is poised to grow to about $7.25 bn by the year 2022 with most of the growth poised to be in the health & premium category.  Yet many traditional companies have not managed to crack this huge gap with most of their sales still coming from namkeen and traditional flavours.

Let’s look at a pie chart below representing consumption data of “new age” biscuit & cookie brands. It is interesting to note that their “health” category sales at 21% has almost caught up with the 22% sales of a more mainstream variant – chocolate cookies.

New Age Biscuit Sales Category Wise

New Age Biscuit Sales Category Wise

Another industry which is undergoing a tectonic shift in terms of category demand is beverages. With middle age consumers growing warier of fizzy drinks, the taste has shifted towards healthier, less sugary drinks.
To verify this we decided to compare carbonated & non-carbonated versions of some popular drinks in Tier-1 & Tier-2 cities.

Sales of Carbonated vs Non Carbonated Drinks in Tier-2 Cities

Sales of Carbonated vs Non Carbonated Drinks in Tier-2 Cities

Sales of Carbonated vs Non Carbonated Drinks in Tier-1 Cities

Sales of Carbonated vs Non Carbonated Drinks in Tier-1 Cities

As can be clearly seen there is a huge difference in the preference of beverages in Tier-1 cities where people prefer the healthier alternative to carbonated drink to that in Tier-2 cities where carbonated drinks still rule the roost.

Health drink consumption in cities

Healthy new-age drinks have seen a tremendous uptick in acceptance with over 140% growth in the category over the last couple of years.An increased focus on “natural” and “organic” drinks aimed at the new age consumer can help balance the drop in other categories.

In the years to come, ‘health products’ will continue to grow as a category and companies would do well to centre their investments and marketing around this.

2) Premium & Aspirational Products are Increasing in Demand

It’s 10 years ago, 5 o’clock in the evening and namkeen biscuits appear with your tea. A familiar scene in any average household. Fast forward 10 years to present day and we have choco-centred cookies crusted with sugar and whatnot.

As the middle-class consumer’s disposable income levels have risen coupled with their desire for premium products, this category has seen an explosion of sorts. While a few companies have managed to really carve out a niche for themselves in this space, traditional Indian FMCG players have not managed to catch on quite as well.

Traditional Biscuit Manufacturer Sales Category Wise

Currently, the biggest share of sales for traditional biscuit brands continues to be namkeen.

Traditional companies would do well to concentrate on expanding footprint in the premium category and introducing newer premium, aspirational products in this space.

3) Strategic Business Tie-ups are Contributing to Greater Sales.

Another highly undervalued space for FMCG players to tap into is strategic business tie-ups with HORECAs, airlines, theatres or any public space with sizeable footfall. The visiting TG here again being middle-class consumers are more likely to spend indiscriminately. In fact, canteens and other tie-ups form roughly about 20% of sales for snacks.

New Age Brand Outlet wise Sale

4) Gift Packs and Combos are Netting up to 12% of Total Sales.

It’s Diwali, you’re watching TV watching YouTube and suddenly a Cadbury’s ad pops up with warm gooey chocolate coaxing you to gift your loved one a special Dairy Milk pack to make their day special. Sounds familiar? Maybe because we’ve all seen this happen at least 3-4 times a year. India is a land of festivals and gifts, and brands like Cadbury understand that and leverage it to increase their sales. But this must be restricted to festivals, right? Wrong

In fact, we were surprised to find out through the data we studied that about 12% of total sales in the snacks division in modern urban snack brands was from combos & gift packs. Lay’s, Cadbury and Ferrero are some of the well-known brands that have leveraged this space well.

New Age Biscuit Sales Category Wise

Other FMCG players need to concentrate more on gift and share packs and grow it to a sizeable percentage of total sales.

Bonus Point: What Can New Age Brands Learn From Traditional Brands?

5. The Rs. 5 Strategy

India is home to 15 million retailers of which 70% are mom-n-pop store or kiranas. Catering to these outlets requires different strategies and importantly different price points. While many new age, pop brands are generally found in supermarkets their share of shelf & sales in kiranas are quite dismal. In many cases, kirana sales account for less than 15% sales compared to other outlet types.

Clearly, a lot can be done on this front. The Rs 5 strategy was famously adopted by Parle Agro by placing Rs 5 packets of their famous drink ‘Frooti’, which resulted in a big spike in sales. Another great example is the Rs. 5 “Chikki” Hector Beverages launched which saw a surprising uptick in mom-n-pop stores.

Clearly, miniature versions or single piece SKUs offered at an attractive price point can help increase outlet reach and compel the average shopper to try out the product who can convert to a return customer.

Actionable Insights
To sum up, here’s what the data says you should be doing to keep your brand in sync with the preferences of 40% of the market:

  1. Look at increasing your range of healthy, natural offerings and increase your marketing spend around these.
  2. Include products that are perceived as premium and international in your portfolio.
  3. Hang out where your customers hang out — at hotels, cinemas, canteens, etc.
  4. Think big — bundle up your most popular products into gift packs and share packs.   
  5. Think small — offer products in small packages and at an attractive price.

And don’t forget to keep your eye on the data to see which of your strategies are bearing fruit. To repeat a cliche, what gets measured gets managed.  
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