The Indian FMCG market stood at US$ 68.38 billion in 2018 and is expected to post a CAGR of 23.15% to reach US$ 103.70 billion by 2021. Favourable demographics and rise in income are likely to boost FMCG sales in the country.
E-commerce is reshaping the retail market globally and in India. E-commerce shopping has grown exponentially on the back of internet and smartphones penetration, with reach to billions of people. While global companies such as Amazon and Alibaba are well known worldwide, the rise of e-commerce is providing growth opportunities to a wide range of companies, from major brick-and-mortar players to small cottage industries. E-commerce has opened up a whole new shopping experience, providing millions of consumers access to a wider product assortment and value opportunities and meeting their increasing demand for convenience. Today, e-commerce sales are rampant across multiple categories such as fashion, electronics and FMCG.
India’s increasing internet penetration and rising digital maturity, along with developing infrastructure, has boosted online transactions. The online FMCG market is estimated to reach US$ 45 billion in 2020 from US$ 20 billion in 2017, backed by growth in online users from 90 million in 2017 to 200 million in 2020E. By 2020, about 40% FMCG consumption is expected to be digitally influenced. About 72% Indian consumers are most likely to shop online locally for premium products. The Indian online grocery market is estimated to exceed sales of about Rs. 22,500 crore (US$ 3.19 billion) in 2020, a 76% jump over the previous year.
FMCG companies and online retail players have been adopting various strategies to attract customers to purchase products online. Offering promotions is one such strategy, wherein companies such as Amazon, Big Basket and Nature’s Basket are planning to invest significantly in the coming months by expanding its grocery and food business, launching more products & categories and forming new partnerships with huge grocery & supermarket chains. Taking cue from other consumer goods sales such as electronics, FMCG companies have also started warming up to the idea of taking the limited period, e-commerce exclusive approach to launch some of their products. FMCG companies are also launching products online before making them available in traditional retail stores, with e-commerce sales recording 56% growth in the first quarter of 2020 and 38% increase in June 2020. For instance, on August 07, 2020, Dabur launched an entire range of ayurvedic baby care only on the e-commerce platform.
While traditional trade was the largest contributor to FMCG sales at 88.5% in the first quarter of 2019, it has shrunk by 2.2% in a period of a year. However, contribution of e-commerce FMCG sales stood at 2.8% of the total FMCG sales and is expected to increase to 5% by the year 2022. The notable factor behind this growth could be the repetitive nature of FMCG orders. While a user may order an electronic gadget once or twice a year, the need for buying grocery products arises at least once a month. The frequent number of these online FMCG orders will help increase the overall amount of e-commerce orders. Additionally, the convenience of doorstep delivery, assured returns in case of damaged products, easy refund options, etc., offered by online grocery platforms are boosting consumer trust, which is fuelling growth of FMCG sales in the Indian e-commerce industry. The e-commerce contribution is higher in metro cities such as Mumbai, Delhi, Bangalore and Chennai; however, other cities are also following suit, with an increase in the adoption of modern trade and e-commerce platforms.
In the wake of the Covid-19 pandemic, Indian FMCG companies have been rearranging their supply chain and logistics. To facilitate last-mile connectivity and overcome distribution challenges, some FMCG majors have tied up with food delivery and hyper-local delivery apps.
Another mode of distribution adopted by the FMCG companies is the ‘direct-to-home’ initiative, wherein consumer goods companies such as ITC, Hindustan Unilever, Mondelez, Procter & Gamble, Colgate and Dabur have partnered with start-ups such as Dunzo, Scootsy and Swiggy by listing brand stores on their portals. FMCG companies have also set up storefronts on hyperlocal delivery platforms and are servicing orders from exclusive brand stores and directly from distribution centres, using delivery partners to get items to the doorstep. Industry experts believe that these measures may help FMCG companies improve their sales marginally and get a better grip on e-commerce as a channel in the long term.
Research by Mintel suggested that online shopping has become more popular during different phases of India’s lockdown. About 41% respondents (aged 35-54) surveyed by Mintel reported increased online shopping vis-a-vis 30% respondents (aged 18-34), suggesting higher adoption among those who were previously averse to buying goods online.
Companies such as Flipkart and Amazon have started listing groceries on their respective marketplaces, followed by the new entrant JioMart by Reliance, which is currently restricted to only Mumbai. In August 2018, Flipkart introduced Supermart—its food and grocery business offering products such as staples, FMCG, dairy products and private labels.
In 2020, Reliance started its online retail platform JioMart, expanding into 200 cities and towns across India. 80% fruits & vegetables sold on JioMart through its retail outlets are sourced directly from farmers. During the same period, Amazon also launched its own project aimed at developing a farm-to-fork model.
Going forward, tie ups with delivery apps and e-commerce sites will help FMCG companies improve sales to an extent and ride on the success of e-commerce as a channel. Similarly, FMCG companies have to adapt to the external environment and variations in consumer demand & behaviour as direct-to-consumer outreach will help FMCG companies become more engaged and productive to sustain business for the long run.