It's a challenge to sustain growth of Indian FMCG market

By: Shreelekha Choudhary

In July-September quarter 2007, the Indian fast moving consumer goods (FMCG) market witnessed strong growth yet again, growing at 17% over the same period last year (SPLY). The urban markets continued to be the growth drivers for the FMCG sector, growing at around 19% over SPLY.

Almost all the categories in the FMCG space grew, albeit, at different rates –– 21 of the 90 FMCG categories exhibited remarkable growth of around 25%. For marketers, to grow further or even to continue the current pace of growth is indeed a challenge. What is important for any marketer at this stage is to know the current standing of their categories. Only then will they be able to strategise for the future growth.

Given the huge potential offered by the fast-growing Indian economy, this is not a difficult task. Many were able to sustain growth for a long time because they were comfortably ensconced in high-growth categories.

However, once those categories slowed down, the same businesses could no longer deliver the performance they had formerly delivered. This draws attention to the fact that depending on the existing market conditions, categories should establish their unique growth path until they reach maturity.

To extend the boundaries of their core businesses, companies need to adopt growth strategies that augment:

• Product availability––by spearheading category penetration and acceptance across town classes

• The net of consumers as well as the per capita consumption –– by educating consumers about category benefits, value packs, emphasising on fresh consumption occasions et al.

Penetration and Growth: Before any category specific growth strategy can be visualised, it is imperative to chart the categories with respect to their growth rates and current penetration levels in India .We at Nielsen undertook this category stratification exercise (low, medium, high) for 81 categories that contribute 97% to the Indian FMCG market.

According to their differentiated level of penetration, we got some interesting common characteristics on the type of categories (on penetration):

A) Emerging: Around 26% of FMCG contribution comes from categories with a low penetration. These categories have a high metro skew and are in the consumers’ trial and acceptance realm. They can be grouped as categories that are:

a Pursuing a New Concept: Breakfast cereals and diapers. In these categories consumer acceptance is likely to take time and will grow with changing consumer habits and increasing incomes.

b Facing Intrinsic Constraints: Substitution for instance –– fruit drinks and juices are substituting squashes and soft-drink concentrates.

c Facing External Constraints: In either infrastructure (transport and storage of chocolates) or legislation (baby foods cannot be advertised).

B) Bounded: Around 14% of FMCG contribution comes from categories with a medium penetration. These categories are spread across metros and lower urban town classes and can be grouped as being in:

a Transition phase: Namkeens and hair dyes are categories moving from niche to mass consumption.

b Facing Intrinsic Constraints: Substitution of talcum powder by deodorants; few consumption occasions of medicated dressing & antiseptic liquids; specific users only for digestives or medicated dressing.

C) Established: Around 56% of FMCG contribution comes from categories with a high penetration. They have reached the bottom of the consumer pyramid (rural). Despite garnering large turnovers, they are still able to generate a medium level of growth.

a Mass Consumption: Biscuits, toothpastes, shampoos

It is obvious that some categories would take an immense amount of investment to move to a more profitable business frame while others could generate more immediate returns. The question is now in which categories should the marketer plough in its’ limited resources to attain the fastest possible market growth?

The Optimum Category Destination: Although the ideal state for any category is the one that combines high growth with high distribution, no category in India has achieved this stratosphere thus far. Nevertheless, quite a few categories have reached the medium growth and high penetration, which could probably be seen as the optimum category destination.
We at Nielsen have classified the categories in the high growth potential along three platforms –– based on the potential and the time they would take to reach the optimum achievable category frame.

Convenience: Categories with highest potential to reach the optimum achievable frame in the shortest possible time as there is an existing consumer base. Marketers need to upgrade consumers from unbranded to branded products. Examples could be packaged grocery (commodity to branding), household cleaning products, feminine hygiene, diapers, noodles, namkeens.

Lifestyle: Nascent categories whose consumption is likely to increase over time as net disposable incomes increase and consumer habits evolve –– breakfast cereals, cheese, lipsticks, nail enamel, hair remover.

Health/ Hygiene: Categories used either as a habit or as a remedy. Need to be promoted heavily for regular consumption –– chyavanprash, acne preparations, digestives.

In a nutshell, marketers could follow a select growth path for each –– focusing either on growth-accelerating measures in a specific geography or improving penetration or a medley thereof. But it is for sure that the best of breed companies will excel by tailoring their immediate growth strategy to align with the changing economic circumstances, attitudes and aspirations of the widespread yet dynamic Indian consumer!

(The author is Senior Manager, Client Solutions, The Nielsen Company)