2019 will give true picture of rising consumer demand

Priyanka Pani Mumbai | Updated on January 07, 2019 Published on January 07, 2019

Experts feel that while natural products are driving growth across the markets, in the urban market, consumers are upgrading to more premium products in hair and personal care category   -  iStockphoto

The country’s FMCG sector witnessed a healthy double digit growth in 2018 but most companies were unable to gauge whether the volume led growth came in from lower base of 2017 or actual consumer demand. A year ago, the consumer goods market witnessed regulatory challenges due to the introduction of GST and after effects of demonetisation.

While the impact of demonetisation and GST lingered on for a few quarters of calender year 2018, companies witnessed a pick up in consumer demand towards the second half of the year with both modern trade and wholesale normalising. Companies feel that 2019 will be a better year and fair comparison to understand whether the growth in numbers is being aided by strong consumer demand, which is also an healthy indicator of a growing economy.

FMCG companies and experts feel that the demand growth outlook in the near term looks healthy and that the consumer demand will be broad-based, meaning demand will come in from across the categories and across the markets. The rural markets performed well. For example, HUL, the bellwether company of FMCG, saw about 40 per cent of its business coming from rural markets with growing income levels on back of different government schemes. However, the companies have also flagged of risks coming in from rising crude oil and weakening Indian currency against the American dollar.

Anil Talreja, Partner, Deloitte India, said that FMCG sector in 2018 increased by more than 15 per cent on back of a special focus on the rural markets, where the consumption increased dramatically due to the advent of technology and internet coupled with the young profile of the Indian consumer.

In addition, as a result of increased exposure to global lifestyle and newer technologies, consumer perception in India has been shifting in favour of premium consumer durables thus leading to premiumisation of certain product categories, Talreja said adding that with initiatives such as “Make in India”, many manufactures are setting up their manufacturing plants which would produce more affordable products in the near future.

“In 2019 we can expect to see price reductions across various consumer durable product segments due to advancement in technology and heightened competition. FMCG companies will continue to influence consumers with intelligent deals and new products, keeping in mind the changing tastes of the Indian consumer. Another important aspect that would likely gain steam in the coming months is product flanking — introduction of different combinations of products at different prices, to cover as many market segments as possible,” he added.

Experts feel that as awareness levels are growing, there is a demand for better product quality, awareness about different product categories, upgradation in purchase, shift from chemical based products to more natural based products.

Shifting focus

With demand coming from natural products, several MNCs and bigger players such as HUL, P&G, Colgate, Dabur are now shifting their focus to launch herbal-based chemical-free natural products and this segment is likely to dominate the consumer trend in 2019 with a healthy 10-15 per cent growth year on year. HUL has been pushing its brands such as Ayush as a natural category and it has acquired a natural haircare product Indulekha in 2017, which according to the company has started yeilding positive results.

Experts feel that while natural products are driving growth across the markets, in the urban market, consumers are upgrading to more premium products in hair and personal care category.

Homecare with products such as detergents will grow at 15-20 per cent per annum as companies are using the GST benefits to lure consumers into buying more through offers and discounts.

Way forward

According to Nielsen, modern trade and e-commerce has helped bigger FMCG players in expanding their distribution and sales. Consumers are now looking for branded products. The market research firm is also of the view that smaller towns and villages will fuel the growth of FMCG sales in the coming year.

Nielsen said in the last two years, smaller towns with less than a lakh of population contributed about 58 per cent of the sales of FMCG through modern trade stores such as Food Bazaar, Star Bazaar, D-Mart, Reliance Fresh, EasyDay among several smaller regional supermarket players, big organised neighbourhood stores and pharma chains such as Apollo Pharmacy and Medplus.

Herjit Bhalla, Managing Director, Hershey India said, “This has been an exciting year as the FMCG sector has shown a notable growth. It has gone up from $31.6 billion in 2011 to $52.75 billion in 2017-18 and it is anticipated that the momentum will be maintained with a 27.86 percent CAGR growth till 2020. The current economic scenario suggests that urban FMCG sector will have 8 percent of revenue growth in FY19 while the contribution from the rural segment will be higher at 15-16 percent. Another promising development has been the increasing penetration of E-commerce in the FMCG and the retail space, that has broadened the customer base.”

Published on January 07, 2019
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