FMCG sector bets big on rural reach, urban spending to get back its mojo in 2021

The FMCG industry, which has been battling with pandemic challenges, is betting big on 2021 to get back to the double digit growth trajectory, banking on strong rural demand and improved urban consumption trends.

The industry, which faced massive supply chain disruptions with the pandemic outbreak, doubled down on strategies to maintain supplies of essential products. At the same time, fast evolving consumer behaviour pushed FMCG and packaged food companies to accelerate new launches dialling up on hygiene, nutrition and immunity-boosting propositions.

Arvind Mediratta, MD & CEO, Metro Cash & Carry India, said, “The supply chain was hit the most during the pandemic and companies across the globe are still trying to streamline the supply chain to normalise operations. The pandemic has been a major disruptor and has changed customer mindset, behaviour, buying pattern and preference, and some with long-term effect. The opportunity now is to cater to customer demand via their preferred channels and hence it is pertinent for businesses to have an omni-channel approach.”

New business strategies

While the humble kirana stores stepped up to the challenge, companies devised new strategies whether it was upping the ante on e-commerce, using technology to strengthen B2B distribution or pivoting to direct-to-consumer models.

FMCG major ITC ensured that within 10 days of the lockdown, its over 180 factories, 85 per cent of the company’s wholesale distributors and associated warehouses as well as agri-sourcing hubs were made fully operational with stringent safety protocols. It also launched over 70 new products in the first half of the year.

“Recognising that the black swan event called for a robust strategic response, ITC put in place a comprehensive three-pronged approach – ‘Survive, Revive and Reimagine to deal with the evolving volatility. ITC responded to the pandemic with agility and resilience, leveraging its enterprise assets such as distributed manufacturing, cutting edge R&D, accelerated digitalisation and efficient distribution infrastructure, among others to deliver essential products and a range of innovative offerings to consumers,” a spokesperson for ITC explained.

E-commerce push

Companies ramped up production capacities for hygiene products and swiftly inked new distribution partnerships to reach consumers directly. With acceleration in adoption of digital platforms for purchase and payments, FMCG companies also witnessed a huge jump in sales through the e-commerce channel.

For leading players, e-commerce channel now contributes about 6-8 per cent to their domestic sales. Ullas Kamath, JMD, Jyothy Labs, expects nearly 5 per cent of the overall sales of the FMCG industry to come from e-commerce channel in 2021 as consumers focus on convenience and value for their money.

As consumers stayed and worked from home demand for packaged food products and staples soared due to increased in-home consumption, which is expected to sustain in 2021.

Mayank Shah, Senior Category Head, Parle Products, said, “Packaged food companies have seen good growth momentum in 2020 due to rising in-home consumption. We expect this growth momentum to continue for the next 1-2 years as consumers are expected to remain apprehensive about eating out due to the dynamic nature of the pandemic and also till a sizeable population in the country gets vaccinated.”

From whipping up Dalgona Coffee to baking their own bread and from making pancakes to sipping on kadha, consumers opted to cook, bake and consume healthier and immunity-boosting products.

Changing consumption patterns

Balki Radhakrishnan, V-P and MD, General Mills – Asia, Middle East and Africa, said the company witnessed strong demand for products like Pillsbury atta and Betty Crocker pancake mixes and strengthened its portfolio with new launches. “There has been a major shift in consumption patterns with younger households discovering there is a kitchen in the house and moving a lot of celebrations from outdoors to at home…With a noticeable increase in the consumer’s consciousness towards the health and nutrition quotient of each product consumed, we have launched our Pillsbury Organic Atta in India,” he added.

However, rural regions bounced back quicker in terms of demand trends compared to urban regions. According to data shared by Nielsen, in the July-September period, rural India recorded a growth of 10.6 per cent in terms of value sales compared to the same period last year.

Pawan Agrawal, Chief Financial Officer, Marico Ltd, said, “During the year, there has been an increase in rural demand, given the government interventions and good crop harvests. Therefore, we believe that companies with a robust rural distribution will emerge stronger in the coming months. Considering this, we continue to drive expansion of direct distribution and deliver value to consumers,”

Cautiously optimistic

Overall, Nielsen estimates suggest that the industry’s annual growth for 2020 will be in the negative single digit (-3 per cent to -1 per cent). But many industry players do not agree with this view and believe that the industry has ended the year on a positive growth trajectory with low single digit growth, making them cautiously optimistic about 2021.

“I am sure FMCG will get back to double-digit growth due to the accelerated rural engine and higher consumption in urban in 2021,” added Kamath.

Mohit Anand, Managing Director, Kellogg South Asia, said, “We do feel encouraged by the signs of recovery from urban markets but believe that one must stay cautiously positive. Consumers have become highly value-conscious, given a real impact on disposable incomes due to the socio-economic impact of the prolonged slowdown. They will continue to be discretionary in their spends going into 2021 and that will mean more inclination towards what they deem essential and the brands that they can truly trust,” he added.

Mediratta said that demand for essentials and food products is now back to almost pre-Covid levels. “The demand in FMCG segment has been high. In fact, our FMCG business has significantly outperformed the overall FMCG Market and we have gained market share in both traditional trade and modern trade. With the festival season, there has been an uptick in demand in several non-food categories, and we have started seeing green shoots in this segment,” he added.

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