According to the India Brand Equity Foundation, the current size of India’s FMCG market (excluding groceries) is estimated to be around $110 billion and is expected to surpass $220 billion by 2025.
By M. Abhishek V. Neheru and Santosh Dabke
As India struggles to overcome the third wave of COVID-19, it is important to introspect the lessons of the last two years (2020 and 2021) that have changed the rules of Indian FMCG distribution in several ways.
First, COVID-19 has taught us to be ready for a world of volatility, uncertainty, complexity and ambiguity (VUCA). COVID-19 was a sudden nasty surprise for most businesses with a physical presence. The second Delta wave and the third Omicron wave kept us guessing the future. Historically, humans are known to adapt best to the environment around them and the transformation they have undergone over the past two years has been phenomenal. Consumers who used to spend so much of their time, energy and money on physical purchases suddenly turned to Aladdin’s new genie. Shopping online. However, this shift in consumer buying behavior has had a very significant impact on the physical world, affecting the economy across all sectors, including the largest and most important of the evolving consumer goods ecosystem. fast (FMCG).
According to the India Brand Equity Foundation, the current size of the Indian FMCG market (excluding groceries) is estimated to be around $110 billion and is expected to surpass $220 billion by 2025. FMCG landscape is divided into 2 main categories: Modern Commerce) and Online (platforms like Amazon, Big Basket, Flipkart, etc.). The Indian FMCG market is the fastest growing market across the world and hence attracts giants to invest spoonfuls of money in hopes of grabbing the lion’s share of the market.
The Offline Traditional model is currently the largest sales channel for FMCG brands. It enjoys a market share of 80 to 85%. The remaining 15 to 10% are in the hands of e-commerce players. This paradigm shift from offline to online has given a big boost to e-commerce players who have grown in popularity over the past two years of the pandemic. This online growth has been spurred mainly for two reasons,
- Convenience of purchase through online portals
- Lockdowns and a work-from-home culture limit the physical presence of consumers in stores.
For the FMCG sector, the next 2-3 years will be very interesting where many FMCG brands are restructuring their new strategy. The new strategy will require a new operating model that will focus on a truly agile approach, relentlessly emphasizing consumer relevance. Most major FMCG brands are already changing their sales, distribution and marketing strategies focusing on the omnichannel model.
FMCG brands have gone back to the drawing board, reshaping their success stories of the last 3-4 decades of physical distribution, challenging the status quo. “What got them here won’t get them there” is the new thought that is emerging very quickly. The story of the New Age D2C brands is a bit different because they don’t have a complete distribution model. Most New Age D2C brands have developed excellent product innovation, enlisting themselves on e-commerce platforms directly targeting end consumers. However, this online market is still very small and if these brands are to grow rapidly, they will have to compete with the big dads of offline distribution. Most D2C brands have very limited offline distribution and therefore struggle to capture a significant market share in the offline space. Additionally, a large number of global brands are also waiting to enter India but are concerned about the fragmented distribution and challenges in managing supply chain logistics in the country.
The traditional offline authorized distribution channel in India is the largest and most important channel since independence. These distributors have been working with brands for over 2-3 decades and have grown loyally with the brands, enjoying their journey of growth. India has over 4 lakh traditional distributors working tirelessly and meeting brand SLAs. These traditional distributors are the mainstays of the offline business in the country, contributing over 75% of volumes for different brands. These warriors have been consistent in their aim and have constantly waged price battles with modern commerce, and now with giant e-commerce players.
COVID-19 has been a big drag on these traditional distributors. This has made these warriors very vulnerable to drastic changes in consumer behavior. First, consumer expectations have undergone a sea change over the past two years. Previously offline shopping was time consuming and the process took longer from order to delivery. This was followed by the Next Day Delivery or NDD model, which became the Same Day Delivery or SDD model by Flipkart and Amazon. Today, Quick Commerce 10-minute delivery is the new reality that was impossible to imagine a few years ago. A number of new era players are all tasked with the firepower required in terms of money, resources, infrastructure and technology to take the customer experience to new heights.
Therefore, it is now imperative that traditional offline channels evolve, innovate and match consumer expectations as they say; “The consumer is king”. Consumers (retailers for B2B) today have several distribution options to choose the best for themselves. Competition is increasing hourly as new ways of serving consumers are innovated.
The next decade will be the era of digital distribution where a number of new players will join this bandwagon disrupting traditional distribution models including supply chain, data analytics, flexible deliveries, retail stores dark, etc. to create meaningful and profitable businesses. These new era gamers have already set high standards on all client settings, taking gaming to the next level.
The next 2-3 years will be a game changer resetting the offline distribution models for FMCG brands by digitizing the entire ecosystem.
(This article is co-authored by Abhishek & Santosh – Founders of RIPPLR)
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