The Optimistic Voice Despite Inflation
The FMCG industry is one of the world's most competitive and dynamic industries today. Some brands have been around for decades, while new startups pop up every now and then. The market is full of opportunities, but to take advantage of them, one must constantly have their finger on the pulse. Increasing opportunities have been accompanied by inflation, creating a gloomy situation.
Due to the Russia-Ukraine War, which has disrupted supply chains and the increasing prices of crude oil and raw materials, manufacturers have to deal with the rising cost of goods. It's often challenging to maintain volume and competitiveness and also gain a profit when prices are soaring.
Angshu Mallick, CEO, Adani Wilmar, said, "The inflationary trend has impacted the consumption of edible oils and other food products across different segments, including the packaged segment. The industry has seen degrowth to some extent across product categories. However, going into the second quarter of the year with a reduction in the price of edible oil and other products, we are seeing the demand momentum pickup."
Keeping the optimism, Sunil Agarwal, Chairman of RSH Global, commented, "As far as the overall volume is concerned, there is no reduction, and the volumes are not going down. Although inflation is at an all-time high, it's been constant for eight to nine months. Furthermore, the price of raw materials for our industry has soared because of the strengthening dollar and the cost of mineral oil.
Market Stability amid Inflation
According to Technopak, a management consulting services company, the adoption of the Direct to Consumer (D2C) business model has increased by 20 per cent in the last two years due to customer demand during the pandemic, and it will likely increase by another 15-20 per cent in the next five years.
The India Brand Equity Foundation (IBEF) report states that the growth strategy to sustain in the market is to introduce new products into the market. Talking about the latest launches, Mallick said that they have recently launched Fortune Poha and received a great response from the consumers as they were able to relate to the brand that has offered quality products over the years.
Adani Wilmar has also introduced Fortune Online, a mobile app, and Fortune Mart, a physical store in various cities where people can find an entire range of our products under one roof.
There is always a dilemma faced by FMCG brands while balancing the profit margin and volume. Experts threw light on this topic and said that the call has to be taken according to the market conditions.
RSH Global, which includes brands like Joy, X-Men, and Karis Naturals, will focus on increasing the market share and volumes instead of the bottom lines.
When questioned about how FMCG brands can survive this inflationary period on a long-term basis, Agrawal said, "Brands should remain sustainable. One has to be future-ready and not be stuck in a time zone."
He further advised that the brands should look at the consumer trend and explore it more. They will never be out of business if they aspire to satisfy the consumer.
Change in Consumer Behaviour
Inflation has put a strain on customers' wallets, which has led to changing consumer behaviour. According to experts, consumers are opting for small pack sizes or going for something more reasonable.
They opt for packaged products over loose items in the food staple category and are heading towards the trusted brands with a considerable market presence.
"In the ocean of products, the customers have a lot of variety to select from. They are exploring more products. Before the pandemic, they were hooked to only the brand they were using. Consumers are following the trend. There is a shift from 'needs to wants'; consumers want them instead of needing them," said Agarwal.
In response to a question about the customer choosing cheaper alternatives, Mallick responded, "As we move towards formalisation in India's FMCG sector, the market is expected to open up further, creating a huge growth potential for India's organised retail market. We believe consumers will not mind paying a little extra because the delta has reduced significantly between branded and pre-packaged items. This will enable organised players to safeguard consumers' interests by being able to offer high-quality products.
With the festive season around the corner and prices stabilising, the company Adani Wilmar expects consumer behaviour not to waver.
Future Looks Good
As per the IBEF report, FMCG is the fourth largest sector contributing to the economy.
The industry was valued at USD 110 billion despite the pandemic outbreak in 2020. The market share is expected to double to USD 220 billion.
In the FMCG sector, household and personal care are leading the market with a 50 per cent share, followed by healthcare at 31 per cent and food and beverages at 19 per cent.
The experts are optimistic that they have started witnessing positive consumer sentiment. These signs indicate that the industry will see strong growth in consumption in the second half of this year.
The FMCG sector is forecast to grow revenues by 10–12 per cent in FY22, double from 5–6 per cent in FY21. The report said that a combination of price increases and volume growth and an increase in discretionary spending would drive growth across all product categories.
Ashish Khandelwal, Managing Director, BL Agro said, "Inflation does not really affect the FMCG segment as the product categories are such that their demand can never go down. People can't stop eating or cooking, so Inflation hardly impacts an FMCG business."
