Looks can be deceiving in India’s fast-moving consumer goods (FMCG) market. In spite of the sector’s stable, growing and lucrative appearance, it remains highly elusive and competitive. It’s also very sensitive, as one new product or a simple innovation can change market share in just a matter of days.
So even though the FMCG sector is one of opportunity, success is far from easy. Notably, the sector’s astonishing 18.5 percent overall year-on-year growth rate indicates that some companies got it right, while the rest witnessed only moderate growth. And the companies that have performed strongly did so during very challenging economic times—evidence that strong products can succeed even when times are tough.
The Highs and the Lows
In looking at the performance of the 20 fastest-growing FMCG companies in India, we examined the top five (Hi5) and bottom five (Lo5) to look at performance at the edges rather than the average; for perspective, the average value growth among the Hi5 was 28 percent and 18 percent among the Lo5. This indicated that certain strategies have worked better than others.
For starters, let’s look at some key learnings:
- The quality of distribution as important as quantity of distribution.
- You can’t grow value without growing volume.
- More aware of consumers’ price sensitivity in times of economic slowdown.
- Innovation with new product launches drive growth.
- Modern trade matters.
The Importance of Distribution Expansion
Companies in the Hi5 category have maintained a keen focus on reaching out to more and more consumers. In 2012, the fastest-growing companies added more than 400,000 stores, and more than 70 percent of the new stores were in rural regions. Those in the Hi5 differentiated themselves by remaining focused on their core markets rather than by experimenting in new ones. This strategy allowed them to achieve higher growth in revenue-per-store as distribution grew.
Balancing Volume and Pricing Growth
The Hi5 companies endeavoured to grow volumes across the market, building by nearly 19 percent in 2012 over the previous year. Growing in urban and rural markets, the Hi5 companies performed markedly different from the Lo5 companies, which only grew their volumes by single digits. By growing more substantially, the Hi5 companies have been more successful in reaching new consumers and attracting more customers to their brands.
Despite market pressures and volatility, the Hi5 companies typically did not pass through inflationary price increases, even with supply side concerns and input cost volatility.
By keeping prices competitive and recognising consumers’ increasing price sensitivity as the economy slowed down, the Hi5 companies were able to grow volumes by an average of 19.5 percent. However, Lo5 companies witnessed a reverse scenario; they raised prices which dampened volume growth. The Hi5 companies’ move to pass on price increases lower than the inflation rate seems to have generated additional volumes for them, and is a strategy that will also likely engender more consumer loyalty.
Knowing Where and When to Innovate
The Hi5 companies were also more willing to experiment with new offerings in both existing and new categories. By looking at existing segments with a renewed consumer proposition or added new ranges to prevailing portfolios, Hi5 companies dramatically expanded their growth potential. Ultimately, the Hi5 group reaped the rewards and the value of their new launches increased by more than five times during 2011-12. For the Lo5, the increase in value was only about two times.
Putting the Right Foot Forward
Differentiating the top 20 FMCG performers into Hi5 and Lo5, and by studying their growth strategies, we can get a sense of where the sector is headed. For instance, the focus toward modern trade suggests that this trend will prevail in the near future. The Hi5 companies drew more of their sales from modern trade than the Lo5 companies while simultaneously achieving slightly more growth from this channel.
To sum everything up, Hi5 companies have shown the ability to understand market trends, empathize with consumer sentiments and lead with innovation, while the Lo5 companies have clung on to some of their old values which may not have been as effective. But how the Hi5 strategies play out in the future and whether we’ll see a resurgence or a complete shuffle of the companies in the two segments, will be worth watching out for.
For additional insight about what sets winners apart in India, click here.