Insights

Keeping Up With India’s Urban FMCG Consumer
Article

Keeping Up With India’s Urban FMCG Consumer

Today’s Indian consumers are some of the most confident in the world. Across 60 countries, the Nielsen quarterly Consumer Confidence Index pegged India at pole position in second-quarter 2014 with an index of 128 (a seven-point jump from the first quarter) versus the global average of 97.

Yet, the fast-moving consumer good (FMCG) growth story in 2014 has been far from impressive. The reality is that marketing in India is far from easy. India has one of the most complex trade structures, covering 8.8 million retail outlets for FMCG alone, the Indian consumer is demanding, value conscious and evolving, and media in India has never been more fragmented. Yet, the opportunity is big: Urban consumers today account for $25 billion in FMCG spending out of the overall $37 billion Indian FMCG market. The Indian consumer psyche is evolving at breakneck speed and the Indian marketer better keep up with the high stakes. As marketers chase this opportunity and look to stand out, there are 10 things to know about today’s evolving urban consumers:

  • They shop more FMCG in chemist stores than you would imagine. The chemist channel has been an outperformer for the FMCG market. For the year ended June 2014, FMCG value growth in chemist shops was 12% versus growth ranges of 7%-9% for the other store types. Chemists not only attract a more upmarket consumer profile but have also become increasingly FMCG friendly. FMCG categories like packaged tea that earlier were not even considered for sale in this channel are now flying off the chemist shelves. And manufacturers are increasingly developing products catered to the shopper in this channel.
  • They increasingly prefer private-label brands. Private labels or store brands are becoming a big deal to shoppers. About 5% of all modern trade sales in India are store branded (versus 1% in China and 3% in Indonesia). Of late, private-label sales have consistently outgrown sales in modern trade, and these store brands are now spreading to unconventional categories like confectionary and dairy. At least 58% of modern trade shoppers have bought some store brand in the past four weeks. Interestingly, in 2014, India’s modern trade shoppers believed that private-label products were more synonymous with quality than ever before—29% of shoppers felt private-label products’ quality was at par with named brands (up from 25% in 2013) and 26% of shoppers felt private-label products’ quality was improving (up from 21% in 2013).
  • They reward brands that empathize with them during tough times. 2013 was a particularly tough year for Indian FMCG consumers. They were reeling under inflationary pressure and making continual trade-offs to balance budgets. Brands that grew in volume in this period were those who kept price increases in check. The market saw higher volume growth for brands that absorbed some of the price increases. Brands that passed on heavy price increases to the consumer generally saw negative volume growth. Indian consumers tend to keep their business with brands that stand by them when the chips are down. Challenger brands that would like to switch consumer loyalties should particularly keep consumer circumstances in mind.
  • They want to be entertained first and educated second. Indian urban consumers have access to over 800 TV channels and are inundated by over 3000 messages a day across online and offline media. The more than 50 million smartphone users have access to content on their fingertips. Media habits are fast changing. Indian consumers now want to be entertained before educated. The first seven seconds in an ad have become more crucial than ever before. These crucial moments decide whether an ad will retain a viewer’s attention span. Therefore, content is key, and marketers should think long and hard about what content to take to which screen (across TV, online, and mobile). Consumers react best to larger screens for emotion but are more attentive to smaller screens.
  • They increasingly know the prices of grocery items they buy regularly. Urban Indian consumers are more ‘price’ aware now than any time in the last few years. In 2014, 88% of shoppers said that prices were increasing. Importantly, in 2012, only 30% of shoppers believed they knew the prices of most items they buy regularly. In 2013, this increased to 37%. In 2014, this further increased to 52%!
  • They are willing to switch stores for the right promotion. Promotion sensitivity has increased meaningfully for FMCG in India. Consumers are actively looking for them, and promotions have the ability to influence 27% of consumer purchases in stores for FMCG categories. In 2011, 18% of all shoppers said they switch stores for better promotions; this number has increased year on year and in 2014, it surged to 32%.
  • They are least attracted to the INR 11-19 price band and are unafraid of big-ticket FMCG purchases. The least attractive FMCG price point is INR 11-19. For the year ended, March 2014, this price segment saw the weakest year-over-year performance. For example, the impulse foods basket grew in every segment but the 11-19 price band (which saw a value contraction by 3%). And the home and personal care basket also grew in every segment but for the INR 11-19 price band (a value contraction of 34%). However, the three magic price points of INR 5, INR 10, and INR 20 grew handsomely. Interestingly, the INR 20 and higher price point grew at the fastest rate. Net, FMCG in India is no longer about low price points! Today’s urban consumer will readily spend on high-priced items either to indulge in premium offerings or on bulk packs to save money as part of a repeat purchase.
  • They are more willing to experiment and try new products than ever before. 49% of consumers who shop in traditional trade and 59% who shop in modern trade say that they love to try new things (versus 29% of overall shoppers in 2012 across traditional and modern trade channels). Modern trade outlets, specifically, have emerged as innovation laboratories for consumers who use such stores to experiment with new launches across categories. Breakthrough innovations in India have grown seven times as fast in modern trade than typical run-of-the-mill innovations.
  • They are willing to spend a disproportionate part of their monthly budget on health, hygiene and wellness. Urban consumers are looking to actively improve their lifestyles and endow their families with health and wellness. In 2013, among the fastest growing categories were health and wellness focused categories like olive oils (36% value growth), milk foods (19%), sugar substitutes (19%) and breakfast cereals (14%). Personal and home hygiene-focused categories followed similar trends and saw high value growths: diapers (29%), and sanitary napkins (19%), air fresheners (16%), and liquid toilet soaps (24%). This consumer trend is here to stay and has percolated to even the smallest of Indian towns.
  • They either already have a presence online or will have one soon enough. India now has an internet penetration of about 16%, translating to about 250 million users. In urban India, 17% of consumers have a smartphone. Up to 41% of online FMCG consumers access the internet as part of their pre-purchase ritual. This has huge implications for marketers as influencing online consumers for either offline or online purchases will gain more importance with each passing year.

In the organized FMCG market, India has one of the lowest per-capita consumption profiles across the world, lower than China, Thailand, or the Philippines. There is immense appetite across the 6,000 towns in India for increased FMCG consumption. Tomorrow’s FMCG consumers will shop on their own terms. It is up to the marketers to stay ahead of the curve and create favourable outcomes for themselves as they delight today’s changing consumers and grow India’s FMCG market.