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FMCG – Investment aids business growth

FMCG -Fast Moving Consumer Goods is a unique industry, mainly because an average consumer is at the heart of this industry – just like you and me. When I started to understand the nuances of this industry, I began to look at the world’s biggest consumer markets- because consumer spending drives the economy. 

Upon consumer spending, businesses are incentivised to produce more and cater to demand. It, in return, aids business growth which ultimately also leads to broader economic growth. I mean, economics is a little more complicated than just that – but it’s generally true that rich countries are also the most critical consumer markets globally. 

It cements the importance of the FMCG industry. In a growing economy like ours, the significance of the FMCG industry cannot be ignored. Therefore investing in companies operating in the FMCG space would be advantageous for investors in the market in India.  

What is FMCG?

FMCG is the category of consumer goods sold quickly and at a relatively low cost. They’re called ‘Fast Moving’ because they quickly move through the value chain – from production, distribution, and marketing to final consumption. Examples of FMCG are packaged foods, cosmetics, soft drinks and other beverages, stationery, toiletries, personal care products, etc. They’re sold either because of high demand or as a perishable products.

FMCG in India

It is the 4th largest sector in the Indian economy, after the services, manufacturing and agricultural sectors. There are three broad categories within the FMCG space: healthcare products, household and personal care products, along with beverages & food.

Growth drivers of FMCG in India

A handsome growth will be seen in the FMCG sector due to the nature of the industry. Along with its vitality in the overall well being of the economy. As we’ve discussed, India will continue to grow- Let’s look at the most significant growth drivers.

The rural growth story 

Well, roughly 12% of the world’s population lives in the villages of India. Put, 1 in approximately eight people in the world is an Indian villager. The more striking fact is that 50% of the Indian rural population is under 25. Rising incomes lead to increasing aspirations; also, the power of the internet has made rural India more accessible. Hence FMCG companies are eagerly trying to cement their presence. And create a stronghold in rural parts of India. 

And this trend has helped rural FMCG sales growth to outpace its urban counterpart. Rural household spends over 50% of their income on FMCG products. Thus rural India provides a vast untapped market for FMCG firms in the country. The more the investment, the better the output.

Currently, rural India relies on the unorganised market majorly for FMCG products. However, the trend is shifting with the onset of FMCG firms in the rural market. Even rural India is becoming more brand-conscious. Therefore an expected growth of US$ 220 billion by 2025 in the rural FMCG market in India could be seen.

Innovation is key

The segment under which the product’s nature is ‘Fast Moving’. That also means that companies have to adopt new strategies to expand their market. The stiff competition, innovation, and product quality will help constant growth.

Also, many companies rapidly adapted to changing consumer preferences. For example, during COVID, 

a shift to healthy alternatives and products. The promotion of hygiene was being rolled out at an unprecedented rate by FMCG companies. As per the suggested reports, in n the first six months of the pandemic, more than 1800+ health and hygiene products were launched.

Innovation will be a critical factor in increasing their presence in the market share in the coming days. And rural India presents a massive market for innovative companies. However, while working on innovation, the FMGC firm needs to keep in mind that products working in urban will not necessarily work in rural. The basic will be lower incomes and differential preferences. Hence to blend the difference, the FMCG sector has introduced smaller packages of the same products in rural India to match their payments. Pretty cool, right?

E-commerce and the online marketplace

The advent of e-commerce and the online marketplace in 2015 has become a game-changer for the FMCG market. It is mainly because the online market has helped companies with the distribution. The kind of distribution that was not possible with offline stores. Furthermore, launching products online is much cheaper than offline. 

All FMCG firms now look to launch online-only products as an experiment – to gauge the response/feedback of consumers regarding the product. Positive/better-than-expected responses also lead to an offline launch of the product. E-commerce has also helped firms penetrate tier-II and tier-III cities, otherwise left out of the product markets.

 

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