The Indian FMCG sector is perhaps among those few sectors that remained buoyant even during the slowdown. Of course, that’s a tad too old to discuss, but what really needs a mention is the way the players in the sector have paved their own growth paths despite the turmoil. A closer look at the sector and one can clearly figure out the changing dynamics.
From M&A activity to back-end investment, the Rs.450 billion FMCG industry has resorted to some brilliant strategies over the last few years. Those strategies have not only shown good results, but have also initiated some new trends in the industry. In fact, according to SSKI Research, it was investments in back-end operations by FMCG players that helped the sector to achieve an average annual growth of 17% till 2007. However, later their focus shifted to front-end activities. In fact, retailing was the buzz word among big daddies of FMCG industry until the slowdown fever gripped India Inc. in the year 2008. Though they remained focused on enhancing front-end operations, FMCG corporations were now resorting to value added services. Result: From domestic giants to global MNCs, almost all FMCG players in India integrated forward, either by venturing into the retail business or by entering the services arena.
Seven years ago when Harsh Mariwala, the CMD of the $250 million Marico, forayed into the services industry with Kaya, analysts couldn’t figure out the correlation between services and the FMCG sector. But through a well-designed service encounter process supported by innovative positioning, the brand not only reached a break-even within five years, it has also recently crossed the 100 stores mark across India and Middle-East. The company has started the year 2010 by entering Bangladesh too. Similarly, Lakmé Salon from the stable of HUL is an initiative to revamp the brand image of Lakme by stepping into the world of services. So, if Marico has positioned itself as a skin clinic, Lakme Salon’s USP rotated around cosmetics for woman.
No doubt, when it comes to the utilisation of brand equity, this foray into the services sector sounds like an interesting strategy, but then challenges are galore. With KSA Technopak claiming the ‘well-being’ FMCG sub-sector market fetching an extensive business of $24 billion in 2009, service providers in the beauty business too have now started entering into the high-growth FMCG arena. One example being the Rs.4 billion VLCC. “We have been always known for providing the best service and to make that happen we need a lot of trusted FMCG products. Thus, if we can create our own FMCG products why not brand them,” reasons VLCC’s mentor Vandhana Luthra. But while Luthra and several similarly placed entrepreneurs are busy expanding their FMCG footprints, the original FMCG players too are leaving no stone unturned in adding more services to their business portfolio. (Lakme, for example, has even set up the Lakmé Training Academy to tap the potential of the beauty & hair-styling industry in India. To add credibility to the programme, it has tied up with global brands like TIGI and Schwarzkopf).
This growth mantra is not limited to just beauty & saloon business. An FMCG major like Dabur is going full blast with its ‘newu’ stores. This retail venture from Dabur stocks international brands at present. “We are not providing any direct services at present as our core focus is to provide a complete range of brands for beauty and wellness solutions to consumer,” Amit Burman, Vice Chairman, Dabur India tells 4Ps B&M. Godrej Group, which has three FMCG companies, also suddenly seems to be excited about retail expansions – their venture Nature’s Basket being evidence. While nothing happened to this slow starter venture between 2005 and 2009, in 2010 Godrej has already opened two new Nature’s Basket stores and is planning to open six more very soon. Raison d’être: Entering the services and retail arena definitely helps FMCG companies to promote their brand. But then, two crucial challenges remains. First, the role of human resources in maintaining the consistency of services (something that’s stopping FMCG behemoths like Emami from joining the bandwagon) and second, the problem of over-promises (many service providers fail to meet the commitments they make).
And then there are others who historically took a different path focusing on niche markets. As would be already very well known, FMCG giants like HUL and ITC entered into the retail and service industry through Project Shakti and e-Choupal respectively, by opening retail stores catering to a specific target group (rural India)!
Evidently, the Indian FMCG industry is only going to grow by leaps and bounds in the future. And with entry restrictions in the retail sector bound to become less in the future, there’s a bated breath expectation of things to come. Given the fact that most FMCG purchases are impulse decisions, the importance and the power of the brand name cannot be emphasized less. For once, truly Indian brands are standing their space even when the competition is from Fortune 500 companies and other ruthless rivals. To that, and to the gumption that has been displayed in fighting competition, is dedicated this particular ICMR-4Ps B&M survey of India’s most loved brands.