Notwithstanding the robust growth of the economy coupled with expansion of consumer market base, the fast moving consumer goods industry is facing some tough times and is recording almost negligible growth. The sector grew by a mere 1.5 per cent in value terms during 2003-04 to touch around Rs 60, 900 crore. As a result of increasing price war witnessed in certain categories, volume growth in the FMCG sector more than doubled in the last fiscal to touch four per cent. This in turn had a negative impact on profitability figures posted by most players in the last fiscal year.
To take a look at the FMCG sector, CII organised the 3rd National FMCG Conclave. The summit prodded and pried on the issues plaguing the FMCG businesses today. The conclave brought in some of the industry bigwigs to debate out the issues.
Emphasising on the need for the FMCG sector to enter into the services domain, Rakesh Pandey, CEO, Kaya Skin Clinic, observed, “Customers buy holes, not drills. They are not really concerned about product A, product B or product C or for that matter a service model, just as long as you have a solution to their problems. Moving into service solutions make utmost business sense for FMCG’s.” No matter how big can the product be, there is the obvious need to branch out into a service model, felt Zorden Lobo, CEO, Godrej Tea.
Vindhya Srinivasan, Senior Manager, AT Kearney, however, differed in her views. As per her, FMCG companies were not equipped with skill sets required for entering into the services domain. “Unless you start from scratch with a fresh team and an independent set-up, I doubt if you can make much inroads into the service model. If your new set-up is going to play a poor second to your existing product name, it would not live up to the expectations of the consumer,” she advised.
If marketing is considered as a mindset, on one hand, there is the product mindset and on the other, there is the service mindset. And, most often the two never meet. “While the product mindset functions solely within the four Ps of marketing, the service industry is categorised by intangibles. The two operate in realms that are fairly different from each other,” argued Harish Bijoor, CEO, Harish Bijoor Consultants. Dwelling on the fast moving consumer goods industry, he argued, “FMCG companies ought to branch out into services. But are they equipped to do so? I think not.”
While the debate on whether FMCG companies get into services and whether they were adequately equipped to adopt a service model, ended up unresolved, the focus shifted from FMCG to retail sector.
India is ready for the modern retailing era, where retailers would dominate the market and dictate the terms to manufacturers. The organised retail sector will not only switch to high-profit brands and put pressure on other brands, but their own private labels will further fuel competition. The future holds opportunities for organized retail; everything else is equivalent to a transition phase.”
A simple thing such as a vehicle is owned by only 21 per cent of the total population. Literacy levels are low, and purchase power is lower. Which is why, the current system of localised distribution is likely to stay on. Modern retail may have made an entry, but it’s only leading to a situation wherein local retailers are taking a stock of the situation and improving storage facilities, billing facilities and delivery. Either way, the local retailer stays on. He is not likely to be eroded by the modern sway of events.”
Vidyut Arte (Director, Sales and Mass Marketing, Cadbury India Ltd) agrees with much of what Sule had to say. He also adds that several categories are not supported by modern trade, chocolate being one of them. “Chocolate penetration amongst urban consumers is 45 per cent while with rural consumers, it is five per cent. It’s only the top 23 towns that contribute to the consumption, thanks to modern retailing. We are not backed, as much by local vendors in rural areas, which is why we don’t have much of a backbone here. Again 90 per cent of purchases in the confectionary market are done in single units (50 paisa, 1 rupee worth confectionary.) This gives a definite indication that kiranas and local paan wallas are here to stay.”