Major Trends in FMCG Industry

This research focuses on identifying the major trends that are affecting the FMCG industry, how the major FMCG companies tackling the challenges to maintain their revenue growth & Profit margins. The final section talks about the various ways by which the Indian FMCG companies can drive healthy growth and profits margin leveraging the current trends.

This article is divided into 3 sections

1.     Section 1 talks about the major disruptors and trends in FMCG industry and how they are changing the FMCG landscape in the years to come.

2.     Section 2 talks about the success factors of major FMCG companies in India (coming up soon)

3.     Section 3 talks about the ways in which FMCG companies in India can leverage the current trends. (coming up soon)

Section 1

With the world being impacted by the outbreak of the COVID’19 pandemic, the FMCG companies and the CPG industry has seen a dramatic shift in the consumer behavior. In order to understand the key trends driving the changes in the CPG industry, we have focused on the consumer as the core and the key trends affecting the behavior of the consumer. Primarily the following 5 trends are predominately impacting the buying decision made by the pandemic hit consumers:

1.     Channel of purchase (Point of Sale)

2.     Digital Engagement

3.     Sustainability

4.     Health, wellness and immunity

How have the above-mentioned trends driving the purchase pattern of the consumer is explained in depth subsequently:

1.     Channel of purchase (Point of Sale): Since the lockdown has forced the consumers to stay at home, the number of shoppers purchasing online has increased dramatically in the past two years. As per a Neilson Omnichannel Shopping Fundamentals report, the number of shoppers who consider themselves as “heavy” or “exclusive” shoppers has increased by 133% over September 2019 and September 2020. Even the companies are following suit and adopting quickly to cater the online consumers. HUL, for example, has taken this opportunity to launch their online store, “The U-Shop”, which has been a superhit in tapping the D2C space. PepsiCo too was quick enough to sense the trend of shift to online purchase and had rolled out its D2C website “snacks.com” and “pantryshop.com” within 30 days of the imposition of lockdown in the US early in May 2020. The focus on D2C has enabled these companies to understand the nature of purchase, the buying behavior of the consumer and other consumer research data points.

The advent of demand for omnichannel is another buzz in the retail industry. Many companies are shifted focus on purpose driven purpose-driven marketing. Omnichannel partnerships, creating channel strategies and improving e-category management are among the top goals of the CPG companies. As per a Bain and Company and Microsoft survey there is a significant rise in the investment by the companies through the Omnichannel fulfillment. For example, Walmart has partnered with IBM for digitalizing its entire supply chain using the Blockchain technology of IBM for bringing transparency in the supply ecosystem as well as quick and easy tracking of the status of the delivery, ensuring more efficient and transparent delivery to the customer. Moreover, in order to improve the efficiency of the supply chain to ensure timely delivery to the consumer, many companies have invested heavily in advanced technology usage such as AI, IoT, Robotics to track and monitor. According to MHI Annual Industry report, nearly 12% of businesses are using AI in their warehouses and the projection for increase in the usage of AI is that of 60% in the upcoming 6 years. E-commerce giants like that of Amazon too are following the adoption of robots. Kiva systems that was acquired by Amazon in 2012 and then renamed as Amazon robotics in 2015, is now employing over 200,000 robots in their warehouse.   

2.     Digital Engagement: The retail industry is heavily dependent on the consumer choices and preferences. The pandemic has enabled the companies to gather enormous amount of data about the habits, behavior and buying pattern of the consumers, as the digital engagement of the consumers has increased manyfold. For example, P&G has partnered with Google Cloud’s data analytics and AI technologies to gather data on what and how the consumer is browsing for a specific item category and what price range does he/she is targeting. By having such data P&G can then send personalized offers to the consumer based on their choice and enhance/retain its customers. On the other side, even consumers are becoming heavily reliant on purchasing/surfing websites and online shopping portals. With the advent of e-commerce and increase in the internet penetration, consumers are leaving a digital footprint and enabling the companies to understand their shopping behavior through data analytics.

Moreover, the consumers are becoming more vigilant of what they are consuming. Even the companies in the industry are becoming aware in this shift and are enabling their customer to gather all the required information right from sourcing to the delivery. For example, Bumble Bee Seafoods is using SAP’s Cloud Platform blockchain service to trace the yellowfin Tuna from the ocean surrounding in Indonesia to the processing and packaging of the product to the retail shop location where the consumer is standing and scanning the QR code on the packet to gather all this data.

3.      Sustainability: As per a Neilson report, the environment conscious customers are estimated to spend close to USD 150 billion on sustainable goods by 2021. The adoption as well as production of bio-based and sustainable raw materials have increased the demand for green packaging solutions among the CPG companies. Market for the green-packaging in the US alone was worth over USD 260 billion in 2020 and is estimated to be worth of over USD 400 billion by 2026, rising at a CAGR of over 7% between 2021 and 2026. As more and more companies are becoming environment conscious, several brands have pledged to go plastic free and adapt more sustainable packaging practices.

Such pledges and resolutions help the companies gain the customer trust and loyalty. As per a report published by eMarketer.com nearly half (47%) of internet users have switched to alternate products or services once they witness a violation of its personal values by a company. As per the report the top reasons for the switch were environment protection, lack of transparency and climate change.

Given the current scenario of the consumer goods market, the majority percentage of the consumers belong either to the Gen Z or the Millennials age group, and this age group is demanding sustainability very seriously. As per a Neilson’s Conference Board Global Confidence Survey, 81% of the respondents globally feel that there is an urgent need for the companies to help improve the environment. Also, as per the survey, it is claimed that nearly half of the consumers in America are willing to change their consumption habits to reduce the impact on the environment.

Another consumer behavior that is coming into light is that of ‘Buying less by buying better’. Consumers are making their purchase decision based on the sustainability of the products they purchase. Reusing the purchased item for a long term rather than discarding more and more goods helps in reducing the waste generated per household and same is the thought process being widely adopted by the environment conscious customers. The purchase of sustainable and reusable products even has an economic benefit as it gives a larger wallet share to consumer to spend on other products.

4.     Health, Wellness and Immunity: The pandemic has shown that there is a rise in the consumer spend on products that boost their immunity, keep them healthy and is helping them stay fit and well. Millennial population spend on the self-care products is twice as that of the Baby Boomers. In fact, studies even show that the skincare products have for the first time outsold the make-up products. Keeping customers in mind, many CPG companies are investing and experimenting with addition of prebiotics and vitamins in their products. This strategy is targeted to tap the market of health and wellness conscious consumers. The move to eliminate the unhealthy products from their products and addition of nutrition rich ingredients is seen across the industry. The US alone has seen increase in sales of organic food and the nutritional supplements sale has spiked by a mammoth 130% since the beginning of the pandemic. A Deloitte study shows that 98% of the businesses have resorted to modifying some of their ingredients to comply with the health policies. Also, close to 80% of the companies have declared that 81%-100% nutritional value of their products is displayed on their food and beverages products.

As per a McKinsey analysis report, the sales for pharmaceuticals products have increased by 20% year-on-year due to the pandemic. Even some companies claim to have registered a 40% year-on-year increase in sales of multivitamins. As the whole world had witnessed nation wide lockdowns and isolation, a McKinsey article terms the post-lockdown buying behavior as ‘rebound sentiment’, where it is expected that the customers will be spending more on purchase of the consumer goods as was seen in the case of China. The healthcare and nutrition industry as well as the health foods (consumer goods) industry can play a pivotal role in this situation. These companies hold the credibility of delivering health products to the consumers, and same credibility can be put into effect if they educate consumers on the health and wellness methodologies.  

In the next section, we will focus on the success factors of major FMCG companies in India.