Online FMCG business to be worth $5-6 billion by 2020: report
Mumbai: In three years’ time, most of us could be buying our daily groceries online.
In a report titled “Decoding Digital Impact: A $45 Billion Opportunity in FMCG’, consulting firm The Boston Consulting Group and Google estimate that by 2020, 40% of all fast moving consumer goods (FMCG) purchases in India will go online, making it a $5-6 billion business.
This will be fuelled by a rapid rise in internet users, likely to grow more than 1.5 times from the current 390 million to 650 million by 2020. “Rural internet users will contribute to 50% of the user growth in the next 3-4 years,” the report said.
FMCG firms, some of the biggest advertisers in print, television, and digital media, will be forced to consider rural internet users’ preferences to market to them effectively.
“Rural internet users will contribute to 50% of the user growth in the next 3-4 years, similar to what happened in China in 2008-13,” the report said, adding that the smartphone has become the go-to way to get online. “Rural usage behaviour is different from urban with respect to medium (non-smartphone), type of apps (data light, vernacular) and needs (entertainment & education) and so requires a customized digital strategy,” it said.
Rural users prefer watching video and in the vernacular, the report found. This means consumer firms may have to design their ads using short digital videos and tailor it to speakers of regional languages to enhance their appeal.
Besides, women will go online a lot more, even though today 69% of urban internet users are men and only 31% are women. The percentage of women among urban users is expected to rise to 40% by 2020, as per data from the report.
Right now, large FMCG firms in India spend only about 10% of their advertising budgets on digital advertising, according to the report. This can rise to 25-30% and be worth $1.1 billion by 2020 and even reach 50-70% for select premium brands, the report said.
As consumers look for things to buy online, and brands advertise to them online, sales in certain FMCG categories are expected to be highly “digitally influenced”, the report said. For more discretionary items like baby care, fragrances, over 50% of sales are expected to influenced by online marketing, 45% in apparel, and 60% in consumer electronics, the report said.
But for other daily need products like laundry and toiletries, less than 25% of sales are expected to come through online sales or advertising, the report said.
“(There is) up to 7x higher digital influence in the ‘problem solutions’ space than the conventional usage space; for example, searches for problems like ‘hair fall’ are significantly higher than the category ‘shampoo’,” the report said.
“In under-penetrated categories, the extent of digital influence is significantly higher versus well-penetrated categories. For example, a significantly higher share of consumption in perfumes and baby care is digitally influenced versus categories like washing powder. Thus, brands need to invest in category creation and adapt content to digital,” it said.
“There is a lag in spending on digital advertising (among FMCG firms),” Abheek Singhi, senior partner and managing director, Boston Consulting Group in an interview with Mint. “There is a higher standard for digital advertising in justifying and measuring return on investment, as compared to mass or ‘traditional’ media,” he said. “But with digital advertising, the ability to sharply target the consumer (by age, gender, income level) will increase,” he said.
This comes at a time when the world’s largest consumer packaged goods firms are cutting back digital ad spends saying it was hard to measure and even verify if an online ad was reaching the targeted consumer in a time when users cultivate bots and click farms to click on ads to make quick money. In June this year.
Business Insider reported that Procter & Gamble and Unilever NV have both cut their expenditure on digital ads by 41% and 59% respectively, year on year.
“This is a problem the entire industry faces,” Vikas Agnihotri, director of India sales at Google, said in an interview with Mint. “We’re very conscious of these issues and we are trying to build an ecosystem of tools to measure (ad viewing). We want more third party measurement tools to come on board. But our ads have over 90% viewability,” he said.