Recipe to accelerate growth in retail and consumer goods3 min read . Updated: 29 May 2018, 11:38 PM IST
Retailers with value-for-money offerings have succeeded consistently in Indian market
Indian consumer products and the retail sector are poised for healthy rebound, as the spate of current results have demonstrated, after a couple of years of lackluster demand. The recovery is underpinned by a pick-up in overall consumption, which is expected to grow at around 13% in 2018, after dropping to an average of 10% over the last 2-3 years, as per Central Statistics Office (CSO) estimates.
Additionally, settlement of price changes and adjustment to new ways of functioning after the goods and services tax (GST) transition have helped restore normalcy and aid growth.
Although the sector faced some short-term hiccups due to poor monsoon and transitory effects of demonetization and GST transition, its long-term prospects remain robust.
A number of global consumer companies are now looking at India as the next engine for growth considering the country’s long-term economic prospects, young population, burgeoning middle class and improved environment for doing business. The Indian consumer sector is considered a compelling long-term growth market with some interesting trends.
The Indian market is quietly premiumizing, driven by the aspirational nature of Indian consumers and aided by rising income levels. As per a recent Nielsen survey, ~35% Indian consumers prefer to trade-up vis-à-vis less than 20% in countries like the US, Canada, and France.
Over the next five years, the share of premium products is expected to rise to ~20% from the current levels of ~15%. This is clearly evident in categories like milk products, biscuits, cosmetics, and skin care, where companies have driven growth by launching new products at premium prices.
Quite paradoxically, retailers that have seen consistent success are largely those with value-for-money offerings. This is especially true of food & grocery and apparel formats.
This also demonstrates that the fundamental need for value continues in the market. This is driving demand for mass or economy products in different categories.
According to a recent report, the share of the economy segment in deodorants is expected to increase to ~30% over the next five years from the current levels of ~25%.
As the value conscious consumers transition from mom-&-pop outlets to modern retail stores, they look for value buys, especially in daily use products such as food & grocery, and fast moving consumer goods, as long as they don’t have to compromise on quality and they trust the brand.
Be it premium products or value-for-money segment, demand for natural products continues its robust growth with more and more companies treading this path. Continued campaigns of health benefits of natural products by companies, and increasing awareness of harmful effects of chemical ingredients are influencing Indian consumers to buy products that are good for the health.
According to the Nielsen survey, in the personal care segment, natural products contribute close to 40% of the total market, and are witnessing growth of 15-20%.
Increasingly, consumers are demanding more natural and organic ingredients in their products, be it personal care or food & beverages.
For multinational consumer product companies and retailers, India has been an attractive market for a long time. However, now there is a renewed interest of global players in India, given the country’s robust long-term consumption story. The recent spate of investments by global retailers and e-commerce companies apart from the success of global retailers just proved the point.
Another interesting trend being observed is of partnership or collaboration.
Consumer companies are increasingly looking at partnering with other players to gain access to different consumer segments, new channel capabilities, access to digital technologies or entry into newer markets.
Some of the ways in which they are addressing this are through acquisitions or setting up an internal fund that invests in early-stage start-ups. These initiative not only help the larger companies develop new capabilities, but also provide scalability option to emerging start-ups.
With consumers becoming increasingly demanding and value conscious, we will see companies invest more in new products launches to meet this demand. They can also expect more competition not just from nimble domestic companies but from newer international players as well as a resurgent retail and e-commerce sector.
All this will mean an interesting battleground for acquiring consumers in the year ahead.
Pinakiranjan Mishra, is partner and national leader (consumer products and retail) at EY India. The views expressed are personal.