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The Indian FMCG Sector Needs a Booster Shot… Can ‘V-Commerce’ Be The Answer?

Updated: Apr 27, 2023

Currently, the FMCG, fast-moving consumer goods sector, is the fourth largest industry in the Indian economy. The three main segments of this sector are, food & beverages that account for 19%, healthcare that accounts for 31% and the remaining 50% household and personal care.

Since liberalization of the Indian economy in 1991, the FMCG sector has shown double digit percentage growth in India. However, 2019 has told us a different story with low single digit growth. According to a report published by Nielsen, there have been negative movements in India’s FMCG growth patterns in the last 12-18 months. Neilsen reported a 10% drop in the value growth of the FMCG space in the April-June quarter of 2019 as compared to the same quarter in 2018, which means three consecutive quarters of subdued growth.

So, why this sudden shift in momentum?

Decline In Rural Demand

With 3 droughts in 5 years, low agricultural prices below the minimum support price (MSP) and the after-effects of demonetization have shaken the rural demand negatively. The growth trend in rural India had dropped by 3.6% from 9.9% in the first quarter of 2019, versus 6.2% in the second quarter. With a negative value growth of 15%, rural India has contributed approximately 60% to the slowdown.

Consumer Sentiment & Behaviour

The term ‘consumer sentiment’ is used to statistically indicate the overall health of the economy based on consumer opinion. This analysis takes into account the consumer’s feelings towards the current financial health, the health of the economy in the short-term as well as projected long-term economic growth.

Consumer sentiment is highly relevant in the FMCG sector; the willingness and propensity of a consumer to undertake expenditures entirely depends on how confident they are about their own financial prospects and the perceived state of the economy. Based on the Consumer Confidence Index (CCI) reports, India’s Data Intelligence Unit (DIU) has found that consumers’ sentiment is on an all-time low for the past 2 years. This has finally started to show its ripple effects on the FMCG sector. This has resulted in consumers gravitating towards purchasing ‘must-have’ products, instead of spending on ‘good to have’ or ‘great to have’ products.

Urban consumption and a direct relationship with convenience

Surprisingly, larger urban areas have shown some bright spots. With increasing urbanisation and rise of nuclear families, consumers need goods that complement their fast-paced lifestyle. Often, patterns like immediate cravings, impulse splurging and unplanned buys are observed in consumers. The number of avenues, available to address the burgeoning demand for instant convenience, is lacking.

Testament to the points above is a report published by the IBEF. India’s E-Commerce revenue has grown at an annual rate of 51%, from US$ 39 billion in 2017 to US$ 120 billion in 2020 and is expected to grow nearly 10x by 2027.

Even though E-Commerce accounts for only about 2% of total retail sales in India; these high growth rates in eCommerce, despite a slowdown in growth, are testament to the fact that the booster shot needed for the sector is going to come from urban areas and from new age solutions!

However, E-Commerce, in its current form, does not address fully cater to these ‘impulse’, ‘just in time’, ‘instant’ needs/demand. As an example: you are at your office desk, would like to have a quick snack on-the-go, and get back at your desk in ten minutes. However, the nearest shop is four floors down from the office building and a couple hundred metres away. Too much time gone, so you give the snack a miss. It is 2 am, you crave a snack and there is no way for you to get it. These are sales lost.

Could V-Commerce be the catalyst to re-igniting double digit growth in urban FMCG consumption?

V-Commerce is a term I coined to denote ‘vending machine commerce’. Vending machines now also known as V-Commerce with $22 billion has been a fair contributor to global FMCG sales. V-Commerce compliments and matches the demands of urban consumers as it provides products immediately without the hassle of waiting in long queues or for the cashier to process the goods and can be very conveniently proximally placed.

If just India’s Tier 1 cities are to be compared to other global markets, India is nearly 50X behind markets like the GCC and 200X behind markets like the US and Japan when it comes to the number of vending machines per capita. This has largely been because of high CapEx in vending machines, MRP limiting gross margins on products for machine owners, lack of seamless digital means of payment until recently, potential vandalism and low operating margins. Despite these challenges and slumping overall FMCG growth over the past few years, V-Commerce has, quite stealthily, been growing in India by 35%+ CAGR for the last 5 years as against a 14% CAGR globally.


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