FMCG firms reset product, distribution for digital
Companies must have the right range, pursue targeted marketing and align supply chain to cater to growing sales channel
E-commerce has been around for a long time, but it has focused primarily on non-FMCG (fast moving consumer goods) categories. More recently, it has evolved to include household products such as groceries and snack food. Digital is going to influence $45 billion (40 per cent) of FMCG consumption by 2020, says a Google India and BCG report, “Decoding Digital Impact: A $45B Opportunity in FMCG 2020.” It highlights that there will be 650 million Internet users by 2020, driven by increasing mobile penetration, with the highest growth coming from non-metros. Clearly, digital is now a means to reach the masses, and not just a small, targeted opportunity. Thus, it is crucial for FMCG players to effectively capture the growing digital influence and get their product and distribution strategies right to drive volumes through online retail.
For most of the FMCG players, online sales are in single digits today but this is set to change over the next few years.
For example, Dabur’s online sales are miniscule today, but it expects the e-commerce channel to contribute to nearly two to three per cent of its total sales in the next three to five years. The company has been quick to launch an exclusive online marketplace for ayurveda in partnership with Amazon. The objective is to give an opportunity to its existing users who can conveniently shop online while at the same time Dabur is hoping to discover new users who are interested in ayurveda. “The digital world has a unique advantage in the marketplace as it is the only channel that offers space for both knowledge dissemination and selling a product, which is very difficult and highly expensive in a traditional brick-and-mortar store,” says Krishan Kumar Chutani, executive director, consumer care business, Dabur. The company views the digital or online space as a complementary channel and not a replacement for the traditional mom-and-pop stores. In the selling space, every channel must find its own value and co-exist. If the online space ends up becoming merely a discount channel, it would serve no purpose, says Chutani. The aforementioned report estimates online consumers spend twice on FMCG purchases than offline consumers. India’s 28 million elite households will contribute 40 per cent of the overall online FMCG consumption by 2020, of which 60-65 per cent will be digitally influenced. So, what are the key factors needed for a successful online play? To be successful online, firms have to ensure they are carrying the right assortment, pursuing targeted marketing activations for consumers and aligning supply chain to cater to the growing sales channel.
Mayank Shah, category head, Parle Products, says the cost of last-mile delivery for online buyers is a costly affair given the small ticket size of the products. Therefore, for FMCG and confectionery players the unit value of the products has to be high in order to ensure selling online is viable. It is necessary to have a wide assortment of products and the stock keeping units too have to be designed differently. “Premium offerings provide a huge scope for growth online. A good share of online sales is going to be driven by affluent buyers. Exclusive products, gifting ranges and bigger pack sizes would see good traction online.” Parle sells online via platforms such as Bigbasket, Grofers, DMart and Reliance Retail.
For Mondelez India, shopping online is all about providing an opportunity to access brands outside traditional local trade outlets. It has launched a direct-to-consumer gifting site, “Cadbury Joy Deliveries”, through which it looks to enhance gifting experience for corporates with discounts, multiple location delivery, free shipping, besides customisation and bulk orders.
It also has a chocolate store on Amazon. This launch has its roots in the company’s core sales purpose of presence across points of sales. Mondelez India is pursuing “personalisation” aggressively through digital.
“E-commerce allows us to precisely understand individual consumer nuances and fine tune our customisation. This simply isn’t possible from offline purchases. There is an incredible opportunity to really understand the profile of our customers, what they tend to put in their shopping basket, their taste preferences, the way they like to shop and snack,” says Abhishek Ahluwalia, e-commerce lead, Mondelez India.
Interestingly, the report says while time spent on digital is the same as TV in urban India, the share of digital ad spends by FMCG firms was only 10 per cent in 2016. This is expected to grow substantially to reach 25-30 per cent by 2020.
Parle’s Shah stresses the need to read the fine print. Digital is only going to influence $45 billion of FMCG sales by 2020, the industry isn’t going to see that kind of sales from digital. About 10 per cent of FMCG sales come from organised retail. Five per cent of actual FMCG sales are expected via online channels by 2020.
“The digitally influenced may buy from grocery or organised retail but they may have seen the ad online. With mobile and Internet-driven media consumption going up, FMCG industry is on course to increase its digital ad spends from 10 per cent to 25 per cent in the next three years.”