Going Digital for FMCG Brands in India

FMCG Brands Embracing Digital Transformation

How digitization in the second most populous nation has created new opportunities while posing new challenges for the country’s FMCG retail

The achievement and the potential

India has delivered partly on the digitization promise. While the mobile and digital adoption could be on par with underdeveloped countries, like Yemen and Angola, it’s the sheer power of numbers that gives India an advantage.

It’s estimated that around 650 million Indians are connected to the internet in 2020. That’s right behind technology giants like the US and China. And close to 40% of this internet-enabled population shop online. That’s about 250 to 300 million.

The online spend from shopping activities in India is targeted to hit $50 billion. And it’s estimated that a tenth of this spending - $5 billion - will be towards FMCG products.

Another welcome change is the shift in the online shopping demographic - from well off adult males in Tier 1 cities to women, digitally-savvy Gen Z, and residents of smaller cities and towns. This can be attributed in part to a growing online commerce ecosystem that includes, digital payments, lending and borrowing and trading of commodities.

While India might have the third largest number of people connected to the Internet, its online and ecommerce market is nascent. Online sales make up only 1% of total retail sales, compared to 6% in China. According to a survey done by Bain & Co. in partnership with Google, a wide range of products, premium quality and better prices will eventually drive up the proportion of online sales in India.

Number of Internet Users Who Buy Online

The implications of FMCG ecommerce sales are even more optimistic with sales volume expected to hit $5 billion in 2020. In addition, digitally influenced FMCG sales could be as high as $35 billion, based on an estimated market size of $100 billion.

Digital Influencing FMCG sales in India

Digitization and FMCG categories

Not all FMCG products get the same or similar response on the digital airwaves. As an example, recurrently used products like soaps, diapers and grooming products enjoy a high volume of searches and online orders than do products that have a sporadic demand like seasonal food items or grocery staples.

One of the reasons behind this is the complexity in a customer’s journey online as contrast to the offline or in-store journey.

Based on how digital consumers look at FMCG products, Bain & Co. segmented these products into three categories.

  • Digital frontrunners: Products for which the digital response is exuberant, both in pre-purchase and purchase phases and there is heavy engagement from target audiences. Companies in these product segments must leverage their digital game far more than those in other segments. Products like men’s grooming and infant care fall into this segment.
  • Digital emergents: These are products for which there is copious pre-purchase engagement, but the purchase process is carried out offline. Audiences like to read up and research online but they prefer shopping from brick and mortar stores. Examples of these are women’s grooming, hair care and specialized skin care.
  • Digital laggards: Both pre-purchase and purchase activities are carried out offline. These include grocery staples, fresh produce, meat, seafood, packaged food and the like. The sporadic or seasonal demand of these items could be one of the reasons for the buyer’s journey for them remaining offline. This presents an opportunity to deploy occasion based marketing and ordering convenience to at least move the purchase decisions online.
Digital Adoption among FMCG categories

The FMCG response to digitization

With varying degrees of digital penetration and a diversity in behaviors towards different products, the Indian FMCG landscape is broadly divided as follows.

Pure online generalists such as Flipkart, Amazon, Snapdeal who have a broad collection of products and who only operate online.

Pure-play online-only companies such as BigBasket, Aaramshop and Grofers that are focused on groceries and staples and bring a wide range of imported and locally sourced products across the price range. They offer consistency in product quality, convenience and service as their talking points.

Traditional brick and mortar stores with an online portal such as Nature’s Basket and BigBazaar. While brick and mortar is their eminent footprint, they wish to stay with the competition by launching online stores and payment portals.

FMCG companies with an online-first approach to sell directly to consumers. These include Paperboat and Epigamia. While physical shelf space is critical, they want to capitalize on the digital boom by moving most of their purchases online.

The Indian FMCG Landscape

Challenges of digitization that FMCG faces

Unit economics and logistics: Indian FMCG brands are entrenched in the traditional models of distribution, packaging, vending and delivering. These models have been woven around small provision stores and corner stores. As an example, point-of-sale data at a central warehouse informs demand forecasting, which won’t work with e-commerce.
In addition, the delivery costs, which could range from anywhere between INR 60 to INR 150, constitute 15% to 20% of an average basket value. Thus, delivering becomes untenable and imposing high minimum values on the order negatively impacts order volume.

Lack of measurement: Most FMCG brands interviewed by Bain & Co. only use reach and frequency. While they are aware of metrics such as likes, comments, shares and views, they don’t necessarily measure them. Lack of this means that their understanding of people’s perception of their brand and products could be incomplete.

Lack of expertise: India is still in the nascent stages of developing digital talent and a workforce that is in tune with the rapid pace at which digital marketing changes. Thus, building a high performance team to digitize marketing, sales and branding is a difficult process.

Poor infrastructure support: FMCG brands looking to find data and advertising partners for digital are usually left disappointed. Insights into consumers’ online behavior have been slow to materialize. While many agencies have set up their in-house digital and creative teams, many still stick to the legacy structure.

Winning the digital Indian market

Bain & Co. concluded that FMCG players that win in a digital market do three things well: they educate themselves about their consumers, they go the extra mile in engaging with them and they create the best-in-class shopping experience online and offline.

Here are some pointers from the report that could help you achieve these three things.

  • Introspect on the digital truths about your brand
    Companies should look inward and pore over their brand, business categories, target customers while keeping in mind that digital marketing must reinforce existing brand strategy and not require the creation of a different strategy altogether.
  • Pick your battles
    Companies must take a hard look at product portfolios, online consumer behavior and category dynamics. Despite the market’s infancy, some categories like bulk buying or nutrition could be ready for online deployment.
    While incorporating a digital approach, companies must also decide whether they want to go with an online only, online-first or hybrid model and the extent to which online will integrate with offline.
  • Craft a delightful online sales experience
    With a burgeoning exposure to e-commerce and online experiences, consumers are intolerant of a bad or inadequate checkout experience.

    To create the most friendly sales experience, FMCG companies must
    • Optimize e-commerce supply to avoid product shortages.
    • Hire account managers to liaise with big-ticket buyers.
    • Create mutually beneficial terms with online retailers to enhance consumers’ online experiences.
  • Resource allocation
    As brands evolve their digital presence, they will have to keep a watchful eye on their customer’s behavior, preferences and how they perceive their brand.
    This will require a substantial investment into data analytics and insights, technology infrastructure, data warehousing and human resources.
  • Change the larger picture
    Companies will need to stop doing piecemeal changes to their operations and instead, take a top-down and comprehensive look at how they operate.
    FMCG players will have to not only upgrade themselves, but also push upstream and downstream entities in the supply and value chain to incorporate digitization and keep pace with the industry.

Starter kit for digital transformation

Here are some digital advertising and marketing strategies for the FMCG sector that run from branding down to boosting sales and revenue.

  • Content marketing
    Customers are more likely to respond to and engage with content that does more than just promote a product or service. Audiences look for value based content that can enhance their understanding and help them make a decision. By consstently churning out value-based content, you will not only build brand awareness, but also alter the audience’s perception of your brand. The emphasis should be on churning out a sustainable quantity with a consistent quality.
  • Play up social media
    Social media algorithms are designed to improve reach and engagement if the content takes off. And with this wider reach, you can net in a larger audience and this provides fodder for understanding consumer behavior and preferences.
    It also helps in building a community of loyal consumers with a shared cause and this helps in personifying the brand. Over time, the brand tends to evoke certain emotions that become drivers of purchasing behavior.
  • Involve influencers
    Social media influencers are some of the best brand evangelists that return the most value for money in terms of sales and brand awareness. Team up with influencers who are engaged in your industry or cause and create a campaign that goes beyond blatant selling and promoting. Influencers revolve around a shared cause and it’s this that facilitates their followers to buy into their ideas.
  • Online ordering
    Whether you are a small or large FMCG brand, consider online ordering. Whether you wish to have your own portal or leverage an existing ecommerce platform is a choice that you need to make based on some of the pointers above.
    The key is to allow your prospective customers to make an online purchase either through social media or a dedicated website that you own.

The Indian online marketplace is expanding and evolving rapidly and it’s just a matter of years before it takes over the ecommerce markets of China.

By most projections, FMCG retail will be leading the way for India’s online commerce. Many FMCG segments have already evolved an online marketing and sales model for themselves and many others are following suit.

In such a scenario, waiting and watching is a counterproductive strategy that many players will have to pay dearly for. But those who venture out, adapt their portfolios and existing strategies and incorporate digital will be in for a windfall.

  • Adding to cart: Digital’s impact on consumer goods in India - A Bain & Company and Google India report. Access full report here.
  • FMCG Goes Digital – Digital Advertising Strategies for the FMCG Sector by Promising Designs. Access article here.