Nearly 80% of the value growth clocked by FMCG industry in the Q3 quarter was volume driven (13.4%).Rural markets continued to grow faster (20%) in the quarter; urban India also had a good run with 14.5% value growth.
There are two big themes emerging in terms of sources of growth – one of them has been the fast sales upsurge in modern trade (MT) channels in India and the other one has been the rise of the small ‘Goliaths’ essentially the small and regional players at the other end of the spectrum.
RISE OF MODERN TRADE
MT channel contribution to total FMCG sales has breached 10% mark! However, there is a huge room for growth if we compare MT contribution in other Asian markets. While it is 55% in China and 74% in Philipines, it is just 10% in India.
Growth in MT sales (including brick and mortar retail banners, standalone MT outlets, and ecommerce) has increased substantially during the last few years with multiple changes in trade and policy environment.
Demonetisation of INR 500 and INR 1000 currency in Nov ‘16 proved to be a big tailwind for MT channel – shoppers (including first-timers) were driven to MT format stores with plastic money. Post-demonetisation, the second booster to the MT channel came in the form of GST.
A deep dive in MT channel sales helped us identify three key factors contributing to the growth of the channel:
Store Universe Expansion: MT channels – both banners and standalone (SAMT) – has seen significant universe expansion. In the last two years these formats have witnessed double-digit growth on an annual compounded basis. Banners viz. Easyday, Apollo, Medplus, and D-Mart, led to universe expansion; especially in lower town classes. On the other hand, a sharp rise in SAMT stores has been observed in five lakh plus (FLP) towns.
Same Store Growth (Throughput): MT banners are also focusing on same store growth and are promoting the ‘Big Days/ Weeks’. Also, the MT retailers (in association with FMCG manufacturers) are creating more such occasions (example – labour day/week) to offer promotions and buzz around it-leading to increased footfall and expanded shoppers’ basket.
E commerce: Nielsen incorporated ecommerce sales in the Retail Index starting July 2018. With cooperation from top e-tailers estimated to contribute approximately 75% to total ecommerce FMCG sales in India, ecommerce channel contribution to India FMCG sales now stands at just over 1% and has grown at over 101% since last year, in specific product categories and markets the contribution is already touching double digits of total category value sales.
RISING REGIONAL PLAYERS
Coming to the FMCG industry growth in India, there is a strong performance from small and regional manufacturers – the latter having their play in only one or two regions out of the four in the market. The growth of small manufacturers have accelerated significantly in the last two quarters.
As for regional players on Q3’18, FMCG sales have grown more than 20% in the last three quarters to increase their contribution from 3% YA to 4% in JAS quarter of 2018. The presence of regional players is predominantly in Packaged Food categories where they clocked a 31% growth in MAT Sep’18 (vs YA). This was nearly 3X times growth witnessed among national players.
When we look deeper into the regional players’ performance within food categories it is evident that growth is coming from players becoming bigger, as we see shift of players from bottom 70% segment to top 30%; thus driving growth for regional manufacturers in the packaged food space.