Indian FMCG industry to leverage digital technologies for growth

Indian FMCG industry to leverage digital technologies for growth

 FMCG sector in India is looking to grow by leveraging digital technologies and emerging channels.

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Fast moving consumer goods (FMCG) industry has always been dependent on insights into customer behavior and preferences.The industry has viewed information technology as a necessary business enabler and has been trying to embrace digitization to create engaging experiences for customers.

According to a Gartner report, FMCG industry is currently the fourth largest sector in the Indian economy, which has grown at an annual rate of about 11 percent over the last decade.

According to an ASSOCHAM report, the market for the India’s FMCG sector will grow from USD 49 billion to USD 104 billion by 2020. The optimism is based on steady economic growth, increasing the share of organized retail, and improving awareness about digitization and automation.

Moving forward FMCG companies aim to leverage digital technologies and analytics to get granular insights into customer preferences and deliver superior products and customer experience to grow their business.

To further elaborate on the trends, business challenges, and opportunities that will shape the FMCG industry this year, IDG media spoke to three CIOs of top companies in the industry: Pratap Varshney, Director GM-IT, Patanjali Ayurved LimitedGirish Rao, Head-IT and Business Analytics, Marico Limited and Sanjay Kotha, CIO & SVP, Hindustan Coca-Cola Beverages. The three IT leaders also describe how they are using IT to surmount challenges and outline their expectations from government initiatives to give a boost to the industry.

 

 

 

 

 

 

 

What are the technology trends that would prove to be disruptive for the FMCG industry in 2017-18?

Pratap Varshney: Digitization is disrupting the FMCG sector in our country. The salesfront and the distribution channels get heavily impacted with the rise of automation. Predictive analytics and big data are being used nowadays to understand the customers’ requirements, which enables us to micro-segment them based on purchasing behavior. E-commerce, on the other hand, acts as a key driver for the industry’s growth. FMCG companies need to have proper speed, agility and ability to think and act ahead of the curve.

Girish Rao: The FMCG industry doesn’t get affected much by the economic cycle of a country, unless and until there is some big revolution like GST or demonetization. Having said that, in terms of long-term planning, even FMCG companies need to be adaptive to newer technologies, proactive to deal with difficult situations, and flexible in terms of their deploying strategies to stay competitive in the market. A major catalyst accelerating the growth of the sector is digitization.

Sanjay Kotha: Digitization is a mega trend that has impacted the FMCG industry as a whole. Big data, the speed of social media, and retailer polarization also help in the exponential growth of the industry. FMCG players are taking on enhanced strategies for digital marketing and are using advanced tools to analyze customer behavior patterns better, but all this has been underpinned by the strategic use of technology.

How is your company stepping up its digital game for 2017-18? 

Varshney: We are working aggressively on plugging the gaps in the supply chain and distribution channels by implementing a proper system to manage the inventory better. Apart from digitizing more than 1,000 medical centers, we are trying to consolidate our online presence with websites and a mobile app. We also have an innovative R&D facility, which is equipped with advanced technologies. We believe that digitization is a very important organizational tool to ensure repetitive purchases and brand extensions.

Rao: Social and IoT are going to play a huge role this year, for our organization, to get deep insights into consumer behavior. Also, as a lot of data is being generated on a daily basis, analytics could be used to understand the patterns and making proactive decisions. So long we have been using our capabilities to gather information, but now we are aiming to leverage that data for our business growth. So, to remain in business, FMCG companies have to think themselves as a digital platform.

Kotha: Automation is our main focus this year, to improve the customer experience. We are also aiming to enhance our sales force automation, with a seamless mobile application, which will help our field employees to have a better understanding of our customers, and connect with them in a better way. We are expecting the government initiatives to have a significant positive impact on the sector. We are also improving distribution networks to expand our reach in rural India.

How will GST impact the industry?

Varshney: Since we procure raw materials locally and the thrust on exports is minimal, factors like currency exchange rates have no significant impact for us. With GST implementation we will be able to optimize logistics and distribution costs in a better way. We are also aiming to tweak our warehousing systems and modernize our IT infrastructure. GST transition impacts every aspect of the business operations and therefore it requires a whole-of-business approach to ensure a smooth transition.

Rao: We are pretty tuned in with the system, and ready with our strategies to deal with GST and other government initiatives. But the combined effect of demonetization followed by GST will create some disruption because small players and traders are not ready to embrace it yet. These players would need to go through a transformation because businesses would need IT support to proactively handle the shift. Therefore, the FMCG companies should cut advertisement spends at least in the short-term.

Kotha: For FMCG industry GST acts as a major differentiator. We have partnered with PwC to carry out a strong research of the post-GST scenario, to stay ahead of the game. We are also working towards switching to larger warehouses instead of continuing with several smaller ones. This, in turn, will facilitate better management of logistics and faster movement of goods. We are also working on having an efficient transportation system with better transit times.

 

 

 

 

 

 

What challenges will this industry face this year?

Varshney: FMCG industry has always faced revenue related challenges. Managing availability in the complex distribution set up and dealing with complex tax structures act as obstacles for this sector. An efficient FMCG business requires the support of high-quality infrastructure, which includes good highway networks, well-constructed interstate roads, and proper facilities for warehousing in rural areas. Therefore, given the challenging business environment, the government should support the sector to fuel the growth.

Rao: The paradigm shift in the industry is definitely creating a lot challenges for the FMCG players. Intensified competition, rural slowdown, consumer awareness, lack of infrastructure, and regulatory issues are the major issues for the sector. As the sector is fairly unorganized, the players face competition from local companies which benefit on account of local presence, exemption of excise duty, focused product lines and minimal expenditure on marketing.

Kotha: As the FMCG market in India is fairly unorganized, the local firms can manage to compete with big players on the basis of their local presence. However, shrinking margins, sustainability, having an effective supply chain management and managing your brand portfolio always have been the concerns of an FMCG player.

How does the future of Indian FMCG industry look like?

Varshney: The rising of disposable incomes, growing population and awareness, and consumption-driven society, are transforming the face of the sector. We are aiming to set up our own mega marts across cities to exclusively sell Patanjali products. We also have plans to expand to tap further revenues across geographies.

Rao: Although it was a roller coaster ride, this industry is expected to grow significantly in the coming years. Increased focus on the rural section will boost the incomes, which in turn will provide better growth prospects to FMCG companies. Also, better infrastructure facilities will improve their supply chain. If FMCG players are able to grow awareness among their customers, they would be able to generate higher growth in the near future.

Kotha: Implementing big data in FMCG industry has helped the players a lot to understand the customer behavior. Mobility and online services are also becoming increasingly dominant in the sector. The smaller towns and cities of our country can also contribute in shaping future demand for the sector. FMCG companies require building capabilities in digital marketing and new emerging channels like e-commerce to thrive in the business.

 

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