Long-term FMCG trends on my mind

These are some interesting market pivots that any young FMCG business should be mindful of. They can affect the entire distribution ecosystem - makers of products, middlemen and distributors, retailers of all sizes, and customers. Let’s jump in: 

Commodities & goods go from loose to branded

Many great brands have been built from goods thriving in unstructured or loose markets by taking them to structured markets. You will see categories, like spice brands evolving from loose spices, riding on this long-term trend. Historically, for example this has happened with parachute from loose coconut oil and beverages from lack of easy availability of clean water. 

Brands working towards formalising ’loose’ will be on the right side of momentum.

Formalising distribution channels

The distribution channel mix is changing slowly but at a pace different than expected a few years ago. Online and quick-commerce have been game changers, yet their market share growth has decelerated over the last few quarters. 

Accelerated by COVID, the e-grocery wave was meant to create a significant dent in general trade. This hasn’t been the case. An indicative map of the future makes us look towards South Asian markets like Korea, where stand alone dope formats, general trade, small stores, and mom & pop outlets have held their own as majority contributors. Some of the wiser ones would say a similar narrative existed when modern retail chains first made their entry yet decades later the contribution ranges around 15% for most large brands. 

Widening consumer choices & shelf space impact

8 years ago, the idea of buying a dip or particular type of bread was alien. There was a ketchup + 1/2 idea of complementaries. The bread was just brown or white.

Today, one can order 25 different dips (and counting) and 8 different types of bread. A proliferation of SKUs is creating significant pressure on shelf space. While the consumer is spoiled for choice, its impact on retail and trade can be sharp. This means retailers will not keep products that don’t move. Its effect can be cutthroat for expiries, returns, and even new brands trying to enter the market. 

Brands need to make a clear choice between a broad online product portfolio or a specialised offline product portfolio. Widening consumer choices has given birth to more portfolios, segmenting and slicing the market into competitive bits. 

The role of money in retail

With GST now firmly ingrained , its impact is seen in the price-value equation. The number of FMCG products, typically branded, has increased as they come under its purview. This causes a unique whiplash effect on product segments.

With increasing ease of payments catalysed by UPI and a stabilisation in GST, combined with the taxes scope for wider product categories, we can see tailwinds blowing in the direction of formalisation and goods. 

We are coming close to a tipping point for small retailers where the informal component of a business is too small. The benefits of a complete POS-enabled and state-compliant solution are far higher.

What else do you think will impact FMCG over the long run?