Big FMCG firms move to protect turf as competition from start-ups hots up

Last week, Hindustan Unilever (HUL) said it was launching a liquid detergent, responding to retailer Future Group rolling out a similar product only a few weeks earlier in its stores. This is one of the most recent examples — not the first, and definitely not the last — of a fast-moving consumer goods (FMCG) company fighting competition from unconventional rivals, whether online or offline.

In recent months, FMCG firms such as Dabur, Marico, ITC and Bajaj Consumer are all padding up, launching digital-only brands in categories such as personal care, male grooming and premium hair nourishment, as e-tailers and start-ups increasingly get aggressive.

In the past one year, companies such as Emami, Wipro Consumer, and Marico invested in online grooming companies such as The Man Company, Ustraa and Beardo to tap into the growing segment. Some others such as Proctor & Gamble have set up an India-focused fund to invest in start-ups that can collaborate with it.

During his address to shareholders last month, HUL Chairman and Managing Director Sanjiv Mehta said the company would take all necessary steps to be future-ready at a time when the digital economy was increasingly becoming central to consumption. 

“Over the next decade, the country will have a large cohort of ‘Generation Z’ consumers who would have grown up in an India with ubiquitous internet, smartphones and digital media. As they start earning and consuming, they will actively use technology-enabled platforms, impacting purchase behaviour. With the world changing around us, HUL is adapting to be future-fit,” he said.

Bajaj Consumer, for instance, is working with Reliance Retail to target consumers of premium ayurvedic hair oils that frequent its stores. 

“As modern trade grows as a channel, FMCGs will have to look at products suitable for that segment,” said Sumit Malhotra, managing director, Bajaj Consumer. “The same applies for the online channel too. Consumer engagement across platforms is growing, forcing companies to relook at strategies.” 

A recent report by Boston Consulting Group on India’s retail landscape said modern trade would grow twice as fast as traditional trade over the next few years, contributing around 15-17 per cent of FMCG sales versus 9-10 per cent now.

E-commerce, on the other hand, would contribute to about 5-6 per cent of FMCG sales from about 2-3 per cent now, said experts tracking the market. Niche categories across home, personal care and foods will also see higher penetration. 

The influence of digital platforms is already higher than traditional trade, with nearly 40 per cent of FMCG consumption affected in some way or the other by digital platforms, said Abneesh Roy, senior vice-president, research (institutional equities), Edelweiss. 

Retailers are also launching private labels aggressively to take advantage of the boom. 

On Friday, Reliance Retail said it had launched its own food brands under the brand Snac Tac and a juice brand called Yeah at its stores during the June quarter. It would ramp up efforts in the coming months, including a push to omnichanel retail.