Modern trade, regional brands gaining momentum in India's FMCG landscape

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Since joining his new office in April in the capital, Mohit Malhotra, the new India CEO of Dabur, has been busy recalibrating strategy to capture a larger shelf space in modern trade outlets across the country.

A decade of experience in international markets came handy in spotting that the modern trade channel is gaining momentum in India’s fast moving consumer goods (FMCG) landscape.

Malhotra was spot on. The latest growth numbers from market research firm Nielsen shows that modern trade played a key role in the healthy growth that the sector is now witnessing.

According to Nielsen, the FMCG sector grew 16 per cent during July-September, backed by a strong 13 per cent volume growth. Both these growth rates are highest since June 2017, when companies offloaded unusually high quantities into the trade in a rush to align operations with goods and services tax (GST). Nielsen noted that one of the key factors that helped manufacturers gain momentum is the resurging modern trade outlets.

Modern trade, for example, has grown by a whopping 22 per cent since January, compared to 11 per cent growth observed by traditional outlets, which include local kirana shops. Growth rate for modern trade in the past two quarters — April-June and July-September — stood at 26 per cent and 24 per cent, respectively.

A 16 per cent growth posted by traditional outlets during September was an added bonus.

According to Nielsen, the two factors that rocked the market – demonetisation and GST – are finally paying off. Both pushed trade towards further formalisation and gave a boost to modern trade that now contributed over 10 per cent to the sector’s total sales. “Modern trade channels – both banners (multi-outlet, large players) and standalone – have seen significant expansion,” it said.

In fact, the number of modern trade outlets have growth significantly since demonetisation. Outlets of larger players have surged to 12,000 by September 2018 from 9,700 in September 2016. For standalone outlets its 4,500 — up from 3,800.

Another key factor that boosted growth in the recent quarter is the rise of regional brands that now grows at 23 percentage points higher than large FMCG players in the country. During the September quarter, regional brands grew by 38 per cent compared to 15 per cent for big players. The small, local firms – some 48,000 of them — now form 21 per cent of the total market — compared to 60 per cent share in the kitty of top 50 companies. "The presence of regional players is predominantly in the packaged food segment where they clocked a 31 per cent growth in moving average total in September 2018. This was nearly three times the growth witnessed among national players,” it said.

According to Sameer Shukla, executive director, Nielsen India, after demonetisation and the GST, the eastern region has become a key growth engine. During the last quarter, the eastern market, smallest of the four, grew 18 per cent compared to nine per cent earlier — lifting the national average. Rapid formalisation of the trade channel in recent quarters in the east that was heavily dependent on wholesale earlier improved growth.

Now, with inflation under control and a healthy growth in gross domestic products in the horizon, Nielsen forecasts that the FMCG market will further expand by 13 per cent in the December quarter.

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