 "E-commerce and FMCG stay out of each other's way, but only just")
When major consumer electronics and durables companies had opposed the predatory pricing tactics of e-commerce counterparts in the run-up to Diwali, one group seemed unaffected by the noise.
They were fast moving consumer goods (FMCG) companies. Hindustan Unilever, Reckitt Benckiser and Procter & Gamble have not hesitated to take on new distribution platforms, such as modern trade, in the past. This time, they were conspicuous by their absence.
Analysts say the reason for the silence of these companies is due to minimal impact of e-commerce on FMCG. Gautam Duggad, vice-president, research, Motilal Oswal, says: "Online as a sales channel barely constitutes anything for an FMCG company. Even after 10 years, modern trade gives an FMCG company just about 10 per cent of overall sales. Traditional trade still remains the biggest channel of distribution for most FMCG companies in India."
The Rs 2.5 lakh crore FMCG sector depends largely on a network of neighbourhood or kirana stores, mid-sized and high-end traditional trade, pharmacies and speciality stores such as health care, beauty and cosmetics outlets. Modern trade, while offering the ambience, display area and space for companies to showcase their products, hasn't been able to go beyond 25-30 per cent of sales for certain premium categories such as cosmetics, beauty and skincare. Even imported products, especially imported foods, depend on a network of high-end traditional trade rather than modern trade for sales.
Arvind Singhal, chairman, Technopak says : "Online as a medium works well for those products where there is a high level of involvement and interest, like mobile phones or books. When it comes to staples, the involvement of consumers is not too high. They are also widely distributed in the offline world and it is easier and convenient for consumers to purchase these from a neighbourhood store than go online."
Still, with the growing penetration of smartphones in India, companies are slowly but steadily waking up to the disruptive power of the online medium. Categories such as food and grocery are migrating online, with websites offering everything from deep discounts to one rupee daily deals to free home delivery to lure consumers. Karan Mehrotra, co-founder, LocalBanya.com, an online grocery store, says: "Our analysis of purchase behaviour shows that people will increasingly turn to the online medium for buying everyday products, since it saves them time and is easier to do."
However, Singhal of Technopak, which tracks the online medium closely, says this is likely only with those making fortnightly or monthly purchases. "The ones who make daily purchases or whose basket of consumption is not sizable will not turn to the online medium because it does not make sense for them to do so," he says.
Yet, companies are bracing for this new medium. A month ago, beverage major Coca-Cola India unveiled its new drink, Coke Zero, online before taking it offline. Cargill's India chairman, Siraj Chaudhry, also head of the food processing committee of the Federation of Indian Chambers of Commerce and Industry, says he sees more such deals happening online. “Coke Zero was promoted for two weeks on Amazon before it was launched in brick and mortar stores. This is a start to what will be a more established trend as we go forward. Initially, the smaller and niche products could be pushed online. As purchasing online grows as a habit, I won't be surprised if mass-market products are also pushed aggressively online, like they are in modern trade,” he said.
Most food & beverage companies are forming internal teams whose task is to talk to online marketplaces for exclusive tie-ups and deals for their products. And, beside e-grocers, bigger platforms such as Amazon are building food and beverage divisions in a bid to attract consumers and companies. A few years earlier, a similar realignment happened within FMCG companies when modern trade began growing in India. The wheel appears to have turned another circle.
They were fast moving consumer goods (FMCG) companies. Hindustan Unilever, Reckitt Benckiser and Procter & Gamble have not hesitated to take on new distribution platforms, such as modern trade, in the past. This time, they were conspicuous by their absence.
Analysts say the reason for the silence of these companies is due to minimal impact of e-commerce on FMCG. Gautam Duggad, vice-president, research, Motilal Oswal, says: "Online as a sales channel barely constitutes anything for an FMCG company. Even after 10 years, modern trade gives an FMCG company just about 10 per cent of overall sales. Traditional trade still remains the biggest channel of distribution for most FMCG companies in India."
The Rs 2.5 lakh crore FMCG sector depends largely on a network of neighbourhood or kirana stores, mid-sized and high-end traditional trade, pharmacies and speciality stores such as health care, beauty and cosmetics outlets. Modern trade, while offering the ambience, display area and space for companies to showcase their products, hasn't been able to go beyond 25-30 per cent of sales for certain premium categories such as cosmetics, beauty and skincare. Even imported products, especially imported foods, depend on a network of high-end traditional trade rather than modern trade for sales.
Arvind Singhal, chairman, Technopak says : "Online as a medium works well for those products where there is a high level of involvement and interest, like mobile phones or books. When it comes to staples, the involvement of consumers is not too high. They are also widely distributed in the offline world and it is easier and convenient for consumers to purchase these from a neighbourhood store than go online."
Still, with the growing penetration of smartphones in India, companies are slowly but steadily waking up to the disruptive power of the online medium. Categories such as food and grocery are migrating online, with websites offering everything from deep discounts to one rupee daily deals to free home delivery to lure consumers. Karan Mehrotra, co-founder, LocalBanya.com, an online grocery store, says: "Our analysis of purchase behaviour shows that people will increasingly turn to the online medium for buying everyday products, since it saves them time and is easier to do."
However, Singhal of Technopak, which tracks the online medium closely, says this is likely only with those making fortnightly or monthly purchases. "The ones who make daily purchases or whose basket of consumption is not sizable will not turn to the online medium because it does not make sense for them to do so," he says.
Yet, companies are bracing for this new medium. A month ago, beverage major Coca-Cola India unveiled its new drink, Coke Zero, online before taking it offline. Cargill's India chairman, Siraj Chaudhry, also head of the food processing committee of the Federation of Indian Chambers of Commerce and Industry, says he sees more such deals happening online. “Coke Zero was promoted for two weeks on Amazon before it was launched in brick and mortar stores. This is a start to what will be a more established trend as we go forward. Initially, the smaller and niche products could be pushed online. As purchasing online grows as a habit, I won't be surprised if mass-market products are also pushed aggressively online, like they are in modern trade,” he said.
Most food & beverage companies are forming internal teams whose task is to talk to online marketplaces for exclusive tie-ups and deals for their products. And, beside e-grocers, bigger platforms such as Amazon are building food and beverage divisions in a bid to attract consumers and companies. A few years earlier, a similar realignment happened within FMCG companies when modern trade began growing in India. The wheel appears to have turned another circle.