3 reasons why FMCG demand is coming back with a bang: Harsha Razdan, KPMG
Now the big story is that the India romance is centred around consumption and consumer companies will do very well. But why are we getting a sense that there seems to be a sudden resurgence and revival both in urban demand and in rural demand? The commentary which we have got across-the-board for FMCG companies seem to be pointing that demand is back with a bang. Do you agree?
I agree with you. In fact, there are few data points which I believe are actually hinting towards the same direction as you point out. Let us look at GST. GST has stabilised over last year. Government has put in place a few GST slab cuts. Eventually, this will lead to price cuts for the consumer and will spur demand.
Let us look at the rural spending and the investments that the government is doing in the rural domain. There has been MSP declaration by the government around kharif crops. The crops that they have targeted are about 50% of the major commodities that the common man and woman will consume.
There have been and we are looking to invest hugely on infrastructure in the rural areas. Then there are companies such as NABARD who are looking at spending about Rs 10,000 odd crore on animal husbandry and fishery.
All this will eventually lead to higher disposable income per rural consumer and eventually spur demand.
And last but not the least, we expected it to be a normal monsoon. It has by and large been a normal monsoon this year and I guess, it again talks a lot in terms of how the industry would move.
At times, people are challenging these three parameters we are looking at. Crude oil prices could actually have a little bit of a dampening effect in terms of how FMCG demand shapes up. There could also be the case of excess water or floods like in Kerala. But again, it depends on how this pans out. Overall, the three big parameters — GST, rural and monsoon — would lead us to look upwards for FMCG in the near future.
As that transition happen, do you think that it will lead to a massive compounding effect for a lot of consumer companies that are building their distribution networks through the semi-urban, rural areas? Is the market pricing in that a tremendous inflexion point of growth will come through from that side of the market.
If you look at the Indian demographics, our median age still remains at about 27 or 28 which is much lesser than any of the comparable countries. In other Asian countries, it is in early 30s, China is 37. Our population is still growing at 1-1.2% for the next 30-40 years. We also believe that the working population is about 50% of overall population. That will remain so for the next 30-40 years.
Very clearly if you have the three parameters, GST, rural and the monsoon, kicking in again and again, there is no reason for the consumer uplift in demand to continue over the longer term.
Where is the maximum growth coming in within FMCG? Is it going to be in dairy, bakery, the snack market or would it be the aerated beverages which are going to see that maximum play?
It is going to be food overall which would lead the pack. It does not mean that categories such as personal care or other categories of that aerated beverages do not kick in. But food, given the fact that we have such varied taste within the country, and given the fact that this is an underpenetrated category for branded products, it can only go up. The distance between other categories and foods will continue to be maintained or strengthened in favour of food.
When you say food, can you be slightly more specific. This category may not see expansion in terms of budget but in terms of profile, which are the companies which to your mind are in the best suited categories when it comes to food? When it comes to American food companies, they have largely become big in packaged food category. Now there is an entire health rhetoric against sugar drinks, packaged foods. Do you think what Americans have created in their food market in last 25 years, Indians may not be able to replicate that?
From the Indian market perspective, very clearly non-Indian companies, whether American or European, will have to customise to the needs of the Indian consumer. You would see a lot of Indian start-ups fruiting up very rapidly in the food space, because there is a huge amount of unmet need which has been serviced by these various companies.
Advent of modern trade has given a huge slew of different quality experience of shopping which is aiding all this expansion in the food. E-commerce has helped it even more. It expanded beyond an unimaginable period. There are companies like Grofers and others .
Very clearly, this sector is bound to grow and very clearly Indian food companies will continue to grow better. The MNCs will have to play a role in terms of how they customise, how they adapt to the Indian taste and their needs and price points if they want to make it big in this space.