Market Insight Interview

Interview with Saibal Banerjee, Retail Veteran, Sharing His Views on India's FMCG industry

While the COVID-19 pandemic deeply impacted all globally, food retail on the other hand benefited from the crisis. India's domestic and global food retailers and brands experienced sales surge and soaring demand for food products with the pandemic forcing people to stay home.This massive shift in consumer behaviour forced brands to update their marketing strategies.

Post Covid era in India is a highly competitive market and the traditional way of doing business won't be enough to survive. Fundamental changes to business strategies and mindset are needed. But what should these be?

In this conversation, Saibal Chandra Banerjee (Chief Merchandising Officer of premium gourmet food retail chain in India) talks about the impact of the pandemic on India's retail industry, the changing customer behaviours and trends.

Excerpts from the interview:

Food retail has immensely benefited
Speaking of the impact of the pandemic, I think we have to dive deeper for a clearer picture. Non-food retail has taken a beating due to this global crisis. Fashion, general merchandise, traditional restaurants and quick-service restaurants (QSRs), among many others, have been severely impacted.

Food retail, however, has immensely benefited as they are essential commodities. Most retail brands [dealing in food products] have seen great sales performance because Indian customers shopped heavily on essential food items. Both local and foreign brands grew stronger during the lockdowns with increased consumption. As a result, across India’s major cities, retailers registered the average book value at a 15 percent increase. The drop in retail store footfall gave life to a new channel - online grocery shopping.

India's premium retailers have seen double-digit growths because of the shift to home based interests like cooking, baking and entertaining. Pasta, sauces and condiments, cuisine-themed meals, baking needs, snacking, coffee, ready-to-eat items, and frozen food products have emerged as popular food categories.

When it comes to the restaurant industry, there has been a surge in the online business of QSRs and restaurants. The early movers had an advantage. However, online business and its razor-thin margins (after passing a cut of sales to aggregators like Zomato and Dunzo) is commercially less viable to operate a restaurant business.

I think they should increase their online penetration further. Restaurants need to shift their business contribution from online aggregators to their own portals/websites for better margins.

Digital marketing spends are on the rise
As the country grappled with the pandemic crisis, online platforms emerged as the primary channels with over 30 per cent contributions to retail food businesses, a steep rise from a single-digit percentage point, pre-COVID-19. While digital marketing spends in eCommerce and social media have increased, it is minimal compared to the overall marketing budget. This should be accorded with greater importance to target the well-travelled, tech-enabled and savvy Indian urban consumers.

In these changing times, I have witnessed businesses adopt technologies quickly to re-engage their shoppers. Many pivoted to create different WhatsApp catalogues for different product categories (such as cuisines, pantry essentials, cheese, chocolates, fruits and vegetables, etc.) and shared them with their consumers and subscribers for shopping convenience.

In India, while overall marketing spends have reduced by half compared to the previous year, consumers’ need to purchase are not dampened (if at all!). However, with shopping malls opening across the country, the online contribution in business is expected to taper and maintain at 20 per cent. This signifies a permanent shift in consumer behaviour in making online grocery shopping a habit to meet their daily needs.

Consumers will get into revenge shopping
"As the pandemic declines, consumers will indulge in revenge shopping of non-essential items such as gourmet and international products"

As more of the Indian population are vaccinated and we slowly regain control, life returns to normalcy. It is foreseeable that the demand for non-essential items bouncing back stronger. Consumers will now be indulging in *revenge shopping mode for non-essential categories such as gourmet and international products.

The market is expected to experience exponential growth this Diwali (A major religious festivity celebrated this year in November 2021). The shift is already visible in the food business as home cooking, home baking, and entertainment-at-home trends are growing. This represents a permanent shift in consumer behaviour.

(*Revenge shopping refers to consumers making up for lost time with increased spending. This boosts sales of consumer-focused companies. In China, for instance, French brand Hermes's Guangzhou flagship store reportedly generated US$2.7 million in sales the day it reopened after a prolonged lockdown).

Changing Indian demographic means hyper-local strategies
As reported by The Sunday Guardian, India's current population is at 1.38 billion, and it is likely to hit the 1.5-billion mark by 2030; more than 50 per cent below the age of 25 and 65 per cent below the age of 35, with the average age being 29-31 years.

Understanding the younger demographic can be a clear advantage for brands who innovate and adapt to their palates. This means concocting a product range that is suited to the taste preferences of these young Indian consumers.

India has enormous potential for any new brands from a volume perspective.
But understanding the diversity, the different segments and value chain is critical for any new entrants into the market.

Assortment, pricing and promotions - these are key elements to consider in a proper market expansion plan for international brands when making in-roads into India. Together with this, brands can implement a decentralised organisational structure to enable more decision-making power at a local level which will yield better results.

From brand-centric to category-centric approach
Merchandising has evolved in India in the past few years. The approach has now shifted from brand-centric to category-centric.

In the brand-centric approach, the customers' convenience and requirements are not given due importance. Here, the products are sold to the market based on their features. It doesn't take into account why these features are important to the buyer.

In the second approach, category comes first. Here, the assortment, category flow, plan and programming play crucial roles. Customers' needs for the right products and ease of navigation are given utmost importance. Here, the products are marketed in a way that resonates with the customer's requirements.

In essence, the category approach is better in the long term. It is stable and will lead to consistent sales growth. In merchandising, Indian retailers have benefited from the evolution of category captains. These experts bring in the best practices from around the globe.

Is India a price-sensitive market?
India remains a price-sensitive market when it comes to the lower end of the social pyramid. However, as we go up the socio-economic pyramid, we have a hefty consumer segment that has evolved, is well travelled, believes in quality and are willing to spend. Brands with good quality products and offering good value will always be well-received by Indian shoppers.

Alternative protein market will see excessive growth
India has already started its journey in the plant-based meat segment. Beyond Meat made its debut as the first international entrant into the market in April 2021. Prominent local companies such as Imagine Meats, Shaka Harry and Good Dot have also joined the vegan meat trend and are rising their way to the top (of mind and purchases) with consumers.

I think this industry is here to stay. I believe more brands will emerge in this sector in the coming years, and we will see excessive growth.

(A recent USFDA report said that India has a large vegetarian population and a strong demand for healthy foods. These two factors are accelerating the expansion of alternative meat products in the country. Many plant-based meat companies in India have already formed joint ventures with international food processors to develop meat substitutes derived from wheat pulses, potato, and soybeans)

*The views and opinions expressed here are those of the interviewee and should not be attributed to any organisation which the interviewee is employed or affiliated with.