‘FMCG industry on a rugged road to rural India’ – SAMIKSHA at NITIE

A Panel Discussion on

FMCG industry on a rugged road to rural India

15.02.2014

National Institute of Industrial Engineering

The FMCG industry in India is going through a metamorphosis. As, companies are looking to capture new markets and starting to look towards rural India, the landscape of the FMCG industry is changing drastically. So Samiksha, the Industry Interaction cell of NITIE, decided to conduct a panel discussion on the topic “FMCG industry on a rugged road to rural India.” The panel discussion had eminent panelists from leading organizations. The panelists were:-

1   Mr. Arjun Varma, Director, Supply Chain, Nivea India

2   Mr. Bipin Reghunathan, COO, Radhakrishna Foodland Pvt. Ltd.

3   Mr. Rajat Mahajan, Director, Management Consulting, Strategy & Operations, KPMG

4   Mr. Mohan Abhyankar, Director, Business Excellence & Quality, Bristlecone

5   Mr. Somnath Das, Head, Supply Chain Planning and Logistics, Marico

6   Mr. Sunit Mukherji, Assistant Vice President, Supply Chain Planning, Mondelez

7   Mr. Javin Bhinde. Director & Co-Founder, SynCore Consulting Pvt. Ltd.

 

The moderator of the event was Mr. Krishna Gopalan, Associate Editor of Business Outlook.

The panelists poured in their opinions on the topic and the event turned out to be a huge learning experience for the students.

The event kicked off with the panelists sharing their views on the topic. Later on, the questions raised by the audience were taken up for discussion by the panelists. The discussion revolved around the attempts made by various FMCG companies to foray into rural markets, their success, their challenges, and the trade-off that organizations make between going long-term and going short-term while launching products in the rural markets.

Mr. Bipin Reghunathan said that a huge chunk of the people who live in the bottom of the pyramid live in rural areas and that 78% of their spending is on food. This translates to the fact that the demand for FMCG products in rural areas is high. To illustrate what it takes to succeed in the rural markets, he took the example of HUL’s Shakti Project. HUL’s strategy of training rural women and employing them to distribute products which were strategically packaged and priced to suit the rural consumers met with roaring success. He also said that the depth and width of the FMCG products are rather low currently and must expand with a long-term vision for the rural market for the industry. Mr. Bipin also spoke about the advantages and disadvantages of using government postal services for distribution of the products. When the discussion veered towards the electronics industry, he mentioned that the marginal structures and the cost structures of the industry are better than that of the FMCG sector and hence its players are able to absorb the costs of distribution.

Mr. Arjun Verma’s opinions came as a breath of fresh air as he started off by explaining how Nivea has been performing in general and the steps taken by Nivea to penetrate the rural markets. He attributed the success of the electronics industry in foraying into rural markets to the huge revenue per piece of an electronic gadget sold. He also said that the industry has picked up the nuances of distribution from the FMCG sector. He also spoke about the importance of collaboration among major players which would give extra leeway to the organizations to adopt a long-term strategy by bringing down the costs of distribution. He illustrated what it takes to succeed in the low income population strata with the examples of Pepsico’s ‘Lehar Foods’ and a regional brand ‘Balaji’. Both the brands operated on a low, fixed cost model. ‘Lehar Foods’ never forayed into manufacturing, instead it operated with the help of eight third-party partners which brought down its fixed costs.

Mr. Somnath Das started off by speaking about the dilemma of tactical versus long-term decisions that firms need to make for product penetration in rural markets. He also said that for a product to perform well, it is not just the novelty of the product that counts, but also the eco-system around the product plays a huge role in its success. He stated that, at a broad level, FMCG players have shown high inclusiveness for the rural markets in the supply chain when it comes to services below the last-mile delivery, but not much above it. He also spoke about the effective use of technology at Marico to ensure transparency of transactions. He threw light on the various initiatives taken by Marico to modernize the supply chain. These include setting up of Copra Collection Centres and web-based reverse auctions to aid price and quantity discovery.

Mr. Mohan Abhyankar put forward some thought-provoking arguments. He spoke about the questionable infrastructure that exists for the flow of information and the flow of material which is posing serious problems in meeting the demand requirements of the rural markets. He also touched upon the lack of innovation in the products and in the supply chain as a reason for the lack of penetration by FMCG sector. He also spoke about the effectiveness of the UK post office system when the idea of using the Indian Post office services for distribution was mulled over.

Mr. Rajat Mahajan spoke about the existence of high amount of disposable capital in the hands of the rural consumer as against the popular perception. He also cited the willingness among the rural business community to open high distributorships to show that there is a platform for growth for the initiator with long-term plans. He said that opening up of the banking sector, increase in the number of entrepreneurs, and the improving social capability of entrepreneurs augur well for the FMCG sector. He broached the concept of a “socially inclusive and smartly exclusive supply chain” for rural India to distribute and reach the last mile at the right cost and the right time. Taking advantage of the entrepreneurial spirit of the rural community is tantamount to having a socially inclusive supply chain, and designing the supply chain exclusively for the rural community is tantamount to being smartly exclusive.

Mr. Sunit Mukherjee started off by stating that the FMCG sector grew 3.5 times from 2000 to 2005 in rural areas due to path-breaking strategies, distribution models, and the boldness of the FMCG sector. He also said that the 6th Pay Commission would result in more discretionary spending in the hands of the rural consumer. He also mentioned that innovation in product development as well as in packaging and distribution plays a huge role in the success of the FMCG sector. Some examples of successful innovation which he stated were Maggi at Rs. 5 which were tailor-made for rural areas, as well as Coca Cola at Rs. 5. Although there were lots of challenges in the implementation, they met with stupendous success. Mr. Sunit also illustrated the criticality of technology when he spoke about how P&G takes tertiary data (data from Point-of-sale) and puts it into the SAP system and goes about the planning process using the same data which reduces bullwhip effect. He also mentioned that the electronics industry is performing well in rural, thanks to its efficient distribution system.

Mr. Javin Bhinde set the tone by saying that organizations should dare to go long-term in rural markets. He also said that the industry should understand that the rural citizen is not tech-savvy and must create the product by understanding the rural customer and not just place what already exists. He also said that the product will find its way into the market if positioned correctly. However, he mentioned that the companies face a dilemma in the form of the amount of reach that they want to achieve against their profit protection motives. Mr. Javin also stressed the need to constitute a different team to look after the needs of rural markets as the promotion strategies required for the tailor-made products would be significantly different.

Overall, there was emphasis on the importance of adopting long-term strategies for effective penetration of the FMCG sector in rural India. Also, innovation in product, distribution, and cost reduction in last-mile delivery were reiterated as the important factors necessary for success in the target market.

NITIE Mumbai

PUBLISHED BY Corporate and Media Relations Cell, NITIE Follow us at- https://www.facebook.com/mrc.nitie

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