If you are a small local FMCG firm trying to compete with the behemoths in the country, two of the most important challenges you will face is getting your products in the shelfs and getting people to sample them.
The Covid crisis, in which many of the larger FMCG players have been struggling to get their products to the retailer amidst a surge in demand and supply chain breaks has presented a unique opportunity for the smaller firms to nibble away market share. But will the trend reverse quickly once things return to normal, or will elements of it stay. We look at that and more in today's post.
The rise of David
If you're a small firm looking to reach out to the customers, there are mutiple channels you could use to get to them. The three most common are your mom and pop stores, hypermarkets and online. Hypermarkets would generally avoid keeping small unknown brands on their shelves. Mom and pop stores will let you in, but seek better credit terms and higher margins. And they are not wrong in expecting that - because in all likelihood your product will move off the shelf quite slower than that of a large FMCG firm.
But what happens if people are buying everything they can get their hands on, firms are running at low capacity, and face supply chain glitches. Well, if you're a smaller player looking to enter the market it gives you a unique opportunity to get into stores, and more importantly into customer hands who would rather have some varient of the product than nothing at all!
Will David fall?
But when things start getting better, (and don't worry, they will get better!) will larger FMCG firms quickly kick these smaller firms out. It helps to look at the numbers here. A survery by a major consulting firm indicated that ~65% of customers have tried new brands and ~10% plan to continue with them. While surveys should always be taken with a pinch of salt, the numbers are striking.
Shelf space will obviously be hard to come by once the larger players come to market. But the lower price point of the local competitor combined with a differentiated product will have takers in the market. In that respect part of the change will be irreversible. If this lasts longer and customers develop a taste for the product or the price, the switch back to big FMCG could be harder.
What lies ahead?
As we head into a period of economic slowdown, price will become more important to the end consumer. In such an environment, cheaper product lines will find themselves in high demand. In this context the threat of local players competing on the lower end of the spectrum becomes even more real. We will continue to track the space and analyze how the trend unfolds.
About the Author: The post is written by Ganesh Nagarsekar. Ganesh is a graduate from IIM Calcutta and has worked with J.P. Morgan and Goldman Sachs, before founding GSN Invest.