40% of FMCG purchases in India to go online as segment approaches $45 billion

17 October 2017 Consultancy.in 5 min. read

Over 40% of the purchases in the Fast Moving Consumer Goods Industry (FMCG) in India will be conducted online, according to a new report by Google India and The Boston Consulting Group (BCG). The digital drive is set to take the overall segment up to a value of $45 billion by 2020 (nearly Rs. 3 lakh crore).

The Internet landscape in India is due for monumental expansion, and experts in the market are scrambling to predict the impact that such a digital transformation will have on the substantial market. In July, BCG reported that the Indian Internet-base was set to grow to 850 million users, transcending age and gender barriers as well as the urban-rural divide.

Since then, Big Four accounting and consulting firms KPMG and EY have both released reports of their own on the expanding digital space in India, particularly with respect to its impact on advertising, media and entertainment. Now, in collaboration with Google India, BCG has released another report titled ‘Decoding Digital Impact: A $45 billion opportunity in FMCG.’ With a self-explanatory title, the report deals with the FMCG segment of the Indian market predicting that over 40% of the purchases in the segment will take place online by 2020.

FMCG spend

The rapid growth in digital transactions will coincide with the growth of the internet user base – projected to reach 650 million by 2020 –and will drive the overall value of the segment up to $45 billion (nearly Rs. 3 lakh crore). In correlation with income levels and digital access, 28 million households (10%) are expected to contribute $27 billion (approximately 1.7 lakh crore, 60%) of the total segment value. At 40%, digital penetration into the FMCG sector still remains less than, but comparable to, the penetration level in other segments such as Apparel or Consumer Electronics, at 45% and 60% respectively.

The growth builds on a broader development which is seeing India's consumer market expand, particularly on the back of expansion in the top tiers of the country's household spending groups. Affluence is also becoming much more widespread, which will drive the uptake of online penetration and e-commerce.

Type of Households

Within the segment, digitisation is predicted to spread disproportionately across categories. For example, while the digital influence could be greater than 50% in Baby Care products or fragrances, it could end up at less than 25% for laundry or toilet care. Moreover, the transition also appears to have boosted spending behaviour across categories within the FMCG segment. According to the report, an online consumer spends between 3 and four times as much as an offline consumer on products such as toothpaste or face-wash.

The report notes that a transition to the online domain shifted the consumer’s focus from a brand-oriented approach to a problem-oriented approach. For instance, as per the report, a consumer is 7 times more likely to search for ‘hair fall’ than for ‘shampoo’ or a specific brand name. Therefore, the report calls for brands to build associations with the problems in order to boost their online profile, especially in light of the fact that the offline market leaders do not appear to have retained their position in the online domain.

Share of Digitally Influenced Consumption by 2020

Commenting on the scenario, Abheek Singhi, Senior Partner at BCG and co-author of the report, "Digital influence is no longer something in distant future. The urban India consumer already spends more time online than on print and TV. In FMCG, 40% of spend will be influenced digitally by 2020 and this will be driven by the 3 V's - video, vernacular and views & opinions.”

Meanwhile, the Industry Director for Google India, Vikas Agnihotri said, "FMCG was considered the last bastion for digital adoption but not anymore. It's growing rapidly and much faster than the industry imagined." 

In anticipation of this boom in internet users, expenditure on digital advertisement in India is also set to skyrocket over the next few years, at a Compounded Annual Growth Rate (CAGR) of around 31% and an expected value approaching $295 billion by 2021. The growth sees advertisers attempt to cash in on rapid expansion of the internet consumer base in the country, and the resultant increase in data consumption.

Besides FMCG purchases, a joint report from PwC and Strategy&, released towards the end of 2016, found that shopping for retail products, electronics and cosmetics are other main drivers in the e-commerce landscape.