Supply chain disruption prompts risk rethinkFuture of FMCG/CPG : The "Great Disruption" Ahead

The FMCG/CPG industry has been a pretty structured, predictable and solid industry. It has given us products that have become part of our daily lives, some of the world’s oldest brands, amazing television advertisements and a steady return to shareholders (recession notwithstanding).

While disruption has caused massive changes to the music, financial, taxi, hotel, communication businesses, FMCG giants have remained largely stoic. But is that now about to change? The FMCG industry will change more in the next 5-10 years than it has in the last several decades and here’s 6 reasons why we think so:

1. Falling barriers to entry

Large FMCG companies have major scale based cost advantages in manufacturing/supply chain, distribution and marketing. It may be comforting to think that what happened to taxi business with UBER /OLA may not happen to FMCG/CPG. This could be a wrong assumption


Getting their products a huge presence in stores all over the country is the keystone of big FMCG and continues to be a distinct competitive advantage. However, with the increasing use of e-commerce /online shopping, new brands (like the Dollar Shave Club) can grow without investing in distribution. Add to his, the experiments with drone transportation technology underway, and we could have an even better method to get products direct to end consumers. New entrants have adopted focus distribution strategies for e.g Kinder Joy and many market leaders have lost share rapidly in those outlets. Patanjali began by selling products from its own clinics - removing the need to arm-wrestle with big FMCG for shelf-space in retail stores.

Manufacturing/ Supply chain

It has become simpler than ever in this globalized world, to find a vendor somewhere in the world who has excess capacity and will manufacture generic goods at low prices. Specialized third party logistics providers will move your products around and there is no need to invest in warehouses etc. Add to that - technology advances in robot warehouses and drone delivery.


Large FMCGs have a staggering advantage here. Their global deep pockets mean that they can spend millions on television and radio advertisement. However the source and manner in which consumers are learning about products and making purchase decisions has changed and will continue to change dramatically.

It is possible to create great content on Youtube ( Dollar Shave Club's ads went viral), engage with your customers through social media and build a brand without any TV/ radio advertisement. A brilliant example is what PULSE has been able to achieve with sheer Word Of Mouth in less than a year. @Rex Briggs of Marketing Evolution states "digital and social media actually tilted the playing field in favor of the new entrant who doesn't have the legacy ways of doing things."

2. Changing consumer preference

The interest in everything naturals/ herbals/organic has been growing exponentially. Consumers are willing to pay a premium for the “artisanal” variant of products. We see this not just in FMCG /CPG. The increased popularity of “farmer’s markets” and “granola bars” all over the world is testimony.

We are a country with many home remedies and solutions based on natural ingredients but never before did it threaten the leadership of 100 year old FMCG brands. Today Patanjali’s Dant Kanti is making a dent in the market share of Colgate. Interestingly, social media has contributed generously to this chatter and as is the norm in today’s time, there is very little validation of facts and almost immediate followership of the new fad. Brands like Garnier, Colgate have had to customize their range for India with a naturals platform/variants.

3. Rise of local brands

Middle class consumers began by preferring MNC products to desi goods. In fact MNC products were aspirational. However, as the Indian economy has grown, Indian manufacturers, who are more attuned to Indian shopper’s needs and mindsets have been acquiring market share. Kesh King is an example of how a small brand launched in one state by a local manufacturer with door - to - door selling and no advertising in the initial stages, reached a scale of around Rs.100 cr [15 million USD] and became the headline when it was acquired. ITC's Aashirvaad atta has pipped Unilever's Annapurna and General Mills Pillsbury to lead the category. Home-grown brands like Ghari, Nirma, Ujala, occupy significant share of their markets.

4. Low cost CPG products are good enough

This is especially true for fungible categories like blades, razors, sanitary protection, household cleaners, shoe care where customers do not necessarily have “brand love” (brand loyalty beyond reason) and are willing to switch to low cost, good enough options. It is possible to disrupt these categories by price especially because Big FMCG has huge margins in these categories, these products have good shelf life and limited to zero regulatory requirements.

5. Changing relationship with retail

As companies engage with direct to customer models (including e-commerce/online shopping), the relationship with traditional retail will change. While P&G eventually launched its own online subscription for razors / blades, they were not able to reduce the prices of their products as that would impact its relationship with its retailers (offline sales of Gillette amounted to 60%). On the other hand, most retailers have realized that consumers are brand agnostic and price sensitive for several CPG categories and have launched their own low cost private labels. Big FMCG now has to compete with these private labels which sit right next to their products in the supermarket shelf.

6. Whole New categories

There is an emergence of new categories (where none existed) and Paras (now Vini) has done this time and again. From launching Krack cream (for cracked heels) to Glam Up, these are categories that didn’t even exist.

These changes to the business environment call for CPG/FMCG companies to rethink their strategies and approach. This is an exciting time (like no other in history) for this industry.