Major players have long dominated India’s fast-moving consumer goods (FMCG) sector with a widespread national and international presence. However, regional brands have carved out a significant market share by leveraging competitive pricing, localized operations, and deep-rooted connections with regional consumer bases. During the pandemic, their agility allowed them to capture notable market share from larger corporations.
The FMCG market’s total revenue is expected to grow at an impressive CAGR of 27.9% from 2021 to 2027, reaching nearly US$ 615.87 billion. In 2022, the urban segment contributed 65% to the overall annual FMCG sales, while rural India accounted for more than 35%, showcasing the sector’s diverse consumer base (ibef.org). Yet, the fiscal year 2023-24 has revealed vulnerabilities in the growth trajectory of regional players, with many experiencing a deceleration in sales growth. Source: ibef.org
The Ascendancy of Regional Brands
During the COVID-19 pandemic, supply chain disruptions severely impacted larger FMCG companies, allowing regional brands to enter the market. Their localized manufacturing and distribution networks enabled them to meet consumer demands efficiently.
Market Share and Growth:
- Regional FMCG brands controlled over 40% of the market in categories like snacking and spices (Economic Times). Examples include Balaji Wafers in the snacks segment and MTR in the spices category.
Pandemic Advantage:
- Proximity to local markets and reduced dependence on global supply chains provided a strategic edge, enabling faster replenishment and reduced costs.
Consumer Trust:
- Many consumers favored regional brands for their perception of authenticity and alignment with local tastes.
Key Challenges Leading to Growth Deceleration
Despite their pandemic-era success, regional FMCG brands have encountered significant hurdles in sustaining rapid growth in the post-pandemic economic environment. Key challenges include:
Economic Slowdown
The broader economic slowdown in India has affected discretionary spending, impacting regional and national FMCG players. Lower rural incomes and higher inflation have reduced the purchasing power of a significant consumer base.
Declining Consumer Sentiment:
- Economic data from FY 2023-24 indicates a contraction in FMCG sales volume growth of 6.4% during Q4 2024, reflecting a shift toward value-for-money products (NielsenIQ).
Operational Scalability
For many regional brands, the rapid revenue growth experienced during the pandemic posed challenges in scaling operations.
- Supply Chain Limitations: Chandu Virani, founder of Balaji Wafers, highlighted operational inefficiencies and difficulties in sourcing raw materials as key constraints (Economic Times).
- Production Challenges: Expanding manufacturing capabilities to meet heightened demand proved challenging, sometimes leading to supply shortages.
Commodity Price Volatility:
Fluctuations in the prices of key commodities, such as edible oils and grains, have disrupted cost structures.
Impact on Margins:
- Although commodity prices declined in 2023, the benefits were insufficient to offset earlier inflationary pressures, squeezing profit margins.
Rising Competition from National Players
Large FMCG companies have begun to recover from pandemic disruptions, reclaiming market share by deploying aggressive marketing strategies and leveraging economies of scale.
Implications for the FMCG Sector
Shifting Market Dynamics
As regional brands grapple with operational and economic challenges, national FMCG players are positioned to regain some of their lost market share. This shift may lead to intensified competition across product categories.
Consumer Impact
Changes in market dynamics will likely affect product availability and pricing. Consumers may experience a shift toward either premium offerings from larger companies or more value-driven products from regional players.
Strategic Adjustments
Both regional and national brands must reassess their strategies to remain competitive. Areas of focus include:
- Supply Chain Resilience: Investing in technology and infrastructure to streamline operations.
- Sustainable Pricing Models: Balancing competitive pricing with profitability.
- Localized Product Development: Tailoring products to meet evolving consumer preferences.
Conclusion
Regional FMCG brands in India have demonstrated remarkable resilience and adaptability, particularly during the pandemic, by capturing significant market share through localized operations and competitive pricing. However, the economic challenges of 2023-24 have highlighted the need for these brands to evolve. Addressing operational inefficiencies, enhancing supply chain capabilities, and navigating commodity price volatility will be critical to sustaining growth in a highly competitive market.
As the FMCG sector continues to evolve, the interplay between regional and national players will shape consumer experiences and industry dynamics in the years to come. For stakeholders across the industry, the current period represents both a challenge and an opportunity to innovate and adapt to a rapidly changing landscape.
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FAQ
What are regional FMCG brands?
Regional FMCG brands are companies that operate primarily within specific geographic areas, offering products tailored to local tastes and preferences. Examples include Balaji Wafers and MTR Foods.
How did regional FMCG brands grow during the pandemic?
Supply chain disruptions faced by larger corporations allowed regional brands to step in. Their proximity to local markets enabled faster replenishment, competitive pricing, and alignment with local consumer needs.
What challenges are regional FMCG brands facing in 2023-24?
Key challenges include economic slowdown, operational scalability issues, commodity price fluctuations, and increased competition from larger national players.
How are larger FMCG companies responding to regional competition?
National players are leveraging economies of scale, investing in marketing, and deploying aggressive strategies to regain market share.
What strategies can regional FMCG brands adopt to sustain growth?
To sustain growth, regional brands can focus on enhancing supply chain resilience, adopting sustainable pricing models, and continuing to innovate products based on localized consumer preferences.
How does the economic slowdown affect FMCG consumption?
Economic slowdown reduces consumer purchasing power, leading to a shift toward value-for-money products and a contraction in overall sales volume.
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I’m Archana R. Chettiar, an experienced content creator with
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