[ad_1]
The pandemic has helped lift the share of business big FMCG firms now derive from online sales. Many report between 3 and 8% of sales being generated via e-commerce. The past year also saw companies deepen engagement with online retailers, launch their own direct-to-consumer portals and push more online-first brands.
“Shorter timeline and lower costs have made the channel a laboratory for new launches. Conventional wisdom may suggest inferior return on investment due to higher working capital and promotions, albeit this is not true,” Jefferies analysts Vivek Maheshwari, Kunal Shah, and Jithin John said in a 1 April note.
Analysts said sale of bigger pack sizes and more premium products could help address concerns around margins that FMCG companies make on online sales as compared to small offline stores.
“E-commerce has higher working capital intensity due to receivables as well as higher discounts and promotions. The conventional wisdom would suggest significantly lower return on investment versus traditional (kirana) channels. However, the gap is not as much—since bigger sized packs and premium products end-up selling more on the e-commerce platform,” Jefferies said in its note.
“Despite brands making a lower margin in e-commerce versus general trade on a like-for-like product, overall channel margins are fairly comparable due to a more premium SKU mix, in our understanding,” it said.
The total size of the e-grocery market in the country is expected to grow from $1.9 billion in 2019 to $3 billion in 2020, according to a September report from consulting firm RedSeer and online grocery firm, BigBasket.
FMCG companies have spent years building their offline reach to remote parts of the country as Indians prefer buying day-to-day from local grocery stores. The availability of groceries online isn’t exactly new—but covid has helped with consumer discovery for essential items online.
While overall revenue contribution from e-commerce is still in the single-digits, the channel is far more important in certain categories within personal care (skin), laundry and also in premium branded food. Certain categories, particularly impulse purchase ones, are less amenable to online sales, analysts at Jefferies said.
Mint had earlier reported that companies such as Marico, Dabur, Emami are also eyeing more digital-first brands apart from lining up more exclusive launches online. In the December quarter, e-commerce accounted for 8% of the sales at Marico Ltd, the maker of Parachute hair oil said.
The channel is also seeing heightened activity with Tata Group’s move to acquire majority stake in Big Basket. Reliance-backed JioMart could potentially emerge as an important sales platform for FMCG companies.
“Unlike modern trade, where the channel is dominated by three players Reliance Retail, DMart and Future Group, FMCG e-commerce has a wide array of competing platforms, including—Amazon India, Flipkart, Big Basket, Grofers, Jio Mart, Nykaa and even pharmacy e-tailers who also carry FMCG products. Supply chains too have to be tweaked to supply to e-commerce and many companies do this directly while others do it via a third-party intermediary,” the report said.
Dabur India’s chief executive officer Mohit Malhotra earlier told Mint that the pandemic has led greater propensity for online shopping among consumers.
“Targeting this emerging trend, we have already started launching a series of products exclusively for online markets. In the past few months, we have launched several products, especially for e-commerce, such as Dabur Apple Cider Vinegar, a ‘Dabur Baby Range’ with eight products apart from 100% cow ghee, organic honey, Himalayan forest honey. Many more such online-exclusive innovations are in the pipeline,” Malhotra said.
Meanwhile, Hector Beverages said that share of online sales is up from 6% pre-covid to 14% to 15% now. The company is working on more online-first launches. “In offline—it would take time to expand distribution of such seasonal products, now online squeezes the time for such launches,” Neeraj Kakkar, co-founder and CEO at the company told Mint in an earlier interview.
[ad_2]
Source link