Disruptive Changes in Indian FMCG Space
Disruptive Innovation is a catchphrase in today’s world and frequently applied in a wrong way. It is reflected in terms of creation of new markets and value enhancement for customers through path breaking products and services. In some industries it is almost a synonym of invention and it is impossible to separate out invention from innovation. Innovation is usually seen as something significantly different from existing one. Disruptive is understood as the one which destroys and replaces the contemporary. Innovation is linked to higher economic return in most industries and is to destine to be the necessity for all. The routines have to be altered to adjust to the needs of new products, processes, infrastructure and supply chain. This essentially means changes have to be brought in many organisational pillars like beliefs and values which are not easy. There is a constant threat whether to focus on developing existing products and capabilities or risk losing to innovators or go for innovation and inherit risk of losing to those players who can bring greater efficiency in existing products and practices. It is because of these risks many companies sometimes prefer not to undertake innovations or at times fail to recognise the looming threats of disruptive innovations.
In western world, it is a common feeling that disruptive innovation means replacement of an existing product, technology or process with new improved one. It leads to belief that new invention would shake and shatter the existing world. This is often more appreciated and afraid of because disruptive innovation is admired globally. Incrementalism is often ignored because it lacks sensation. Technology and process changes taking place in market like India are more reflection of incrementalism and are stealthier rather ubiquitous. Indian consumers today and always want best value for their money. There are many examples or success stories in India market where a paradigm shifts have been brought by disruptive changes not by disruptive innovations. The early signals of disruptive changes brought by a company have been stealthy and hence many times are not understood early or ignored by the competitors.
One of the examples in India was Nirma versus Hindustan Lever battle. In span of a decade, Nirma became the household name in detergents in 1970s and 1980s.The consequent change in strategy of Hindustan Lever by 1986-87 was an outcome of disruptive change not by disruptive innovation by Nirma. HLL launched Wheel detergent to counter the threat posed by Nirma. For many early years, HLL failed to recognize the challenge because of differences in scale and size of two companies. What Micromax did to Nokia was not a disruptive innovation but a disruptive change. Nokia failed to realize the risk posed by cost effective mobile phones and changing aspirations of Indian youth towards affordable smartphones.
Patanjali Ayurveda started its journey in 2006 in a humble way as a pharmacy store. The company has changed its pace and stepped the gas in 2013 with introduction of full range of products like biscuits, hair oil, shampoos, soaps etc. Many established FMCG giants in India might have never dreamt that Patanjali could lap up Rs, 2000 crore sales in FY 15 and will aim for Rs 5,000 crore figures in FY16. The Ayurveda based company has nearly 10,000 outlets, churning sales with wide array of products. The entry of Patanjali is almost a disruptive change in FMCG space which has disturbed the strategic plans of established players like HUL, ITC, Dabur, Colgate, Britannia and Parle. Toothpaste brand like ‘Dantkanti’ is going hung-ho against brands like Colgate, Pepsodent, and Dabur Red. If Patanjali achieves the sales targets of FY16, it will be ahead of bigger player than Colgate, Emami, Jyothi Labs etc. and will be amongst top five FMCG players in the country. The feeling of ‘totally Indian’ has touched the right chord with consumers which are backed up by very aggressive marketing efforts by market savvy Baba. Previously established players had been sitting on large market shares with comparatively fatter margins. This has taken a hit with more ‘reasonable’ pricing strategy by Patanjali. Now may be these giants will take note of it and may rationalize their pricing, margins and will think of reinventing their products also. Traditional approach and marketing strategies will prove to be inadequate with tectonic shift that is taking place. Patanjali products like Ghee, Chyawanprash, Honey and toothpastes have become extremely popular and have become regulars on home shelf. Most Patanjali products are priced at 20-40% less than the previously leading brands. This has made consumers take note of it and their shift in loyalty.
Global Giant Coca-Cola has rolled out its ambitious plan to enter Rs. 85,000 crores market of dairy products in India. It is destined to meet many big players like Amul, Britannia, Nestle besides large number of private players and cooperatives. The cola company has planned to introduce its global brand Vio in India which will be non -carbonated drink. The Indian dairy giant Schreiber Dynamix Dairies will be the supplier of Coca-Cola for its milk and milk based products and the packaging. Packaged aerated drink is Rs 14,000 crore market in India currently with single digit growth for last two years while dairy products market size is much bigger and has an attractive growth of 15% for last two –three years. Packaged milk constitutes around Rs 50,000 crores annually and rest is the market for value added milk products. More over the carbonated drinks always have seasonality issue while the milk products carry all twelve months uniform appeal. Dairy products are also culturally more closure to Indian roots and consumed on daily basis. This move could be a game changer for Coca-Cola and could bring disruption in Indian FMCG market. With greater appeal and more shelf space at retail market, it would move closure to Indian psyche and their daily life. This was not possible despite two decades of sustained marketing efforts by Coca-Cola in their carbonated beverages. The move by Coca-Cola could disturb the applecart of many big FMCG players.
Bector Food Specialties Ltd. which began its journey in 1978 started an enterprise involved in marketing of ice-creams, breads and biscuits. The small company grew big in last three decades and has become No.1 player in mayonnaise and No.3 in ketchup market in India. The company has been recording highest growth rate in the industry. There has been a shift in consumer preference in India. After consumers going gaga on western foods like pizzas and burgers, the mayonnaise has captured the imagination of Indian palate. Mayonnaise manufacturers are bringing change in product ingredients to suit to preference of significant vegetarian population. An eggless variant of mayonnaise has formed a big portion of Rs. 400 crores strong market size growing at phenomenal rate of 25% per annum. It is the fastest growing food category in the country. Growing percent of youth population, rapid urbanization and increased disposable income has led to experimentation of western cuisine by Indians. Different kind of bread spreads like mayonnaise, sauces and ketchups are fast replacing the shelves in Indian kitchens and retail stores. Fun foods brand is gaining huge sales and market share in the product category. Earlier mayonnaise-based dishes were strictly avoided by larger segment of people who are vegetarians but now young generation is demanding more than butter, jam, ketchup on their breads. Despite being attractive product category, mayonnaise has been dominated by comparatively smaller but agile companies rather than established players. These disruptive changes are being ignored by most Indian FMCG giants so far. When the disruptive change occurs, the future does not follow expected trends and leaders need to think and act differently.
Dr. Praveen Gupta, Senior Faculty at Lal Bahadur Shastri Institute of Management, Delhi
