FMCG giants face tough battle against rising regional brands in India

Increasing competition from local players challenges leading FMCG companies in key consumer categories

The Indian economy, driven by increasing consumption trends, provides a vast landscape for the expansion of the Fast-Moving Consumer Goods (FMCG) sector. This arena, historically led by stalwarts like Hindustan Unilever and Nestle India, is now witnessing a surge of emerging contenders. Notably, local brands have emerged as formidable challengers, chipping away at the market share of industry leaders across categories such as soaps, detergents, hair oil, tea, and biscuits. The rise of these regional brands, marked by rapid scaling and intensified competition against national counterparts, has spurred a strategic response from FMCG giants, manifesting in price reductions, augmented advertising efforts, and bolstered marketing investments.

India’s economic engine, propelled chiefly by consumption, serves as a fertile ground for FMCG businesses as per capita income escalates, driving heightened consumer spending. The significance of India’s branded personal consumption, accounting for approximately one-third across various segments, coupled with low penetration indices, underscores the vast potential awaiting not only established FMCG behemoths but also burgeoning local players.

The burgeoning presence of small players, alongside dominant FMCG entities like Hindustan Unilever, Nestle India, Marico, and Godrej, underscores a shifting dynamic in the consumer goods landscape. Local brands, over the years, have nibbled away at the market shares of leading companies, particularly in core segments like soaps, detergents, hair oil, tea, and biscuits. Despite facing pandemic-induced disruptions and subsequent inflationary pressures on essential raw materials, many local players have resurged due to falling commodity prices.

Regional and local FMCG brands have undergone rapid expansion, showcasing double-digit sales growth in the wake of pandemic disruptions. Brands like Rungta Tea, Balaji Wafers, Mario Rusk, and Bovonto soft drinks have augmented their brand visibility, emerging stronger post-crisis.

In anticipation of gaining market share from regional and local players, top consumer goods companies are strategising to slash product prices and amplify marketing investments. Hindustan Unilever, Parle Products, Marico, and Adani Wilmer are among those grappling with intensified competition from regional and small unorganised players offering lower-priced products. Responding to this challenge, these companies have adjusted product pricing, increased product weight, and significantly ramped up advertising and promotion activities.

However, the battle between FMCG giants and regional contenders is not merely cyclical but may also involve structural shifts. Despite efforts to stem the growth of regional and local players through pricing strategies and augmented advertising, challenges persist, particularly concerning low rural demand. The rural market, contributing around 35 percent of total FMCG sales, remains a point of concern, blunting the efficacy of measures taken by major companies to fend off smaller players.

Moreover, the performance of regional and local FMCG brands is intricately linked to inflation levels, with cyclical factors influencing market dynamics. While lower commodity inflation facilitates cheaper raw materials and subsequently lower production costs, it also encourages smaller local brands to saturate the market with their offerings.

Beyond cyclical factors, structural changes in India’s retail landscape are poised to influence the competitive dynamics further. The burgeoning growth of e-retail presents a viable avenue for smaller brands to challenge established FMCG companies. As major players pivot towards enhancing their e-commerce presence and acquiring direct-to-consumer brands, the stage is set for a dynamic evolution in the FMCG sector. Despite the advantages stemming from deep pockets, strong brand recall, and significant investments in technology, FMCG giants are poised for a challenging journey ahead amidst shifting consumer behaviours and a resilient rise of regional and local brands.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of ET Edge Insights, its management, or its members

Scroll to Top