On digitalization of FMCG industry in BD
One important illustration of rapid digitalization of our lives is that almost any kind of products and services have been made available in internet. Such a feat was considered to be unimaginable even as recently as just a decade ago, although people were looking forward to it and countless depictions of such a time had been mentioned in many science-fiction writings. In fact, most of us have even come across the meme "I will not be satisfied with the internet until I can download food." Although we are yet to "download" food in the literal sense, we can have it come to our doorsteps within 20 to 40 minutes of ordering on a website or webpage.
For a while in Bangladesh, it had been just the restaurants that delivered food, by taking orders over phone, their webpage or via fast food delivery companies. Following the western flow of development, the people of Bangladesh are quickly absorbing the Westernized digital concepts and molding them to developing their own "digital ecosystems" as some would refer. The free space for fast-moving consumer goods (FMCG) that had been created in Bangladesh due to the worldwide tech boom for is now rapidly being filled up with more than 500 local or national business companies. That market, thus is growing at an astounding rate.
An authoritative characteristic of FMCG products is that they are produced, packaged and distributed in colossal quantities. The reason for this being their non-durability and frequent consumption. The characterization often extends onto processed food products and beverages, stationaries, toiletries, and many other expendables that takes the buyer little or no time to choose between varieties (as a result of the cyclical consumption). Added to that, is that almost everyone now uses a smartphones and are connected to the internet round the clock. Thus, consumers no longer need to constantly head to the nearest retail outlet or super shops. They can simply order them online at shopping websites, that too after analyzing product reviews from a plethora of websites, YouTube, blogs and vlogs.
A point to be noted though is that the things mentioned above are from the perspective of a consumer. The question that remains is that 'how much of digitalization has actually been established in the industry?'
On digitalization of FMCG industry in BD
FMCG businesses have high volumes of output and thus that use an extensive distribution networks to operate on massive scales both nationally and internationally. The main mode of income of the business sector is to make a cumulative profit out of the total products sold, at a relatively low cost. Many companies have had already established points in urban or rural areas due to telephone or courier delivery systems and recently, some of the progressive FMCG companies have integrated online platforms while most others are still developing their portals or have added it to their agenda.
As the concept of legacy migration is not new, the producers of Bangladesh do need to consider how fast the world is advancing and then keep up with the advancements. There are already organizations that provide IT solutions to the companies and producers, they may soon integrate themselves into the field as well.
For anyone who wishes to enter the scene with a company, it is crucial for them to first study upon the ecosystem starting from product choice, purchasing, pricing, branding, promoting, marketing, billing and taxing to competing, architecturally improving, modernizing, HR managing. Also, everything requires huge information management systems. Thus, here are some digital systems:
-ERP (Enterprise Resource Planner) software to keep the stock and transactions under check, manage orders, workflow, employees, and distribution channels. FMCG industry requires high inventory turnovers and ERP helps with the all-inclusive business process management.
- Cell phone apps render a "personalized experience" for the consumers. Apps will notify the user about products, its locations, sales or offers along with the product's portfolio. Although promotions are made on social media, hardly anything keeps the attention of a consumer for long in such a field and a mobile app is capable of holding their loyalty.
- Sales Force Mobile Automation is a way to connect clients with suppliers easily as FMCG marketers can fall under great pressure trying to manage all the distribution points nationally. It is also an information management system.
- CRM (Customer Relationship Management) encourage customer care centers and for FMCG companies, customers include the retailers and distributors too. The relationship is also maintained through evaluating the customer's experience through the user-friendly cell phone apps and by keeping them engaged.
Earlier, the FMCG industry had lower scopes of investments in technology coming in. However, the situation has transcended. The industry is slowly entering the globalized scenario and our soon-to-become-a-reality Digital Bangladesh has more of a chance of exporting commodities using the FMCG sectors than before. The people's higher purchasing power have given many companies huge opportunities in front of them. They need to attend more and more technology conferences and stay updated to take the whole industry onto next level.
On the downside there are some obstacles that hardly can be eradicated here, such as, competing with the already famous brands, fast cloning of any new product launched, replacement of local brands by foreign ones etc. and information technology would rather advocate these. Nevertheless, it is important to embrace this new culture, as you cannot deny that technology had already became inseparable from us since the Industrial Revolution, only its progression is geometric and life is ever getting unimaginable without it.
----------------------------------------------------------------------------------------------------------------------------
Fast Moving Consumer Goods — A Beacon of Economic Stability?
In an ocean of volatile industries, the FMCG industry represents an island of stability during times of economic uncertainty. Among the various industries that characterize the modern global economy, the Fast Moving Consumer Goods Industry is amongst the most resilient to economic shocks. Unlike other industries, the FMCG sector is not prone to mass layoffs or substantial dips in profit when the economy slows down. This is due to the nature of the goods themselves.
It is easier for people to cut back consumption on luxury products during recessions, however, this does not hold true for daily essentials like food, toiletries or medicine. In effect, buyers shift consumption to more economic-alternatives of the same product
[8]. Consequently, the demand for these goods remains relatively stable. As the middle class grows in Bangladesh and incomes continue to rise, the FMCG industry will witness an increase in their customer base locally, thus reaping the rewards of social progress and upward economic mobility.
Global Market
The global market size of the industry is expected to reach $1.54 trillion by 2025 with a CAGR of 5.4% (2018-2025)[5]. With rising incomes, a growing middle-class and increasing rural-to-urban migration, it seems realistic to propose that companies operating within this industry will see rewarding pay-offs.
Due to the nature of the FMCG industry—characterized by low margins and high sales volumes—the industry is most likely to benefit from increasing its customer base, which will lead to greater sales. In this respect, Bangladesh represents a goldmine.
Consumption expenditure clocked in at 97% of national income as of 2015[1] and with domestic annual consumption standing at over $130 billion, the growth of the internal economy has been accelerating[7]. As the number of people belonging to the Middle and Affluent Class (MAC) is projected to increase from 12 million–or 7% of the total population–to 34 million by 2025
[2], the strong growth of the FMCG sector will continue to sustain itself in the future.
Pillars of the Industry–Key Drivers and Trends
The rise and sustenance of the FMCG industry can be attributed to a few key drivers
[1].
Rapid Rural-to-Urban Immigration Drives Demand
As job opportunities are typically concentrated in the few urban centers of the country, the cities experience huge swathes of rural immigration.
Consequently, most of the spending on FMCG products originate from these urban centers. With 35.70%
[1] of the nation’s population living in cities as of 2017, this number is only set to increase further and additionally bolster the industry in question.
Rise of the Middle Class
Being beneficiaries of strong economic growth, Bangladesh is all set to attain
Lower Middle Income Country status.
According to the Boston Consulting Group, 2 million Bangladeshis are joining the ranks of the MAC every year[2]. By the year 2025, the number of people belonging to MAC is expected to nearly triple to 34 million from 12 million in 2017. As the process unfurls, the FMCG industry should be able to capitalize on the situation.
Export Processing Zones (EPZ) Create Prosperity
There are 8 EPZs in Bangladesh. Among the aims of these EPZs are the diversification of the country’s exports and the creation of employment. As Bangladesh’s exports have risen, so has the importance of EPZs.
Consequently, EPZs have created many jobs for women, which helps in poverty reduction [11]. When incomes rise, one of the first categories of products to experience increasing demand are FMCG products. EPZs have played an important role in boosting the FMCG industry in Bangladesh.
Abundant Raw Materials and Cheap Labor
FMCG products in Bangladesh mainly include livestock, fruits, vegetables and other staples of the Bengali lifestyle. Due to its climate and geographic positioning, Bangladesh represents a gold mine of raw materials for companies in the FMCG industry
[1]. Cheap labor has additionally allowed the industry to grow further
[1].
Key Areas within the Industry
“Fast Moving Consumer Goods” is an umbrella term that encompasses a wide array of industries. Within Bangladesh, the most commercially important of these industries include food & beverages, personal care, and household care
[1].
A Cursory Snapshot of FMCG Companies by Type in Bangladesh
A Brief Consumer Profile
Bangladeshi consumers are of the optimistic variety.
More than 60% believe their incomes will rise in the years to come, fueling their desire to consume more and 79% believe that living conditions have improved[3]. However, despite believing their desire to purchase goods increases yearly, Bangladeshi consumers are wary of debt.
Consequently, savings play a greater role in the life of the Bangladeshi consumer as opposed to credit. Being family-oriented people, Bangladeshi consumers prioritize the needs of the family over individual needs.
This means that when important spending decisions arise, products that target the needs of families get preference. Bangladeshis are also very brand conscious consumers, with a large portion of consumers citing brand as a decision-making criterion when shopping for personal care products
. As living standards improve and incomes rise, Bangladeshi consumers will prefer products of higher quality as they move into the future[3].
Digitization in a Tech-savvy Age—A Roadmap for the Future?
Bangladesh—like most developing countries—has a population that can be visually represented in the form of a right-side-up pyramid. The following figure represents the population of Bangladesh.
Characteristic of this category of population pyramids, the vast majority of people are below the age of 35.
As of 2018, 43% of the total population is below the age of 25[6]. Young people characterize developing nations such as Bangladesh. A quintessential trait of this age demographic is tech-savviness
[4]. As incomes and living standards have risen in the country, smartphone usage has skyrocketed.
Smartphone adoption stood at 31% (45 million users) as of 2017 and is projected to rise to 75% (138 million users) by 2025[9]. To capitalize on the situation, consumer-centric digitization is slowly being introduced into the FMCG industry. Smartphone applications that cut the need to visit retailers offer a more personalized shopping experience, making it easier for players in the industry to connect themselves with their end consumers
[4].
Chaldal (established in 2013) is a big player in the local e-commerce market. A major e-grocery store, it recently raised $5.5 million to develop nano-warehouse technology. Its rise to prominence represents the growing importance of e-commerce in Bangladesh. Not only does Chaldal save time, but it also offers lower prices than the local market in an effort to get more customers used to online shopping
[10]. Following Chaldal, other e-grocers such as Khaasfood and Meena Click joined the list. E-retailers such as Daraz and Pickaboo allow consumers to purchase products as eclectic as mobile phones to clothing to perfumes, all from the comfort of home.
In addition, the secular decrease in average traffic speed over the last 10 years has further encouraged and enticed more people to shop from home[6].
The ease of shopping from home in the backdrop of Dhaka City’s dismal traffic conditions can explain–to some extent–the explosive rise of F-commerce in recent years. With a humble, but ever-increasing, internet penetration rate, the importance of e-commerce and digitization will be a major factor in determining the pay-offs of operating in the FMCG industry
[6]. As the MAC grows in size, this trend will be a key feature in determining the destiny of the FMCG industry in the years to come.
While e-commerce can be the next big thing for the FMCG industry for Bangladesh, the elephant in the room needs to be addressed: consumer trust. Even now, there is still a lot of distrust of e-commerce in the country. Frequent reports of mishandled payments, untimely delivery, lack of quality assurance have served to create a general attitude of caution towards online shopping.
If this is not addressed by the major players in e-commerce, growth of the FMCG could be crippled. Underlying the possible success of FMCG in e-commerce is a fundamental question about quality assurance and professionalism. Unless this is tackled, the success story may remain elusive.
Shahreem Ahsan, Part-time content writer at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: info@lightcastlebd.com.
References
