FMCGs struggle with innovation as niche companies race past
FMCG companies are struggling to find mass disruptive breakthroughs for the Indian market and the situation has worsened after covid
Fast moving consumer goods, also called consumer packaged goods (CPG) companies, making food items, personal care and home care products seem to have lost their mojo as far as innovation goes. Not just that. The number of ‘junk’ ideas they come up with in these categories has gone up. However, small companies have a better chance of success in innovation. These are the findings of a June report prepared by the research firm Ipsos which compared the pre-covid period (2015 to 2019) with post-covid years from 2022 to April 2024 to analyze innovations in the CPG sector.
The report analyzed more than 800 cases from companies operating in India to come up with these conclusions:
“FMCG companies are struggling to find mass disruptive breakthroughs for the Indian market and the situation has worsened after covid,” Anthony Ambrose Dsouza, executive director, Innovation, Ipsos India told HT. Inspiring breakthrough is defined as something novel, beneficial, and surprising
“The risk appetite of many companies is down after covid so investment in hard research or innovations that require longer incubation period is difficult right now,” said Dsouza.
Secondly, concepts with junk status have doubled from 14 per cent pre-pandemic to 28 per cent post-pandemic. The concepts perform poorly owing to low relevance and differentiation, suggesting that the core business idea or consumer insight is lacking, the report said.
This happens as one-on-one interactions with consumers and innovators brainstorming in a collective group are missing. Tracking consumers on a machine is not the same as being on the ground, Dsouza added. At the same time, the pandemic has changed purchase behaviour making it critical for companies to re-evaluate their consumers.
But the good news is that companies are making fewer ‘me-too’ products and creating more geographical winners. “Products catering to specific needs or tastes of a smaller geographical area are coming up. It could be a niche soap maker or a snack manufacturer doing well in a smaller region. Innovation is very high among such local jewels and that’s a big change after covid,” Dsouza said. Local market players are connected to the consumer and their businesses are thriving.
Before covid, the odds of success in generating great product ideas were random and not related to the company size. Post-covid, the odds of innovation success favour smaller companies, Ipsos report said. Smaller companies operate in niche markets with a more intimate understanding of their customers and respond quickly to changes in consumer behaviour. Such agility is a significant advantage when trend cycles are shorter.
V S Kannan Sitaram, co-founder and partner at Fireside Ventures, a venture capital firm that invests in early-stage consumer brands, agreed that the two covid years were a bad patch for companies owing to supply chain disruptions and massive inflation. But aggressive acquisitions by large FMCG firms in the last couple of years belie assumptions about their poor risk-taking abilities. ITC acquired health snack D2C brand Yoga Bar, Hindustan Unilever Ltd (HUL) entered the wellness category with majority stake in OZiva and Dabur forayed into spices with Badshah. “I am not sure if covid is a variable as all this risk-taking behaviour is post covid,” he said.
In the startup world more and more innovative products and business models are coming up though the latter may not be true of large companies. “Honestly, small companies were always better at innovation even pre-covid and they continue to be very good,” he said.
The large multinationals are also trying harder to meet consumer needs. HUL has introduced product innovations like Acne-Squad, a solution for acne at every stage of its life cycle and Find Your Happy Place, mood transforming bath and body products. “In recent months we have been invited to speak to management committees of big companies who want to understand the evolution of the startup world and what trends we are seeing. This is another way of keeping their ears to the ground,” Sitaram said.
But Dsouza said big companies have diluted their connection with the consumer and they must keep an eye on mass breakthrough innovations because ultimately that’s what will give them an edge in the long run.
