Section I Group 3:

IMPACT ON FMCG SECTOR THROUGH SOCIAL, E-COMMERCE AND ANALYTICS

&
TECHNOLOGY REFORMATION STUDY ON ITC AND NESTLE
Fast moving consumer goods (FMCG) sector is the 4th largest sector in the Indian economy and is
growing at an average rate of 11-12%. The FMCG sector has grown from US$ 31.6 billion in 2011 to
US$ 52.75 billion in 2017-18 and is further expected to grow at a Compound Annual Growth Rate
(CAGR) of 27.86 per cent to reach US$ 103.7 billion by 2020. It can be divided into three main
segments namely food and beverages which accounts for 19 per cent of the sector, healthcare which
accounts for 31 per cent and household and personal care which accounts for the remaining 50 per
cent. It witnesses a 16.5 increase in value terms in 2018 because of moderate inflation, increase in
private consumption and rural income. One of the main reasons for the growth in share of FMCG
sector is the increase sales revenue from rural population of about 45% due to demand for quality
goods and services on the back of improved distribution channels of manufacturing and FMCG
companies. The key drivers for the growing consumer market are Growing awareness, easier access,
and changing lifestyles. These activities are also expected to increase the real income of the people.
Rural India accounts for 37% of overall FMCG spends and has historically been growing at 3-5%.
Though we have seen a recent slowdown in the FMCG industry to 11% in 2019 as compared to
13.8% in 2018 due to elections and fading advantage of small manufacturers.

The problem statement that we came across while we were doing our research was how will FMCG
brands leverage the digital technology to their advantage and what will its impact be on e-
commerce, social media and analytics. The complexity of the problem is big because news spreads
faster than ever on social media and one wrong move by the company can damage their reputation
massively. We also came across specific problems that are company specific (ITC & NESTLE) which
has been described later in the report. We choose to do analysis on Nestle and ITC because Nestle is
an international market leader but is yet to make a big impact on India and ITC because it is a
challenger brand in India which has a lot of potential to grow and rise in the future.

The role of Digital Influence and E-commerce in FMCG sector is huge and it is estimated that it will
grow to $ 45 Bn by 2020, driven by changing digital landscape. Higher digital influence is observed
mainly in relatively underpenetrated categories like perfume, baby care, home cream which
comprises of 65% market share and the rest 35% is consumed by penetrated market. It is also
estimated that future opportunities in FMCG sector will accelerate four times faster growth than
offline sales in the next five years. Though the penetration of e-commerce is lower in India but
Online FMCG market is set to increase from $20 billion to $45 billion in 2020 and online user base
from 90 million to 200 million.

The next major thing we need to address is the technological changes that we are talking about, is it
going to change the industry both in terms of domestic and export categories and what are the likely
changes for the same. There are various changes in different aspect of the company that will lead to
increase in the efficiency of the company. Some of them are listed below: -

Plugging the gap in the supply chain and distribution channel- In today’s competitive world there is
no room for inefficiency. We are now able to leverage technologies to optimize the business
processes. FMCG companies have continuously streamlined the supply chain, which has enabled
companies to gain control over inventory, managing procurement and suppliers. Intelligent things
such as autonomous mobile robots and autonomous vehicles helps by redeploy human workers in
more value-adding activities thereby increase the output and efficiency of the organization.

Social Media and Internet of Things- In regard to social media companies can leverage various
digital platforms like Facebook, twitter, Instagram etc. to connect with their potential consumers and
be able to get real and live data valuable for the organization. Internet of things helps in improving
asset utilization, understanding customer behavior and needs, and responding to and shaping
customer demand for the product and services the company has to offer.

Artificial Intelligence and Analytics- Artificial Intelligence used in strategic network design or
capacity planning will help to improve and streamline the supply chain process. Advanced analytics
powered with predictive and prescriptive analytics has significant impact on processes that
previously relied on human judgment. Immersive technology enhances repair and maintenance
capabilities in manufacturing, logistics and warehousing.

We have seen how the technology can change the structure of the industry. Now let us deep dive
into how companies (Nestle & ITC) are leveraging technology and changing the face of FMCG
industry.

Technological Reformations in Nestle

Nestle was the first mover in the Data Analytics segment. It realized the importance of the same
before its competitors. They decided to start using analytics when they faced a controversy in its
KitKat segment in the year 2011. In the current scenario nestle uses its analytical tools for various
purposes as discussed below: -

Social Media Engagement - To connect with its global customers, Nestle has created regional based
social media profiles that cover its wide range of products and consumers across various
geographical boundaries (over 96 social media profiles). Focusing on how to delight with product
experience, knowing the consumer, winning with shoppers, and creating engaging brand
experiences is what sets Nestle apart from its competitors.

Mitigating loss Online – Nestle monitors all the comments across various platforms and has access
to live data as to what is post online and if there are any concerns and issues raised, they try to solve
it in real time so that there is no negative image of the brand. They try to create values and brand
experiences which the costumer cherishes and help the brand to grow.

All decision by Analytics - Nestle has decided that all the key decisions that has to be taken by the
firm will involve use of analytics. It helps the company predict the consumer preferences over a
period of time which facilities ne launches of product in a smooth manner. It also facilitates less
wastage of inventory as the company is able to predict the future demand of their particular
products.

Freshness of Products -Nestle has partnered with SAAS solutions to incorporate the Technological
solutions in the future. The company helps Nestle to predict what are the changing consumer tastes
and preferences over a period of time by collecting data at different points of the supply chain like
distributor, wholesaler and retailer. It enables them to know the quantity of products required at
different occasions and thereby maintaining the freshness of products by not over supplying. It
enables them to increase the demand for one of their products by 9%.

Customer Service - One of the most important aspects of any brand is to delight the consumers so
that they come back to them. Nestle has done this successfully by knowing the shift in consumer
trends and adapt itself to that. In the recent times consumers are becoming health conscious so
nestle is trying to come up with healthy food items as well as they have come up with a plan to
reduce the calories in the milk products and chocolates by 2020.

Technological Reformations in ITC

As we know ITC is not a pure play FMCG company and tobacco business contributes 40% to its
revenues, and accounts for over 80% of its profit. It is foraying and diversifying into segments like
foods, personal care, paper products, hotels and agri-business. The prominent innovations that
keeps ITC relevant and sustainable in future are: -

Industry 4.0 – It uses advanced analytics, big data and industrial Internet of Things (IoT) in areas
such as overall equipment efficiency, energy management so that the quality of the products are
maintained and traceability factor is there so that and hiccup at nay stage could be immediately
identified and proper actions are taken to implement the solution. Analytics also enables retailers to
gain insights into the performance of designs and churn out winning styles.

Green Leaf Threshing Plants – This is the first kind of initiative taken by a company which wants to
promote awareness about the environment has taken an initiative to reduce the carbon footprint
that is generated in the society by the production and consumption of their products. For this the
company’s energy needs are met from renewable sources which leads to the protection of the
environment.

Mangal deep, My Classmate and IRIS -These are the brands of the ITC company which engages the
consumer and strives to involves with them on the social media. It enhances consumer engagement,
insight discovery and brand advocacy through various advertisements and campaigns on Instagram
and Facebook.

Introduction of ICML- Integrated Consumer Goods Manufacturing and Logistics facilities (ICML) is a
state-of-the-art technology that will be implemented by ITC which will enable them to scale their
business rapidly and grow their market share in consumer food products. It will simultaneously
enhance cost efficiency while reducing wastage of products at different stages of production as well
as distribution.

ITC-LSTC & ITC e-Choupal network – To increase the creativity and innovation among its employees
and products ITC is adding Life Sciences and Technology Centre (LSTC) which will enable them to
develop future ready products and processes. It will get them an edge over other FMCG brands in
the market. Through its e-choupal network ITC is aiming to increase its presence in rural areas as
they have identified that they are the biggest and untapped market which has a potential for a large
chunk of revenue for the company in the future.

We have discussed about how the Industry as whole and the companies will be affected by the
technology but we should be aware of that there are other factors like socio, economic, political,
ethical issues which will affect the use of technology. While forming any new product we should
keep mind the regulations that will come into effect, how will the product effect the economy, are
there any ethical concerns with the same, what will its social impact be and if it has legal
implications that can impact the company.

CONCLUSION