Reliance foray to bring a slow burn to FMCG, change the rules and the game

Industries' entry into the fast-moving consumer goods space through its retail arm may not cause any immediate impact but does bear long-term ramifications for the existing FMCG players, both large and small.

Reliance Retail's presence will increase the overall competitive intensity in the FMCG market, prompt existing players to spend more on branding to protect their market shares and lead to some consolidation in the industry as small and regional brands become easy targets for acquisition by a large player like Reliance.

It makes commercial sense for a retail major like Reliance Retail to enter the business of FMCG products due to clear synergies and advantages.

As such, entry into FMCG is not a highly capital-intensive business proposition. It will help Reliance Retail achieve forward integration in its value chain.
Besides, selling goods produced by tribal people and marginalised communities is likely to create a strong social value proposition for its consumers and enable it to differentiate from other brands in competitive categories.

The company also reportedly plans to launch products at much lower prices compared with the competition and has set up a dedicated team for product development to identify gaps in the market. While the products will be initially sold through 1.5 million kiranas, they will have a dedicated network in the longer term.

However, building strong iconic mass brands isn't easy. For , it took more than two decades and huge investments to build its brands and ramp up the FMCG business to the current level. , with all its power brands, has been doing business in the country for nearly 90 years now. These companies, over the years, have built formidable distribution networks - especially in rural India. It is not easy for a new player to enter the market and become an immediate threat to the incumbents.

However, Reliance, with its aggressive track record and deep pockets, has the potential to be the game-changer. Reliance Retail can push its FMCG products through its fast-growing e-commerce platform Jio Mart and modern trade channel Reliance Smart. Categories like staples and groceries, with large unorganised market share, offer huge scope for large, branded players to establish salience. Partnership with small producers and MSMEs will help it enrich its product portfolio and build a strong supply chain.

The Indian FMCG industry grew 16% in 2021 - its fastest rate in nine years - driven by price increases and a low base. However, the volume growth now remains subdued amid high inflation. Rating firm has estimated the industry to grow 10-12% in 2022. The growth numbers are attractive for a large player like Reliance to step into the sector to grow the pie in the long run, rather than eat into the existing market shares.