I was recently invited to address the leadership team of a leading Indian consumer durables company. The consumer durables industry, including home appliances and consumer electronics but excluding mobile phones, is expected to grow at 12 percent CAGR over the next 3 to 5 years. The demand drivers for the industry include increasing penetration in rural, hybrid working model driving demand in urban homes and a 50 percent lower per capita consumption of Indian homes compared to similar emerging countries like China and south-east Asia. In this column, I touch upon the winning themes consumer durables companies need to consider to establish a leadership position over the next few years.
Rural is the key driver of growth
For leading consumer durables players, the rural market constitutes 15-25 percent of total sales whereas similar retail and consumer oriented industries like FMCG and auto have rural contributing between 40 - 55 percent of total sales. The demand drivers for rural growth are due to robust harvesting, prospects of a good monsoon over the next 2 years, government legislation to double farmer incomes in the next 3-5 years, production linked incentives for electronics and an aspirational middle class. For instance, Havells in its annual report, plans to increase its rural town reach from 2,500 to 3,000 by the end of this financial year. Winning in rural means significantly increasing distribution by touching 60,000 villages (out of ~650,000 in India) which contribute to over 80 percent of rural markets. In addition, a rural oriented value product offering and localised activations is essential.
Digital led consumer purchase cycle Let me start with a provocative view. Over the next 3 years, in my view, about ~90 percent of consumer durables sales will be digitally touched at some point in the purchase cycle. To be ready for this incoming boom, an eco-system of immersive experiences at brand outlets, partnerships with content creators and convenience will be imperative to succeed.
Over the pandemic, e-commerce contribution has doubled for most players from high single digits to mid double digits. Urban consumers are likely to demand more convenience (reduced delivery times, live-streaming with content creators, easy financing, great service) while the semi-urban consumer is likely to demand value products with great service. For leading players, increasing their brand stores to drive their physical presence and provide a superior experience is going to be extremely critical. These stores are likely to witness self-check outs, digital immersive experiences to interact with the product, payment wallets amidst other interventions. These stores can drive the premiumisation play which is seeing a lot of traction in urban India constituting ~10 percent of the total portfolio and likely to rise to 15 percent over the next 3 years.
Despite everything digital, the small unorganised store will remain the main channel
Similar to FMCG, the unorganised small store, constituting 40 - 60 percent of total sales, is likely to remain the main channel going forward and cannot be ignored. However, this channel is ripe for disruption with a technology player (like Jio in FMCG) likely to migrate these small players to a common platform and run platform centric programs. Success in this unorganised channel is a function of service quality, operating with a high off-take localised product portfolio, superior merchandising at these outlets and capability building of the sales workforce at these stores. Some of the larger stores (~5 - 15 percent of unorganised stores) will migrate and resemble the organised stores through a self-service display format and imbibe digital interventions. Leading players should actively engage with these outlets on their modernisation journey.
Technology to upgrade the workforce
The adoption of technology tools will play a great role in driving efficiency in sales and dealer operations. A virtual retailer ordering platform is the norm for most leading consumer durables players with the onset of the pandemic. Adoption of sales force automation (SFA) and dealer management system is underway and will ensure analytics can drive appropriate levels of stocking and reduce dead stock at dealer points. Leveraging GPS tracking for planning the optimal visit routes can further drive sales workforce efficiency. Gamified capability building apps to help the channel workforce equip better to handle market queries is likely to be implemented over the next few quarters. As an enterprise, most leading consumer durables firms are evaluating sales, marketing and service clouds.
Talent is going to be the differentiator
Of the five levers, in my view, talent is going to be the real differentiator. It will determine how agile the consumer durables firm is to changing consumer and channel behaviour and appropriately reacting to it. Superior talent will ensure various functions don’t operate in silos and are truly consumer centric. Managing talent will include modernisation of work cultures at many places, enabling women to have long and successful careers and retaining millennial employees from top educational institutes. Building a culture where everyone can speak their mind, dissent politely, provide upward feedback and have a life outside work is going to be essential. A simple mindset shift should be everyone, from the leadership to the procurement officer, meet 5 consumers every month to stay truly consumer centric.
In conclusion, the consumer durables industry is likely to witness a bull run over the next 5 years. By tapping into the above levers, they are likely to successfully ride the upcoming boom and create massive financial and stakeholder impact. However, as they scale up significantly, they will slowly have to start thinking of their products’ impact on the environment.
The author has been a strategy consultant for a decade. He is the author of ‘Hacks for Life and Career: A Millennial’s Guide to Making it Big’. Views per personal.
The thoughts and opinions shared here are of the author.
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