How Food Companies Can Increase Household Penetration For Their Products

Now is the time for Food and FMCG companies to achieve household penetration by experimenting while lowering costs, effective advertising and understanding evolving consumer needs.

By Sanjay Kumar

At a time when there is industry-wide concern about the impact of rising inflation on food and FMCG products and a slowdown in rural demand, food brands and FMCG companies have been looking at ways to increase the household penetration for their products. This has been a theme and a hot button issue at major food business events and food exhibitions across India.

‘Household penetration’ is defined as the share of total households reached within a geographical area year by a product or service in a given year. Fast-moving consumer goods (FMCG) or consumer packaged goods (CPG) companies face a stiff competition every year and household penetration is a key factor for them.

The CPG and FMCG industry has undeniably enjoyed success for many decades now. According to a McKinsey & Company report, by 2010, the industry had created 23 of the world’s top 100 food brands. The FMCG sector had grown total return to shareholders (TRS) almost 15 percent a year for 45 years—performance second only to the materials industry.

With the COVID-19 pandemic on the wane, consumers have however become more conscious about health, nutrition and eating habits than before. Speakers at major food business events and exhibitions have reiterating why it is a good time now for food and FMCG companies to achieve household penetration by experimenting while lowering costs, effective advertising and understanding evolving consumer needs. For instance, many companies are now experimenting with the ready-to-cook segment in the traditional Indian breakfast space.

The relationship between a customer and a brand has changed over time. The idea, that once you get a customer you keep them, is over. The onset of technology, fierce competition, offers, and exciting options are some factors that distract a customer from following a particular brand. Many brands try to tap a particular segment and convert them into avid customers. This strategy may appear attractive but recent market research has shown that this approach just doesn’t work.

Instead, successful brands have been following a simple rule, i.e., increasing household penetration. The penetration can be improved by improving the customer’s connection with the brand and product. Successful brands give the customer more than one reason to buy a product, and this increases the penetration. It is equally important to excel at gaining the customer’s consideration: Why should I buy this product and not that? So, big brands invest in three key brand assets for earning consideration and penetration: memory structures, product portfolios and in-store assets.

Memory structures
Successful FMCG companies broadcast their brand’s message widely enough to be heard by the largest possible swath of consumers. They get into their consumer’s heads through articulate messages. However, this requires persistence, repetition, and consistency. Winning brands also concentrate their resources, including ad revenue on fewer brands that have enough potential to generate organic growth or break into a new considerable set.

Product portfolios
Surprisingly, fewer innovations result in increased penetration, rather than too many brands and Stock Keeping Units (SKUs) that result in ineffective levels of advertising and shopper confusion. According to a Forbes report, hero SKUs generate higher volumes that increase scale, leading to bigger margins that enable investment to fuel growth.

In-store assets
Apart from targeting the most important SKUs, it is critical to adequately invest to activate them at the Point of Sale (POS) and ensure that they are always available at the right place on the shelf.

Apart from that, household penetration can also be enhanced by lowering the costs or packaging products in smaller, affordable packages. For instance, the introduction of sachets and smaller packs for shampoos and soaps increased the penetration of brands in rural areas.

However, penetration is a leaky bucket, so even top brands continually invest to acquire more new consumers every year than they lose. To grow their penetration rates, brands need to be in the game for the long run. Few companies choose to lay plans for longer than the next 12 years, rather than staying the course. In this way, they risk losing out to the rivals that stick with their plan for slowly but steadily increasing the penetration.

To know more about how food companies can ramp up their presence in Indian households, join India’s leading food business event and food exhibition at the 15th edition of India Food Forum — India’s largest food B2B intelligence event — on Dec 7-8 in Mumbai, where 150+ speakers will come together for some thought-provoking conversations and powerful insights on the key trends impacting India’s food & grocery retail businesses.