Fast-moving consumer goods (FMCG) companies are planning to disrupt their premium and discretionary offerings to attract customers.

Case in point: Mr. Magic—the first-ever powder to liquid handwash. All you need to do is add a sachet of powder in 200 ml water in a dispenser, shake it and your handwash will be ready. These powder sachets from Godrej Protekt—a range of hand hygiene products from Godrej Consumer Products—are priced at one-third of the existing 200 ml refill packs. It not just reduces the price and change the packaging but also disrupts the way consumers experience handwash.

“We are seeing a huge scope for penetration in the premium categories (like hand wash or hair crème) and a large headroom for growth,” said Sunil Kataria, CEO-India and SAARC, Godrej Consumer Products (GCPL) . “The brief is clear—there is no margin dilution for us. All are either margin accretive or in line with our overall operating margin.”

Earlier Godrej had launched Godrej Expert Crème Hair colour in sachet at a disruptive Rs 30 price point with distinctive packaging, Goodknight Fast Card, paper-based mosquito repellents priced at Re 1 per card those act upon burning the paper and don’t need electricity.

“There are two routes to make products affordable – either launch low unit packs of the existing products or innovate to disrupt the format itself like what we have done with Mr. Magic. Handwash as a category has just 18-20% penetration in India and priced at Rs 15 (per sachet), it gives both access and affordability,” Kataria added

Abneesh Roy, senior vice-president (research) at brokerage firm Edelweiss Capital believes that such disruptions will accelerate premiumisation and new categories in the premium segment over the next few years.

India is inching towards the $2,000 per capita gross domestic product (GDP) mark, which will lead to consumption growth, Fortune India had reported earlier.

“The $2,000 per capita GDP is also seen as a tipping point where FMCG companies witness an escalation of premium products. It is not surprising that premium category launches have accelerated over the past two-three years,” Roy said, adding that “India is a value-conscious market. Premium products have to be given at very affordable price points—almost similar to the non-premium portfolio.”

According to data from Bain & Company, middle-income and high-income households will drive nearly $4 trillion of incremental consumption spend by 2030. Overall, there will be nearly $2 trillion of incremental spend on affordable, mid-priced offerings, in parallel with $2 trillion incremental spends, led by consumer upgrading to premium offerings or adding new categories of consumption.

Over the past few years, we have seen several FMCG majors taking the premiumisation route to woo consumers and the results of the same are positive.

According to Nielsen’s retail measurement services audit data of September 2018, toilet soaps that accounted for 94.5% of the category value grew 10.6% whereas liquids grew 21.6%. Premium variants are growing faster in key categories such as biscuits (9%/17% popular/premium), instant noodles (9%/16% for popular/premium), soaps (5%/12% for popular/premium), and skin cream (6%/12% for popular/ premium).

Parle Products, which has been in the business for over 80 years, says that premium category contributes about 18% to its total turnover.

Parle Products was one of the early ones to venture into the premium category of biscuits with Hide & Seek in 1996. "Chocolate chip cookies contributes 9-10% to Parle's revenue. “We are looking at newer premium products and one of the reasons we launched Parle Platina. The company sees 25% of revenue share contribution coming from their premium offering over the next year-and-half, says Mayank Shah, category head at Parle Products.

Even global firms are vying for space in the premium categories. For instance, U.S.-based The Hershey Company launched the over 100-year-old bite-sized chocolate Kisses in India last year.

Herjit Bhalla, managing director of the $7.5 billion U.S. giant's local unit, said that the country's young population, growth in middle-class, rising disposable income, and the fast-growing chocolate market make the India one its important businesses globally. In 2017, Hershey had announced an investment of $50 million in India over the next five years.

Apart from companies disrupting their existing products and creating new ones, they are also focussing on region-specific issues for growth. For instance, Hindustan Unilever’s Rin detergent bar with patented ‘smart-foam’ technology and available at Rs 10 packs claims to save up to two buckets of water in every washing cycle.

“Given that most parts of India face acute water stress, innovations such as these go a long way in aiding water conservation,” an HUL spokesperson told Fortune India.

E-commerce and mobile phone penetration are being seen as key drivers for FMCG sales growth. According to Nielsen's estimates in November, e-commerce will contribute 11% to FMCG sales over the next 12 years. Companies are also looking at e-commerce platform to push premium products and democratise use.

In 2017, HUL, the maker of Brooke Bond and Taj Mahal tea brands, forayed into the e-commerce channel with the launch of 13 new premium variants of Taj Mahal. HUL also sells products through third-party marketplaces.

Godrej, too, aims to establish a strong e-commerce presence in India and drive the growth of premium brands. “I see it contribute 4-5% to our total turnover in the next three-four years’ time,” Kataria said.

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