India’s FMCG sector creates employment for more than three million people in downstream activities. The total FMCG market is in excess of $800 billion. It is currently growing at double-digit rate and is expected to maintain a high growth rate.
- Definition / Scope
- Market Overview
- Top Market Opportunities
- Market Drivers
- Market Restraints
- Industry Challenges
- Technology Trends
- Pricing Trends
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Technology Roadmap
- Distribution Chain Analysis
- Competitive Landscape
- Competitive Factors
- Key Market Players
- Strategic Conclusion
Definition / Scope
FMCG also known as Fast-moving Consumer Goods or alternatively as CPG i.e. Consumer packaged goods are that are sold easily and regularly as they are demanded on a continuous basis as opposed to other durable goods which are replaced in longer period of time..
They are called fast moving as these products have very short operating cycle, as the time from production to distribution and realization of the revenue from the sales through retail point is very less. Since, this sector is referred to as ‘consumer packaged goods’ so it excludes the unpacked commodities which are also non-branded such as edible oil, pulses etc. sold in traditional Indian grocery shops.
FMCG is the fourth largest sector in India and it includes segments such as cosmetics, toiletries, glassware, batteries, bulbs, pharmaceuticals, packaged food products, white goods, house care products, plastic goods, consumer non-durables, etc. Within the FMCG sector the three major segments are as follows:
- Household and personal care is the most popular sector accounting up to 50%
- Followed by hair care (23%) and
- Finally Food and Beverages (19%) of the total market share.
Top Market Opportunities
According to the latest data, the number of people who use internet in India are 420 million and this figure is expected to reach 850 million by 2025, the companies operating in FMCG sector must plan to operate online in near future as it is forecasted that about 40% of consumption of such goods in India will happen through online means.
In India, rural domestic market for FMCG products at present is very eye-catching as the means of distribution channels particularly in rural areas have improved. This has led to increase in demand of quality products among rural people. Thus it is the right time for FMCG companies to expand their capacity, cater to rural segment consumers and acquire the rural markets to gain competitive advantage in the industry among other players.
The middle income class population are about to grow at a CAGR of 10.8% and estimated to nearly double by 2020. Thus, it is an attractive opportunity for the FMCG companies to cater to this rising group of the middle income class as they are the major consumers of such products.
The consumers of FMCG in India are highly adaptable to the innovative goods such as men’s fairness cream, flavoured yoghurt, gel based facial bleach etc. Thus the players in the industry must come up with innovative and new products to keep up their competitive position intact in the industry.
As per the union budget of 2018-19, the focus has been given to sectors such as education, agriculture, infrastructure, healthcare and employment which is going to increase the disposable income of people in rural area. This is the main reason that the consumption in the rural area has increased drastically since past few years in India.
This has led to increase in the demand of branded products in rural India. A bulk of demand is also driven by the youth of India that largely belong to the workforce, as they hardly get time to cook they are more inclined to consume such products on a daily basis.
Online portals growth is accommodated by the GST (Goods & Services Tax) and Demonetization which has been recently introduced by the Indian government. As GST is more efficient in managing the logistics in issuing bills, making payments, tax invoices the online retailers who have incorporated GST in their system are going to become more trusted and popular amongst the consumers. For instance, big basket is one such online grocery (FMCG) selling platform which has driven demand among consumers and is growing revenues because of GST implementation.
Due to the digitization of cable TV in India, this has increased the awareness among the consumers towards consumer brands. Thus, the demand of organized FMCG products has gone up in contrast to the unorganized or unbranded goods.
Government has allowed the foreign companies to venture into FMCG sector in India. It has sanctioned approval of 51% FDI in multi-brand and 100% in single-brand retail respectively. As the population of India is growing and the demand of FMCG is there throughout the year, more investors are enticed to venture into this sector in India.
Although Indian government’s demonetization opened roads to the cashless economy and surge of digital payment. The same trend had negative impact on the consumption of FMCG products particularly in luxury category in non-urban areas because the rural economy in India is dominated by cash. Although, there is increase in the demand of premium product in these areas, it is constrained by the digital cash as consumers in these areas are unable to spend through digital means.
Factors such as bureaucracy and complexities are incurring approximately $25 billion costs to the industry. The complexities are created due to lack of leaner structure and inability to build capacity among workers.
Although rural segment is quite attractive and has a high potential to consume FMCG related product but these FMCG companies have to bear the substantial costs as well to serve the rural segment.
External factors such as rising inflation is increasing the cost of raw materials used in the industry and fuel prices are increasing costs of distribution.
Food category within FMCG makes up to 42 percent. Due to the rise of online platforms such as Big basket and Amazon grocery which have been trying to disrupt the traditional FMCG market and particularly their aggregate supply chain with the innovative delivery and their niche products.
Only 34% of the total FMCG market consists of branded goods whereas rest of the 66% is dominated by the unbranded goods. Thus, the challenge is to shift the FMCG market to organized spectrum by creating more branded goods or converting the unbranded to branded goods.
The approach of supply chain of FMCG companies is traditional. The manufacture, distribution and supply systems are struggling to cope up with the changing needs of the consumers. The new e-commerce platform makes the distribution and retailing convenient and accessible at any time to the consumers which is not yet adopted by many FMCG companies.
There is difficulty in partner management in the sector as the potential distributors are becoming rare. This has led to high abrasion of up to 15% for some companies on a retail level.
Colgate Palmolive Ltd. had recently availed a service in the rural area of the country as a part of its “Pocket Dentist Initiative” (July 16- Dec 17). It used the mobile technology whereby, simply sending a missed call in a number would lead to mobile ring back that would provide access to dental care information to the people residing in rural India.
The rise of platforms such as Hotstar, Jio and Netflix has become the new means of advertising for the FMCG companies. The advertising and promotion is mainly driven the movie/events as these are the applications where a large number of audience is present who are the potential consumers of FMCG products. For instance, Nestle re-launched its noodles via Snap deal, (e-commerce platform) to reach the potential consumers effectively.
Half of the automobile consumers follow the ROPO method i.e. “research online and purchase offline”. One out of three FMCG consumers use online and then purchase through stores.
Some FMCG companies are using the low cost technologies in rural areas of the country and using these solutions to drive and track sales in rural areas, there was a 30% increase in sales when these mechanisms were used.
The GST which has been recently implemented will be responsible to reduce the price of FMCG products on the retail end. GST will be advantageous for the FMCG companies because these products will have a lower GST than the current tax rates.
Similarly, prices of many FMCG commodities like soaps, shampoo, biscuits, savoury snacks, detergents etc. have decreased after introduction of GST and there has been a noted decrease of about 3%-8% in prices on retail end.
Excise duty is another factor making prices of FMCG goods cheaper. For instance, duty on ice tea, instant tea, lemonade and other beverages would be decreased by 30% which would make their retail price cheaper and this would boost the sales.
FSB also known as Food security bill is targeted at the below poverty line families, which would increase their ability to consume goods, services and FMCG products. FSB is used to reduce the price of all kinds of food grains.
The Government of India has conscripted a new bill called the Consumer Protection Bill with special emphasis on setting up an extensive mechanism to ensure simple, speedy, accessible, affordable and timely delivery of justice to consumers.
The Goods and Services Tax i.e. GST has recently been introduced and implemented. It is believed to be beneficial for the FMCG industry as many of the FMCG products such as Soap, Toothpaste and Hair oil now come under 18% tax bracket against the previous 23%-24% rate which is going to make these products more affordable and increase their sales.
As the recent case of Nestle where its popular brand Maggi noodles was recalled, the Indian regulators were late to react but when they respond with the heavy arm of FSSAI Act. This act would have to be seriously complied by the MNC’s and companies involved in FMCG sector to not only recall but destroy the stocks if the product is exposed to defect and poses harm to human health.
Other Key Market Trends
The trend of advertising and promotion is bulging across the industry as large players especially, manufacturing companies producing grocery products like biscuits, juices, toothpaste and snacks are going to increase their consumer promotion spends by 15-20% in 2017.
Market Size and Forecast
The Fast moving consumer goods market (FMCG) in India from 2011 to 2018 has grown from $31.6 billion to $52.75 respectively with a CAGR of 27.86%. In 2015, India’s FMCG market generated revenue of about $47.3 billion, forecast to reach 103.7 billion U.S. dollars in 2020.
Further, in 2017 the modern trade is expected to grow at 20%-25% per annum and is the main contributor to boost the sales of FMCG companies. In 2018 alone during the months of April-June the sector saw a growth of 11% with the exemptions due to GST and better consumer take-off. In 2017 the size of the industry was recorded to be $840 billion.
Within the FMCG sector, the rural market is expected to grow to $220 billion by 2025 from $23.6 billion in 2018. Similarly, rural segment accounts 45% of the total FMCG market share where in 2018 alone rural segment contributed 10% of the total income in the FMCG industry and is forecasted to contribute 15%-16% by 2019. Whereas, the urban segment that accounts of 55% of the total market share is expected to grow at 8% by 2019.
The online FMCG market is forecasted to reach US$ 45 billion in 2020 from US$ 20 billion in 2017.
The sector witnessed a healthy inflow of US $ 12,604.77 from the foreign direct investments. Within FMCG, food processing received largest amount with 63.49%.
In 2015, the market share of organized FMCG was only 9% which is expected to reach 30% by 2020. The revenue generated from the organized share is expected to reach US$180 billion by 2020 and is expected to grow by 20% whereas the overall retail sector is expected o grow at 12% respectively.
Tier 2, 3 and 4 cities are now the area which would increase by four fold by 2025 and would account of 45% of consumers of FMCG products.
By 2025 it is expected that about 180 – 200 million consumers of FMCG products will be inclined to use digital means to make purchases. The use of e-commerce will increase exponentially with FMCG sales accounting 10%-15% sales in various categories.
The FMCG companies are still unclear in their stance on the opportunity to go via digital platform. However, based on the traction of the e-commerce at present these companies may win the consumers by going digital through three major strategies which are:
- Digitizing their core operations
- Creating profitable business through e-commerce channel
- Attracting consumers through using new means to promote brand digitally.
Distribution Chain Analysis
55% of the overall revenue generated by this sector is contributed by the urban areas of the country. However, the rural and sub-urban area on other hand are bound to grow at a faster pace than the urban area at recent times.
The manufacturing of the FMCG goods is concentrated in the western and southern belt of the country. In the other parts of the country, of FMCG manufacturing hubs are present
The competition in the FMCG Industry is high and intensely developed. There are companies operating in each category of FMCG such as household, personal care, food etc. which are either using either differentiation, cost leadership or niche strategy to increase their popularity among consumers whereby increasing the overall revenue and sales of their products.
The landscape is mainly dominated by three different set of players:
- Foreign companies operating through subsidiaries- Uniliver, Pepsi Co., P& G, Nestle.
- National Giant Companies- Dabur, Godrej Consumer Products and Marico
- Regional or domestic companies- Ajanta, Anchor, Cavinkare etc.
Others include-small tea producers, organic food producers who provide their products at low price with attractive and quality packaging like big brands
- Some of the major FMCG giants such as Patanjali, Wipro and Nestle are looking forward to diversify and expand their distribution network through big investment all across the country.
- Many companies are using strategies like brand recall. E.g. – Pidilite, Asian Paints, Marico. Whereas companies like HUL have negative working capital due to customer advances accumulation which indicates the confidence & trust of consumers towards the brand.
- In 5years time Patanjali has increased its revenues and plans to double the revenues in 2016-17. By 2020-21 it plans to grow revenues by 10 times than that in the present.
- Dabur has recently launched the sugar-free version of the ‘chyawanprash’ in India targeting the health conscious consumers and innovating the product to shift the demand to its product.
- Firms like ITC are also using the deals & discounts as a means to drive sales. For instance, it is selling 4 soaps at price of 3. It is also using the same strategy with deodorants of men & women.
- Many FMCG companies are also expanding their business overseas such as Indian textile retailer Raymonds has re-launched its brand park avenue as “One Park Avenue” in other SAARC countries.
- ITC is the only Indian based FMCG company to get featured in Forbes 200 list in 2016.
- Indian giant which produces biscuits, Brittania Industries Ltd. (BIL) is setting up the largest plant in Ranjangaon, Maharashtra with an investment up to 1000 crore .
- Companies like HUL are going green. Its energy consumption has gone down by 30% and the renewable energy accounts of 28% of the total energy used by it.
- FMCG giants such as Patanjali, Wipro and Nestle are slowly diversifying and expanding its product range through massive investments across the country.
- Companies have been using marketing and unique promotional activities from time to time. This has boosted their sales. For eg The Saffola company was successful in creating a brand proposition in the mind of consumers through humorous ad similarly, Kellog’s India ran a commercial where consumers were asked to write how the ad would end and huge responses were sent out to the company within weeks’ time .
- In 2018, RP-Sanjiv Goenka Group created US$ 14.92 million venture capital fund to invest in FMCG start-ups.
Key Market Players
Fast Moving Consumer Goods (FMCG) Industry in India according to the highest turnover in 2018-The Major Players are:
- Procter & Gamble
- Colgate-Palmolive India
- Hindustan Uniliver Ltd.
- Godrej Group
- Parle Argo
- Britannia India ltd
The FMCG companies are growing at a great pace and contributing to the economy of the country. However there are few imperatives that these companies need to focus on which are
- Offering new and innovative product to the consumers- Use the opportunity of the demand of the premium branded product, use various segmentation strategies and identify the right target market for each product in the portfolio.
- Engage the digitally influenced consumers- By using the digital platforms to promote products, social networking sites to connect to the consumers, use promotional activities in web and internet and finally, channelize distribution activities to online channel.
- Building people and talent- It can be enhanced by employee productiveness, leadership and building capacity.