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Analyst: Ms. Binal R. Vora
he Indian FMCG sector is the fourth largest sector in the economy with an estimated size of Rs.1,300 billion. The sector has shown an average annual growth of about 11% per annum over the last decade. Unlike the developed markets, which are prominently dominated by few large players, India’s FMCG market is highly fragmented and a considerable part of the market comprises of unorganized players selling unbranded and unpackaged products. There are approximately 12-13 million retail stores in India, out of which 9 million are FMCG kirana stores.
Indian FMCG sector
is the fourth largest sector in the economy characterized by strong MNC presence, well established distribution network, intense competition between the organised and unorganised players and low operational cost. Easy availability of important raw materials, cheaper labor costs
India FMCG sectors’ significant characteristics can be listed as strong MNC presence, well established distribution network, intense competition between the organised and unorganised players and low operational cost. Easy availability of important raw materials, cheaper labor costs and presence across the entire value chain gives India a competitive advantage. Products which have a swift turnover and relatively low cost are known as Fast Moving Consumer Goods (FMCG). FMCG items are those which generally get replaced within a year. Examples of FMCG commonly include a wide range of repeatedly purchased consumer products such as toiletries, soap, cosmetics, oral care products, shaving products and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also include pharmaceuticals, consumer electronics, packaged food products etc. Penetration level and per capita consumption in many product categories is very low compared to world average standards representing the unexploited market potential. Mushrooming Indian population, particularly the middle class and the rural segments, presents the huge untapped opportunity to FMCG players. Growth is also likely to come from consumer 'upgrading' in the matured product categories like processed and packaged food, mouth wash etc. A distinct feature of the FMCG industry is the presence of international players through their subsidiaries (HLL, P&G, Nestle), which ensures innovative product launches in the market from their parent's portfolio. Our country has a varied agro-climatic condition which enables to offer extended raw material base suitable for many FMCG sub sections like food processing industries etc. India is the one of the major producer of livestock, milk, sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and fruits & vegetables. Similarly, India has an abundant supply of caustic soda and soda ash, the chief raw materials required in the production of soaps and detergents, which enables the household section of the industry to excel and grow. The accessibility of these raw materials gives India the locational advantage.
and presence across the entire value chain gives India a competitive advantage. Penetration level and per capita consumption in many product categories is very low compared to world average standards representing the unexploited market potential. Mushrooming Indian population, particularly the middle class and the rural segments, presents the huge untapped opportunity to FMCG players.
shampoos. cosmetics etc. . labor cost in India is amongst the lowest in emerging Asian countries. and hair gels. Colgate Palmolive. Oct 2010 As can be seen from the above diagram. Easy raw material availability and low labor costs have resulted in a lower cost of production. HUL is the leader with market share of ~53 per cent. hair care products. P&G occupies second position with market share of around ~23 per cent. Again the market is dominated by HUL with around ~47 per cent market share. The Indian skin care and cosmetics market is valued at $274 million and is dominated by HUL. Sachet makes up to 40 per cent of the total shampoo sale. Personal wash can be further segregated into three segments namely Premium. With rapid urbanization. Swelling disposable incomes of the Indian consumers. Many multi-nationals have set up large low cost production bases in India to outsource for domestic as well as export markets. In the branded coconut hair oil market. Economy and Popular. oral care products. Personal Care Personal care segment includes personal wash products. growth in rural demand and upgrading to the premium products are the key drivers for future demand growth in major FMCG categories. The preference is given to detergents in urban area compared to bars. hair colorants & conditioners. Henkel and Proctor & Gamble. the demand for the household care products is booming. Other major players are Nirma.a. Household care segment is featured by intense competition and high level of penetration.5824 Labor Cost (in US $ p. The local and unorganized players account for a major share of the total volume of the detergent market. Gillette India and Godrej. Godrej occupies second position with market share of ~10 per cent. Here also. Marico (with Parachute) and Dabur are the leading players. MAJOR SEGMENTS OF THE FMCG INDUSTRY: Household Care The detergents segment is growing at an annual growth rate of 10 to 11 per cent during the past five years. The hair care market can be segmented into hair oils. HUL is the leader with ~38 per cent of market share. The coconut oil market accounts for 72 per cent share in the hair oil market. emergence of small pack size and sachets. In washing powder segment.) Labor cost in India is amongst the lowest in emerging Asian countries 2250 1889 1619 1052 943 Malasiya China Nepal Srilanka Pakistan India Source: IMF World economic Outlook Database.
The three largest consumed categories of packaged foods are packed tea. while HUL occupies second position with market share of ~30 per cent. Indian hot beverage market is a tea dominant market. In toothpowders market. Food and Beverages This segment comprises of the food processing industry. biscuits and soft drinks.23 per cent. toothbrushes . chocolates & confectionery. This segment is dominated by Colgate-Palmolive with market share of ~49 per cent. The oral care market can be segmented into toothpaste . Colgate and Dabur are the major players. INDIAN CONSUMERS SPENDING PATTERN Entertainment 2% Music & Theatre 5% Footwear 2% Eating Out 10% Accessories 1% Books and Music 8% Grocery 40% Vacation 4% Consumer Durables 7% Personal care 8% Saving and Investments 4% Home Textiles 2% Clothing 7% INDIA OCCUPIES 17% OF THE WORLD’S POPULATION THAT HALF OF THESE PEOPLE ARE BELOW THE AGE OF 25 Others 31% France Thailand 1% 1% Congo 1% Iran Turkey 1% 1% China 19% India 17% United States 5% Indonesia Germany 4% Egypt Mexico 1% 1% Ethiopia Nigeria Pakistan 2% 1% 3% Vietnam 2% Bangladesh Philippines 1% 2% Japan Russia 2% 2% 2% . The major share of tea market is dominated by unorganized players. Leading branded tea players are HUL and Tata Tea. With the change in life styles.17 per cent. Mineral Water and ice creams. ITC.60 per cent. Mjaor players in food segment are HUL. greater product choice and availability.The skin care market is at a primary stage in India. The major players in this segment are Hindustan Unilever with a market share of ~54 per cent. health beverage industry. bread and biscuits. increase in disposable incomes. followed by CavinKare with a market share of ~12 per cent and Godrej with a market share of ~3 per cent. Nestle and Amul. Godrej. toothpowder . people are becoming more alert about personal grooming.
Weaknesses: • Lower scope of investing in technology and achieving economies of scale. The organized liquid milk business is in its infancy and also has large long-term growth potential. With rise in per capita incomes and awareness. Foreign Direct Investment (FDI): Automatic investment approval up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies investment is allowed for most of the food processing sector except malted food. the growth potential is huge. Only about 10-12 per cent of output is processed and consumed in packaged form. reducing excise duties. increase in purchasing power of consumers Large domestic market with more population of median age 25 High consumer goods spending India is the largest milk producer in the world. Lower price and smaller packs are also likely to drive potential up trading for major FMCG products Rural demand etc. • • • • . i. especially in small sectors • Low exports levels • Threats: • Removal of import restrictions resulting in replacing of domestic brands • • • • • • • Tax and regulatory structure Rural demand is cyclical in nature and also depends upon monsoon. puddings etc. alcoholic beverages and those reserved for small scale industries (SSI). thus highlighting the huge potential. 100 per cent export oriented units can be set up by government approval and use of foreign brand names etc. yet only around 15 per cent of the milk is processed.SWOT ANALYSIS: • • • • Strengths: Low operational costs Presence of established distribution networks in both urban and rural areas Presence of well-known brands in FMCG sector Favorable governmental Policy: o Indian Government has passed the policies aimed at attaining international competitiveness through lifting of the quantitative restrictions.e. India is under penetrated in many FMCG categories as shown in below diagram. Opportunities: Untapped rural market. Even investment opportunities exist in value-added products like desserts. changing life style Rising income levels.
Hindustan Unilever Ltd. Procter & Gamble Hygiene and Health Care 10. Marico Industries LOW PER CAPITA CONSUMPTION IN INDIA COMPARED TO WORLD’S OTHER COUNTRIES :: HUGE UNTAPPED OPPRTUNITY (Data for the year 2001) . Asian Paints (India) 7. Nestlé India 4. Britannia Industries 9. GCMMF (AMUL) 5. 2.THE TOP 10 COMPANIES IN FMCG SECTOR 1. Dabur India 6. ITC (Indian Tobacco Company) 3. Cadbury India 8.
Distribution of smaller pack sizes. increasing numbers are joining the Indian workforce. is providing optimism to the economy while opening up new categories in the FMCG space. India is under changing phase as more women are joining India's workforce. FMCG players are finding opportunities to introduce products in the convenience and health foods segments. India's share in world consumer spending is set to enlarge from 1. Key growth drivers to the Industry are as follows: Robust growth in India’s GDP Growing urbanization Evolving consumer life style Increased income in rural areas Spending Pattern Changing Profile and Mind Set of Consumer . While spending on women's personal care products is also becoming far more acceptable. (Source: Technopak) Income in the hands of younger Source: AC Nielsen consumers with a higher propensity to spend. innovations like single use sachets to reach out to the rural and lower section of the economy is gaining demand.9% in 2005 to 3.1% in 2020. With a median age of 25 years.OUTLOOK: India has 17% of the world's population and that half of these people are below the age of 25. Innovative products to cater to regional or local tastes and the needs of niche consumers is also benefiting in growth of the industry.
or Japan or distributed. and should consult its own advisors to determine the merits and risks of such an investment. urbanization. Sandhya Tungatkar amitg@iseindia. The distribution of this document in other jurisdictions may be restricted by law. Inter-Connected Stock Exchange of India Limited has not independently verified all the information given in this document. education. is made as to the accuracy. agents or representatives shall be liable for any damages whether direct or indirect. thee exists there huge untapped opportunities. Nothing in this document should be construed as investment or financial advice. and persons into whose possession this document comes should inform themselves about. with the growing population. and a consumption-driven society. in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. in whole or in part. The views expressed are those of analyst and the Company may or may not subscribe to all the views expressed therein.S. Accordingly. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Research Team Mr. directly or indirectly. any such restrictions. The intent of this document is not in recommendary nature. or deal as principal or agent in or for the securities mentioned in this document. This report has been prepared on the basis of information. their directors and the employees may from time to time. This information is subject to change without any prior notice. express or implied. and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved). which is already available in publicly accessible media or developed through analysis of Inter-Connected Stock Exchange of India Limited. incidental. .Persons).Growth of modern retail The FMCG sector has a great opportunity for growth in the country.com DISCLAIMER: This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. employees.com email@example.com Sandhyat@iseindia. the rising disposable incomes. completeness or fairness of the information and opinions contained in this document. Canada. redistributed or passed on. copied. the advent of modern retail. effect or have effected an own account transaction in. directly or indirectly. The investment discussed or views expressed may not be suitable for all investors. Neither this document nor any copy of it may be taken or transmitted into the United State (to U. not its directors. This document is being supplied to you solely for your information and may not be reproduced. Amit Gupta Ms. for any purpose. Binal Vora Ms. and observe. InterConnected Stock Exchange of India Limited its affiliates. Analyst holding in the stock: no. special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. There is a potential for all the FMCG companies as the per capita consumption of almost all products in the country is very low compared to world standards. Neither the Firm. to any other person or published. no representation or warranty.
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