Confederation of Indian Industry Since 1895

FMCG Roadmap to 2020
The Game Changers
Abhishek Malhotra Vikash Agarwalla Srishti Chaudhry

Prepared by

This Report has been prepared by Booz & Company Inc for the Confederation of Indian Industry (CII) © Confederation of Indian Industry (CII), 2010 Disclaimer and Confidentialities All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means electronic, mechanical, photocopying, recording or otherwise, without the prior written permission from Confederation of Indian Industry (CII). While every care has been taken in data collection, analyses and compilation of this Report, CII doesn’t accept any claim for compensation if any entry is wrong, abbreviated, cancelled, omitted or inserted incorrectly either as to the wording, space or position in the Report. Published by Confederation of Indian Industry, Northern Region Sector 31-A, Dakshin Marg, Chandigarh 160030 Tel: 0172-2602365/2605868, Fax: 0172-2606259 Email: ciinr@cii.in; Web: www.cii.in

CONTENTS

Message from Conference Chairman Executive Summary 1. Industry Context 1.1. 1.2. 1.3. 2.1. 2.2. 3.1. 3.2. 3.3. 3.4. 3.5. 3.6. 3.7. 3.8. 3.9. 4.1. 4.2. 4.3. 7 4 6 Abbreviations and Acronyms

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The FMCG Industry: Growth in the Last Decade Growth across FMCG Categories Growth across FMCG Players Industry Growth Drivers FMCG Roadmap to 2020 Accelerating Premiumization Evolving Categories Rapid Globalization Many-Indias 31 34 39 42 48 48 48 54 46 Growing Modern Trade Eco-consciousness Enabling Policies 16 22 28 10 12 13 14 7 7

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2. Determinants of Industry Growth and Outlook for the Future

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3. Megatrends Shaping the Indian FMCG Industry

Goldmine at the Bottom of the Pyramid

Game-changing Technologies

4. Implications for the FMCG Industry Industry Paradigms in 2020

Imperatives for the FMCG Industry Implications for Other Stakeholders 55 55

Endnotes

About the Authors

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FMCG Roadmap to 2020

MESSAGE FROM CONFERENCE CHAIRMAN

The Indian FMCG industry is over INR 1300 billion in size. It touches the life of every Indian and therefore has perhaps the widest reach among all industries in India! The industry has tripled in size over the last 10 years, growing much faster than in past decades. This has been facilitated by the many changes in the Indian economic and industrial landscape—reduced levels of taxation, easier import of materials and technology, reduced barriers to entry of foreign players, growing organizational maturity of Indian players, growth of media, and, of course, the growing affluence and appetite for consumption of the Indian consumer. The industry’s potential to grow further and faster is awesome, given the low penetration of most categories and rising consumer incomes. Though many changes have taken place over the last 20 years, I believe the rate of change in the FMCG operating environment is set to accelerate. The waves of change will be propelled by government policy, channel customers, technological advances, leaders of social change such as NGOs, consumer behaviour and, of course, the players themselves. Change will therefore occur along many dimensions simultaneously, in a more compressed time scale at the intersection of these change vectors. This will produce significant, if unpredictable, outcomes for the industry. Over the last 20 years, almost all FMCG companies have been riding the rising tide and almost all have prospered. That may, however, not hold true over the next 10 years. While the industry is set to grow at an even faster rate, in this round there could be as many losers as winners! Winners will discard archaic models which prioritize urban markets over rural and innovate more complex but vastly more insightful segmentation models. They will alter the dialogue with modern retailers and the emerging specialized trade channel customers in meaningful ways, to grow the market and earn profitable market share. They will use technology to not just pare costs, but to create flexible supply chains which can access more consumer segments and satisfy more consumer requirements. They will also use technology to both win more consumers and collaborate more intensely with consumers to create innovative products. Issues of sustainability will become far more central to their agendas. In this context, all stakeholders in the FMCG industry will find this report by Booz & Company valuable. Booz has developed an excellent model to understand the forces shaping the FMCG industry and this model is supported by a strong analytical foundation. Several interesting conclusions flow from the application of this model which should inform many board room discussions as companies in India and elsewhere grapple with issues of the future. Industry associations and the CII FMCG committee will no doubt see value in this report, as they seek to influence different stakeholders; and, of course, investors will vote with their money as they identify companies that reflect a stronger understanding of these dynamics in their strategy and execution. Kannan Sitaram Chairman CII FMCG Forum 2010

FMCG Roadmap to 2020

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EXECUTIVE SUMMARY

The Indian FMCG industry at INR 1300 billion (in FY2010) accounts for 2.2 per cent of the GDP of the country. Given the inherently essential nature of the products, the sector is more or less immune to recessionary pressures. The last decade has seen the sector grow by 11 per cent annually. Robust GDP growth, opening up of rural markets, increased income in rural areas, growing urbanization along with evolving consumer lifestyles and buying behaviours have all been drivers of this growth. Over the next decade, all the above drivers are expected to continue to impact the industry favourably. Based on discussions with industry experts as well as Booz & Company analysis, we believe that the FMCG industry will grow at a base rate of at least 12 per cent annually to become an INR 4000 billion industry by 2020. Additionally, if some of the factors play out favourably within an environment of enabling policy and easing of supply constraints, 17 per cent growth may be expected over the next decade, leading to an overall industry size of INR 6200 billion by 2020. FMCG consumption is becoming more and more broad-based, and has reached an inflexion point where the growth can be expected to take off, following the traditional ‘S-shaped’ curve witnessed across many markets. While on an average, the growth of the industry will be strong, it will not be uniform. Variations are likely across product categories, companies and locations. Based on our research and extensive interviews, we have identified nine mega trends across consumers, markets, and environments which will shape the industry by 2020.

1. Accelerating Premiumization: Continuous income growth coupled with an increased willingness to spend will push consumer up-trading and demand for higher priced, better quality (real or perceived) products. 2. Evolving Categories: Many consumers with rising economic status will shift from basic ‘need’ to ‘want’ based products. In addition, evolving lifestyle behaviour and emphasis on beauty, health, and wellness will see increased requirements for customized and more relevant products. 3. Goldmine at BOP: A significant majority of the population in the country, especially in the rural markets, will become an important source of consumption by moving beyond the ‘survival’ mode. This bottom-of-the-pyramid (BOP) segment will require tailored products at highly affordable prices with the potential of very large volume supplies. 4. Rapid Globalization: While many leading foreign multinational companies (MNCs) have operated in the country for years, given liberal policies, the next decade will witness increased competition from Tier 2 and 3 global players. In addition, larger Indian companies will continue to seek opportunities internationally and also gain access to more global brands, products, and operating practices. 5. Many Indias: Despite the complexities of our language, culture, and distances, the Indian market has largely been seen as a homogenous market. Increased scale and spending power will demand more fragmented and customized business models

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FMCG Roadmap to 2020

The pressure on companies to go green is growing due to the involvement of various stakeholders—the government (through policy). Re-engineering supply chains 6. the confluence of many of these change drivers—consumers. branding and operating structures). To excel in this new model one will need to enhance current capabilities and build new ones to bridge gaps. This will be seen both in terms of efficiencies in the back-end processes (for example. consumer marketing). FMCG Roadmap to 2020 5 . and growing ecological awareness of consumers are increasing emphasis on environmental concerns. 9. This transition from a stable and homogenous operating model to a dynamic. The FMCG industry in 2020 will be larger. supply chain and distribution) as well as in the front-end (for example. 8. This will help boost both demand and supply. can help create a more suitable operating environment. unpredictable and rapidly changing operating model will have significant implications for the industry and its stakeholders. Winning the talent wars 3. dwindling natural resources. and more tuned to its evolved customers.(across products. Growing Modern Trade: The share of modern trade will increase and may be expected to account for nearly 30 per cent of the total trade by 2020. Eco-consciousness: Global climatic changes. As with any change that is disruptive in nature. if executed. Enabling Policies: Many government policies under consideration. Demand will go up because of increase in income levels and spread of education and supply will be augmented by removal of process bottlenecks and boost in infrastructure investments. FMCG companies will have six imperatives from a business strategy perspective: 1. while continuing to deliver on their core business and social mandates. 7. and investors will also need to play a key role in supporting the growth of the industry. retailers. Re-inventing marketing for ‘i-consumers’ 5. NGOs. technology. more responsible. the FMCG sector in India is poised for rapid growth in the next 10 years. there will be winners and losers. 6. channel partners—will have a multiplier effect and magnify both the magnitude as well as the pace of change. government policy. In this new setup. In conclusion. the consumers (through brand choice) and NGOs (through awareness and advocacy). Partnering with modern trade Stakeholders including government. Bringing sustainability into the strategic agenda 4. Disaggregating the operating model 2. Game-changing Technologies: Increased relevant functionality coupled with lower costs will enable technology deployment to drive significant benefits and allow companies to deal with complex business environments. many are yet to break the existing paradigms. While some of the above trends can already be observed today. This channel will compete with existing traditional trade (approximately 8 million stores which will continue to grow) and offer both a distribution channel through its cash & carry model as well as other avenues to interact with the consumer. In addition. Companies will need to evolve to better meet the rapidly changing consumer needs within an increasingly complex operating environment.

ABBREVIATIONS AND ACRONYMS FMCG GDP FY INR US$ NREGS APMA NFSA FDI MVNO TRAI OCB SSI NGO CSR MNC OTC SMS VAS MRP GST Fast Moving Consumer Goods Gross Domestic Product Financial Year Indian Rupees US (American) Dollars National Rural Employment Guarantee Scheme Agriculture Products Marketing (Regulation) Act National Food Security Act Foreign Direct Investment Mobile Virtual Network Operators Telecom Regulatory Authority of India Overseas Corporate Body Small-scale Industry Non-governmental Organization Corporate Social Responsibility Multi-national Company Over the Counter Short Message Service Value-added Service Maximum Retail Price Goods and Service Tax 6 FMCG Roadmap to 2020 .

2. moving from near-zero levels in FY2000 to INR 9 billion at present. Within the category of food products. which accounts for nearly 45 per cent of the industry size. the FMCG industry witnessed sustained growth rates of 14 per cent and 11 per cent.2 per cent of India’s GDP. The sector witnessed a robust yearon-year growth of approximately 11 per cent in the last decade. The FMCG Industry: Growth in the Last Decade The fast moving consumer goods (FMCG) industry1. this sector was relatively recession-proof (see Exhibit 1). is expected to attain a size of INR 1300 billion by FY2010. increased rural incomes. Fruit juices on the other hand have reported exponential growth.3. Even in the meltdown years of FY2008 and FY2009. almost tripling from INR 470 billion in FY2001 to the current size. 1.1 INDUSTRY CONTEXT 1. changing social habits and growing awareness of healthier and packaged beverages have contributed to these patterns (see Exhibit 2. which accounts for 2. a rising consumption-culture in India and a proliferation of consumer awareness campaigns. Similar trends are visible in the personal products category with skin-care creams outpacing the growth of more mundane product lines such as toothpaste. respectively. demonstrating that unlike other sectors. 8). p. 1. The last five years have augured well for the industry with an annual growth rate of approximately 17 per cent since FY2005. staple products like edible oils have grown at single digits given a high degree of penetration as well as established usage patterns. Over the last few years the industry has witnessed a high rate of growth boosted by favourable macroeconomic conditions. Increased incomes.1. Growth across FMCG Players Three well-identified sets of players operate within a highly developed and intensely competitive landscape FMCG Roadmap to 2020 7 . Growth across FMCG Categories The FMCG industry in India has grown rapidly and the growth rates across different product categories are good indicators of how the Indian consumer has evolved.

These players with lower corporate overheads and clear focus on specific consumer requirements have a competitive edge over larger FMCG players. Nestle and PepsiCo. who mainly compete by offering low-priced products with similar looks or packaging compared to the bigger brands. have either established their presence or are actively looking towards entering India through organic and/ or inorganic routes. p. Regional or small domestic players. has entered India by buying Cadbury. Booz & Company analysis 8 FMCG Roadmap to 2020 . Exhibit 2: Selected Category Growth (FY2008-FY2010) 35% 24% 16% 8% Oils Biscuits 11% 26% 21% Fruit Drinks Skin Care Toothpaste Shampoo Hair Oil Source: IDFC Institutional Research. Kraft Foods for example. Dabur and Marico are entities which have established their brand of health supplements (Chyawanprash) and coconut hair oils (Parachute) through products intrinsically linked to the traditional Indian psyche. These categories are therefore difficult to break into. CavinKare etc. such as Ajanta. P&G. Anchor. the French dairy major is re-establishing its presence in the food processing market through its tie-up with Yakult Honsha.. Apart from these. P&G etc. Euromonitor. who are present in a few regions of the country. Little wonder then that foreign MNCs have largely stayed away from these product segments. Strong Indian players with established national presence such as Marico. 9): 1. Dabur and Godrej Consumer Products. 3. there are regional and small-scale FMCG players such as small tea producers and organic food producers. There are also numerous Indian players who have established themselves in niche segments by developing differentiated products and positions and have thus become industry leaders. to the ‘right consumers’ typically based in rural areas or in small towns.of the Indian FMCG market (see Exhibit 3.. Most of the foreign players such as such as HUL. and Danone. 2. a Japanese probiotics major. Foreign players who are present through their subsidiaries such as Unilever.

The high growth rate of the FMCG industry was reflected in the growth rate of these players. the last decade saw a golden run for the Indian players who grew at a CAGR of 12 per cent in 2001-05 and 19 per cent in 2006-10. Booz & Company analysis of ~100 FMCG players FMCG Roadmap to 2020 9 . Also. more fragmented.Booz & Company analysed the sales and profitability of approximately 100 listed FMCG companies across foreign MNCs and large and small Indian players. While this has widened choices for consumers. markets are. on the downside. Exhibit 3: Sales Growth – FMCG Players 19% (CAGR) 17% 16% 12% 11% 9% 8% 2% 2001-2005 Player Average Foreign MNCs Large Indian Regional / Small Domestic 2006-2010 Source: CMIE. This compares handsomely with reported figures of 2 per cent and 16 per cent in the respective periods for the foreign MNCs. Players are offering multiple products within common categories resulting in brand erosion and decline in dominance.

At per capita GDP of US$ 7000. There are three key forces at work within and outside the industry which drive this development. while Latin America displays strong inclination for shampoos.2 DETERMINANTS OF INDUSTRY GROWTH AND OUTLOOK FOR THE FUTURE 2. Socio-cultural norms and behaviours considerably impact both timing and growth patterns of various food categories. For example. the consumption becomes more wide-spread and then increases exponentially.5% 1. For example. 2. tends to grow faster.1 Industry Growth Drivers Having matured in a decade of tremendous economic growth. varies across categories.5% urbanization • Similar age profile • More up-trading in urban and rural areas • GST • FDI • Right to Education • Food Security • 2.1.1. the Indian FMCG industry is now ready to sustain that growth and forge ahead. the categories of consumer products mature as consumers move from a ‘need-driven’ to a more ‘want-driven’ consumption pattern as explained by Rostow’s Stages on Economic Growth. the basic consumption of staples as a proportion of total food consumption (measured by calories of intake). Developmental Cycle of the Industry Booz & Company analysis of consumption patterns across countries has revealed that most categories of consumer products tend to follow an S-curve of growth with the initial consumption driven by rich consumers and early adopters. the snacks category displays growth when GDP is in the range of US$ 4000-7000 per capita.3% urbanization Lifestyle Changes • ~60% people in 15-59 agegroup in 2010 • NREGA Government Policy • Farmer loan-waiver 10 FMCG Roadmap to 2020 . which is driven not Exhibit 4: Key Drivers of the FMCG Industry in India GROWTH DRIVER PAST GROWTH (2001-2010) FUTURE GROWTH (2011-2020) CONTRIBUTION TO FMCG TRANSFORMATION GDP Growth ~7% 8-9% Population Growth 1. Subsequently. per capita consumption of wheat grows fast when GDP is US$ 2000-5000 per capita. initially.2% • ~14% annual growth Per Capita Income Growth (disposable income) • Women’s participation 34% in 2010 • >15% annual growth (disposable income) • Women’s participation closer to levels in developed nations (70%) • 2. However. though this rise occurs comparatively late. however. At the trigger point though. Mexico reports high rates of snacking due to local food habits.2 The tipping point for exponential growth.

10). such as.3 Evolving Consumer Profile Lifestyle changes. incomes. Estimates suggest that if it increases to approximately 70 per cent (as in the developed nations). Increased FDI in multi-brand retail may open up a large channel for sales. more coverage) • Increasing consumption in every occasion • Increasing occasions of consumption • GDP increased . Other policy measures such as lower income taxes.2 Macroeconomic Factors Favourable macroeconomic drivers such as the growth in GDP. 2. Participation of women in the Indian workforce is also likely to rise.4 billion by 2020. a comparatively young population and greater willingness to spend more on better quality products are expected to boost the consumption-driven economy. all of which have reported significantly faster growth rates. with GDP growth ranging between 8-10 per cent. lifestyle changes powering above Supply Drivers Modern Trade + Technology Investments + Regulations FMCG Roadmap to 2020 11 . All these factors will combine to catapult consumer demand for FMCGs to newer heights (see Exhibit 5). These are elaborated upon below: • The Indian economy is expected to overtake UK in the coming decade. beauty and wellness goods. 2. Rural markets. skin-care products and even edibles such as packaged beverages.1. • Favourable government policies such as the introduction of GST can be expected to substantially decrease supply chain costs. infrastructure schemes etc have also acted as enablers of higher consumption. Right to Education. the Food Security Act. increased participation of women in the workforce and the tapping of the rural markets. given the current low penetration and high potential for up-trading are expected to bring about super-normal growth for FMCG companies. p. • Per capita incomes supported by various government schemes and policies are expected to rise in both rural and urban areas. women’s participation in workforce. sophisticated products • Increasing income. younger population driving the above • Using premium. Exhibit 5: FMCG Growth Ladder Demand Drivers NEW CONSUMERS INCREASING CONSUMPTION UP-TRADING UNFORESEEN FUTURE DRIVERS • Population growth • Increasing penetration (access to rural areas. many Indian consumer segments which constitute rather large absolute numbers are either close to or have already reached the tipping point of rapid growth.only by the availability of water but also social norms related to personal hygiene. coupled with rising incomes. are seen to be enabling growth in the FMCG sector (see Exhibit 4.1. This is true for many categories of consumer durables.3 • India is expected to reach China’s current population figure of 1. While the Indian GDP per capita is low. it will further boost GDP growth by 2-3 per cent.

it could even record a 17 per cent growth over the next decade. • Base Case models an ‘As-Is’ scenario where the key assumptions are that GDP growth will continue at the same pace (of about 7 per cent) in the next decade and there will be no major change in regulations. This augurs well for the industry as the young have greater willingness to spend more. young consumer base and the influence of the ubiquitous media. For example.Young population (below age of 30 years) comprise 59 per cent population currently. While the overall growth rates may be anticipated to lie in the 12-17 per cent range. breakfast cereals. In some areas one would expect Indian FMCGs to follow well-established growth-evolution paths. These growth rates. depend on varying economic scenarios (see Exhibit 6). many packaged food categories (such as soups. • Optimistic Case models a ‘Transformation’ scenario where key assumptions are that GDP growth will touch 9 per cent in the next decade. if some of the positive factors play out favourably. many product categories are likely to grow much faster as consumer incomes increase. and favourable changes in regulations (such as FDI in multi-brand retailing or rolling-out of the GST) will unlock industry potential. Booz & Company analysis 12 FMCG Roadmap to 2020 . Given the nascent stage of development across many categories even supply-led actions can help trigger rapid growth.2 FMCG Roadmap to 2020 Booz & Company analysis and discussions with industry experts indicate that the FMCG industry may grow at a base rate of at least 12 per cent annually to become INR 4000 billion industry in 2020. Exhibit 6: Growth Scenarios of FMCG Sector 6250 (IN INR BILLION) Optimistic Case 17% Base Case 2850 12% 17% 12% 1300 2300 4000 FY10E FY15P FY20P Source: News articles. and the composition is likely to remain similar over the next decade. Some of that impact is already evident in a category like liquid hand-wash which has shown very strong growth driven by increased consumer awareness around personal hygiene specifically for children. however. and fruit juices) have seen rapid growth rates driven by increased presence of modern trade. in many product categories growth may be accelerated by the explosive economic rise. 2. Additionally. However. behaviours evolve and requirements change. leading to an overall industry size of INR 6200 billion by 2020.

three prominent trends merit some discussion. And finally. based on their origins or sources (see Exhibit 7). many companies will find increasing value at the Bottom of the Pyramid (BOP) by serving products customized to specifically meet the requirements of this large market. at the middle of the pyramid. their impact will be freely felt across multiple stages of the industry value chain. At the same time. The first one is increasing ‘premiumization’ which will see consumers trading up the price ladder in search of additional functionality or brand promise. However. Numerous and diverse consumers in India throw up an equally mind boggling diversity of consumption trends and patterns.3 MEGATRENDS SHAPING THE INDIAN FMCG INDUSTRY CII–Booz research on industry evolutions in other markets and discussions with industry experts and practitioners helped identify nine key forces that will change the face of the industry over the next ten years. • Consumer-related Trends: Changing demographic profiles and evolving behaviour significantly impact the way consumers consume and interact with products and services. the evolution of consumption behaviour will be seen to lead to significant changes within and across product categories. These players need to be conscious of such trends and adapt their products as well as go-to-market strategies as per their target markets. It may be said that there will be significant scaling up at each step of the consumer income–pyramid to be able to justify independent commercialization of the business potential. Exhibit 7: Key Trends Shaping the FMCG Market in India 1 2 3 Accelerating Premiumization Evolving Categories 4 5 Rapid Globalization Many Indias Growing Modern Trade ers Goldmine at BOP 6 Ma um rke ns ts Co Environment 7 8 9 Source: Booz & Company analysis Eco-consciousness Game-changing Technologies Enabling Policies FMCG Roadmap to 2020 13 . The key trends within this segment will be the viability of sub-markets in India. growing organized retail and the increasing globalization of FMCG players. • Market-related Trends: These pertain to evolving geographical markets or channels for the FMCG players. These trends may be categorized into three broad groups. Second.

. it is expected that by 2020 their numbers will double to constitute seven per cent of the total population. Booz & Company analysis 14 FMCG Roadmap to 2020 . and the upper middle class with an annual income ranging between INR 500 thousand and INR 1 million (see Exhibit 8). The upper middle class wants to emulate the rich and trade up towards higherpriced products which offer greater functional benefits and experience compared to products for mass consumption.1. growing importance of sustainability. Trend Description The motivation for buying premium products varies with consumer income. Changing government policies. which Exhibit 8: Household Distribution by Income and Profiles of Affluent Consumers in India HOUSEHOLD DISTRIBUTION BY ANNUAL INCOME AFFLUENT CONSUMERS IN INDIA > INR 1 million (Rich) • Rich: Spend high proportion on personal care. As per estimates. The premiumization trend can be observed prominently in the top two income groups mentioned already. The rising income of Indian consumers has accelerated this trend towards ‘premiumization’ or consumer up-trading.2 million (Bottom of the Pyramid) 2010 2020 Source: McKinsey Global Institute. By 2020 these groups will constitute large enough numbers to merit a dedicated business strategy that FMCG companies will do well to adopt and follow.5-1.0 million (Upper Middles) INR 0. The rich are willing to buy premium products for their ‘emotional value’ and ‘exclusive feel’. These factors will gradually combine to give considerable push to premiumization in the future. NCAER. entertainment. legal. want luxury and exclusivity 1% 2% 11% 2% 5% INR 0. and want to buy products which suit their style. etc. Such products are often referred to as ‘masstige’ products.• Environment-related Trends: These are influenced by sociopolitical.5 million (Lower Middles) 29% • Upper Middles: Have similar needs as the rich and purchase inexpensive brands of known companies 86% 64% < INR 0. Accelerating Premiumization 3. making it more pronounced as compared to the last decade. and their behaviour is very close to consumers in developed economies. 3.1. While these two income groups account for only three per cent of the population currently. evolving media platforms and technology will compel FMCG players to adopt business strategies which keep the interests of communities and the environment in mind for inclusive development. The improved purchasing power of Indian consumers is supported by greater workforce participation among women and an increasingly younger earning population with higher consumer willingness to spend on lifestyle products.2-0. the rich with an annual income exceeding INR 1 million. the ‘Rich’ will grow to approximately 30 million people in 2020.1. They are well-informed about various product options. environmental and technological reprioritizing that is inevitable in a dynamic environment.

increased incomes available in households to spend on expendables. the ‘Upper Middles’ will be a population of about 70 million in 2020. Similarly for hair colour.4 As a result. We expect that in the future. and they are better informed about developments around them. First. Third. • P&G’s Olay (premium anti-ageing skin-care brand) captured 20 per cent market share within one year of launch in a category which grew five times between 2007 and 2008. L’Oreal’s overall sales have doubled in the last five years. Second. the profile of the young population reveals more actively employed people.2. young people tend to spend more compared to their parents and grandparents. L’Oreal has occupied 20 per cent share of the INR 12 billion hair colour market with premium brands such as L’Oreal Excellence Crème and Garnier (a ‘masstige’ brand). Their awareness levels are higher. People in the age group of 15-44 comprise approximately 60 per cent of the population (see Exhibit 9. p. 16). Indian FMCG players are likely to gain from investment in technology to develop and manufacture ‘Many consumers are likely to indulge in choice-driven consumption. There are several examples of consumers up-trading to more premium products. with premium brands in cosmetics. has been growing rapidly in India with 7. Possible Strategies for FMCG Players Going forward. The Indian population is also quite young compared to those in developed economies. and ethical with ingredients and/or features that have special and measurable benefits. This means. 3.is more than the current total population of Sweden. Product Strategy: Premium products are intended to convey ‘prestige’ or ‘super-premium’ position that has ‘aspirational’ value. Continued favourable age distribution is a driver for premiumization in the future as well.1. the premium personal and hair care brand from HUL. which is more than the current population of the UK.1 per cent in 2005 to approximately 5 per cent in 2010 in the hair care products category. those FMCG players who decide to tap into the premiumization trend will find the need to align their business strategy to the pulse of the relevant consumer classes. safe. There are multiple ways in which the burgeoning younger population is supporting premiumization. as well as FMCG companies launching various products to capture the premium market: • Dove. Dec 2009 FMCG Roadmap to 2020 15 . which will increase demand for premium and super premium products in urban India. • L’Oreal. increased its market share from 0. and the growth trend is expected to continue. and are easily attracted towards ‘high-end’ products. specifically new platforms such as the internet. Norway and Finland put together! Similarly. mobile phones etc. The middle and upper middle classes will be the chief contributors to this …’ —Mint. hair care and skin care. FMCG players will need to increase their efforts to cater to the ever-growing needs of consumers demanding premium products.5 per cent market share in cosmetics climbing up to the third position in this category. People increasingly want products which are different. they are more exposed to the media and its influences.

1. Booz & Company analysis 16 FMCG Roadmap to 2020 . say. For example. The quality of human capital deployed for sales and distribution will need to be enhanced significantly through specialized training programmes if such a sales process is to be enabled. Exhibit 9: Estimated Age Distribution of Indian Population.such products in order to ride the crest. 2010 7% 14% 31% 0-14 Yrs 15-29 Yrs 30-44 Yrs 45-59 Yrs 20% >60 Yrs 28% Source: United Nations. 3. Evolving Categories 3. or create an ‘emotional bond’ with the consumers by highlighting relevant messages. Sales and Distribution: For selling premium products a ‘high-touch or experiential’ and ‘differentiated’ sales process may find better alignment with the product strategy and overall business objective. one may use special catalogues or niche print media.2. product demonstrations by salespersons or a trial run to educate consumers about high efficiency and other benefits of the products may be devised. the campaign may either emphasize and demonstrate effectiveness and benefits of the product.2. Trend Description There are three ways in which a category can evolve. by establishing ‘exclusivity’ for a top-end brand. Depending on the positioning. Marketing: For advertising ‘prestige’ products. while for ‘affordable premium’ products. the mass media may be harnessed for marketing campaigns.

Such. their size is expected to increase to about 500 million people in 2020. the product offering must also transform to keep pace with demand trends. While these consumer groups in India account for approximately 150 million people currently. supplementary products like mouthwash and sugar-free chewing gum have also seen increased acceptance amongst consumers. it was replaced by the tooth powder in 1970s and 80s. The current penetration of mouthwash is 6 per cent and is growing at a rate of 35 per cent. This trend is likely to pick up in the coming decade with a maturing economy Lately. consumer preferences have shifted over time. consumers have moved from toothpowders to toothpastes and are now also demanding mouth-wash within the same product category. 18). Lately. Third. they start purchasing more evolved and sophisticated products within a category.5 times the current population of the US (see Exhibit 10. supplementary products like mouthwash and sugar-free chewing gum have also seen increased acceptance amongst consumers. category evolution is primarily observed among the upper middle and lower middle income classes. which is approximately 1. While neem datun for brushing teeth was a common tradition earlier. in the oral hygiene category. hence. health. Nowhere is this more apparent that in the differentiated demand for toothpaste depending on individual oral care needs. in the oral hygiene category.. consumers start demanding customized products. specifically tailored to their individual tastes and needs. driven by growing concerns about beauty. Shift towards Evolved Products In the oral care category.First. The toothpaste emerged in late 1980s and 90s. Toothpaste penetration has increased from 50 per cent in 2005 to 55 per cent in 2010. For instance. consumers shift towards personal grooming products which purportedly further these goals. Second. as consumers’ needs change. FMCG Roadmap to 2020 17 . p. and wellness supported by hygienic and healthier lifestyles. Toothpowder has seen a decrease in penetration from 35 per cent to 30 per cent in the last 5 years.

5-1. An analysis of consumption patterns across economies shows that consumers’ tastes change as an economy matures. as per capita GDP rises. p. For instance. the seasons in which these can be used (winters / summers) as well as consumer categories. Finally. desire products which improve their appearance and are good for their health. 20). Then. and children. only a limited variety of products such as shampoos was available within a particular brand. Micro-segmentation for product development and masscustomization for identifying different product variants is already underway. targeted separately at men. India is expected to follow a similar pattern of consumption across staple food products (see Exhibit 11.and increased sophistication in emerging consumer choices. NCAER.2-0. it levels-off as consumers start demanding more product variety suited to their preferences. as consumers start moving towards convenience products (such as pre-mixes and processed foods) per capita wheat consumption starts to fall.2 million (Bottom of the Pyramid) 2010 2020 Source: McKinsey Global Institute. women.5 million (Lower Middles) 29% 86% 64% < INR 0. P&G’s Head and Exhibit 10: Evolving Needs of Middle Class Consumers in India HOUSEHOLD DISTRIBUTION BY ANNUAL INCOME MIDDLE CLASS CONSUMERS IN INDIA > INR 1 million (Rich) Evolving Needs: Increasingly want sophisticated products in categories. in the initial years. Larger number of consumers emerge from relative poverty to choose wheat over coarse grains. a decade ago. Increased Product Variety Consumers are increasingly demanding customized products which are suited to their individual needs. want products meeting their specific needs 1% 2% 11% 2% 5% INR 0. Booz & Company analysis 18 FMCG Roadmap to 2020 . wheat consumption per capita rises as well. For instance.0 million (Upper Middles) INR 0. Now most large players have launched many variants in accordance with hair types (oily / dry / normal).

As per estimates. more nutritional content. Products such as colour cosmetics (growing by 46 per cent). and professional choices.5 Indian men are also becoming more conscious of their appearance. and several companies have been launching beauty and grooming products specifically targeted at men. Sedentary lifestyles and unhealthy habits have led to the rise of lifestyle-related diseases such as diabetes and heart problems. personal attributes. Middle class women are now more conscious of their appearance and are willing to spend more on enhancing it. there is an increased awareness about good health practices among consumers today. Better paying jobs and exposure to fashion and beauty trends prevailing in the developed world through the television and other media have resulted in changing tastes and choices. ED. sun care products (growing at 13 per cent) have latched on to this trends rapidly. Home and Personal Care. Microsegmentation will amplify the need for highly customized market research so as to capture the specific needs of the consumer segment targeted. Hindustan Unilever Limited FMCG Roadmap to 2020 19 . Mass-customization in India will intensify in the future with FMCG players profiling the potential buyer by age. before the actual product design phase gets underway. which is the direct result of the changing socio-economic status of the Indian consumers. there have been over 1200 brands and variants launched in the last five years alone.6 Along with beauty products. Even in a more developed category like soaps there have been over 800 brands and variants launched in the last five years. less sugar. region.’ —Gopal Vittal. the demand for in-salon skin care treatments by men is increasing by 40 per cent annually. Health and Wellness Concerns The beauty products market is expected to grow by 15-20 per cent in the future. and L’Oreal has launched Garnier Men Power Light products. and with a greater ‘In the skin category. Emami came out with Fair and Handsome.Shoulders brand which started with two variants in 1997 now boasts 11 variants to choose from. ethnic background. skin type. especially the women. HUL has launched Vaseline for Men. Increased awareness of healthrelated issues has led to the demand for healthier products with lower calories. Increasing Beauty.

Recently multi-grain Maggi has also been launched. which results in less oil absorption while frying. and this is only expected to increase in the future. The market size of health drinks and health foods is about INR 50 billion currently and is expected to grow at approximately 10 per cent annually in future (see Exhibit 12. thus lending to a healthy meal. 21). and fabric care. p. along with some other categories such as personal care. We have already witnessed heightened activity around health product launches by FMCG players. Exhibit 11: Wheat Consumption Patterns High Wheat Consumption per Capita Pre-mixes Bulk-flour Branded Flour/ Bakeries Segmented Food Processed Food Fast Food India China Brazil Specialized Bakeries Drivers COST QUALITY CONVENIENCE CUSTOMIZATION Source: United Nations. This trend has impacted the food and beverages category to a large extent.proportion of natural ingredients. • Nestle recently launched Maggi Dal Atta noodles. • Sugar Free Gold has been targeting health-conscious and diabetic people. and claims that it results in reducing intake by approximately 500 calories per day. Booz & Company analysis 20 FMCG Roadmap to 2020 . • Marico launched Saffola Gold with LoSorb technology. expected to provide dietary fibres and protein.

2. healthier variants of existing products.3. and enhanced product portfolios to introduce a much larger variety suited to different consumer groups may provide critical tools for grappling with the dynamic Indian consumer landscape. Exhibit 12: Market Size and Growth in the Health and Wellness Space GROWTH RATE (%) 2009 . Marketing Whitebook 2010 Ayurvedic Medicines & Products Alternative Medicines FMCG Products Health & Food Drinks Skin & Health Care Dietary Supplements FMCG Roadmap to 2020 21 . Evolved product forms of developed markets adapted to Indian requirements along with new product development leveraging the ‘health platform’ will demand focused R&D and market research efforts.2.2012 24 22 20 18 16 14 12 10 8 6 4 2 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 APPROXIMATE MARKET SIZE (IN INR BILLION). Possible Strategies for FMCG Players Innovations towards more ‘evolved’ and sophisticated product forms. 2009 Source: Businessworld publication.

5-1. which is rather urban.3.During market research. and products types straddling categories. Complex business models have to support ever widening product portfolios.3. greater consumer segmentation may be required to identify consumer needs and market potential.1. Trend Description We have defined the bottom-ofthe-pyramid or BOP consumers as those who earn less than INR 200 thousand per annum per household. Booz & Company analysis 22 FMCG Roadmap to 2020 . 3.2-0. marketing and sales and distribution process may have to be redesigned to best reach the target consumer segment. Exhibit 13: Profile of BOP Consumers in India.2 million (Bottom of the Pyramid) 2010 2020 Source: McKinsey Global Institute.0 million (Upper Middles) INR 0. no / very limited demand for expensive lifestyle products 86% 64% < INR 0.5 million (Lower Middles) 29% BOP CONSUMERS IN INDIA Spend mostly on essentials. variants. Goldmine at the Bottom of the Pyramid 3. Unlike the middle class segment. using gymnasiums for selling health drinks or stocking of a product for a specific ethnic group near their residential area may be strategic targeting moves. For example. This group currently constitutes about 900-950 million people in India (see Exhibit 13). Manufacturing processes will need to be adapted to serve mass customization objectives. The supply chain. NCAER. HOUSEHOLD DISTRIBUTION BY ANNUAL INCOME 1% 2% 11% 2% 5% > INR 1 million (Rich) INR 0.

greater women’s empowerment and improvement of social indicators in the rural economy (see Exhibit 15. These initiatives along with government-sponsorship of selfhelp groups have resulted in higher disposable incomes. Income is largely agricultural. water. p.already well-served and competitive. increasing minimum support prices of crops. housing. The growth trends. government initiatives such as the National Rural Employment Guarantee Act (NREGA). Supply chain is constrained by poor infrastructural development. which is dependent on monsoons. However. Sampoorna Grameen Rozgar Yojna. poorly-served and uncompetitive. Between FY2007 and FY2010 disbursement under NREGA has increased from INR 125 billion to INR 390 billion. the BOP markets are largely rural. Minimum support price (MSP) of key crops such as paddy and wheat rose at a CAGR only 2 per cent and 3 per cent in the period FY2003-FY2007 but between FY2007 and FY2010. 24). Exhibit 14: Rural and Urban BOP Population Distribution Urban 22% 78% Rural Source: IFC and World Resources Institute FMCG Roadmap to 2020 23 . issues and challenges in rural markets are somewhat different from those in urban areas. Pradhan Mantri Gram Sadak Yojana and Swarnjayanti Gram Swarozgar Yojana (with a total allocation of INR 535 billion in FY2010) are changing the rural landscape of India. mobiles phones and communication. Rural BOP population is estimated to be about 78 per cent of the total BOP population in the country (see Exhibit 14). The second characteristic of BOP markets is that a lot of their basic needs are yet unmet: financial services. these prices have risen at attractive CAGRs of 18 per cent and 20 per cent respectively. electricity and basic healthcare are lacking.

Consumer Lifestyles-India. While most FMCG players have succeeded in establishing sufficient access to their products in rural areas. the FMCG market growth in rural areas at 18 per cent per annum has recently exceeded that of the urban markets at 12 per cent.It is heartening to note that by 2025. percentage rural population in the INR 200 thousand to INR 500 thousand category is projected to increase to 22 per cent from the present level of 3 per cent. development of customized products for these markets and up-trading rural consumers towards higher-priced and better products. Indian Institute of Foreign Trade 24 FMCG Roadmap to 2020 .5 million 59% 46% 36% 22% 27% 59% 35% 50% 61% INR 90-200 thousand 1981 2007 41% 2015 26% 2025 < INR 90 thousand 2005 Number of Pucca Houses Below Poverty Line Rural Literacy Source: CII Rural Report. its contribution is expected to increase to 45-50 per cent by 2020 (see Exhibit 16. Euromoniter. p.5-1. the next wave of growth is expected to come from increasing category penetration.2-0. given the current growth rates. Exhibit 15: Promising Annual Income Levels and Social Indicators in Rural India RURAL HOUSEHOLD INCOME DISTRIBUTION 145 3% 1% 0% 161 7% 1% 1% 167 2% 2% 22% 48% 100% > INR 1 million INR 0. 25).0 million INR 0. While the rural market comprises only 34 per cent of the total FMCG market currently. Rural Growth Outpacing Urban Markets As a result of rising incomes. Products such as fruit juices and sanitary pads which had no demand in the rural markets earlier have suddenly started establishing presence.

IDFC Securities. They want quality products in their homes. there is further scope to raise the levels to match urban penetration in the future (see Exhibit 17. The demand for branded healthcare products. Blurring Urban-Rural Divide Rural women are now more brand-conscious and are shifting towards brands used by their urban counterparts. Booz & Company analysis Rural Urban 2004 2005 2006 2007 2008 2009 FMCG Roadmap to 2020 25 . This trend may eventually erase differentiation between the urban and rural brands. branded processed food and beverages and toiletries is expected to grow in the future. p. 26). thereby providing increased opportunities to the organized FMCG players to target this market with their products. with the rural consumers increasingly demanding the same Exhibit 16: Retail Growth in Rural and Urban India 20% 15% 10% 5% 0% 2003 -5% -10% Source: Edelweiss. Many local brands have been finding it difficult to grow in rural areas because of this shift.While category penetration has increased in rural areas in the last decade.

2009 (%) Toothpaste Skin Cream Dish Wash Shampoo 32 20 12 16 45 33 16 46 75% 32% 60% 62% Source: IDFC Securities. However. Cheaper brands will however co-exist for products with wide price differentials between local brands and well-established brands. ‘The corporate sector has realized that the next growth in its business will come from the rural sector. 3.C. For products with narrower price variations. consumers in this segment will want price points which are affordable and within their budget and hence demand smaller SKUs. not an exhaustive list. This is. the top line will need to be volume-based rather than valuebased. Some defining features of such a business model are outlined below.products as urban consumers in the next decade. Given the large number of BOP consumers. Possible Strategies for FMCG Players FMCG players with an eye on rural volumes could gear their innovation. the affordability of branded products will remain a challenge for BOP consumers. a different business model will need to be devised by the FMCG companies.3.A Comparison RURAL PENETRATION (%) CATEGORY 2001 2009 Headroom for growth URBAN PENETRATION.2. however. Edelweiss. Rural is a much discussed topic in boardrooms’ —Pradeep Kashyap. Founder and CEO. manufacturing and rural supply chain processes towards small-volume units of products which the rural consumer can afford. For higher-end brands. A. Nielsen. Hence. MART Exhibit 17: Rural and Urban Penetrations . Shampoos in sachets are a good example of the success of such innovation. Booz & Company analysis 26 FMCG Roadmap to 2020 . some amount of up-trading can be expected.

Vehicles equipped with LCD TVs.HUL Brand-Building Initiative Khushiyon Ki Doli ’s HUL has initiated a rural campaign called Khushiyon Ki Doli. • Innovative products customized to local tastes available at affordable price points. • Ensuring access to typically rural or remote consumers through new and low-cost ways of distribution given the inadequate supply chain / logistics infrastructure in these areas. educating consumers around attributes and functionality of products. The objective of the campaign is to create awareness and engage with the masses through technology.’ —Sunil Duggal. unconventional partnering with NGOs and local governments to influence the influencers. An entrepreneur driven model would be an appropriate example. CEO. DVD players. A range of HUL’s product commercials are played ranging from Surf Excel to Huggies Diapers. • Effective and attractive product packaging that enables convenient use and storage. • Effective mix of multimedia marketing strategies to create a ‘buzz’. Dabur India FMCG Roadmap to 2020 27 . ‘Increasingly. small generators etc roam rural habitations. mainly targeting housewives. HUL is also engaging with local retailers in rural areas on purchase of merchandize or new sale of stocks. HUL organizes games at the end of the campaign distributing sachets of various products as prizes. the rural consumer will demand the same product as the urban consumer and there will be convergence.

Examples include Unilever which has been present in India since the 1930s. P&G. Several foreign FMCG majors have headed for India with the purpose With a spurt in ‘reverse innovation’ foreign MNCs are leveraging India as an ‘innovation hub’. and Nestle. with three sets of players: the global players or foreign MNCs.4.4. Increasing globalization has important ramifications for foreign MNCs as well as large Indian companies with pan-India presence and sometimes. and then. Trend Description The Indian FMCG industry has a very competitive landscape. small international footprints as well.1. the large Indian players. consumer research happens first in India. In the recent past. consumer research happens first in India. Rapid Globalization 3. With a spurt in ‘reverse innovation’ foreign MNCs are leveraging India as an ‘innovation hub’. 28 FMCG Roadmap to 2020 . and then. products are taken to other markets. India as one of the fastest growing economies in the world has attracted foreign MNCs who see it as a key market.3. and regional or small domestic players. which established its presence through its Vicks brand in the 1950s. which commenced operations in the late 1950s. products are taken to other markets. Many foreign FMCG multinationals have established themselves on a firm footing in India.

where it expects to see the next wave of growth. Africa. Cheerios etc. Companies are seeking senior management experience in handling a diverse and complex market such as India. and has been evaluating the option of entering the breakfast cereals market. to crack other markets by sharing ideas which have worked before. The centre will focus on developing ‘Popularly Positioned Products’. Second. of acquiring experienced talent. has deployed senior resources from India to East Europe. FMCG Roadmap to 2020 29 . and provide high-quality and nutritional foods at affordable prices. Unilever for example. which can meet specific needs of consumers belonging to lower income groups.Popularly Positioned Products Nestle plans to build a dedicated R&D centre in India. a nascent but fast-growing category by leveraging its strong cereal brands such as Nesquik. and deploying them in similar markets elsewhere. which is expected to commence operations by mid 2012. Companies are seeking senior management experience in handling a diverse and complex market such as India. Nestle plans to broaden its product portfolio in India. These products are also expected to be sold in other countries. to crack other markets by sharing ideas which have worked before. and South-east Asia.

There are numerous instances of foreign FMCG attention to India: • Kraft Foods acquired Cadbury’s in 2009 to establish a foothold in developing countries such as India. increasingly FMCG companies have been acquiring international FMCG companies with strong brands to widen their product portfolio. Traditionally. Examples of Brand Sharing • Godrej acquired Keyline Brands (a UK-based FMCG player) in 2006. which enabled it to enter the skin care segment using Keyline’s brands. a domestic player with strong brands in OTC and personal care categories. there are numerous large Indian players which have started establishing global footprints to diversify their business risks and tap the growth potential in other countries. • GSK Consumer has recently expanded into the noodles and biscuits market in India through its flagship brand Horlicks. broadening category portfolios and developing new brands and innovations. Apart from foreign MNCs in India. thereby sharing brands between India and the global markets of the acquired company. In the future. Initially. Examples of Hedging against Domestic Competition • Godrej Consumer Products Ltd. • French cosmetics major L’Oreal is planning to enter the deodorant segment which is growing at 30 per cent annually. the same product portfolio was taken to other countries. • Many foreign MNCs are contending to acquire Paras Pharmaceuticals. We can expect the foreign FMCG MNCs already operating in India to focus on the Indian business even more strongly and develop their Indian subsidiaries as a significant contributor to global business by increasing penetration of existing products. targeting the Indian diaspora in those countries. took its hair colours and Fairglow soap to the UK targeting the Indian population residing there. • Dabur International exports products to over 60 countries. It introduced the latter’s Exhibit 18: International Growth of Indian FMCG Players STAGE 1 Hedging against Domestic Competition STAGE 2 Brand Sharing STAGE 3 Targeting Local Populations of Other Countries • Organic growth • Target Indian diaspora of other markets with existing product portfolio • Exports / limited channel reach • Inorganic growth by acquiring international companies with strong FMCG brands • Broadening brand / product portfolio for all target markets • Increased sales and distribution as distribution channels are augmented through acquisition • Organic growth after establishing presence in other markets • Behaving as a multinational and developing customized products for local populations of global markets 30 FMCG Roadmap to 2020 . while introducing greater variety. The multinationals not present in India can be expected to look for entry opportunities in terms of organic or inorganic expansion in the future. However. Indian FMCG players expanded outside India to either target the Indian diaspora in specific countries or to hedge against increasing competition within India. many Indian domestic players are expected to evolve into mini-MNCs and therefore will need to develop customized products to target the local populations in international markets (see Exhibit 18). • Ferrero Rocher is planning to expand presence in India in the confectionary segment.

2. this was seen as aligning with Wipro’s strengths in markets like Andhra Pradesh. and African markets. Examples of Targeting Local Populations of Other Countries • Emami bought a manufacturing facility in Egypt this year. The plant is expected to serve as a regional manufacturing base for the Middle East. In fact.4. Large. Possible Strategies for FMCG Players Going forward. Indian FMCG players will learn nuances of operating in other countries in managing new retail channels and different regulations and bring back these best practices to India. This is expected to help Marico establish its presence in the market for skin care products in Singapore. Its brands also enjoy significant market shares in their respective categories. Rajasthan and Uttar Pradesh FMCG Roadmap to 2020 31 . They would need to ensure that while acquiring a company. Also.5.000. Companies would need to institutionalize best practices between various markets. 3. This helps avoid the elimination of one brand’s share by another.5. Companies with presence in developed nations with a high share of organized retail may also be able to apply their learning in India. As Chandrika is the second largest selling brand in south India. and two aromatic soap brands in Bangladesh. eating habits and sartorial styles vary by region. FMCG players are realizing that India is not a homogenous market but consumer preferences vary significantly. we expect the larger players in India to marry the best of global practices with the Indian operational nuances (regulations. • Wipro acquired the marketing rights for Chandrika soap in India and other SAARC countries. • Marico acquired the skin care company Sundari LLC. 3. Derma Rx operates three centres in Singapore and one in Kuala Lumpur. 1 in British super-markets which has helped it attract the British Afro-Asian population which has a high demand for ethnic-Indian products.brands such as Erasmic (shaving products) and Cuticura (talcum powder) in India. there is either an absence of or very limited overlap with the acquired brands. adapt them to Indian tastes. the BIMARU states of Bihar. expansion into new geographies may help companies to identify new trends which could occur in other markets. Foreign MNCs will bring in global business models and products to India. • Dabur acquired the Turkish FMCG company Hobi Kozmetik Group this year to strengthen its presence in the Middle East and North Africa. Trend Description Spanning an area of 3. or state. Indian players integrating with acquired companies successfully would need to retain the human capital to ensure continuity and understanding of the characteristics of the local market. etc. Indian MNCs will now have to develop organization designs that are geared towards a geographically-diversified model. Many-Indias 3. It may also open Kaya clinics in the country. with consumer base of approximately 37. certain states present higher growth potential in certain categories necessitating a focussed business strategy to drive growth. they give Dabur a strong platform in new product categories in India (by introducing Hobi’s brands) and new markets (leveraging Hobi’s established presence). Europe. which can be captured by a geographicallydiversified business. • Godrej has introduced sandalwood and ayurvedic variants of Godrej No. India is a vast country with 29 states. Second. where its soap brand Santoor was already the market leader. Hobi Kozmetik is present in the personal care market and sells a wide variety of hair care and skin care products under the brands ‘Hobby’ and ‘New Era’ in 35 countries. people processes. international business accounted for 20 per cent of Emami’s turnover in FY2010 and this is expected to grow further. Language. Indian players developing into international organizations will have to follow global standards in terms of governance. As Hobi’s brands complement Dabur’s portfolio. recently acquired aesthetic skin care business of Derma Rx. a fast growing market which contributed about one-third to the company’s international business.1. For example. Kaya. This acquisition was seen to be consolidating its presence in Africa. Increasingly.3 million square kilometres. and ethnic group. a company providing skin care services. Recently. develop products in India and market them to similar geographies internationally as well. Also. consumer preferences etc) in their business models. changing consumer preferences in one country may be replicated in another market with a time-lag. channel mix. • Marico’s skin care services brand. Madhya Pradesh.

have been responsible for tremendous growth in FMCG compelling players to look at these states more closely. Maharashtra’s GDP will exceed that of Greece.000 5. Belgium. By 2020. Booz & Company analysis 32 FMCG Roadmap to 2020 . and Uttar Pradesh’s economic size will exceed that of Singapore and Denmark (see Exhibit 19). having a dedicated firm for Maharashtra or Gujarat can prove to be a realistic and profitable proposition. Given the large Indian population. Exhibit 19: Some Indian State GDPs Compared to Select Country GDPs GDP PPP IN 2020 (IN INR BILLION) 25. CIA World Factbook.000 0 Maharashtra UP Andhra Pradesh WB Gujarat Greece Belgium Switzerland Singapore Denmark Note: Extrapolation of 2001-2009 Growth Rates Source: IMF. So.000 15. consumers within a state provide FMCG companies sufficient scale to form dedicated organizations for individual regions or states.000 10.000 20. and Switzerland. It has become imperative for FMCG players to grow ‘regional’ in their thinking and move towards an increasingly decentralized operating model in India.

Emami Group of Companies ‘Godrej is planning to increase marketing spends and distribution network in these states. positioning. we have seen some examples of ‘regional adaptation’ of business strategies by companies: • HUL launched Brooke Bond Sehatmand for low-income consumers to compete against regional tea companies such as Wagh Bakri.Buzz Around the BIMARUs ‘BIMARU contributes 35-45 per cent of our sales. Historically. and channels.’ —Aditya Agarwal. Girnar and Sapat.’ —Anil Chugh. EVP Sales. We expect it to go up to 25 per cent in a year’s time. Jharkhand and Chhattisgarh. Madhya Pradesh. Dabur India FMCG Roadmap to 2020 33 . Bihar. penetrating to villages of lower population strata. HUL also launched brand Ruby. The diaper category has seen 43 per cent growth in UP in FY2010 over the previous year. Sehatmand was specifically meant for down-trading consumers in Uttar Pradesh. • HUL launched a regional detergent brand in Punjab called Chokra which is present in two or three districts of the state. • Several players adapted ‘beverage flavours’ to local tastes. we would be BIMARU without them. specifically for the Karnataka market. while tobacco players customized blends to regional preferences ‘Dabur registered strong double digit growth in BIMARU states in FY2010 and expects that to continue.’ —A Mahendran. Varying Consumer Preferences As consumer preferences differ across regions and states. These states consume 17-18 per cent of Godrej’s products. companies may be well-advised to follow a regional strategy in terms of product ingredients. Senior VP Wipro Consumer Care and Lighting .’ —George Angelo. MD. Rural distribution reach was stepped up in many high potential districts. what makes BIMARU important is that the consumers here are brand-loyal. These states are not BIMARU for us. Godrej Consumer Products Ltd ‘Apart from the youth factor. marketing campaign. Dabur rolled out special rural focussed sales initiatives in BIMARU states. Director.

Other Strategic Tools Overall. Rexona leads in Andhra Pradesh and Sunlight detergent leads in West Bengal and Kerala. Trend Description Historical Growth of Organized Retail No strategic exercise is complete without a business strategy for the retail sector. MP. modern trade or organized retail has created a concentrated (high volume) channel for distribution by FMCG players.2.1. 3. For players to take full advantage of this potential. a separate strategy will have to be devised for such regions with greater resource deployment and more focused product and sales initiatives.6. a large proportion of it is unorganized retail in the form of scattered momand-pop stores which require a very resource-intensive distribution process in terms of manpower and logistics. going forward. volume per retail store is very low. the share of modern 34 FMCG Roadmap to 2020 . However. Competitive Strategy: Competitive strategy of national players will also need to watch out for regional players which have better customized products for a particular region. Growing Modern Trade 3. their cummulative contribution to FMCG consumption is only 24 per cent. exceeding the national average growth rate. with separate R&D and strategic planning operations for different states. Product Strategy: FMCG players need to ensure that brands which do well in specific regional markets do not lose out due to their focus on national brands.We expect this trend of launching different product variants in different regions / states to continue in the future. the Indian FMCG sector can expect to see significant growth from BIMARU. While India’s retail sector has been growing at over 7 per cent annually. Also. Also. FMCG players may need to decentralize their organizational design. Modern trade is still at a nascent stage in India. Organization Design: Going forward. Rajasthan and UP together comprise 36 per cent of India’s population.6. the share of some consumer product categories such as processed food and beverages is also expected to grow rapidly within organized retail. 3. For example. and growth trajectories. per capita income in the four states has started growing at 13 per cent. as the FMCG industry depends on retail for consumer sales.5. for HUL. They will need to identify and achieve clarity on their strategy in each state targeted. investment in logistics and warehousing among other facilities cannot remain inflexible across states. Second. Further. decentralization or regionalization will become an increasingly important theme for FMCG players. Hamam leads in Tamil Nadu. which makes the latter a very crucial contributor to the industry. Possible Strategies for FMCG Players Strategizing for Growth Centres Bihar. which shows sufficient room for growth. their position in the market. and 40 per cent of India’s youth. Marketing Strategy: Marketing strategy and expenditure may vary with states. Supply Chain Strategy: Sales and distribution structures. lack of focus on these individual brands has led to loss of market share in these specific markets. the positioning will have to be better adapted to consumer preferences. However. However. Hence.

1% India 2005 India 2009 China Indonesia Thailand Malaysia Taiwan US Source: IBEF. Booz & Company analysis FMCG Roadmap to 2020 35 . it has been growing very rapidly displaying approximately 25 per cent annual growth (see Exhibit 20). we expect existing formats to evolve and new formats to come up in the future. driving the growth of various FMCG categories.0% 20. In a large and growing market such as India.0% 85. hyper marts.0% Organized retail has grown at 24% CAGR over the last 4 years but significant headroom exists 4. Centrum Research Report 2009. Technopak.0% 3. While supermarkets have the highest share in terms of the number of stores (approximately 85 per cent of total modern trade stores in 2009).0% 40.trade in retail last year was only about five per cent. supermarkets. However. Local Indian players have been experimenting with different Exhibit 20: Organized Retail Penetration in Select Economies (% OF TOTAL RETAIL) 81.8% 30. Cash-and-carry is still nascent with only about eight stores in 2009. hyper marts account for the highest area (approximately 70 per cent of the total area under modern trade). and cash-and-carry (which is essentially organized wholesaling). such as. Several formats exist within modern trade and organized retail.0% 55.

home town (home furnishings). The economic slowdown dented the growth of organized retail during 2008 and 2009.business models with mixed success. This growth will be supported by: • High economic growth: GDP is expected to grow at 8-10 per cent in the future. Lower footfalls resulted in lower sales growth and margins contracted as retail expansion had been financed through debt and the interest rates were now rising. which are growing faster than metros. Exhibit 21: Modern Trade Penetration (% OF TOTAL RETAIL) 30.8% 2009 2014E 2020E Source: IBEF. futurebazaar. However. The Future Group is one of the prominent players in this space and operates more than 1000 stores with different formats such as Big Bazaar (hypermarket). growth has picked up again and expansion plans are now being announced. Food Bazaar (supermarket).com (online shopping portal). and Aadhar (rural retailing). Booz & Company analysis 36 FMCG Roadmap to 2020 .0% 4. boosting growth in all sectors. • Increasing urbanization: Organized retail will continue to increase presence in Tier 1 and Tier 2 cities. Central (urban mall).0% 11. Future Growth Modern trade is expected to grow very rapidly in the future with its share in total retail projected to reach 11 per cent by 2014 and 30 per cent by 2020 (see Exhibit 21). There were also increasing funding constraints. • Increasing incomes: Incomes are expected to continue to rise which should further drive convenience shopping.

For this it will be imperative to increase supplier collaborations. it will be important to invest in inventory management and related technology for capturing sales data. To achieve this. Among these are a focus on supply chain management for improved profitability. Future Trends in Modern Trade This analysis has tried to capture the ongoing and future trends within modern trade which are expected to impact the FMCG industry. Decreasing inventory levels will also require strong backward integration with distributors or manufacturers. have been growing in India as they are very attractive to retailers for three reasons: Exhibit 22: Organized Retail Industry Trends Focus on Supply Chain Management Emergence of Private Labels Expansion beyond Metros Source: Booz & Company analysis Rise of Cash-and-Carry FMCG Roadmap to 2020 37 . Emergence of Private Labels: Private labels or products manufactured and marketed by retailers. A recent example is the construction of the Golden Quadrilateral. forecasting demand and generating automatic replenishment.• Improving infrastructure: The government is increasing its thrust on improving infrastructure. Focus on Supply Chain Management: Organized retailers are going to be increasingly interested in reducing time-to-market. expansion of modern trade beyond metros and the rise of cashand-carry business in India (see Exhibit 22). a dedicated freight corridor which will result in improved supply chain efficiencies. emergence of private labels. Retailers will also need to optimize logistics further in terms of warehousing and transportation etc.

Big Bazaar had 44 per cent of its stores outside the top 19 cities in 2009. All these are critical stepping stones on the journey to sustainable loyalty. Mumbai. Hyderabad and Kolkata. There are plans to open stores in Tier 1 and Tier 2 cities in Tamil Nadu as well.First. Booz & Company analysis 38 FMCG Roadmap to 2020 . Second. 39). p. Third. penetration by private labels in India is quite low compared to other developed countries (see Exhibit 23). For example. It targeted kirana owners. Similarly. Wal-Mart entered the cash-and-carry business through a joint venture with Bharti Enterprises under the brand name ‘Best Price’. more repeat business. It has three stores in Punjab currently and plans to expand to 10-15 stores over the next few years. they help retailers to improve profitability as the margins for private labels are higher (30-35 per cent on average) compared to the manufacturer’s brands. hotels. Experience has shown that the retailers who most consistently exceed expectations are rewarded with higher average sales. Further. it is expected that private labels will become a major threat to FMCG players in the future. Expansion beyond Metros: Organized retailers have started expanding their presence from metros to smaller cities. Lifestyle is planning to expand its base across 22 cities by FY2013. and invaluable goodwill. Due to all these factors. but in other cities as well (see Exhibit 24. the emergence of retailing as a specialist function and the growth of multiple retailing have helped retailers push manufacturers towards greater margins. they help retailers to create differentiation between competitors as they are unique to their stores. Rise of Cash-and-Carry: Several foreign. This further implies that modern trade will become increasingly important for FMCG players as a major channel not just in metros. Metro was one of the first to enter India in 2003. Cashand-carry is expected to provide an alternative channel to FMCG players Exhibit 23: Private Label Share in Overall Organized Retail Sales 46% 40% 35% 29% 27% 21% 20% 11% 20% Switzerland UK Germany Spain France Australia USA India World Average Source: Technopak. Carrefour is expected to set up its first cash-and-carry store in Delhi. restaurants and catering services through five outlets across Bangalore. Similarly. organized retailers have been increasing their presence in the cashand-carry business in India.

Possible Strategies for FMCG Players With increasing importance of modern trade. joint promotions etc. Booz & Company analysis FMCG Roadmap to 2020 39 . the retailer-manufacturer relationship will come under greater pressure. The need for FMCG players to improve execution in terms of merchandising in the top organized retail accounts and invest in technology to gain insights into consumer behaviour and purchasing patterns will significantly increase in the future. 3. • Government: India is committed to reducing carbon emissions by 25 per cent by 2020 and the government has been imposing stringent environmental norms on companies. many states have enacted legislations such as the ban on plastic bags to further the cause. 3. However.6. news articles. whether cashand-carry would form a significant chunk of total sales is a question given that all foreign retailers are eyeing the retail opportunity and waiting for multi-brand FDI in retail to open up. Second. Also. 2008 found that 87 per cent believed it was their ‘duty’ to contribute to a better environment. The pressure on companies from key stakeholders to be environmentally responsible is gradually on the rise. along with the adoption of a greater collaborative approach with the most important channel partners. They may also have to provide special discounts.7. With the emergence of private labels.1 Trend Description What makes sustainable business practices essential? Increased ecosustainability of business will be extremely important for FMCG companies in the future.2.in the future. to prepare a better value proposition to retailers. 2009 Number of Stores 113 27 18 45 100% 26% 67% 30% Top 4 61% 49% Planning to open Stores in T1/T2 cities in Tamil Nadu 9% 35% 33% 39% 31% 9% 11% Pantaloons 22 5 to 15 16 to 35 Others Big Bazaar Number of Cities 58 Shoppers Stop 9 Lifestyle 8 Planning to open 45 stores across 22 cities by FY13 Source: Technopak. Various stakeholder responses to ecoconcerns are showcased below. • Consumers: Concern for the environment has changed the purchasing behaviour of consumers. An Edelman survey of 6000 global consumers conducted between August and October. FMCG players will need to become primary suppliers to top retailer-partners by leveraging their position as market leaders. Eco-consciousness 3. Global climatic changes and the growing scarcity of natural resources have already led to increased concerns about the environment. • Media and NGOs: Environmental activists and journalists are Exhibit 24: Percentage Share of Retail Presence Across Different Cities. channel segmentation is expected to become crucial for FMCG players. they will also need to shift their role from transaction to advisory and help in category development.7.

harmful emissions and the impact of products on health. water-use. • Channels: Some of the global modern trade players have mandated sustainability requirements from their suppliers. packaging sustainability has attracted more attention. These have been detailed below: • Packaging: Primary and secondary packaging costs typically constitute approximately 8-10 per cent of the total cost base for most FMCG players. • Competitors: Some FMCG companies have started pioneering ‘sustainability’ efforts. FMCG players should take a closer look at their packaging cost-base and try to eliminate or reduce the quantity of packaging material used and upgrade to biodegradable packaging materials. increasing renewable energy and plans to become carbon positive in the next few years. A significant proportion of packaging is polymer-based and non-biodegradable. Such measures are forcing other players to also involve themselves considerably in driving green practices. Such practices will soon be implemented in emerging markets like India. It has been observed that for essential commodities such as milk. driving awareness and importance of such initiatives (see Exhibit 25). Booz & Company analysis 40 FMCG Roadmap to 2020 . while Dabur has been focusing on reducing energy consumption. Hence. Some NGOs routinely monitor and track the CSR efforts of FMCG companies in India. Exhibit 25: Karmayog CSR Rating of FMCG Companies Across India DISTRIBUTION OF FMCG COMPANIES ACROSS CSR RATINGS 25 0% 20% 7% 27% 28% 4% 20% 23% 26% 5 4 3 41 2% 43 2% 5% 48% 2 44% 44% 1 0 2007 2008 2009 Performance of FMCG companies is improving but many are still in the lowest bracket Note: 5 is the best rating and 0 is the worst rating on CSR performance Source: Secondary research. The most important of these are packaging. HUL has been focusing on ensuring sustainable practices in business. while for products such as snacks. • Investors: Foreign investors have also been driving the sustainability agenda in the companies they invest in by benchmarking with global practices. For example ITC has been publishing an annual report on sustainability and has also conducted sustainability audit of businesses and subsidiaries.becoming increasingly vocal in their protests against companies which have been polluting the environment or not engaging in judicious use of resources. Some of the top sustainability issues worldwide have also been identified for the FMCG industry in India. the packaging issue is not given much importance by the consumers or regulators. Nestle has initiated pollution-free waste disposal at manufacturing plants. Wal-Mart has been at the forefront of such initiatives.

But as the price of traditional energy skyrocketed. Commercialization further ensures the profitability. saving fuel and transportation costs while driving a green initiative. More and more companies realize that if they don’t address the green challenge in a rigorous way. The following points enable better understanding of how this has worked: • Rising costs of resources: Costs of doing business will increase. Also. Companies that pursue green at this level are focused on projects and initiatives designed to ensure compliance with environmental laws and regulations in the locales in which they operate. which require less packaging and space for transport and storage. regulators and other such personnel facilitating and supporting their development. Most of the Indian companies are at this level of sustainability. The three levels of sustainability based on the commitment levels of companies are described below (see Exhibit 26. it is estimated that a larger proportion of the population will adopt this. Increasing Commitment Levels for Sustainability Since the forces driving sustainability are compelling and enduring. especially in areas dependent on natural resources. FMCG companies should resort to water-efficient technologies during manufacturing. Many commodities have seen a high degree of price volatility and long-term forecasts indicate sky rocketing costs of natural resources. However. particularly for major FMCG companies. • Affordable Green Technology: Cost-effective green technologies are emerging. and is characterized by a limited and legalistic approach to sustainability. and becoming more conscious of the harmful impact of categories such as snacks and fast foods. Responsible Green: This is the leastevolved level of green business. • Impact on top-line and bottomline: More and more business leaders are recognizing the fact that going green can have a dramatic effect on their companies’ financial results. companies should strive to make transportation more efficient and encourage usage of renewable energy through use of hybrid vehicles for transportation. the widespread adoption of solar energy systems had long been hampered by the high cost of photovoltaic (PV) cells per kilowatt-hour compared with other energy sources.• Harmful emissions: This is a problem area for FMCGs given these are logistics-intensive businesses that also release greenhouse gases during their manufacturing processes. they use green programmes to eliminate waste and drive efficiency throughout the enterprise and. As solar energy’s cost per kilowatthour continues to drop. companies don’t develop capabilities which support green. This is not a business choice but a prerequisite. to create top-line growth by bringing new product offerings to market. For example. At this level. Also. They also respond to the green demands of value chain partners (suppliers or retailers) they cannot afford to lose. The FMCG industry needs to lead by example in this case and shift towards healthier products. as is the supporting ecosystem comprising of researchers. Wal-Mart has decided to sell only concentrated laundry detergents. some managerial attention is required for awareness of ever-changing regulations and market conditions. • Others: FMCG players should partner with suppliers which provide green (organic) raw materials. FMCG Roadmap to 2020 41 . of green initiatives. drive the usage of renewable energy sources and more energy efficient technologies such as CFL for lighting up offices and factories. To capture this value. consumers are reading through the nutritional information on products. every company should incorporate sustainable business practices. or at least the economic feasibility. 42). Business Sense in Driving Sustainability Adopting green technology and processes has also started making economic sense for companies. and they will miss some of tomorrow’s most valuable market opportunities. p. their reputations in the market will suffer. and recycle used water. some investments may be required to prove compliance in terms of tracking and reporting. It has been observed that increasingly. low-cost thin-film technology became increasingly commercialized and this has begun replacing first-generation crystalline silicon PV installations today. and may not even have a dedicated environmental function. • Health impact of products: This is a big concern for both consumers and the government. in more advanced cases. Since fuel scarcity in the future is likely and transportation is a major GHG culprit. • Water utilization: With depleting groundwater and scarcity of fresh water. their costs will increase over time. An example lies in organic foods.

systems. They can take the form of a simple e-mail message asking office workers to voluntarily turn off their computers before leaving work or entail a rigorous effort to reduce waste by redesigning products.2. lower costs. and capital. and increased market share vis-à-vis competitors. Technology at the Front-End Technology options for creating consumer awareness and promoting sales have proliferated in the last Exhibit 26: Levels of Commitment to the Environment Differentiated Green (Usage of sustainability to drive Efficient Green (Selective investment to drive Efficiencies) Responsible Green (Compliance) • Pursue green sustainability initiatives which focus on regulatory compliance • Could be either government driven • . an all-pervasive factor. risk and service competitive advantage) Source: Booz & Company Going for Green: A Capabilities Approach to Environmental Opportunity. Going for green at the differentiated green level requires significant investments of time.8. In the FMCG sector. investment decisions.7. cost. 3. effort. Continued focus of senior leadership on costs and efficiency savings provides significant support for sustainability initiatives. • Differentiated Green: Differentiated green companies pursue green in a strategic way throughout the value chain of the business and in a variety of new businesses and business opportunities. supply chain management etc. The key is to balance the investments—in resources. or marketing can go a long way towards creating a sustainable FMCG business. Dec 2009 42 FMCG Roadmap to 2020 . or grab the opportunity and start building a sustainable business model to drive business advantage in the future. FMCG players will need to make a choice in terms of their sustainability efforts—either they choose a ‘defensive’ or a ‘proactive’ approach. Game-changing Technologies 3. and strive to simultaneously reduce environmental impact. 3. and not just a CSR initiative • Use the ‘green lens’ over the product life cycle. and enhance operating efficiencies. is significantly impacting all facets of business. FMCG players will need to significantly increase their investments in technology and use it to derive competitive advantage. The company can expect to obtain long-term paybacks in terms of more efficient operations. Trend Description Technology. considering the environmental impact through the entire value chain • Integrate Green Messaging into brand positioning and messages • Manage trade-offs explicitly across growth. Possible Strategies for FMCG Players Going forward.1. They can feature dedicated efforts and significant investments. enables efficient sales and distribution and runs backend processes like market research. They can either wait for the regulations to evolve and compel them towards adherence to sustainability norms. generating shopper insights. sustainability. but typically they deliver relatively short-term payback.. and assets—with the likely payoff.. gathering business intelligence. technology facilitates front-end processes of business by creating consumer awareness.or value chain partner driven (supplier / retailer) • Leverage green to identify cost reduction / efficiencies • Companies can leverage lean principles to attain this level • This should be the base minimum for all companies as there is significant money on the table (both cost and revenue) which can be achieved • Elevate Green Strategy to a core strategy. Including sustainability as a core business strategy and driving sustainable elements throughout product lifecycle through product innovation. It is believed that in the future.• Efficient Green: These companies approach sustainability with an internal focus.8.

Amul has 52. has about 3 million users and India is one of its fastest growing subscriber bases. Perfetti Van Melle has appointed Isobar to manage its digital image on Facebook and Twitter. Capital Foods has reported 30 per cent growth in revenue over the past six months attributing its growth to the advertising campaign it launched on Facebook. Several FMCG players have started targeting social networking sites for creating brand awareness. Orkut. The Indian youth is spending most of their time at the television and on the Internet.decade. Google products account for 30 per cent of online time spent by Indian consumers (see Exhibit 27). Pantaloons and Van Heusen are tapping social networking sites as design centres driving efforts of co-creation with end-users. Apparel brands such as Benetton. and the growth of value-added services on mobiles. While print and television account for 86 per cent share in advertising at present. An increasingly young population coupled with increased participation of women in workforce have lent support to the adoption of new consumer favouring technologies. Booz & Company analysis FMCG Roadmap to 2020 43 . The Exhibit 27: Media Channels Consumption by Youth (AGE-GROUP OF 13-35 YEAR OLDS. internet advertising has grown at approximately 30 per cent annually. • Benefits: Social networking sites provide a low-cost alternative to traditional channels or offline business networking events which involve significant marketing expenses. As per estimates. The sites are interactive and create a viral effect reaching out to a community of users who are interacting with each other. Wills Lifestyle. • Leveraging social marketing sites for co-creation and sales: FMCG players can also leverage these sites for engaging with consumers on product design and sales imperatives.000 fans on Facebook and heavy traffic of discussions on its community page. especially among the youth. aimed at creating a network of professionals. secondary research. Four platforms or technologies which could play a major role in consumer awareness in future have been detailed below: Social Marketing: Social marketing sites such as Facebook. 2009) MINUTES / DAY 100 90 80 70 60 50 40 32 30 20 10 0 Newspaper Magazine TV Radio Internet 0 100 44 60 70 200 250 98 MILLION YOUTH 300 150 50 Average Time Spent # Youth Utilizing Channel Source: National Book Trust-NCAER Survey 2009 across ~400 villages and ~200 cities. Facebook for instance has approximately 14 million Indian users at present. Twitter. Linkedin etc are becoming increasingly popular. with increased adoption of broadband the evolution of social networking sites as major media platforms. Similarly Linkedin.

Cadbury came up with an interactive campaign which allowed students to check their exam results using Reliance India mobile service. in the US Pepsi runs online contests for Pepsi Max and Doritos wherein consumers can upload 30-second commercials about Max/Doritos. textures to designs are welcomed. the advertisements become more interactive. Mobiles can be a very powerful platform for consumer engagement given their extremely wide reach. If the student passed. Consumers could download this song for free while the soft-drink company would pay for the download. as companies use the online medium for enhancing brand awareness. For example. and other mobile freebies. For instance. Coca-Cola started a contest titled ‘Sprite Kholega to Bolega’ in which all Sprite bottles would have a code number printed under the crown. With 3G. The internet can be a very powerful medium to target specific consumer 44 FMCG Roadmap to 2020 .7 Leading FMCG companies such as HUL. Given the advent of 3G. Similarly. the mobile has attracted low advertising expenditure because of its format of advertising—simple text SMS or basic pictures.000. Online Advertising: FMCG players have been increasing their focus on online advertising with expenditure on the medium growing approximately 57 per cent annually between 2006 and 2009. mobile advertising is seen to be gaining popularity. There is online voting on these advertisements and awards of up to US$ 5 million are given to winners. 3G will enable rich media content and video transmission over the phone. and a high access to rural consumers who accounted for more than 100 million subscribers in 2009. MVNOs provide mobile phone services by buying airtime from existing telecom operators. Blyk for instance is an MVNO in the UK which sells mobile network for free by giving customers free airtime in exchange for accepting up to six advertising messages per day. About 100 million users are expected to have 3G handsets in 2012-13 up from the current 20 million users. When this code was sent as an SMS to a designated phone number. At present. given the nascent nature and untested efficacy of social marketing. FMCG players spend only 1-2 per cent of their marketing budget on online advertising. which they then market by leveraging their brand and distribution network. as they are dependent on VAS and advertising to differentiate themselves from other service providers. a song from a new Bollywood film could be put up for download with an advertisement of a soft drink company as a pre-roll or a mid-roll. HUL created an online campaign with its Sunsilk Gang of Girls. • Approval for Mobile Virtual Network Operators (MVNO): Recently. Also. some players such as ITC are seen pushing their online sales for Wills Lifestyle through their member community on Facebook. MVNOs can even offer the entire mobile service for free if the subscriber opts to receive a certain number of ads per week. Globally. advertisers would be able to subsidize the cost of downloading rich media content by subscribers. the buyer could win free talk-time ranging between INR 50 and INR 5. Mobiles as a Major Platform for Consumer Engagement: Mobile phone penetration in India has been increasing at approximately 75 per cent annually for the last five years. This is also in line with the expected increase in broadband penetration in India from approximately 3 per cent at present. This is expected to increase to 10 per cent in line with global trends in the next few years. P&G. Their entry can be expected to accelerate the growth of mobile advertising in future. • Marketing Campaigns on Mobiles: Several FMCG players have started creating marketing campaigns for mobile phones. • Advent of 3G: Historically. the Telecom Regulatory Authority of India (TRAI) has created the pathway for MVNOs to operate in India. The number of mobile users is expected to reach 900 million by 2014.contributions from users on various features ranging from colour. with further 30 per cent annual growth expected in the future. while Tata Tea came up with Jaago Re and Lipton launched Stay Sharp. • Increasing Popularity of Mobile Advertising: Given the advantages such as direct and personalized communication. Cadbury and Tata Tea have been ramping up their online advertisement budget for specific brands. value-added services will get increasingly enhanced. However. he got an SMS congratulating him saying ‘Pappu Pass Ho Gaya’ along with the exam result and this encouraged him to celebrate the moment with a Cadbury Dairy Milk Chocolate. it will be prudent to use it complementarily with other offline channels for a holistic engagement. However. Blyk generates all of its revenue from advertisers and ensures that it has a user base that advertisers will pay a premium to reach. For instance.

These are widely used in supply chain management Exhibit 28: IT-enabled Supply Chain Management at HUL Planning Hub Product Flow Supplier Manufacturing Plant C&FA Distributor Kirana IT Systems Central Unify Distributor Mgmt System Hand-held Device • Dispatch Daily • Production Plan-weekly • Dispatch Daily • Sales • Stocks • Prices • Invoicing • Availability • Stocks • Sales Source: HUL CLAS Conference Investor Presentation 2008. Though the penetration of gaming is low compared to mass media such as television and print. Growing penetration of credit cards in the economy will also boost online purchase. Similarly. A growing young population. inventory optimization. logistics planning etc. production scheduling. Sales people can now spend two more hours of quality time with retailers due to this technology. Wal-Mart globally has radiofrequency identification tags incorporated into products in stores which perform the same functions as bar-codes thus enabling access to historical and geo-spatial details of the product. Some FMCG players have already started testing waters in the gaming advertisement world. The devices have wireless receipts of the list of customers to be visited and other customer details. The size of gaming advertisement in India was INR 9 billion in 2009. Booz & Company analysis FMCG Roadmap to 2020 45 . is INR 18 billion in size. Cadbury has a Tetris-like game where bars of chocolate are the building blocks. Several FMCG players have been investing in technologies for back-end processes. They also allow transmission of activity reports back to the office. while in the developed markets it is 10-12 per cent. Coca-Cola has invested in customized wireless hand-held devices for its sales persons. HUL has an internet-based supply chain management system which connects it to the redistribution stockists. for gathering business intelligence on competitors leveraging technology at the retail end is becoming common practice. and ensured full time availability at retail outlet (see Exhibit 28). Technology at the Back-End FMCG players can leverage technology for driving greater efficiency in various back-end processes. though nascent. players can understand consumer purchase behaviour. HUL’s deodorant for men. increasing affordability of goods due to higher disposable incomes and low price of hardware and content (with game download prices coming down). and is growing at approximately 40 per cent annually. It is expected to grow three times in the next three-four years. Supply chain management also has tremendous potential for driving efficiencies through tools of demandforecasting.segments such as students who comprise of approximately 30 per cent of total internet users and urban professionals. This focuses on primary sales (HUL to stockists) and secondary sales (stockists to retailers) along with enhanced communication and has enabled release of inventory reduced field force time by 50 per cent. credit card penetration in India is just 2-3 per cent. At present. By deploying datacapturing technologies at pointsof-sales. while AXE. it is a powerful tool for the marketers as the engagement level with the consumers is quite high. has partnered with Zapak for creation of ‘Axe Inxtinct’ for the brand to stay on top of its consumers’ minds. Advertisements in Gaming: The gaming industry in India. proliferation of developers and publishers and growing awareness through internet and social media are some of the factors leading to growth of this industry.

9. and in cash-andcarry / wholesale business (up to 100 per cent). 3. automatic foreign investments and food laws. FMCG companies can capture better consumer insights by deploying various technologies at point-ofsales and involving consumers in co-creation processes through online channels. noodles. However. and expanding the market through better engagement with consumers on the other.9. » The farmer loan waiver scheme and the National Rural Employment Guarantee Scheme (NREGS) have driven increasing incomes in rural areas (NREGS provided employment to 46 FMCG Roadmap to 2020 . 3. » Automatic investment approval and up to 100 per cent foreign equity is allowed in the industry. The government has also been enacting several measures to drive inclusive growth of the economy by targeting the economically and socially weaker sections and creating a platform to bridge the gap between the ‘poor’ and the ‘rich’. The Indian Government has enacted several policies and Acts aimed at fostering the development of the FMCG industry. » For organized players.for improving efficiency of inventory tracking.6 million is down from 27 per cent in FY2003 to 9 per cent in FY2011. companies need to focus on the concept of ‘return from marketing investments’ or the top line growth achieved per marketing rupee spent. provision of education. the government has introduced policies aimed at attaining international competitiveness through reduced duties. mobile. alcoholic beverages and those reserved for small scale industries (SSI). FDI is allowed in single-branded retailing (up to 51 per cent). Some positive regulatory triggers for the industry are mentioned below: • Food Processing and Agro Industry » Recognized by the government as priority sector. There have been payouts of INR 400 billion since 2008. 3. marketing efforts will need to account for the specific consumer segment being targeted. industrial licensing exemption is extended to almost all products in this category. production planning tools and vendor management tools could be used by FMCG players to derive supply chain efficiencies. » Pricing benefit for unorganized players has been reduced with favourable tax scheme for organized players. Facilitating Growth of FMCG Players: Supply Side Factors Historically. For efficient marketing.1. Possible Strategies for FMCG Players Leveraging technology across the value chain of product innovation. » Within retailing.2. and to providing specific incentives to priority industries. sales and distribution. excise duty benefit for 10 years from commencement of a unit is offered. • Exports » 100 per cent export-oriented units can be set up after government approval. • Increase in Disposable Incomes » Income-Tax rates have been decreasing.2. providing food security etc. handhelds for capturing data. and media such as gaming have widened choices for marketers. the government acting as the watch dog.8. Facilitating Consumer Demand The government has been playing a significant role in driving inclusive growth of Indian consumers through direct measures such as decreased tax rate and raised salaries (the Sixth Pay Commission was lauded for its recommendations in this direction) which enable greater disposable incomes to be available to the consumers. Prevention of Food Adulteration Guidelines and other such). • Foreign Direct Investment » Automatic investment approval (including foreign technology agreements within specified norms). Various new platforms such as internet. Enabling Policies The FMCG industry is regulated comparatively lightly and in spite of tremendous competition. Inventory management systems. especially for biscuits. is allowed for most of the food processing sector except malted food. 3. as well as indirect welfare measures through employment generation. manufacturing.9. and enhancing efficiency of scheduling through geopositional tracking. up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment. • Rise in Rural Incomes » Rural expenditure by the government has increased from INR 230 billion in 2006 to INR 830 billion in 2010. » Rise in salaries of government employees through the Sixth Pay Commission. limits its role to prescribing product norms to protect consumers’ interests (regulation on MRP. cigarettes. The tax rate for income of INR 0. and marketing can help FMCG players derive various benefits in terms of designing better products and becoming cost-efficient on the one hand. cutting cost of documentation.

Second. first. To the exchequer. These result in inefficient operations for manufacturers. which is preventing global retailers such as Wal-Mart and Carrefour from establishing their retail operations in India. every child in the agegroup 6-14 will be provided eight years of elementary education. specifically for perishable raw materials such as fruits and vegetables are ignored which results in huge wastage of produce. Currently. logistical delays can be avoided with the elimination of multiple levels of taxes. to allow more competition in the sector. a monopolistic environment in which the farmer does not have any say in determining the price. As per estimates. as the raw materials go through several layers of intermediaries. large organized retailers have brought huge benefits to consumers by lowering the total cost of supply chain operations. the intermediaries. there are some areas in which the government needs to come out with appropriate regulations. contract employees etc. Logistics. It has been seen that in developed markets.approximately 50 million homes in FY2010). • Revamping Agriculture Products Marketing (Regulation) Act (APMA): As per APMA. opening of FDI in multi-brand retail. Third. all the state governments are expected to come out with a policy to allow FMCG players to directly source agricultural raw materials from farmers. Consumption would grow with reduced prices. and mitigation of differences in tax structures across states. and they can have a better lifestyle by spending on discretionary products. The government is expected to come out with more stringent policies to enforce Trade Mark and Copyright Laws to protect the rights of consumers and FMCG companies. Areas for Regulatory Intervention However. Tax collections from the FMCG industry will also increase with increased tax compliance and broad-basing of products and services for which the tax is levied. the government is expected to change the FDI policy for multi-brand retail in India. The NFSA will require the government to provide 35 kg of foodgrain at INR 3 per kg to almost everyone (barring the rich) in one-fourth of the poorest blocks of the country. food processors are not allowed to buy directly from farmers. To avoid this. and any cost which prevents a child from accessing school will be borne by the State. • National Food Security Act (NFSA): This is expected to ensure that the basic needs of the rural poor are satisfied. FMCG players have warehouses in every state to avoid certain taxes. • FDI in Multi-Brand Retail: At present.9. and stricter norms to curb counterfeit products. Going forward. food processors have to pay a higher price for procurement. with strictly defined norms for work hours. and will cover 40-50 per cent of the people in the rest of the country. As per The Right of Children to Free and Compulsory Education Act 2010. A uniform and simple tax would help in reducing prices of consumer products due to a more efficient supply chain. counterfeit goods account for 10-15 per cent of the total size of the FMCG industry. FMCG Roadmap to 2020 47 . • Ramping Labour Laws: India has archaic and inefficient labour laws. and ensuring attendance and completion of eight years of schooling. many intermediaries are involved in the supply chain. these result in a loss of INR 45 billion. over-time. Also. which results in a higher cost of operation. These are expected to have a significant impact on how the FMCG sector performs in the coming years • GST: The government is expected to implement GST in the near future. do not invest in modernizing the supply chain and the warehousing infrastructure remains poor.3. This would help to replace the multiple indirect taxes levied on consumer products (by central and state tax authorities). such as introduction of GST. • Counterfeit Products: Counterfeit products pose a serious threat to the growth of FMCG industry. This creates. As a result. There will be several benefits of implementing GST. The government needs to modernize the labour laws to enable FMCG manufacturers to improve their efficiency and lower costs of production. which will have the responsibility of enrolling the child. 3. no FDI is allowed in multibrand retail. • Increasing Awareness » Right to Education is expected to result in increased awareness among consumers which will drive quality-consciousness among them. who are fragmented. or sub-standard products which do not meet international standards.

• Channel Evolution: The channel choices in the industry are expected to widen with increasing penetration of organized retail and internet / B2C commerce. They are taking out time to learn more about the products they should choose. This trend therefore can be expected to change buying behaviour and consumption patterns significantly and rapidly.1. As with any transformational change here too there will be winners and losers. As a major contributor to economic growth in the next decade it will contribute close to 3 per cent of the GDP.4 IMPLICATIONS FOR THE FMCG INDUSTRY 4. in ten years. • Increased Product Complexity: The market for FMCG products is becoming increasingly heterogeneous with evolution of different consumer segments which have very different needs. Other categories may mature and slow down to single digit growth rates. • Environmental Concerns: With increasing pressure from government. government policy. New leaders will emerge by leveraging tailored business models. nimble marketing. One product will not be able to successfully target all consumer segments and companies will have to make very difficult choices. and channel partners—will have a multiplier impact and magnify both the magnitude as well as the pace of change. be amongst the largest consumer markets of the world leading to a proliferation of products and services. technology. They will either focus on one / a few niche segment(s) or straddle various consumer segments with a basket of product variants. and consumers for efficient and prudent use of environment and natural resources. and more global players targeting the Indian market. unpredictable and rapidly changing operating 48 FMCG Roadmap to 2020 . In addition. Imperatives for the FMCG Industry The transition from a stable and homogenous operating model to a more dynamic. they will have to renew focus on traditional trade which will continue to retain its position as the dominant channel. While FMCG companies will need to develop a detailed sales and marketing strategy for these channels. NGOs. Industry Paradigms in 2020 The FMCG industry in 2020 will be characterized by: • Large Size: The Indian FMCG industry in 2020 is expected to reach a size of INR 3700 billion– INR 5200 billion. Many product categories will grow rapidly (30-40 per cent annually) given fast adoption rates across large market. Similarly. fast time-to-market. relevant products. • Evolving Consumers: Consumers are becoming more aware about products and associated functions / benefits.2. the confluence of these change drivers—consumers. • Increased Competitive Intensity: Competition in the industry is expected to further intensify with regional players targeting national expansion. the FMCG industry will need to significantly increase its efforts to drive sustainability as a core business strategy. and efficient supply chains. 4. the competitive intensity will increase significantly. Significant among these factors are those that can force a complete break from existing paradigms. There will be an urgency to grab a share of what will.

the middle class. and bottom-of-the-pyramid consumers. customized solutions • Low production • Targeted media .2. from distribution to marketing to the supply chain are configured (see Exhibit 30. the changes to the structure of consumption across segments and the co-existence of seemingly conflicting attitudes to consumption will create a level of complexity and challenge never seen before.niche magazines. national newspaper • High investment in R&D Customized Product for BOP Market • Low-cost no-frills adapted to local preferences • Achieve low cost through partnerships/alliances • Customized to produce ‘smaller’ SKUs • Low-cost driven by shared facility/low rentals/high utilization • Use of local media outdoor advertising (banners). Exhibit 29: Divergent Choices in FMCG Business FMCG VALUE CHAIN Offering/Market R&D Supply Chain Manufacturing Marketing Sales & Distribution • High investment in R&D • Managing imported ingredients/products • Out-bound logistics customized as per customer preferences Premium Product for the Affluent • Product with high efficacy. FMCG companies will need to build capabilities across the value chain for the specific consumer segment which they target. Business operations too differ when consumers of different age-group / regions / genders are targeted. Hence. FMCG companies will have six imperatives from the perspective of business strategy. This will have implications on the way all aspects of the business. brochures. They will also need to figure out areas where scale and integration can give them more advantage. FMCG companies will need to manage an increasingly complex operating model depending on the set of choices they make in terms of target market. etc.environment will have significant implications across stakeholders. NGO volunteers • Shared Channel • Local people used for sales Source: Booz & Company analysis FMCG Roadmap to 2020 49 . Strategies of targeting consumers belonging to different income classes are illustrated below (see Exhibit 29). 4. going forward. p. • Branding to create ‘differentiation’ • High-touch model company-owned outlets • High service dedicated sales force • Low-touch model with focus on expanding reach • Discounts/promotions to drive penetration • Low investment in R&D Standard Product for Mass Consumption • No customization • Ensure availability of products at point-ofsales through efficient inventory management • Few unit sizes • Mass production • Use of mass media TV. Winning in this new world will require enhancing current capabilities and building new ones to bridge gaps. 50). Disaggregating the Operating Models FMCG players are facing divergent choices at each link of the value chain depending on their business offering and the target market. in this new world. using breakthrough technology • Large variety. companies will also need to drive efficiencies in time-to-market and ensure that decision rights are properly defined to ensure quick decision making in reaction to changing consumer trends. In our view.1. The movement of consumers in and out of categories. In the operating model design. extent of decentralization (region / state) and extent of globalization. product offering. it will be crucial to evaluate where they should disaggregate their business models in order to deal effectively with both new as well as mature segments. For those who operate across a spectrum of markets and segments. Very different business models are required for targeting the premium segment.

instead of simply complying with stipulations and regulations.4. With increasing employment choices available to students. Winning the Talent Wars With accelerating growth in the sector in terms of more products. The principles which can help FMCG companies achieve this are: 1. mass. Two key areas of emphasis will be attraction of the best available talent and ensuring development and retention of the acquired talent. Exhibit 30: Key Challenges in the Future Operating Model • One company vs. Talent scarcity is expected to intensify in the future. With new industries scaling up and offering more attractive value propositions. the industry has continuously lost key talent to other growing / high-paying industries such as telecom and the financial sector in the absence of suitable rewards and recognition. For instance. in one of the Indian Institutes of Management. students prefer high-paying jobs which require deskwork rather than physically strenuous sales jobs in FMCG companies. Sustainability as a Core Business Strategy: Sustainability should be an integrated element at the core of the overall strategy of a firm. categories. A key challenge will be to maintain employee loyalty. 4. this percentage will continue to reduce. higher quality of talent will be required to deal with the increasingly complex Indian market. The products should be green. Bringing Sustainability into the Strategic Agenda While the other stakeholders. consumers. and the industry will need to devise an attractive employee value proposition for bright graduates to acquire quality talent. Also. government.2.3. and channels. will need more time to prepare for driving the sustainability agenda. premium) with very different capabilities • Managing different business processes • Leveraging synergies across businesses / portfolios Processes • Different human capital management processes Source: Booz & Company analysis 50 FMCG Roadmap to 2020 . In colleges. they should be marketed as green. the number decreased to 15 per cent in 2010.2. FMCG players will need to proactively start building a sustainable business model to drive competitive advantage in the future. As a result most of the bright students do not even apply to FMCG companies. the FMCG industry is likely to face a talent crunch in both acquisition and retention. while 30 per cent students took up marketing jobs from campus in 2003. Retention is equally important as traditionally. geographies of operation etc.2. multiple • Increasing complexity in frontend and back-end technology • Avoiding duplicity across businesses Technology Structure separate companies for different target markets • Very different levels of control and decision rights • Ensuring knowledge sharing / transfer across portfolios Knowledge People • Building workforces (value. the demand for human capital is going to increase significantly. hence companies will need to focus on employee segmentation to disproportionately reward the top- performing employees (with monetary and non-monetary incentives) along with quick career progression. brands.

In the rapidly evolving environment it becomes more critical to know. A good example is Nike’s idealistic longterm vision of sustainability—‘to design products that are fully closed loop: produced using the fewest possible materials. and public relations campaigns. To achieve this. including sustainable programmes (renewable energy sources and recycled materials. and improving packaging. transforming the way in which consumers experience advertising and establish relationships with brands. Companies will need to use emerging technology in new assets such as databases. Using the Sustainability Lens throughout the Product Lifecycle: Companies should view the entire product lifecycle through a green lens. Because sustainable initiatives require new ways of looking at problems. They will need to develop new analytical models to measure the effectiveness of media spending. investors. In India. and service/ quality. 4. driven across the organization. All capital expenditure requests over INR 5 million must include a review of the sustainability issues and opportunities surrounding the request. established as a cultural trait within the company. test markets. In this way. 2. sustainability must be on the agenda of the senior leadership. with impetus on reducing water and electricity consumption. they attract and inform stakeholders. companies could leverage innovation and new product development best practices to support their green initiatives. Similarly. Many companies periodically engage with consumers through surveys. promotions management. Going into the future. They will redefine what it takes to succeed in building brands and reaching customers. The sustainability index for consumer products that Wal-Mart has announced is a good example of how sustainable initiatives can be structured and communicated in ways that bolster corporate credibility. marketing will need to target individual consumers who want customized products. PepsiCo has incorporated sustainability as a criterion in its capital expenditure filter. companies are migrating away from traditional paid advertising towards ‘below the line’ media and marketing programmes that put them in direct contact with consumers. and branded content. Sustainability in Product Innovation: FMCG players should embed green in their innovation efforts. cost. Sustainability Driving Major Decisions: The implications of companies’ choices in terms of environmental impact should be assessed and the trade-offs involved in all major decisions. Digital marketing platforms will be a big part of this strategic shift. Across the globe. 4. focus groups. and regulators. energy efficiency and material yields) should be weighed against risk. Reinventing Marketing for ‘i-Consumers’ Deep consumer understanding and interaction has always been at the heart of the FMCG sector. hence the term ‘i-consumers’. Companies that build these capabilities will find that their marketers can play a more strategic business role. media buying. They will also need to manage the integration of advertising planning. websites. and serve as growth champions in the development of brands. as well as consumers who are spending more and more time online. and new businesses. new platforms have emerged in the form of mobile phones. 3. with planned investments in broadband there will be significant increase in online usage. and other tasks currently handled by multiple agencies. Integrating Sustainability into Marketing and Messaging: Companies should develop consistent messaging about their sustainability efforts and incorporate them into their communications at all levels. They should seek ‘cradle-tocradle’ lifecycles in which products or their content can be used again and again with zero waste. designed for easy disassembly while allowing them to be recycled into new products or safely returned to nature at the end of their life’. PepsiCo India has annual reporting on sustainability as a part of its global initiative. Tomorrow’s marketing leaders will help set the strategy for major advertising.2. products. Similarly FMCG companies have been significantly large users of advertising mediums (print.and a substantial portion of the company’s revenue should be come from the sale of green goods. growth. FMCG marketers will look to shift their creative and media strategies to fully capitalize on the online opportunity and make digital media a bigger FMCG Roadmap to 2020 51 . employees. television and outdoor) to communicate with their consumers. Yesterday’s marketing organizations used to stick to tactical functions to support strategic decisions that had already been made. including customers.4. promotions. Over the next few years. 5. respond to and communicate with the consumer. product testing and other mechanisms. This shift is giving rise to a new generation of customized marketing platforms.

52 FMCG Roadmap to 2020 . retailers and suppliers in many developed markets have tried to learn to collaborate more and move beyond the old zerosum games. complex tax laws and scarce environmental regulations were fixed assumptions. Pressures felt by manufacturers—higher material costs. • Restructure the supply chain network and footprint: Once product and process choices have been reconsidered.2. such as eastern India. product safety issues. and what changes in material choice or manufacturing process would reduce material and energy usage would be important decision points. will need to be incorporated. The supply chain of the future. how much packaging is required for the finished product. risk. by contrast. but marketers will need to develop their presence in interactive channels that not only drive greater brand awareness but also enable new insights into consumers. and Replenishment) that pursue supply chain optimization. sustainability. However.2. relatively inexpensive raw materials. supply and demand imbalances. only partial success has been achieved. and more tailored to manage increasing complexity. the supply network needs to be realigned to balance cost. Now suppliers routinely provide a broad set of materials and services. in a world where low energy and transportation costs. Yet despite all the hard work.5. The share of modern trade in retail last year was approximately five per cent. it has been growing very rapidly since at approximately 25 per cent and is likely to contribute nearly 25 per cent of the total retail sales in India. This pressure may intensify even further as governments (either nationally or at the state or city level) put a price on carbon emissions and establish new regulations on waste. close collaboration between supply chain partners has become more important than ever. often result in damaged relationships and minor gains—only to have the fights resume the following year. and sustainability in meeting market demand. mass marketing through traditional print and television will continue to play a role in driving increased awareness. becoming a very critical partner. This will be more critical for many categories which even today derive significant sales from this channel given the consumer base. promotional support. It is essential to understand the economics of product and process choices before considering supply chain changes. For more than a decade. among other persistent areas of disagreement. service. 4. Today. will have to be leaner. Forecasting. • Realign the role of suppliers and third parties: In an environment of increased uncertainty. and marketing budgets. Their initiatives have included assigning ‘captains’ to work with each other on ways to drive category growth and forming industry groups (such as Efficient Consumer Response and Collaborative Planning. Today’s supply chains were built on yesterday’s blueprints. Partnering with Modern Trade Modern trade is still at a nascent stage in India. The challenge for manufacturers is to make the right footprint trade-offs not only for today but also for an uncertain tomorrow. Changing regulation. Small changes to such inherent factors can create large market and cost impacts. Uncertainty about the business models (store formats) as well as consumer reactions coupled with traditional mistrust have been contributors to this uncomfortable partnership. Re-engineering Supply Chains8 As consumer behaviour shifts across segments.6. as well as new areas of demand acceleration. In India. FMCG companies and retailers have started on a somewhat adversarial note. greener. 4. Supply chains are already under pressure to deliver at lower costs and offset generally rising costs for raw materials and energy. Changing tax laws with the implementation of GST would lead to simplification and more uniformity. Negotiations over price. cheap labour. This will require three key actions: • Rethink product and packaging formulation: Companies will need to consider their choices in product design and process technology—the inherent drivers of cost. What ingredients are used. They also participate in product development efforts by sharing ideas as well as making investments in new processes and technologies.priority in their brand strategies. and risk. Successful companies will build more flexibility and adaptability into their networks with investments in technologies and assets that can react to changes in demand as well as variability in factors like labour costs and energy use. resilience and environmental concerns—are shared by suppliers. re-engineering the supply chain will be critical to stay abreast of these changes and reach an increasingly fragmented customer base. sustainability requirements. specifically GST. the role played by suppliers has gone well beyond merely providing raw materials.

enforcing regulations to curb counterfeit consumer products which will significantly reduce economic loss to the industry. The nascent stage of modern trade in India provides FMCG players and also the retailers with a unique opportunity to learn from global models and get to a win-win position at a faster rate. 4. 54). including promotion planning and execution. 4. This effort can be as simple as linking the supplier’s consumer insight to the retailer’s proper process improvement. increased product availability. The shelves are still not fully stocked.1. unaware that their victory may well have been compromised by the failure to address issues that could have much more impact on retailer and supplier profits. demand forecasting.3. which should be continued in the future. The benefits of collaboration include: Revenue-margin enhancement: Working jointly to harness complementary skills and apply the knowledge needed to grow a category can be a win-win proposition. Supply chain improvements: More efficient distribution. making vast contributions to the exchequer.3. Government The FMCG industry supports many social objectives and plays a key role in driving economic growth by providing significant direct and indirect employment opportunities. and improved merchandising operations are all within the reach of collaborative retailer–supplier relationships as well . A wide range of supplier-related processes can be improved by more collaborative retailer–supplier relationships. • Create transparency by sharing benefits. and revamping labour laws to drive efficiencies among FMCG manufacturers. They should focus on FMCG Roadmap to 2020 53 . Buyers often walk away from a negotiation feeling successful. this will also have an impact on the entire ecosystem and other stakeholders.3.Retailer–supplier partnerships have failed primarily because buyers tend to view their value in a limited way: purely as a means of extracting lower prices or extra-promotional dollars from FMCG suppliers in their yearly negotiations. • Set both short. and stock replenishment. • Gain top-level support. there are a few areas which need regulatory intervention to unlock the breakthrough potential of the industry. and what seemed like a highly profitable day’s work is actually only a slightly larger share of a smaller pie. but home-in on a few prioritized opportunities that are critical to both businesses. but ensure that the terms of all agreements are explicitly defined upfront. retailers. government. NGOs and investors. on the supply side. • Establish an open dialogue. • Be more open with all suppliers. but choose collaboration partners wisely.2. Implications for Other Stakeholders While FMCG companies will have to significantly change to meet the requirements of the evolving industry. and supporting growth of agriculture through backward linkages. allowing FDI in multi-brand retail which will enable large global retailers to bring best-practices to India. They may reap rich rewards if they were to: • Generate a full basket of possibilities.and long-term agendas with supply partners to capture value quickly but still pursue the big ideas. such as in-store availability. Retailers As discussed earlier. The government has taken several steps towards inclusive growth of the FMCG industry by supporting the demand growth. One of the best sources of information for improving these processes is the retailer’s pointof-sale data. Both traditional retailers and organized retailers will need to collaborate with the FMCG players for driving breakthrough growth in the sector. retailers and FMCG players have a symbiotic relationship and need to co-operate with each other for smooth operations and growth enhancement. These include implementation of GST which can save FMCG companies from multi-layered taxes and drive long-term efficiencies in supply chain. 4. revamping the Agriculture Products Marketing Act to allow food processing players to buy directly from the farmers. However. We have broadly divided the stakeholders in the FMCG industry into these five entities— FMCG players. Moving from a supplier to a partner will require FMCG companies to pay careful attention to how they structure their relationship. Each of these stakeholders will need to play a key role to support the growth of the industry towards a win-win situation for all (see Exhibit 31. but stay focused on the execution. costs. but build in appropriate confidentiality measures. and information openly. streamlined inventory. p.

investors will need to monitor FMCG companies. Secondly. For the traditional retailers. tracking their expenditures to ensure that the bottom-line growth matches / exceeds the top-line growth. Also. acting as financial enablers by giving credit to small retailers / entrepreneurs and through other measures. 4. NGOs would need to act aggressively as the sustainability gatekeepers. while the focus has to be on increasing efficiency and driving differentiation.3. investment in supply chain and greater partnership with suppliers for the overall category development will be required to derive long-term economic benefits.3. along with market expansion. Exhibit 31: FMCG Industry Stakeholder Map FMCG Players Government Retailers NGOs Investors Source: Booz & Company analysis 54 FMCG Roadmap to 2020 . 4. NGOs can indirectly continue to enable expansion FMCG offtake into rural markets.3. and increasingly monitor and track the industry to ensure that best-practices are highlighted and sustainability agenda is not ignored. Going forward.co-investment in technology and improvement of infrastructure. Investors Global as well as domestic investors should seriously consider the Indian FMCG industry for future investments given the highly attractive market. while driving overall FMCG growth. NGOs NGOs which act as the guard rails of the FMCG industry can have a major role to play in driving sustainability efforts. Also. better infrastructure is required at the pointof-sale which ensures uninterrupted electricity. IT infrastructure for capturing sales and collection. organized retailers and FMCG players can share talent and best practices. For the organized retailers.4.

Abhishek received his MBA from the Indian Institute of Management. Conversion of 1US$ = INR 45 has been used in the document. Vikash received his MBA from the Indian Institute of Management. Chandigarh. FMCG Roadmap to 2020 55 . and the age of high mass-consumption. He has over 7 years of management consulting experience and his main focus has been business transformation and operations strategy with experience in consumer. Bring Mass Broadband to India: Roles for Government and Industry. 2010. financial planning and business transformation aspects of consumer products. Srishti studied business management in the Indian Institute of Management. He leads the Consumer. energy and healthcare industries. Srishti Chaudhry is a senior consultant with Booz & Company and is based in Gurgaon. The size of the industry has been estimated through retail sales. MSN News. India and his BE in Electronic Engineering from Punjab Engineering College. Abhishek has 13 years of consulting experience with Booz and his main focus has been business transformation and operations strategy with experience in consumer. Booz & Company. retail and industrials products.htm Booz & Company. Lucknow.com/2010/04/20/sories/2010042053960500. 2009. the preconditions for take-off. India. hair care. Ahmedabad. oral care. 3 Goldman Sachs projections L’Oreal Deutsche Report. India. OTC products and baby care. Media & Retail practice of the firm in India. She has experience in growth. fabric care. Ahmedabad. 2 According to Rostow. and the growth rates indicate nominal growth of the industry. Australia. personal care. it is possible to identify all societies. the drive to maturity. and include both the organized and unorganized FMCG industry. as lying within one of five categories: the traditional society. Next Generation Supply Chains. in their economic dimensions.thehindubusinessline. Source: Euromonitor http://www. He works as a part of the Consumer. media. Vikash Agarwalla is a Senior Associate with Booz & Company and is based in New Delhi. media. Media & Retail work for the firm in India. Delhi. 4 5 6 7 8 About the Authors Abhishek Malhotra is a Partner with Booz & Company and is based in Mumbai. the take-off.Endnotes 1 The FMCG industry has been defined to include these categories: food products. retail and industrials products. Europe. India and his BE in Mechanical Engineering from Delhi College of Engineering. and North America. He has participated in engagements in Asia.

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