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FMCG July10
FMCG July10
By: Dr S. MaheSkuMar
he fast-moving consumer goods (FMCG) sector is an important contributor to Indias GDP . It is the fourth largest sector of the Indian economy. The FMCG market is estimated to treble from its current figure in the coming decade. Penetration levels as well as per capita consumption of most product categories like jams, toothpaste, skin care and hair wash in India are low, indicating the untapped market potential. The growing Indian population, particularly the middle class and the rural segments, present an opportunity to makers of branded products to convert consumers to branded products. The Indian rural market with its vast size and demand base offers a huge opportunity for investment. Rural India has a large consuming class with 41 per cent of Indias middle-class and 58 per cent of the total disposable income.
chain. It has been predicted that the FMCG market will reach $33.4 billion in 2015 from $11.6 billion in 2003. The middle class and the rural segments of the Indian population are the most promising market for FMCG, and give brand makers the opportunity to convert them to branded products. The Indian economy is surging ahead by leaps and bounds, keeping pace with rapid urbanisation, increased literacy levels and rising per capita income. The FMCG sector consists of consumer non-durable products, which broadly include personal care, household care and food and beverages. It is largely classified into organised and unorganised segments. The sector is buoyed by intense competition between these two segments. Besides competition, it is marked by a robust distribution network coupled with increasing influx of MNCs across the entire value
chain. The sector continues to remain highly fragmented. Indias FMCG sector creates employment for more than three million people in downstream activities. The total FMCG market is in excess of Rs 850 billion. It is currently growing at double-digit rate and is expected to maintain a high growth rate.
Exports
India is one of the worlds largest producers of a number of FMCG products but its exports are a very small proportion of the overall production. Total exports of food processing industry were $6.9 billion in 2008-09 and marine products accounted for 40 per cent of the total exports. Though the Indian companies are going global, they are focusing more on the overseas markets like Bangladesh, Pakistan, Nepal, Middle East and the CIS countries because of the similar lifestyle and consumption habits between these countries and India. Hindustan Lever Limited (HLL), Godrej Consumer, Marico, Dabur and Vicco Laboratories are amongst the top exporting companies.
The Indian FMCG sector has a market size of $13.1 billion. Well-established distribution networks, as well as intense competition between the organised and unorganised segments are the characteristics of this sector. FMCG in India has a strong and competitive MNC presence across the entire value The FMCG sector consists of consumer non-durable products
Market Survey
FMCG Categories and Products
Category Household care Products Fabric wash (laundry soaps and synthetic detergents), household cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellents, metal polish and furniture polish) Health beverages, soft drinks, staples/cereals, bakery products (biscuits, bread, cakes), snack food, chocolates, ice cream, tea, coffee, soft drinks, processed fruits, vegetables, dairy products, bottled water, branded flour, branded rice, branded sugar, juices, etc Oral care, hair care, skin care, personal wash (soaps), cosmetics and toiletries, deodorants, perfumes, feminine hygiene, paper products Table I Table IV
2009 2 26 41 18 13 100
2015 5 54 34 4 3 100
Personal care
Table II
Urban 53 59 28 3,768 1
Table III
The Indian rural market with its vast size and demand base offers a huge opportunity for investment. Rural India has a large consuming class with 41 per cent of Indias middle-class and 58 per cent of the total disposable income. With population in the rural areas estimated to have risen to 153 million households by 200910 and with higher saturation in the urban markets, future growth in the FMCG sector will come from increased rural and small town penetration. Technological advances such as the Internet and e-commerce will aid in better logistics and distribution in these areas.
Source: Naukrihub.com
cent of the total FDI inflow and roughly 7.3 per cent of the total sectoral investment. The food-processing sector attracts the highest FDI, while the vegetable oils and vanaspati account for the highest domestic investment in the FMCG sector.
cant place in the brand-building process 5. Extensive distribution networks and logistics are key to achieving a high level of penetration in both the urban and rural markets 6. Factors like low-entry barriers in terms of low capital investment, fiscal incentives from government and low brand awareness in rural areas have led to mushrooming of the unorganised sector 7. Providing good price points is the key to success Demand for FMCG products is set to boom by more than 100 per cent by 2015. It will be driven by a rise in the share of the middle class from 67 per cent in 2009 to 88 per cent in 2015. The boom in various consumer categories, further, indicates a latent demand for various product segments. For example, the upper end of very rich and a part of the consuming class indicate a small but rapidly growing segment for branded products. The middle segment, on the other hand, indicates a large market for the mass end products. The BRICs report indicates that Indias per capita disposable income, currently at $556 per annum, will rise to $1150 by 2015another FMCG demand driver. Spurt in the industrial and services sector growth is also likely to boost the urban consumption demand.
Market Survey
SWOT Analysis of the FMCG Industry
Strengths
1. 2. 3. Low operating costs Established distribution networks in both urban and rural areas Presence of well-known brands in the FMCG sector
Weaknesses
1. 2. 3. Lower scope of investing in technology and achieving economies of scale, especially in small sectors Low exports levels Me-too products, which illegally mimic the labels of the established brands. These products narrow the scope of FMCG products in rural and semi-urban markets
Opportunities
1. 2. 3. 4. 5. Untapped rural market Rising income levels, i.e., increase in purchasing power of consumers Large domestic marketpopulation of over one billion Export potential High consumer goods spending
Threats
1. 2. 3. Removal of import restrictions resulting in replacing of domestic brands Slowdown in rural demand Tax and regulatory structure
rural marketing
Rural marketing has become the latest marketing mantra of most FMCG majors. True, rural India is vast with unlimited opportunities, waiting to be tapped by FMCGs. So its not surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-Palmolive and Britannia Industries are a few of the FMCG majors who have been gung-ho about rural marketing. Seventy per cent of the nations population, i.e., rural India, can bring in the much-needed volumes and help FMCG companies to log in volume-driven growth. That should be music to FMCGs who have already hit saturation points in urban India.
can be set up by government approval and use of foreign brand names is now freely permitted.
porate bodies (OCBs) investment, is allowed for most of the food processing sector, except for malted food, alcoholic beverages and those reserved for small-scale industries.
Government policy
The Indian government has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions, reducing excise duties, automatic foreign investment and food laws, resulting in an environment that fosters growth. 100 per cent export-oriented units
The author is a lecturer in commerce at Sengunthar Arts and Science College, Tiruchengode, Namakkal