FMCG SECTOR

Mahesh Babaria
maheshb@ghallabhansali.com

Jan, 28 2009

Executive Summary
Products which have a quick turnover, and relatively low cost are known as Fast Moving Consumer Goods (FMCG). FMCG products are those that get replaced within a year. Examples of FMCG generally include a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, tooth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also include pharmaceuticals, consumer electronics, packaged food products, soft drinks, tissue paper, and chocolate bars. Indiaʹs FMCG sector is the fourth largest sector in the economy and creates employment for more than three million people in downstream activities. Its principal constituents are Household Care, Personal Care and Food & Beverages. The total FMCG market is in excess of Rs. 85,000 Crores. It is currently growing at double digit growth rate and is expected to maintain a high growth rate. FMCG Industry is characterized by a well established distribution network, low penetration levels, low operating cost, lower per capita consumption and intense competition between the organized and unorganized segments. The Rs 85,000-crore Indian FMCG industry is expected to register a healthy growth in the third quarter of 2008-09 despite the economic downturn. The industry is expected to register a 15% growth in Q3 2008-09 as compared to the corresponding period last year. Unlike other sectors, the FMCG industry did not slow down since Q2 2008. the industry is doing pretty well, bucking the trend. As it is meeting the every-day demands of consumers, it will continue to grow. In the last two months, input costs have come down and this will reflect in Q3 and Q4 results.

Mittal Dharod
mittald@ghallabhansali.com

85,000 Crores Indian FMCG market is one of the important sector and has registered a robust growth rate.

Ag-gregate sale FMCG industry is expected to increase by 19.2 per cent during the December 2008 quarter.

Market share movements indicate that companies such as Marico Ltd and Nestle India Ltd, with domination in their key categories, have improved their market shares and outperformed peers in the FMCG sector. This has been also aided by the lack of competition in the respective categories. Singleproduct leaders such as Colgate Palmolive India Ltd and Britannia Industries Ltd have also witnessed strength in their respective categories, aided by innovations and strong distribution. Strong players in the economy segment like Godrej Consumer Products Ltd in soaps and Dabur in toothpastes have also posted market share improvement, with revived growth in semi-urban and rural markets.

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• Export potential • High consumer goods spending Threats: • Removal of import restrictions resulting in replacing of domestic brands • Slowdown in rural demand • Tax and regulatory structure • Industry Category and Products Household Care Personal Wash:The market size of personal wash is estimated to be around Rs. With increase in disposable incomes. increase in purchasing power of consumers • Large domestic market. However. because increase in prices has led some consumers to look for cheaper substitutes.FMCG SECTOR Swot Analysis Jan. Economy and Popular.300 Cr.com . 75 per cent are in the rural areas. 8. in the recent past there has not been much change in the volume of premium soaps in proportion to economy soaps. which illegally mimic the labels of the established brands.a population of over one billion. Opportunities: • Untapped rural market • Rising income levels. i. www. It is available in 5 million retail stores. The personal wash can be segregated into three segments: Premium. out of which.e. The seg-ment is expected to grow by double digit. Page 2 Hindustan Unilever Lim-ited is the biggest pro-ducer of Personal wash and detergents. The penetration level of soaps is ~92 per cent. especially in small sectors • Low exports levels • "Me-tooʺ products. growth in rural demand is expected to increase because consumers are moving up towards premium products.ghallabhansali. 28 2009 Strengths: • Low operational costs • Presence of established distribution networks in both urban and rural areas • Presence of well-known brands in FMCG sector Weaknesses: Lower scope of investing in technology and achieving economies of scale. HUL is the leader with market share of ~53 per cent. Godrej occupies second position with market share of ~10 per cent. These products narrow the scope of FMCG products in rural and semi-urban market.

Sachet makes up to 40 per cent of the total shampoo sale. shampoos. It has low penetration level even in metros. emergence of small pack size and sachets. In washing powder HUL is the leader with ~38 per cent of mar-ket share. 12. 28 2009 Detergents:The size of the detergent market is estimated to be Rs. hair colorants & conditioners. Antidandruff segment constitutes around 15 per cent of the total shampoo market. the demand for the household care products is flourishing. people are becoming aware about personal grooming. and hair gels.800 Cr. Marico is the leader in Hair Oil segment with market share of ~ 33 per cent. Henkel and Proctor & Gamble. Again the market is dominated by HUL with around ~47 per cent market share. With changing life styles. Dabur occu-pies second position at ~17 per cent. P&G occupies second position with market share of around ~23 per cent. The major players in this segment are Hindustan Unilever with a market share of ~54 per cent.ghallabhansali. With rapid urbanization. greater product choice and availability.FMCG SECTOR Jan. 3. The hair care market can be segmented into hair oils. The penetration level of this segment in India is around 20 per cent. 3. Personal Care Skin Care:The total skin care market is estimated to be around Rs. Other major players are Nirma. increase in disposable incomes.400 Cr. The Skin Care segment is expected to register a growth rate of mare that 16 percent. Hair Care:The hair care market in India is estimated at around Rs. fol-lowed by CavinKare with a market share of ~12 per cent and Godrej with a market share of ~3 per cent. It has the penetration level of only 13 per cent in India. The demand for detergents has been growing but the regional and small unorganized players account for a major share of the total volume of the detergent market. The skin care market is at a primary stage in India.com Page 3 . Household care segment is characterized by high degree of competition and high level of penetration.000 Cr. Shampoos:The Indian shampoo market is estimated to be around Rs. 2. www. The market is further expected to increase due to increased marketing by players and availability of shampoos in affordable sachets.700 Cr.

Nestle and Amul slug it out in the powders segment. ITC. remains under penetrated in India with penetration level ~50 per cent. ready to eat rice by HUL and pizzas by both GCMMF and Godrej Pillsbury. Growth Prospect Large Market India has a population of more than 1. Leading branded tea players are HUL and Tata Tea. the export of tea is expected to be more that 210 million kg for the year 2008 against about 179 million kg last year. Food & Beverages Food Segment :The foods category in FMCG is gaining popularity with a swing of launches by HUL. HUL and Tata Tea.500 Cr. Coffee :The Indian beverage industry faces over supply in segments like coffee and tea.450 Billion and will surpass China to become the World largest in terms of population.600 Cr. while HUL occupies second position with market share of ~30 per cent. 28 2009 Oral Care:The oral care market can be segmented into toothpaste . toothbrushes . Colgate and Dabur are the major players. More than 50 per cent of the market share is capture by unorganized players. In toothpowders market. 3. However.17 per cent. According to the estimates. The food category has also seen innovations like softies in ice creams. more than 50 per cent of the market share is in unpacked or loose form. This segment is dominated by Colgate-Palmolive with market share of ~49 per cent. The total toothpaste market is estimated to be around Rs. and others. Tea :The major share of tea market is dominated by unorganized players. This category has 18 major brands aggregating Rs. The major players in this segment are Nestlé.23 per cent. FMCG Industry which is directly related to the population is expected to maintain a robust growth rate.60 per cent. The penetration level of toothpowder/toothpaste in urban areas is three times that of rural areas. 4. toothpowder . www.FMCG SECTOR Jan. Godrej. According to Tea Board of India.150 Billions which is just behind China. The oral care market.com Page 4 . by 2030 India population will be around 1. es-pecially toothpastes.ghallabhansali.

100 per cent ex-port oriented units can be set up by government approval and use of foreign brand names is now freely permitted. C.com Page 5 .ghallabhansali. www. has leads to growth rate in FMCG goods. Changing Profile and Mind Set of Consumer People are becoming conscious about health and hygienic. Survey by A. An increase in disposable income. We have seen willingness in consumers to move to evolved products/ brands. automatic foreign in-vestment and food laws resulting in an environment that fosters growth. C. There is an upward trend in urban as well as rural market and also an increase in spending in organ-ized retail sector. reducing excise duties. Advantages To The Sector Governmental Policy Indian Government has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions. Nielsen shows about 71 per cent of Indian take notice of packaged goodsʹ labels containing nutritional information compared to two years ago which was only 59 per cent.FMCG SECTOR India is second largest Country in terms of Popula-tion growth and increase in population has a direct rela-tion to FMCG Products. Nielsen shows about 71 per cent of Indian take notice of packaged goods' labels contain-ing nutritional information compared to two years ago which was only 59 per cent. There is a change in the mind set of the Consumer and now looking at “Money for Value” rather than “Value for Money”. Consumers are switching from economy to premium product even we have witnessed a sharp increase in the sales of packaged water and water purifier. Findings according to a recent survey by A. because of changing lifestyles. Jan. 28 2009 Source: UN Population Division: Medium variant Spending Pattern An increase is spending pattern has been witnessed in Indian FMCG market. rising disposable income etc. of household mainly because of in-crease in nuclear family where both the husband and wife are earning.

Only large FMCG-makers may be the key ones to bet and gain on excise cut. Godfrey Phillips). But the benefit from the 4 per cent reduction in excise duty is not likely to be uniform across FMCG categories or players. www. biscuits (Britannia Industries. There is a continuous growth in net FDI Inflow.com Page 6 . as these prod-ucts are either subject to specific duty or are exempt from excise. Even players with manu-facturing facilities located mainly in tax-free zones will also not see material excise duty savings. Foreign Direct Investment (FDI) Automatic investment approval (including foreign technology agreements within specified norms). up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment.ghallabhansali. alcoholic beverages and those reserved for small scale industries (SSI). 28 2009 Central & State Initiatives Recently Government has announced a cut of 4 per cent in excise duty to fight with the slowdown of the Economy. is allowed for most of the food processing sector except malted food.FMCG SECTOR Jan. ITC) or ready-to-eat foods. This announcement has a positive impact on the industry. There is an increase of about 150 per cent in Net Inflow for Vegetable Oils & Vanaspati for the year 2008. The changes in excise duty do not impact cigarettes (ITC.

especially toothpastes. India is the largest producer of livestock. Hindustan Unilever Ltd is the largest player in the industry and has the widest market coverage. Packaged Food Only about 10-12 per cent of output is processed and consumed in packaged form. fruits & vegetables. sugarcane. the growth potential is huge.ghallabhansali. Multi National Companies out-source its product requirements from its Indian company to have a cost advantage. Still there is an untapped market and most of the FMCG Companies are taking different steps to capture rural market share. wheat. With rise in per capita incomes and awareness of oral hygiene. It adds a cost advantage as well as easily available raw materials. Even investment opportunities exist in value-added products like desserts. spices and cashew apart from being the second largest producer of rice. or ~70 per cent of the Indian population and accounts for ~50 per cent of the total FMCG market.“Leveraging the Cost Advantage” Cheap labor and quality product & services have helped India to represent as a cost ad-vantage over other Countries. coconut. Even the Government has offered zero import duty on capital goods and raw material for 100% export oriented units. milk. yet only around 15 per cent of the milk is processed. And an average citizen in rural India has less then half of the purchasing power as compare to his urban counterpart. The working rural population is approximately 400 Millions.com Page 7 . 28 2009 Vast Rural Market Rural India accounts for more than 700 Million consumers. remains under penetrated in India with penetration rates around 50 per cent. puddings etc. www. Lower price and smaller packs are also likely to drive potential up trading. The market for FMCG products in rural India is esti-mated ~ 52 per cent and is projected to touch ~ 60 per cent within a year. Sectoral Opportunities Major Key Sectoral opportunities for Indian FMCG Sector are mentioned below: Dairy Based Products India is the largest milk producer in the world. thus highlighting the huge potential for expansion of this industry. Beverages Indian tea market is dominated by unorganized players. More than 50% of the market share is capture by unorganized players highlighting high potential for organized players.FMCG SECTOR Market Opportunities Jan. The organized liquid milk business is in its infancy and also has large long-term growth potential. Oral Care The oral care industry. Export .

South Africa. the Joint Venture which owns the ‘Snuggy’ brand of baby diapers will become a 100 per cent subsidiary of GCPL. The product is available across 21 Indian states and has reached more than 1 million homes in India giving them access to microbiologically safe drinking water. HUL is taking different steps to reduce the cost and increase the margin. • Whisper which is one of the company’s power brands has recorded 50 per cent market share in urban India. The system has been used to reduce printed packaging costs for Unileverʹs products. It is also eco-friendly because it reduces waste in the printing process. • The company has an aggressive plan to set up 20 new factories across the World out of which 19 is expected to come in emerging markets and most of them would be seen in Brazil. Godrej Consumer Products Limited (Godrej) • The Board of Directors of Godrej Consumer Products Limited (GCPL) has approved the acquisition of 50 per cent stake of its joint venture partner SCA Hygiene Products’ stake in Godrej SCA Hygiene Limited. www.ghallabhansali. HUL has pared down the colour palette used for print-ing across many products.com Page 8 . Pureit’s performance has been tested by leading international & national medical.Pureit (a water purifier) has received the UNESCO Water Digest Water Award 2008-2009 in the category of best domestic non-electric water puri-fier. • Hindustan Unilever’s product . Pureit received the award for outstanding contribution in the field of water in India. scien-tific & public health institutions and meets the germ-kill criteria of the Environmental Pro-tection Agency. The company expects to see a growth in other categories. the drinking water regulatory agency in the USA. 28 2009 Hindustan Unilever Limited • Unilever is lowering its expenditure on packaging across its portfolio of food brands as part of a wider cost-cutting drive. • Godrej Consumer Products Limited has acquired 100 per cent stake in the Kinky Group Limited. India.FMCG SECTOR Company Prospects Jan. Procter & Gamble Hygiene & Health Care Limited (P&G) • The Company has 21 product categories out of which only 8 product have presence in India. After the transaction. The company is planning to launch the rest 13 product in India. and China (BRIC) nations. Russia. Kinky is among one of the largest brand into hair segment with product portfolio.

45% to Rs 10. Net sales for the quarter rose 23.78% to Rs 10.FMCG SECTOR Dabur India Limited (Dabur) • Jan. The company posted earnings of Rs 12. 1. The project has an expected investment of Rs.During the quarter. has acquired the remaining 25 per cent share capital from the local shareholders at an aggregate price of Rs 77.356.210.com Page 9 . Nestle International is reinvesting and expanding in India and Nestle India will have all the financial resources to expand and grow from the parent company. registering 26. • • Colgate-Palmolive (India) Limited • Colgate Palmolive (India) Ltd. Hyderabad.423. The Company is expected to create synergy by this deal. would be doubling the investment in 2009 as part of its business strategy.90 million in the same quarter. 130 Crores.40 million.ghallabhansali. According to the company. when compared with the prior year period. Consequently.56 a share during the quarter.7 Crores in an all-cash deal. • www. Nestle India Limited • Nestle is planning to invest Rs 6 billion in India in 2009 for expansion of its business in the country. which is currently holding 75 per cent of the share capital of SS Oral Hygiene Products Private Ltd. 28 2009 Dabur has entered into the malted food drink market with the launch of a new health drink “Dabur Chyawan Junior”.15 per cent of Fem Care Pharma Ltd (FCPL).90 million from Rs 956.70 lakh.30 million.54% to Rs 1. Dabur has acquired 72. Nestle India reported a good increase in its standalone net profit for the second quarter. last year. they expect to capture a market share of 10 per cent of the Rs.900 Crores malted food drink market over the next two years. a leading player in the women’s skin care products market. the profit of the company rose 26. Dabur got approval from Government of Himachal Pradesh to set up another medicine manufacturing unit.The company which has allotted an investment of Rs 3 billion in the Indian market in 2008. while total income for the quarter rose 23. SS Oral Hygiene Products has become a wholly owned subsidiary of the company. for Rs 203.61% growth over prior year period.

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