GENERAL MANAGEMENT PROJECT ON

STUDY OF FAST-MOVING CONSUMER GOODS (FMCG)

IN INDIAN MARKET

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF THE DEGREE

OF

MASTERS OF MANAGEMENT STUDIES (MMS)

UNDER UNIVERSITY OF MUMBAI

SUBMITTED BY

CHANDNI SHANKARLAL KANJAN

ROLL NO. 11

UNDER THE GUIDANCE OF

DR. SEEMA SANT

(2016-2018)

VIVEKANAND EDUCATION SOCIETY INSTITUTE

OF MANAGEMENT STUDIES & RESEARCH

 CERTIFICATE

This is to certify that project titled Study of Fast-moving Consumer Goods (FMCG)
in Indian market is successfully completed by Ms. Chandni Shankarlal Kanjan during the IV
Semester, in partial fulfilment of the Master’s Degree in Management Studies recognized by
the University of Mumbai for the academic year 2016-2018 through Vivekanand Education
Society Institute of Management Studies & Research. This project is original and not submitted
earlier for the award of any degree / diploma or associateship of any other University /
Institution.

Date:

Place: Mumbai
Signature of the Guide: ________________

Name of the Faculty Guide: Dr. Seema Sant

 DECLARATION

I, Ms. Chandni Shankarlal Kanjan hereby declare that this Project Report submitted by me to
the Vivekanand Education Society Institute of Management Studies & Research is a bonafide
work undertaken by me and it is not submitted to any other University or Institution for the
award of any degree diploma/ certificate or published any time before.

Name: Chandni Shankarlal Kanjan

Roll no.: 11
Signature of the student
 ACKNOWLEDGEMENT

Date: Place: Mumbai

It gives me immense pleasure to express my sincere gratitude to those who are associated with
this project throughout the course of MMS. I am thankful for their aspiring guidance and
friendly advice during the project work.

I firstly thank the University of Mumbai and VESIMSR Director Dr. Satish Modh for giving
me this opportunity to learn from the project.

Special thanks to Dr. Seema Sant for her continuous support and motivation during this course
of time.

With a deep sense of gratitude, I would also like to thank my family who has contributed in one
way or the other to the success in completion of my project.

I wish to share my experience and knowledge that I have gained through this project, to make
a solid contribution in the industry in coming future.

Ms. Chandni Shankarlal Kanjan

Roll no.: 11

Course: MMS – HR
 Table of contents

Sr. No. Topics Page No.

1 Executive Summary 1

1.1 Objectives 1

2 Overview of FMCG Sector in India 2

2.1 Introduction 2

2.1.1 History 4

2.2 Main Segment of FMCG 5

2.3 Characteristics of FMCG 7

2.4 Trends over the year 10

2.5 Economic factors affecting FMCG 12

2.6 Top 10 Companies in FMCG 15

2.7 Specific Analysis of Patanjali 25

3 Demand Drivers of FMCG Market 28

3.1 Financial Performance 31

3.2 Supply Chain Analysis of FMCG 32

4 SWOT Analysis of FMCG 33

5 Pestel Analysis 37

6 Porters Five Forces 43

6.1 Porters Five Forces Model of Nestle 45

7 Emerging New Trends in FMCG Market 48

7.1 Policies and Regulatory Framework 51

7.2 Newspaper Articles 53

7.3 Case Studies 55

8 Recommendations 57

9 Conclusion 59

10 References 60
Executive Summary:
With a population of over one billion, India is one of the largest economies in the world in
terms of purchasing power and consumer spending. The International Monetary Fund has
projected that India’s GDP is the world’s fastest growing large economy. The fast-moving
consumer goods (FMCG) sector is an important contributor to India’s GDP growth. The
sector includes food & dairy products, packaged food products, household products, drinks
and others. FMCG is the fourth largest sector in Indian economy and provides employment to
around 3 million people accounting for approximately 5% of the total factory employment in
India. The sector is characterized by strong presence of leading multinational companies,
competition between organized and unorganized players, well established distribution
network, and low operational cost. Growth in the country’s FMCG sector is being fuelled by
improving scenario in both demand as well as supply side. Major demand side drivers include
growing affluence and appetite for consumption of the Indian consumer, growing youth
population, rise in per capita expenditure, and increasing brand consciousness. On the other
hand, easier import of materials and technology, reduced barriers to entry of foreign players,
and new product development, rapid real estate infrastructure development and improvement
in supply chain efficiency are the major supply side drivers for the sector. The growth of the
FMCG sector, which primarily includes Food & beverages, personal care and household care
has been driven in both the rural and urban segments. Rural consumption growth has
outpaced urban consumption with the increase in percentage in monthly per capita
expenditure in rural markets surpassing its urban counterparts over the past five years. Several
government measures such as GST Bill, Food Security Bill and FDI in retail sector are
expected to have a significant positive impact on the country’s FMCG sector in the coming
years.

Objective of Project:

1. To understand the concept of FMCG

2. To present an overview Indian FMCG sector
3. To study the growth of Indian FMCG sector
4. To critically analyse Indian FMCG sector

1
Overview of FMCG Sector in India

Introduction of FMCG

Fast-Moving Consumer Goods (FMCG) or Consumer Packaged Goods (CPG) are products that
are sold quickly and at relatively low cost. Though the profit margin made on FMCG products
is relatively small (more so for retailers than the producers/suppliers), they are
generally sold in large quantities; thus, the cumulative profit on such products can be
substantial. FMCG is probably the most classic case of low margin and high volume business.

Introduction to Fast Moving Consumer Products in India (FMCG)

The Indian FMCG sector is the fourth largest sector in the economy with an estimated size of
Rs. 1,300 billion. The sector has seen tremendous average annual growth of about 11% per
annum over the last decade. In India, the scenario is quite different in comparison to developed
nations where the market is dominated by few large players, whereas FMCG market in India is
highly competitive and a significant part of the market includes unorganized players selling
unbranded and unpackaged products

Approximately 12-13 million retail stores exist across India, the large percentage of which
around 9 million are kirana stores. India FMCG sectors comprises of few significant
characteristics like well-connected distribution network, high level of competition between the
organized and unorganized FMCG players, and low operational cost. In India, FMCG
companies have privilege of having easy availability of raw materials, cheaper labour costs and
presence across the entire value chain gives India a competitive advantage.
Products which have a swift turnover and relatively low cost are known as Fast Moving
Consumer Goods (FMCG). FMCG items are those which generally get replaced within a year.
Examples of FMCG commonly include the range of daily consumed items such as toiletries,
soap, detergents, cosmetics, oral care products, shaving products, packaged food products and
digestives as well as other non-durables such as bulbs, batteries, paper products, glassware and
plastic goods. FMCG may also include pharmaceuticals, consumer electronics, etc

Indian population is spreading and becoming wealthy day by day, particularly the middle class
and the rural segments, offers immense opportunity which is left untapped to FMCG players.
Growth effect will be seen from product customization in the matured product categories like
2
skin care, processed and packaged food, mouth wash etc. In India, many MNCs have made their
presence through their subsidiaries (HUL, Reckitt Benckiser, P&G) and the companies
launches innovative products from their parent’s portfolio in the market regularly to ensure the
steady growth. India is an agriculture based economy and has a varied agro-climatic condition
which offers extended raw material base suitable for many FMCG sub sections like food
processing industries etc. India is one among those countries which has the highest production
of livestock, milk, spices, sugarcane, cashew, and coconut and has the second highest
production of wheat, rice, vegetables and fruits. Similarly, India has an abundant supply of
caustic soda and soda ash, the major raw materials required to manufacture soaps and
detergents, which helps companies manufacturing soaps and detergents to grow and prosper.
The easy accessibility and availability of these raw materials gives India an additional edge
over other countries.

Today, Fast Moving consumer’s goods have become an integral part of human life. This sector
is recession proof and created huge employment opportunity in India, hence becoming one of
the key pillar of the Indian economy. FMCG companies should encash opportunities like
increasing consumer income, changing consumer life style, aspiring rural consumer, consistent
economic growth by utilizing its strengths. The competition from unorganized sector can be
overcome by increasing brand awareness and by reducing cost through sharing resources such
as distribution network. Favourable developments happening in demand side, supply side and
systematic drivers shows that this sector has very bright future

3
History

The Indian Fast Moving Consumer Goods (FMCG) industry began to shape during the last fifty
odd years. The growth of FMCG industry was not significant between 1950’s to the
80’s. The FMCG industry previously was not attractive from investor’s point of view due to
low purchasing power and the government’s favouring of the small-scale sector.

FMCG’s growth story further continued following the deregulation of Indian economy in early
1990s. With relatively lesser capital and technological requirements, a number of new
brands emerged domestically as well, while the relaxed FDI conditions led to entry of many
global players in this segment. These factors made FMCG market in India highly competitive
and one of the important contributor in the Indian economy. In the mid - nineties, the growth
of the sector was very fast where as it declined rapidly at the end of the decade. The initial
growth was due to increase in product penetration and consumption levels4. Riding on a rapidly
growing economy, increasing per-capita incomes, and rising trend of urbanization,
the FMCG market in India is expected to further expand to $100 billion by 2025.

4
Three Main Segments of FMCG

Food and Beverages:

This segment comprises of the food processing industry- packaged foods, health beverage
industry- bread and biscuits, chocolates & confectionery, Packed Mineral Water and ice creams.
The three largest consumed categories of packaged foods are packed tea, biscuits and soft
drinks. Tea market dominates the Indian hot beverage market. Unorganized players enjoy the
major share of tea market. Leading players of organized tea market are HUL and 121 Tata Tea.

Some of the major players in the food industry are food processing companies includes
Hindustan Unilever Limited, ITC Limited, Nestle, Kraft Foods, Danone, Britannia Industries
Limited, Colgate-Palmolive Limited, Dabur India Limited, Procter & Gamble Hygiene and
Health Care Limited, etc

Beverage companies include Coca-Cola, Pepsi, Cadbury, etc. Hot beverages like coffee or tea
based include Lipton, Tata Tea Limited, etc

Health and wellness:

A lifestyle change impacting the FMCG sector FMCG brands focused on R&D and innovation
as a means of growth have a culture that promotes using customer insights to create either the
next generation of products or in some cases, new product categories. Not that creating the next
5
‘big thing’ is easy. According to a survey by Consumer Goods Technology and Sopheon
Corporation, obstacles to the successful development and launch of new consumer products can
be found in the earliest stages of the innovation process. While most companies participating
in the survey had little difficulty generating product ideas, less than 20% of those ideas resulted
in products considered to be highly innovative. One area that we see global and local FMCG
brands investing in is health and wellness. Health and wellness is a mega trend shaping
consumer preferences and shopping habits and FMCG brands are listening. Leading global and
Indian food and beverage brands have embraced this trend and are focused on creating new
emerging brands in health and wellness. According to the PwC-FICCI report Winds of change:
the wellness consumer, nutrition foods, beverages and supplements comprise a INR 145 billion
to 150 billion market in India, growing at a CAGR of 10 to 12%.

Household Care & Personal Care:

The detergents segment is experiencing healthy annual growth rate of 10 to 11 per cent during
the past five years. The detergent market is equally dominated by the local and unorganized
players which shares decent percentage of the total volume. In urban areas, people give
preference to detergents in place of bars. Household care segment is featured by intense
competition and high level of penetration. With rapid urbanization and increasing disposable
income, introduction of the concept of small packets and sachets, the household care products
demand is growing fast. In washing powder segment, HUL is the leader with ~38 per cent of
market share. Other leading players are Proctor & Gamble, Nirma and Henkel.

Personal care segment includes oral care products, skin care products and cosmetics, hair care
products, personal wash products etc. The Indian skin care and cosmetics market is very large
and valued at $274 million and is dominated by leading players like HUL, Colgate Palmolive,
Godrej Consumer and Gillette India. The coconut oil segment covers 72 per cent share in the
hair oil market. The hair care market can be divided into hair oils, hair colorants & conditioners,
shampoos, and hair gels. Marico (with Parachute) and Dabur are the leading players in the
branded coconut hair oil market. Rural people prefer to buy sachet which makes up to 40 per
cent of the total shampoo sale. Again HUL is the dominant player with around ~47 per cent
market share; P&G placed at second position with market share of around ~23 per cent.
Personal wash can be further categorized into three segments i.e. Premium, Economy and
Popular. Here also, HUL is leading the market with market share of ~53 per cent; Godrej stands
at second position with market share of ~10 per cent. Increasing disposable income of the Indian

6
consumers, wide channel network of MNCs, growth in rural demand for premium products are
the key drivers for pulling the future demand growth up in major FMCG categories The skin
care market is at a primary stage in India. With modernization, the life style has changed
drastically, consumers have more disposable incomes which give greater product choice and
availability of the products give them freedom to purchase. Moreover, people are becoming
more alert and aware about personal grooming. The leading player in this segment is Hindustan
Unilever with a market share of ~54 percent, CavinKare occupies second position with market
share of ~12 per cent and Godrej at third with a market share of ~3 percent. The oral care market
can be categorized into various sub-segments with toothpaste -60 percent; toothpowder -23
percent; toothbrushes -17 percent. Colgate-Palmolive is the leader of this segment with market
share of ~49 percent, while HUL stands at second position with market share of ~30 percent.
In toothpowders market, Colgate and Dabur are the leading players.

The main characteristics of FMCGs are:

From the consumers' perspective:

 Frequent purchase or Daily consumed products.

 Low involvement (little or no effort to choose the item -- products with strong brand loyalty
are exceptions to this rule)
 Low price

From the marketers' angle:

 High volumes
 Low contribution margins
 Extensive distribution networks
 High stock turnover

FMCG supplied in the retail marketing as per the daily consumer demand. These daily needs
and wants have to be served to satisfy their hunger. Therefore, these needs are fulfilled by hard
working team of sales, marketing and distribution who are present on the field with the motive
to satisfy the need of the consumer on right time & place. Now, the level of awareness among
consumers has increased, they check the quality, MRP and date of packaging of the product. In
India, consumers are more conscious and aware due to regular broadcasting of advertisements

7
on televisions so they gather complete information before purchasing a FMCG product. So it
has become necessary to supply the fresh product in the market. Because there is a huge
competition in the market and there are other alternatives available in the market so the
consumer has other option to move to another branded product available in the same market. A
small mistake and wrong timing of product launching in the market could lead to heavy loss of
the brand image and can incur heavy loses to the company.

Rural Consumer Behaviour towards FMCG products:

Earlier, rural consumers made their purchasing of their requirements from nearby towns.
However, in recent times, a shift and a swing have been observed in the buying behaviour of
the rural consumer who has started buying the products locally. This change in consumer
purchase habit has given a ray of hope to the rural marketer. This provides the immense
opportunities for employment for the rural masses that can make their association with the
FMCG companies and the companies can get the channel partners to promote and enhance their
business in rural areas. This producer retailer chain can ensure the supply of the products at the
smaller retail outlets in villages. Studies suggested that advice to the rural consumer by the
retailer plays a very important role in making the product known and familiar among rural
masses and it reduces the efforts of the companies at creating brand knowledge and positioning
the product in rural markets. A promotion campaign educating the benefits of a product or brand
along with hard-core distribution efforts can be seen in rural markets in the FMCG category.
Customer satisfaction is essentially the highest point of a series of customer experiences or, the
net result of the good experiences minus the bad experiences. It occurs when the customer’s
expectations and their subsequent experiences are matched.

Strong Growth in Indian FMCG Sector

The FMCG sector in India generated revenues worth US$ 49 billion in 2016. By 2020, the
revenues of the sector are forecasted to reach US$ 104 billion. In the long run, with the system
becoming more transparent and easily compliable, demonetisation is expected to benefit
organised players in the FMCG industry. The sector is estimated to have witnessed revenue
growth of 14.8 per cent in October-December 2017, supported by improvement in consumer
sentiment and rise in rural demand.

8
Direct selling sector in India is expected to reach Rs 159.3 billion (US$ 2.5 billion) by 2021, if
provided with a conducive environment through reforms and regulation. Edible oil market in
India grew by 25.6 per cent in 2017 to cross Rs 1.3 trillion (US$ 20.08 billion). The focus on
agriculture, MSMEs, education, healthcare, infrastructure and employment under the Union
Budget 2018-19 is expected to directly impact the FMCG sector. These initiatives are expected
to increase the disposable income in the hands of the common people, especially in the rural
area, which will be beneficial for the sector.

Increasing sales of Top FMCG Companies

Consumer products manufacturers ITC, Godrej Consumer Products Limited (GCPL) and HUL
reported healthy net sales in FY17. Aggregate financial performance of the leading 10 FMCG
companies over the past 8 quarters displays that the industry has grown at an average 16-21 per
cent in the past 2 years.

In December 2016, Godrej Consumer Products Ltd (GCPL) acquired remaining 49 per cent in
Kenyan Co Charm Industries. Reckitt Benckiser, posted 14 per cent growth in sales in FY16,
on the back of a forced distribution push in rural market, in support from the Swach Bharat
Campaign.

Biscuits and confectionery maker - Parle Products, is aiming to increase its market share in the
premium biscuits category from 15 per cent in 2016—17 to around 20 per cent by 2017-18.
Indian biscuits giant, Britannia Industries Ltd (BIL), is setting up its largest plant ever, in
Ranjangaon, Maharashtra, with an investment of Rs 1,000 crore (US$ 156.89 million). The
plant will have an annual capacity of 120,000 tonne and will be completed within the next two
years.

9
Trends in FMCG Revenue over the years

Food and Personal care account for 2/3rd share in revenues.

Hair Care is the leading segment, accounting

for 23 per cent of the overall market in terms
of revenue. Food Products is the 2nd leading
segment of the sector accounting for 19 per
cent followed by health supplements and
oral care which has a market share of 16 per
cent and 15 per cent, respectively.

As of FY17, the contribution of herbal

products to the overall personal care
products market in India stood at 6-7 per
cent and is estimated to grow to 10 per cent
by FY20. The beauty, cosmetics and
grooming market in India is expected to
reach US$ 20 billion by 2025 from US$ 6.5 billion currently. As increasing number of
customers are adopting the natural way of life, demand for Ayurveda and herbal products is
expected to grow at a strong rate going forward

10
Urban Market Accounts for Major Chunk of Revenues

Accounting for a revenue share of around 60 per

cent, rural segment is the largest contributor to
the overall revenue generated by the FMCG
sector in India and recorded a market size of
around US$ 29.4 billion in 2016-17. Semi-urban
and urban segments are growing at a rapid pace
and accounted for a revenue share of 40 per cent
in the overall revenues recorded by FMCG sector
in India.

In the last few years, the FMCG market has

grown at a faster pace in rural India compared
with urban India. FMCG products account for 50 per cent of total rural spending. Demand for
quality goods and services has been going up in rural areas of India, on the back of improved
distribution channels of manufacturing and FMCG companies.

Rural Segment is Quickly Catching Up

In FY17, rural India accounted for 60 per cent of

the total FMCG market. Total rural income,
which is currently at around US$ 572 billion, is
projected to reach US$ 1.8 trillion by FY21.
India’s rural per capita disposable income is
estimated to increase at a CAGR of 4.4 per cent
to US$ 631 by 2020. As income levels are rising,
there is also a clear uptrend in the share of non-
food expenditure in rural India.

The Fast Moving Consumer Goods (FMCG)

sector in rural and semi-urban India is estimated
to cross US$ 220 billion by 2025. Amongst the leading retailers, Dabur generates over 40-45
per cent of its domestic revenue from rural sales. HUL rural revenue accounts for 45 per cent
of its overall sales while other companies earn 30- 35 per cent of their revenues from rural areas.

11
What macro and micro economic factors affect the FMCG sector in
the Indian Stock Market?

The fast moving consumer goods (FMCG) space has been out of action for a long time in the
stock markets. Over the last two years the Indian stock markets have been dominated by stocks
from the pharma and IT sector initially. With both these sectors going out of favour on US
regulatory concerns, the action has shifted in the last one year to sectors like automobiles,
banking and capital goods. But in the entire churn, the one sector that has been extremely quiet
has been FMCG. However, al that could be changing; at least that is what appears to be the
case.

The common refrain is that FMCG stocks quote at above 30 times P/E, but that is off the
point. What matters is that the volume growth in FMCG companies appears to be back.
FMCG now looks to sustain about 7 % volume growth and 5 % realization growth
consistently year on year. That is good enough to sustain OPMs at current levels and ensure
that net profits grow at around 20 % on an annualized basis. There has been a sharp
turnaround in volume growth which has again picked up steam from as low as 4 % a few
quarters back. This volume growth could be one of the core reasons supporting the enhanced
performance of FMCG stocks.

End of demonetization woes for FMCG..

One of the sectors where the demonetization exercise took its toll was in FMCG. With nearly
half of its incremental demand coming from rural and semi-urban areas, these were the worst
hit by the demonetization exercise. A liquidity crunch in these non-urban centres and delays
in realization meant that FMCG companies saw a genuine contraction in demand. That
appears to be changing as the quarterly of the March quarter shows. With nearly 85 % of the
demonetized currency back in circulation, liquidity is no longer an issue. That has also meant
that volume growth has regained momentum, something that was a major challenge a couple
of quarters back.

12
No more internecine competitive wars..

What we get to see in telecom industry today is what was visible in the FMCG sector about
10 years back. For example, there was a clear pricing battle between Hindustan Unilever and
Procter & Gamble in the detergents space and at the end of the day; neither could really gain
much additional share in the market. Fortunately, both the FMCG companies have given up
that strategy and it looks unlikely to be repeated. More so, with HUVR 's parent, Unilever,
insisting on the Indian subsidiary improving its net margins, we are unlikely to see price wars
in this space. That should be positive for FMCG.

A sharp fall in agricultural commodities..

Most of the FMCG companies in the Indian markets also have a major exposure to the
processed foods space. Over the last one year, the price of most of the agricultural inputs that
go into processed foods like flour, edible oil, pulses, cereals have all gone down sharply due
to a glut of supply in the agri market. That has led to reduction in input costs for these FMCG
companies. FMCG is also a very inflation-sensitive sector as it has to do with purchasing
power of people.

There is a big rural market and rising purchasing power..

Over the last couple of years, there have been a few key measures that are likely to lead to a
quantum shift in the demand for FMCG products. The 7CPC and the OROP will put more
money in the hands of people who are more likely to have a higher propensity to consume.
The government, in its last two budgets, has focused on rural infrastructure and improvements
in rural income levels. Both these factors have a multiplier effect on rural and semi-urban
demand for FMCG products. The markets are currently betting that this could be a game-
changer for the FMCG companies.

13
Finally, GST has been kind and favourable for FMCG companies..

A big positive for the FMCG companies was when the GST rates were announced. Firstly, the
GST on most food inputs has been kept in the range of 0-5 %. That will keep input cost
escalation in check. Secondly, within the toiletries space the GST Council has given
preferential treatment for products of daily use like toothpaste and hair oil to encourage
consumption. Both these factors will spur demand for FMCG products.

But the biggest advantage for FMCG companies from GST could be a lot more structural in
nature. Currently, every FMCG company designs its logistics, warehousing and distribution
infrastructure based on the state level taxes. With GST taking India towards one-India one-
tax, this should no longer be the issue. FMCG companies can now ensure that their logistics
and distribution infrastructure is more optimal from a business point of view rather than a
regulatory point of view. That could be the big structural boost for FMCG companies from
the GST implementation!

14
Top 10 FMCG Companies in India 2017

FMCG companies play a pivotal role in our daily lives. From tooth paste, soaps, daily use items
etc FMCG companies have dominated the Indian market and are set to grow further. The FMCG
industry has seen some big players but disruption by new players has also changed the Indian
scenario. The top Indian FMCG companies include names like HUL, ITC, Nestle and new
entrant Patanjali. Here is the list of the top 10 FMCG companies in India 2017 as per Revenue.

Quick Glance at Top FMCG Companies India 2017

1st place: HUL

2nd place: Patanjali
3rd place: ITC
4th place: Nestle
5th place: Godrej
6th place: Britannia
7th place: Dabur
8th place: Tata Global Beverages
9th place: Marico
10th place: Colgate Palmolive

10: Colgate Palmolive

The Colgate-Palmolive Company is an American

consumer products firm founded in 1806 and
headquartered in New York.
It was incorporated in India in the year 1937 and is
engaged in the personal care business including oral
care. Today, it is the number one name in India in the
oral care segment, and the products offered by the
company in the oral care segment include toothpaste, toothbrushes, toothpowder, mouthwash
and whitening products. The company also manufacturers personal care products such as liquid
hand wash, body wash, skin care, hare care and shaving products. Certain other products offered
by the company include treatments for gingivitis, sensitivity, mouth ulcers and products such
as fluoride therapy and specialty cleaning products.

15
The company focuses on the well-being of its customers and is committed towards making
people smile. The marketing campaigns of the oral care segment are aimed to showcase the
expertise of the company in terms of its products. The company is known for adapting quickly
to changes in customer behavior and constantly innovates so as to offer best products to its
customers. It does that with its technological expertise as well as investing in hiring the best
talent from across the country for its technical as well as managerial roles. Colgate in
association with Indian Dental Association aims at improving the oral health awareness and
oral care across India on a mass scale. It does that through mechanisms such as exhibitions,
lectures, demonstrations, training programs, etc. Having been an undisputed champion in the
oral care segment, it now faces a tough competition from Patanjali which has introduced
herbal toothpastes and is eating away quite a bit of market share from Colgate. To counter
this, Colgate has launched Cibaca Vedshakti, a herbal toothpaste aimed at the customers
preferring a more natural product for oral care.
Revenue Rs (Cr): 4010.

9. Marico

Founded in 1991, Marico is a leading Indian consumer

goods company based out of Mumbai and operating in
the beauty and wellness space.

The company focuses on making a difference to the lives

of all its stakeholders and this philosophy is the major
reason for the company success over the years. It
currently offers products in the categories of hair care,
edible oils, skin care, male grooming, fabric care and edible foods under various brands.

Some of the leading brands are Parachute, Livon, Set Wet, Nihar, Saffola, Revive, Hair & Care,
Mediker, Kaya, Zatak, Black Chic, Eclipse, Hercules, Caivil, Manjal, etc. Parachute is the
flagship brand of Marico. It’s other brands and extensions also occupy significant positions and
a chunk of market share in a number of health and beauty areas.

The company’s values guide its everyday business and this in turn reflects in the offerings to
its customers. These values include Customer Centric Mindset, Innovation, Transparency and
Opennness, Opportunity seeking, Global outlook, Excellence, Bias and Boundarylessness. Its
constant innovation in terms of its products along with its effective marketing campaigns has
16
significantly enhanced the brand recognition of Marico and the company is constantly working
towards competing effectively in these segments where there is a significant presence of Indian
and Global giants. Marico's supportable development story lays on an engaging work culture
that urges our individuals to take complete ownership and have a significant positive effect on
the whole business ecosystem. The sustainability mindset of the company driving its CSR
campaigns focuses on the areas of Resource Optimization, Climate change and Corporate
Citizenship. It currently has projects working on energy efficiency, water recycling, renewable
energy, material reuse, sustainable procurement, employability and skill development,
education and well-being.

Revenue Rs (Cr): 5918

8. Tata Global Beverages

With the strong backing of Tata Group, Tata Global

Beverages is one of the leading FMCG companies in
India.

Earlier known as Tata Tea Ltd, Tata Global Beverages

is based out of Kolkata, and has a pan India product
with its products and services. The wide product
portfolio of Tata Global Beverages includes tea,
coffee, dairy products, water, pepper and other plantation crops.

Tata Beverages is one of the largest tea and coffee manufacturer in the world. Apart from tea
manufacturing, the company has a strong presence in India with a joint venture with global
beverage coffee chain brand Starbucks. The leading brands and subsidiaries of Tata Global
Beverages include: Good Earth Teas, Tata Coffee, Tetley tea, Eight O’clock.

The company has effective marketing strategies in place to promote its products across India.
The company effectively utilizes TV, print media, online ads, billboards etc to advertise its
products. Apart from advertising the company has also involved actively in CSR activities like
Jaago Re, and other scholarship initiatives.

Revenue Rs (Cr): 6963

17
7. Dabur

Dabur India Limited, founded in 1884 and

headquartered in Ghaziabad is world’s largest
Ayurvedic medicine and natural health care
company with over 250 herbal/ayurvedic products.

The company has offerings in key consumer product

categories such as Health supplements, Oral care,
Hair care, Skin care, Home care, Medicines and
Digestives. The company’s portfolio includes flagship brands such as Dabur for healthcare
products, Rèal for beverages and juices, Fem for skincare and fairness, Vatika for personal care
and Hajmola for digestives.

Products such as Dabur Amla hair oil, Dabur Chyawanprash, Odomos, Dabur Honey, Odonil,
Glucose D, Hajmola, Pudin hara are some of the widely used products across all Indian
households. The company is known for its honesty and transparency and it always aims to live
up to its reputation. The company is also committed towards developing its most important
asset, its employees and always encourages and rewards excellence. Dabur India drives its CSR
policy through Sandesh, a registered organization aimed at rural development. The key areas
of operations of Sandesh are promoting education, both formal and non-formal, promoting
hygiene and health, promoting income generation and self-reliance. The focus of the initiatives
is not charity but to enable deprived communities lead a better life. Revenue Rs (Cr): 7691

6. Britannia

Britannia Industries, an Indian food products

corporation based out of Bangalore. Currently owned
by the Wadia Group, its principal activity is the sale and
manufacture of bakery products including biscuits,
bread, cakes, rusk and dairy products such as cheese,
milk, butter, dahi and ghee. The company has an
estimated market share of 38% across the food products category.

The well-known brand names in biscuits are Tiger, Good Day, Treat, Pure Magic, Milk Bikis,
Nice Time, Nutri Choice, Bourbon, Little Hearts, 50 50, etc. It also has famous products across
other categories such as Britannia rusk, cheese cubes, ghee, etc.
18
For over a century it has served the Indian customers with a range of nutritious, fresh and
taste-rich products. Their products are a superior combination of food traditions and
innovation, which is what makes it products so popular. The best of ingredients are used in
the making of these products and more than half of its products are enhanced with
micronutrients. Its constant innovation and proximity to customers helps it modify its product
range in accordance with the changing demands of the customers. The company’s focus on
quality and freshness has made it a winner of a number of awards and has establish the brand
trust that has led it to 33rd rank in the Brand Trust report 2017.
The company’s CSR initiatives have focused on community development through health and
family welfare programs, free education, nutrition, education, etc. Waste management and
Energy conservation have also been the areas of focus for the company. The company’s
biggest competitor in the biscuits segment is Parle and it also faces tough competition from
Nestlè in its dairy products.
Revenue Rs (Cr): 8844

5. Godrej

Godrej Consumer products limited, subsidiary

of the Godrej group, is an Indian consumer
goods company established in 2001 and
headquartered in Mumbai.

As of 2014, it employs around 21000 employees

and has manufacturing units across various
regions of the country such as Madhya Pradesh,
Assam, Himachal Pradesh, Pondicherry,
Sikkim and Tamil Nadu. It offers products across three segments personal care, hair care and
household care.

The products offered by the company include soaps, hair colour, liquid detergents, room
fresheners, hand wash, mosquito and pest repellent products. Some of the brands of this
company are Cinthol, Godrej expert, Godrej No. 1, Hit, Good Knight, Ezee, Aer, Protekt,
Godrej Fair Glow, etc. The company is a leader in hair colour, household insecticides and liquid
detergents and number two player in soaps in India.

19
The company is committed towards giving back to the society, as a part of Good and Green, it
focuses on building a greener India, creating a more employable workforce and innovating for
good and green products. Its other CSR activities are focused on community development,
watershed management and urban waste management. All this along with the company’s
history makes Godrej a trustworthy brand across Indian households.
Revenue Rs (Cr): 9134
4. Nestlè

Nestlè, a Swiss transnational food and drink

company, established in 1866 and
headquartered in Vevey, Switzerland, is the
largest food company across the world.

Its relationship with India dates back to 1912

and has been a part of the Indian growth story.
The products offered by Nestlè in India range
across categories such as milk and nutrition,
chocolates and confectionary, beverages and prepared dishes and cooking aids.

Some of the famous brands of the company are Nescafe, Nestlè Everyday, Sunrise, Maggi,
Kitkat, Milkybar, Milkmaid, Nestea, Munch, Bar one, Polo and many more. It has been
committed towards offering products of global standards to customers across the country. It
has focused on Taste, Nutrition, Health and Wellness and well-being of the customers and its
tagline ‘Good Food, Good life’ resonates with that. It aims to create value to the customers by
offering a wide variety of safe, high quality food products at prices that are affordable. It
constantly develops its product range so as to meet the changing needs and demands of the
customers. Creating shared value is the ideology of Nestlè and it constantly works towards
giving back to the society. Its programs aimed at nutrition, rural development and
water/environment conservation help communities across the country benefit from its
operations. In terms of business the company faces major competition from Amul, Mondelez,
ITC and other FMCG giants and it constantly evolves its product range to stay ahead.
Revenue Rs (Cr): 9159

20
3. ITC

Established in 1910, ITC Limited is an Indian

conglomerate headquartered in Kolkata.

The company has a diversified business

portfolio ranging from Cigarettes, FMCG
products, Paperboard and packaging to hotels
and IT. The company’s product offering in the
FMCG sector includes Branded packaged
foods, Personal care products, matches and incense sticks along with lifestyle retailing.

Some of the major food brands of the company are Aashirvaad, Kitchens of India, Sunfeast,
Mint-o, Candyman, Gum-o, Bingo and Yippee. In the personal care segment it offers products
under the brand names Fiama Di Wills, Superia, Essenza Di Wills, Vivel and Engage.
Mangaldeep, Aim, Ship and I Kno are some of its brands in the safety matches and incense
sticks segment.

The Company's institutional qualities - profound comprehension of the Indian buyer, solid
trademarks, profound and wide distribution network, agri-sourcing capabilities, packaging
skills and culinary expertise - keep on being adequately utilized to quickly develop its FMCG
business. The company is committed to offering innovation, quality and differentiation to its
customers, which is backed by world-class R&D, superior customer insights and efficient
supply chain. Given the tough competition in the FMCG segment, the company has faced a
decline in its ranking in the brand trust report in the last few years. In terms of CSR, ITC’s e-
Chaupal initiative aimed at making Internet available to the farmers in the country, has helped
millions of farmers utilize the power of information. Its other CSR initiatives are focused on
afforestation, health and sanitation, women empowerment, primary education along with
animal husbandry and waste recycling. Given the company being a giant in the tobacco
industry, it sometimes has been questioned for its ethical practices.
Revenue Rs (Cr): 10336

21
2. Patanjali

Patanjali Ayurved Limited, the fastest growing

FMCG Company in the country is a mineral and
herbal products company established in 2006 and
headquartered in the industrial areas of Haridwar.

Established by Baba Ramdev along with Acharya

Balkrishna, the objective of the company is to
establish the science of Ayurved in accordance
with the technology of today. The products
offered by the company are in the personal care and foods segments including baby care and
beauty products.

Currently it has around 450 different kinds of products and it also manufactures over 300
medicines for the treatment of a range of body ailments. The company claims that all its
products are made from natural components and Ayurveda. Patanjali’s Dant Kanti, Ghee, Kesh
Kanti, herbal bath soap and honey are some of the its best selling products which have propelled
the growth of this company. Patanjali’s noodles was an attempt to promote a more healthy
eating habit in the kids of the country. The reasons for the success of the company are two folds;
one is the shift in the lifestyle of the Indian customers towards using more natural and
Ayurvedic products, the second reason is that the Patanjali products are significantly less
expensive than other personal care and food products in the market. This has made a significant
proportion of Indian middle class to move towards Patanjali. This has led to a cause of concern
for industry leaders such as HUL and Colgate whose products have been directly challenged by
Patanjali products. Revenue Rs (Cr): 10561

1. HUL

Hindustan Unilever Limited is the largest consumer

goods company in India, established in 1933 and is
based out of Mumbai.

The company known for its presence across almost

all categories of consumer products, has a variety of
products in each of the categories targeted at almost
all the customer segments. It has products in over
20 consumer categories majorly Food & Drink,
22
Personal care, Home care and Water purifier serving over 700 million customers across the
country and is undoubtedly the market leader in the FMCG sector.

Some of the famous brands of HUL are Dove, Lux, Lifebuoy, Pears, Hamam, Lyril, Rexona,
Surf Excel, Wheel, Comfort, Clinic Plus, Sunsilk, Fair & Lovely, Pond’s, Lakmè, Vaseline,
Bru, Taj Mahal, Lipton, Brooke Bond, Cornetto, Kisan, Annapurna, Magnum, Close up,
Pepsodent, and many more.

The company with its exhaustive product range and wide distribution network aims to provide
products fulfilling the needs and demands of all the segments of the society across the country.
The company has always focused on innovative product offerings and adapting itself to the
market changes, which has helped it maintain its market leadership.

Hindustan Unilever Foundation is a CSR initiative of the company aimed at community

development related to water management. The other sustainability initiatives of HUL focus on
health and hygiene, enhancing livelihoods, sustainable sourcing, greenhouse emissions, etc. Its
rural initiative Shiksha, aims to empower under privileged rural women. Given its scale of
operations and line filling strategy, HUL has been able to keep competition at bay and maintain
clear leadership in the market for a long time. Today, HUL faces tough competition from
Patanjali given the growing demand for the latter’s products and a demand for natural and
ayurvedic products.

Revenue Rs (Cr): 30782

Rank Methodology

1. The leading FMCG companies are considered for the analysis

2. The revenues of the companies are taken

3. Based on the revenues, the companies are ranked to find the top FMCG Indian companies

23
Market share of companies in a few FMCG categories

24
Analytical Presentation of a Specific Company

The Epic Rise of Patanjali: Game-changer in Indian FMCG Industry

Overview

What started in 1997 as a small sized pharmacy, Patanjali Ayurveda Ltd. (PAL), today, is
arguably the fastest growing company in the Indian FMCG sector, a USD 50 Billion industry
once dominated by multinational behemoths – the likes of Unilever, P&G, Nestle, Colgate -
Palmolive, Johnson & Johnson. From shampoo and biscuits to ghee and noodles, and now
apparel and footwear – no other indigenous company has built such a well-diversified product
portfolio. It has grown more than ten times in revenue in last five years, an unparalleled feat in
India’s FMCG industry. The company which is targeting revenues of Rs. 10,000 crore for FY
2016-17 and Rs. 20,000 -25,000 crore in FY 2018 has extensive sales channel of over 5000
distributors, 15,000 stores, and 100 mega-marts. Moreover, it has also tied up with retail chains
like Future Group, Reliance Retail, Hyper City and Star Bazaar as well as leading e-commerce
platforms. The recent announcements of Rs. 1,600 crore food park in Noida and Rs. 1,200 crore
production facility in Assam as well as the buzz around Patanjali's plans to go public signals
the company’s robust expansion plan.

It is no surprise that American business magazine Fast Company ranked Baba Ramdev 27th
in its list of “Most Creative Business People of 2016” while his close associate and CEO of
PAL Acharya Balkrishna has made his debut on the Forbes list of India’s 100 Richest People
at 48th position; given the fact that he owns 94% of the company.
So, what is the secret recipe behind the dramatic rise of Patanjali? What explains this
remarkable growth trajectory? How come a blend of ancient Indian science Ayurveda and
modern technology made its mark and giving leading names a run for their money when many
Indian brands had struggled in the past?
There are several ingredients that go on to create the Patanjali magic, and while there is
uncertainty on how long the momentum will sustain, the journey so far is worth studying.

Patanjali’s reasons for success and key takeaways

Low Pricing and Cost dynamics

Patanjali products are available at an attractive discount as compared to their competition. The
company sources raw material directly from farmers eliminating middlemen, has lower

25
marketing spends and overhead cost compared to its peers and as such are able to produce at a
much cheaper price. A large proportion of the Indian population, especially the middle class,
is extremely price sensitive and looks for quality products at reasonable rates. Patanjali has
understood and developed a strategy to take advantage of the aforesaid mindset capturing
market share from established players.

Focus on Product Quality

Quality is of prime importance and a key value proposition when it comes to FMCG. Patanjali
products are known for their quality and have brought the focus back on product
effectiveness. Ghee and tooth paste are the two most sold products of Patanjali - even though
both of these have enough competitors in the market.

Extensive sales and distribution network

Patanjali has also been able to develop a large and trustworthy system of vendors and
distributors to ensure that their products are available in every nook and corner of the country
and its products do not fall at the end point of supply chain i.e. product placement and
distribution.

Hiring the right talent

Building a business requires hiring people with right skill sets who know their stuff in and
out. Patanjali does not hire MBAs from fancy universities, but hard core professionals
possessing relevant qualifications such as Masters in Science, Ayurveda with an inclination
towards those with research experience. "Ours is not a corporate culture--it is a spiritual
culture and it is purpose-driven," says managing director Acharya Balkrishna.

Baba as Brand Ambassador

The other big factor in Patanjali’s favour is the image of Baba Ramdev. He is a recognized
face all over India and beyond. Patanjali is able to create a brand perception of health and
wellness among the Indian masses, primarily because of Ramdev’s association with the brand
who is considered to be a veteran of yoga and a firm believer of Ayurveda. In Indian market
where personalities outshine products, it’s imperative to have a brand of your own.

26
Product experimentation and innovation
Patanjali was started in times when FMCG products by large multinational companies were
already doing well and enjoyed customer loyalty. Despite the muted consumer demand and a
wide range of existing products and players, Patanjali products were able to differentiate itself
in the backdrop of never seen before combination of Ayurveda and technology.

Cultural Appeal
Patanjali products are marketed as historically and culturally indigenous in the light of its
widely known Swadeshi campaign. The company has captured the attention of the Indian
consumer by projecting itself as a brand that is extremely Indian. It also advertises its
products as being all-natural void of synthetic and artificial ingredients. One cannot deny the
fact that Indian market still has a penchant for culturally rooted products.

Conclusion about its success.

The swift rise of Patanjali driven by a large variety of product offerings coupled with
unconventional marketing strategies has disrupted the whole FMCG sector and revolutionized
the industry in a record time. Patanjali’s dizzying growth story is now the talk of boardroom
discussions and case study at management schools.

27
Demand drivers in FMCG Industry

1. Demographic advantage
 The growing Indian population has also led to increase in the ‘earning population’ (age
group 15-60) of the country. The proportion of Indian populace in the age group of 15-
64 years increased from 55.4% in 1991 to 66.2% in 2016.
 Considering the large size of the Indian population, the lower median age implies a
higher number of working people thereby clearly outlining the immense earning as well
as spending potential of the Indian populace.
 Taking into account the age group below 25 years being one of the highest spending age
group, the current demographic dynamics are expected to boost the retail sales in India.
The median age of India is 26.7 years, one of the lowest globally in comparison to 37.2
years in the US, 45.8 years in Japan and 36.3 years in China.

2. Rapid urbanization
 A majority of India still lives in ‘villages’. This statement no doubt holds true but the
figures suggest that there has been a paradigm shift of the Indian populace in terms of
rural–urban divide. The aspirations of higher income, higher standard of living etc. has
drawn more and more people from villages to settle in towns and cities.
 This transition from rural to urban areas has led to an increase in the demand for goods
(owing to higher income and ever-expanding needs). The retailers, especially in the
organised segment are therefore targeting the ‘middle class’ populace by ensuring the
availability of varied products at various price ranges to match the needs of a ‘common
man’.
 Usually, most FMCG companies focus on urban markets for value and rural markets for
volumes.
 Rural India accounted for about one third of the total consumption pie in 2008, while
the rest was held by urban areas. However, as of 2016, the share contributed by semi-
urban and rural segments has increased to about 40% with the urban segment still being
the largest contributor to the overall revenue generated by the FMCG sector in India
accounting for a revenue share of around 60%. In the past few years, the performance
of FMCG sector in rural areas has outpaced its performance in urban areas.

28
3. Rising income levels & growing per capita expenditure
 In the last decade, Indian economy has progressed rapidly. Correspondingly, India’s per
capita GDP has gone up from Rs 71,607 in FY12 to Rs. 117,406 in FY17 at a CAGR of
10.4% fuelling a consumption boom in the country.
 Correspondingly, the per capita personal disposable income surged from Rs 73,476 in
FY12 to Rs 119,296 in FY17 at a CAGR of 10.2%. Also, the per capita private final
consumption expenditure too rose from Rs 40,250 in FY12 to Rs. 68,049 in FY17 at a
CAGR of 11.1%. The growth in country’s per capita GDP in turn has increased the
disposable income of the populace ultimately driving the country’s consumption.
 PFCE on food & non-alcoholic beverages increased to Rs 23,878,440 million in FY16
registering a CAGR of 12.3% between FY12 and FY16. Also, PFCE on non-durable
goods increased to Rs 32,555,820 million in FY16 from Rs 20,949,260 million in FY12,
registering a CAGR of about 11.7%.

4. Rising growth in number of nuclear families

 The rapid growth of population, increased urbanisation and the unavailability of large
real estate spaces have led to the growth of nuclear families in the country. The average
number of person per household has reduced from 5.6 in FY81 to 4.9 in FY11.
 The growing number of households has not only pushed the demand for necessities but
the combined mix of greater purchasing power and willingness to spend has resulted in
the nuclear family’s shifting focus towards luxury/semi-luxury products. This has thus
led to the emergence of modern retail formats such as specialty retail, luxury retail etc.

5. Growing female working population

 On the backdrop of growing Indian economy during the recent years, the participation
of female workforce in the country’s economic activities has increased considerably.
The proportion of the female workforce which accounted for 26% of the country’s
workforce in FY71 has scaled to 31% during FY11.
 Notably, the percentage of working women involved in the organised industrial
activities too has increased from 27% in FY81 to 47% in FY11.
 The higher purchasing power in the hands of ‘working-women class’ compared to the
housewives enhances the ability of the former to spend much more comparatively
increasing the demand for cosmetics, toiletries among others.
29
Other factors driving the demand for Indian FMCG sector are as follows:

6. Desire to experiment with brands

 Demand has picked up with new brands coming in regularly with new product
launches

7. Evolving consumer lifestyle

 Growing aspirations and higher standard of living has led to the bandwagon effect
increasing demand for FMCG products

8. Growing rural market

 Good rainfall, higher farm incomes has led to growth in rural demand

9. Growth of modern trade

 On back of organised retail and commerce

10. Strong distribution channels –

 FMCG companies have established strong distribution channels to reach out to smaller
cities and towns (tier II & tier III cities). Also, customization of products is done for
lower income groups. For eg: Making FMCG products available in smaller quantities
(Sachets)

11. Emergence of online grocery stores – Grofers, BigBasket, etc

12. Greater awareness of availability of various products, brands
13. Government reforms to encourage FDI and market sentiments

30
Financial Performance

 Net sales in FY17 declined marginally by about 1.5% after registering thin negligible
growth rate in the previous year dragged down by lower sales in the consumer foods
and edible oils segment while the sugar industry witnessed a double digit growth in net
sales during the year.
 The demand for some of consumer goods being non-discretionary, the industry
witnessed positive growth in the sales during the year, though at a slower rate. This was
on account of the cash crunch in the market post demonetisation in Q3 and Q4 due to
which purchases took a hit.
 However, net profits witnessed a sharp growth of over 200% during the year. This
growth was contributed by the edible oil industry (solvent extractor’s) along with
improvement in net margins of sugar industry in FY17 mainly led by higher sugar prices
during the year.
 Net profit margins of FMCG companies improved to 3.6% in FY17 registering an
expansion of about 250 basis points.
 However, the net profit margins registered by 2,892 companies (all companies
excluding banks, IT, oil/refinery and finance) for FY17 is 4.7%, that is higher than the
FMCG company’s margins. On the other hand, the expansion for all companies was
only about 20 basis points.
 Interest cover (ratio of PBDIT/interest) has been calculated for the set of 174 companies.
The interest cover was higher at 2.88 times in FY17 from 2.06 times in FY16.

31
Supply Chain Analysis of FMCG Industry
The FMCG industry is characterised by complex distribution network and intense ompetition,
forcing firms to constantly work on supply chain innovation. Although, the basic structure of
supply chain in the Indian FMCG sector has not changed over the years. Micro-economics play
an important role in the supply chain structure of India.

The Indian FMCG sector is a low margin business, where success mostly depends on the
volume of products sold. In order to develop and maintain an efficient supply chain, the
companies focus on availability of products in the complex distribution network. Presence of
multiple layers between company and end customer results in increase in the number of Stock
Keeping Units (SKUs), to ensure availability at the last stage of distribution. In order to increase
market penetration, a growing number of companies are focusing on launching smaller
packaged size products to address needs of consumers present at the lower end of the economic
scale. The entry of large third party logistics (3PL) carriers and the expansion of domestic
networks of Indian firms like Gati and Shreyas Shipping is transforming the nature of services
and the business practices across the sector. Emergence of modern retail formats have an
advantage over small stores as they are able to demand huge discounts from FMCG companies.
Moreover, a huge emphasis is laid by modern retailers on ensuring permanent on-shelf product
availability during peak periods; cost optimization and R&D.

32
Swot Analysis of FMCG sector in India

Strengths

Cumulative Profit & Low Operational Cost

One of the important strength of this sector is low operational cost. For a retailer's bottom
line, the key benefit of CPGs/FMCGs is the cumulative profit they provide. CPGs/FMCGs
have low profit margins, which means that a small percentage of each each unit sale
represents profit. However, CPGs/FMCGs also sell in very high quantities. This means that
those small profits add up and can form a significant portion of a retailer's total profits for a
fiscal period. This profit serves any number of financial purposes in the business.

Brand Appeal

When a retailer offers CPGs/FMCGs, it can rely on the brand appeal that they generate to drive
sales. Most CPGs/FMCGs come from brands that advertise heavily. This means that when
customers see CPGs/FMCGs on store shelves they have pre-existing emotional relationships
with those brands, which may not be true of the other items that the retailer sells. Seeing
recognizable brands may build trust between the customer and retailer or lead to an additional
purchase based on brand awareness, with no special effort from the retailer.

Diversification

Presence of wide distribution networks and channel members in both urban and rural areas.
Selling CPGs/FMCGs spreads a retailer's revenue sources over a broader spectrum of goods.
The profits can help offset slow sales for other products during seasonal dips in demand or
periods of reduced consumer confidence. In the category of CPGs/FMCGs, retailers can choose
from among an almost unlimited range of product types including pharmaceuticals, food items,
beverages, household products and disposable items. The range is so broad that some retailers,
such as grocery stores and convenience markets, stay in business selling them exclusively.
Favourable governmental Policy:

Indian Government has passed the policies aimed at attaining international competitiveness
through lifting of the quantitative restrictions, reducing excise duties, 100 per cent export
oriented units can be set up by government approval and use of foreign brand names etc.

33
Foreign Direct Investment (FDI):

Automatic investment approval up to 100 per cent foreign equity or 100 per cent for NRI and
Overseas Corporate Bodies investment is allowed for most of the food processing sector except
malted food, alcoholic beverages and those reserved for small scale industries (SSI).

Weak areas of FMCG sector:

 Lower scope of investing in technology and achieving economies of scale, especially in
small sectors
 Low exports level
 “Me- too products, which illegally mimic the labels of established brands. These
products narrow the scope of FMCG products in rural and semi- urban markets.
 Less innovative abilities and systems: Indian FMCG sector, especially small players are
lagging behind in adopting innovative approaches for fulfilling needs of the consumers.

Growth Opportunities in the Indian FMCG industry

Rural Market
Leading players of consumer products have a strong distribution network in rural India; they
also stand to gain from the contribution of technological advances like internet and e-
commerce to better logistics. Godrej is focusing on rural market for household insecticides
segment. At present, Godrej accounts for 25 per cent of the household insecticides sales from
rural areas Rural FMCG market size is expected to touch US$ 220 billion by 2025

Innovative products
Indian consumers are highly adaptable to new and innovative products. For instance, there has
been an easy acceptance of men’s fairness creams, flavoured yoghurt, cuppa mania noodles,
gel based facial bleach, drinking yogurt, sugar free Chyawanprash.

Premium products
With the rise in disposable incomes, mid and high-income consumers in urban areas have
shifted their purchase trend from essential to premium products Premium brands are
manufacturing smaller packs of premium products. Example: Dove soap is available in 50g

34
packaging. Nestle is looking to expand its portfolio in premium durables cereals, pet care,
coffee, and skin health accessing the potential in India.

Sourcing base
Indian and multinational FMCG players can leverage India as a strategic sourcing hub for
cost-competitive product development and manufacturing to cater to international markets

Penetration
Low penetration levels offer room for growth across consumption categories. Major players
are focusing on rural markets to increase their penetration in those areas

Online FMCG
It is estimated that 40 per cent of all FMCG purchases in India will be online by 2020, thereby
making it a US$ 5-6 billion business opportunity.

Rising income levels, i.e. increase in purchasing power of consumers:

According Mckinesy Global Institutereport, in next two decades income level of Indian
consumer will almost triple and India will become world’s fifth – largest consumer market by
2025. India’s middle class size will increase to 583 million , or 41% of the population. Extreme
rural poverty has declined from 94% in 1985 to 61% in 2005 and is projected to drop to 26%
by 2025. This will result into increased purchasing power of Indian consumer.

Large domestic market with more population of median age 25 years:

India has large young population, 54 % of Indians are under 25 years of age. A rising
productive population fuels growth and drives personal consumption.

High consumer goods spending:

The rising income is resulting into high spending into consumer goods. According to a
Nielsen report, the spending on consumer goods set to triple to $ 5 billion by 2015.

35
Other Oppurtunities:

 India is the largest milk producer in the world, yet the percentage of processed milk is
very low around 15 per cent. The organized liquid milk business is in its early stage and
also possesses the potential of long-term growth. Even there is huge investment
opportunities in value-added products like desserts, puddings etc.

 Only about 10-12 per cent of output is processed and consumed in packaged form, thus
highlighting the huge potential.

 With booming per capita incomes and growing awareness among rural masses, the
growth potential is huge. Smaller packs and sachet packing have made the product easy
to buy and lower price are also likely to drive potential up.

Threats:

 Liberal import policies resulting in replacing of domestic brands.

 Government Taxation policies and regulatory structure
 Rural demand is seasonal and depends upon monsoon

36
Pestel Analysis

Pestel analysis is a tool to understand the environment in which business operates, & the
opportunities & threats that lie within it. By understanding the environment in which it operates,
it can take advantage of the opportunities & minimizing the threats. Specifically, PESTEL
analysis is useful tool for understanding risks associated with markets growth or decline, &
directing business to grow.

P–Political factors
E–Economic factors
S–Socio-cultural factors
T–Technological factors
E–Environment factors
L–Legal factors

A PESTEL analysis is a measurement tool, looking at all the external factors of the
organization. It is often used within a strategic SWOT analysis (strength, weaknesses,
opportunities & threats analysis)

Pestel Analysis on FMCG Industry

P-Political Factors

Political stability:
Political stability is one of the important most factor which influence the growth of business
directly. If Political stability is higher, then it leads to perfection in business & on the other
hand if there is instability the business will have to suffer.

Taxation policy:
Tax policy of government will affect the price of inputs & it ultimately affect the prices of
final products & it will directly affect the sale of product.

37
Government intervenes:
This indicates that at what level the government intervenes in the economy. If the government
intervene is more sometimes it helps the organization at large extent.

Subsidies:
The subsidies which are provided by government to different organisation at different level
also help it to grow at faster rate & helps the organisation in reducing the finance which is to
be funded from outside & it directly reduces interest amount paid in favour of fund raised
from outside.

Trading policies:
This indicates the policies related to import & export of goods and services from different
nations. If the policies are favourable more goods & services will be imported& exported, &
on the other hand if policies are unfavourable it will restrict the import &export.

Labour law:
Labour law also affect the organisation, for example- child labour, a child below14 year of
age cannot work in factory or any hazardous place.

E–Economic factors

Interest rates:
Interest rate directly affect the cost of capital, if the interest rate is higher the cost of capital
will increase & if it is lower than cost of capital will be lower. This directly affect the profit of
the organization & it’s growth.

Tax charges:
If the tax charged by the government is lower than it will reduce the product price & if it is
higher than it will increase the prices of the products.

Exchange rates:
This shows that what is the exchange rate or foreign currency rate. If exchange rate is higher
more amount is paid on import of goods & if it lowers less amount is to be paid & on the other
38
hand if it is higher the amount received will be more & if it is lower the amount received will
be low.

National income:
National income is important factor as if affect the growth of the organisation. If per capita
income is more the amount spend will be more & if it will be lower the amount spent will be
less.

Economic growth:
Economic growth is important factor in the development of the organization. If economy
grows at a higher speed it will directly affect the growth of the organization.

Inflation rate:
Inflation means the rise in the value of all the product in the economy, if inflation rate is
higher the cost of products will be higher & if inflation rate is lower the cost of product will
be lower. This directly affect the growth of the organization

S–Socio-cultural factors

Demographics:
Demographics is the study of human population in the economy. It helps the organization to
divide the markets in different segments to target a large of customers. For Example-
according to race, age, gender, family, religion, & sex.

Distribution of income:
This shows that how income is distributed in the economy. It directly affects the purchasing
power of the buyers. And ultimately leads to increase or decrease in the consumption level of
the products.

Changes in life style:

Change in life style also leads to increase or decrease in the demand for different
commodities. For example- presently LCD & LED TV’s have replaced Digital
displayed TV set, this shows that the changes in life style of consumers.
39
Consumerism:
This indicates that a large number of options are available while purchasing of goods to
consumers, so the choice becomes easy & quality products can be choosing by consumers. So
while purchasing a consumer have different choices to select product according to his needs.

Education levels:
Education is one of the most important factor which influence the buying
power of consumer, while selecting a particular good a consumer should know all it’s
features so it can differentiate them with another product.

Law affect social behaviour:

Different laws are made by the government to safe guard the rights of consumers. For example-
Consumer protection act, this law indicates that a consumer can file a case against a seller if he
finds that he is cheated

T–Technological factors

Advancement in technology:
New technology helps in economising the scale of production, this means that new technology
helps in increasing the level of production, & reducing the costs of inputs, & maximising the
level of profits.

Discoveries & innovation:

Advancement in technology will leads to discoveries &innovations & further improvements in
technology so as to improve perfections in the production process.

Competitive forces:
Advancement in technology will also leads to competition in the markets, more quality products
will be provided to consumers to cover a large number of market.

40
Automation:
Change in technology will leads to automation, this means that with new technology labour
required is less as machines are automatic. All the works are done automatically by the
machines as earlier it is labour oriented. Now all the work is machine oriented.

Obsolete rate:
Day-by-day new inventions are made so the rate of obsolete is higher, as in Computer Laptops
have replaced the PC. This shows that the technology becomes obsolete very fast.

Research & development:

This department plays a vital role in the development of the organization. As this department
always do research that what are the demand of the markets & how to make advancements so
the organization can survive in the competitive world.

E–Environment factors

Ecological:
The ecological and environment aspects such as weather, climate, & climate changes, which
may especially affect industry such as tourism, farming, & insurance. In FMCG Air
conditioner’s demand increase in summer season.

Environmental issues:
Global warming is one of the major issue now-a-days as external factor is becoming a
significant issue for firms to consider. Many remedies have been taken to reduce Global
warming.

Environmental regulations:
Various regulations have been declared by government to safe guard the environment. For
example-no company should through its waste in rivers

41
L–Legal factors

Employment law:
Employment law provides equal opportunities to every citizen to work & earn his livelihood. It
provides equal opportunities to every citizen.

Consumer protection:
This law helps to protect the rights of consumers & he can file a case against seller if he fined
that he is cheated.

Industry-specific regulations:
These laws are related to industry for example- no industry can establish in between cities i.e.
it should be outside the cities

42
Porter's Five Forces: Analysing the Competition

One of the biggest threats to a business – start up or established, small or big companies– is
competition. Who is your competition? How are their actions in the marketplace going to affect
your current bottom line and future planning? To answer those questions, you must analyze the
competition. One way to do that is by using Porter's Five Forces model to break them down
into five distinct categories, designed to reveal insights.

Originally developed by Harvard Business School's Michael E. Porter in 1979, the five forces
model looks at five specific factors that help determine whether or not a business can be
profitable, based on other businesses in the industry. "Understanding the competitive forces,
and their underlying causes, reveals the roots of an industry's current profitability while
providing a framework for anticipating and influencing competition (and profitability) over
time," Porter wrote in a Harvard Business Review article. "A healthy industry structure should
be as much a competitive concern to strategists as their company's own position."

According to Porter, the origin of profitability is identical regardless of industry. In that light,
industry structure is what ultimately drives competition and profitability —not whether an
industry produces a product or service, is emerging or mature, high-tech or low-tech, regulated
or unregulated. "If the forces are intense, as they are in such industries as airlines, textiles, and
hotels, almost no company earns attractive returns on investment," Porter wrote. "If the forces
are benign, as they are in industries such as software, soft drinks, and toiletries, many companies
are profitable."

Understanding the Five Forces

Porter regarded understanding both the competitive forces and the overall industry structure as
crucial for effective strategic decision-making. In Porter's model, the five forces that shape
industry competition are:

1. Competitive rivalry
This force examines how intense the competition currently is in the marketplace, which is
determined by the number of existing competitors and what each is capable of doing. Rivalry

43
competition is high when there are just a few businesses equally selling a product or service,
when the industry is growing and when consumers can easily switch to a competitor's offering
for little cost. When rivalry competition is high, advertising and price wars can ensue, which
can hurt a business's bottom line.

2. Bargaining power of suppliers

This force analyses how much power a business's supplier has and how much control it has
over the potential to raise its prices, which, in turn, would lower a business's profitability. In
addition, it looks at the number of suppliers available: The fewer there are, the more power they
have. Businesses are in a better position when there are a multitude of suppliers.

3. Bargaining power of customers

This force looks at the power of the consumer to affect pricing and quality. Consumers have
power when there aren't many of them, but lots of sellers, as well as when it is easy to switch
from one business's products or services to another. Buying power is low when consumers
purchase products in small amounts and the seller's product is very different from any of its
competitors.

4. Threat of new entrants

This force examines how easy or difficult it is for competitors to join the marketplace in the
industry being examined. The easier it is for a competitor to join the marketplace, the greater
the risk of a business's market share being depleted. Barriers to entry include absolute cost
advantages, access to inputs, economies of scale and well-recognized brands.

5. Threat of substitute products or services

This force studies how easy it is for consumers to switch from a business's product or service
to that of a competitor. It looks at how many competitors there are, how their prices and quality
compare to the business being examined and how much of a profit those competitors are
earning, which would determine if they can lower their costs even more. The threat of
substitutes is informed by switching costs, both immediate and long-term, as well as a buyer's
inclination to change.

44
Porter’s Five Forces Model of Nestle

Nestle is a multinational company which works as a brand and it has many small companies
working under it. It was initially introduced in 1867 with the launch of its first product that
was dehydrated kid’s food and this was very successful at that time and thus Nestle got the high
profits within no time. It touched the cruising stage within very few months of its successful
existence and this lead it to achieve even more and more.
Afterwards company did quality mergers which led it to the heights of success in quality food
products among the whole market. Nestle has always focused over their customer’s need and
demands which has made it a growing and company with a good will. And one can see that it
has become a global name today. Nestle has been successful in satisfying its customers by
innovation and other strengths of the company. Porters five forces model is very important to
evaluate the internal and external environment of the company. Below mentioned is the Porters
five forces analysis for Nestle in which we will discuss each one in detail.

Porter’s Five Forces Model

Porter’s Five Forces Model is a very important tool to analyse the industrial parameters and to
develop business strategy. Here five different factors would be discussed
to highlight the attractiveness and productivity of a market. Now we will discuss it for Nestle.

1. Threat of New Entrants

If the market is attractive the new entrants would always be a threat for the company but if the
market has been restricted to a limited resource and it has very few areas of improvement so it
becomes difficult for new entrants to get into the market and hence monopolies exist. Although
Nestle has accomplished a strong name in the market but as the food processing industry is very
huge and viable; so there are a lot of companies who already entered in this market and
somehow achieved a place in the market even though they could not cross Nestle in terms of
market share. Every year number of companies attempt to enter the market and strive for their
share of profit and productivity in the market but very few survive. Nestle has been the leader
of market for a century almost so now it has become a very big challenge for the new entrants
to not only work over their quality but they also have to cut the share of Nestle to survive which
is quite equal to impossible. Fundamentally, Nestlé is persistently on the board, and therefore
the threat of new entrants is temperate.

45
2. Threat of Substitute Goods
Substitutes have always been in line whenever we talk about products market, every kind of
product has a substitute present which leads it to the heights of competition when taken
seriously. As the product is very common and daily use product so the threat of substitutes is
very high here. Like if we take the example of bottled water so the substitute of this is lean
pockets that serve as a competition. So Nestle has to innovate its products tremendously to stay
in the market and to work efficiently for removing the threat of substitutes. We can take the
example of recent innovation which is health consciousness and wellness factor that has been
introduced in all products of Nestle. Such initiatives would make it easier for Nestle to go
beyond the substitutes.

3. Bargaining Power of Suppliers

Bargaining power of suppliers is very important factor to be considered in any industry as they
are the main strength of the company. Nestle is known for strong relations with the suppliers
around the globe due to its immense buying power and also because of the fact that in such
dairy and agricultural products quality is always important. Nestle as always focused over
strong and sturdy business relations to make the ongoing quality stronger. Additionally, Nestlé
also presents helpful guidance to its suppliers on how to work more proficiently to decrease
redundant expenses. And thus it cares of its suppliers which I return pays them off in the form
of quality products.

4. Bargaining Power of Customers

The bargaining power of customers has always been an important factor in terms of company’s
performance so this should be given reasonable value while accessing the company’s position.
Customers carry huge quantity of bargaining power concerning their utilization of different
Nestlé products. Although a lot of substitute products and competitors Nestle customers have
very influential choices but still the quality that has been maintained by Nestle has made it very
successful among the users. It is very important to understand the power of the customers and
also their needs so that they can be better satisfied. This is what Nestle always cares about and
that is reflected in Nestle health and wellness programs that are being used wile creation of new
products as society has in progress of becoming more health conscious.

46
5. Competitive Rivalry Within the Industry
Competition if healthy would bring huge success but if negative would destroy the whole
industry so it should be critically analyzed for better future of the company. Nestle has a very
strong position in the food processing industry but few major rivals do exist in the industry like
Kraft Foods and Groupe Danone. Above mentioned companies are fighting continuously to get
on to each other and avoid any sort of competition but I is still there. If we talk about marketing
and advertising these companies have spent hell of their expenditures for the purpose of
effective marketing and advertising and in competition they have always ut performed each
other. Competition is violent in the food processing industry, and this is a plus point for
consumers. Provided that these companies carry on in competing with each other, consumers
will persistently enjoy improving product qualities.

47
Emerging New Trends in the FMCG Sector in India

Cashless Economy’s Negative Impact on Non-Urban Consumption

So far, with agricultural income being tax-free and government subsidies now being better
targeted, rural India got a lot of disposable income to spend. And, with it being a largely cash
driven economy, conspicuous consumption by rural India Vide Royal Enfield, high-end
FMCG items, luxury cars, ostentatious marriages, was not really tracked.
With the demonetization now driving transactions with digital payment trail, it remains to be
seen whether the shift to premium products will get paused. As consumer’s spending ability is
constrained by the digital trail of cash. And yes, a Rs 500/kg biscuit or a Rs 1000/kg namkeen
is a premium product in my view.

E-commerce Penetration Aided by GST and Demonetization

Unlike the USA where Amazon’s growth was funneled by tax arbitrage[vii] by sellers not
collecting tax, the Indian scenario was more compliant in comparison, with online sellers
registering with tax invoices, issuing bills and making payments.

Offline vendors often would lower prices by doing cash sales, and this slowed the e-commerce
route where COD (Cash on Delivery) was an option but, not unaccounted sales. With GST now
simplifying logistics and making it difficult for tax evasion, compliant operations in the
organized sector such as e-commerce operators, stand to gain. And the growth of e-commerce
platforms shifts power back to the retailers/customers, as also eventually encourage the growth
of store brands like that of Bigbasket and Amazon.

Aggregator Driven Model in Food-

Food makes up ~42% of FMCG, and disruptions here often scale elsewhere. Be it sites like
BigBasket, niche sites like snackible.com or pilots of Amazon Grocery, many are trying to
disrupt the traditional FMCG mass focused supply chain with their niche products and
innovative delivery mechanism.

By deepening the relationship with the customers, these intermediaries hope to eventually
become the consumer-facing brand.

48
The Death of Traditional Advertising:
The success of TVF (the Viral Fever) and new screens/modes like Netflix, Hotstar, Jio
movies, endanger the blockbuster/events driven advertising which has been the mainstay of
FMCG advertising. Even Nestle relaunched its noodles via Snapdeal, a tribute to the reach of
E-commerce. While E-commerce advertising is more targeted, imagine serving an ad custom
made to you. It needs to be more impactful and compelling, else the customer would just skip
it after the mandatory 2-3 seconds, something which is not possible on TV. On the plus side,
however, digitization of cable TV has helped capture new audiences digitally with
competition of KYC so, this will offset the

Regulatory Framework:
As Nestle found out with the recall of Maggi noodles, the Indian regulators are late to react
but when they respond with the heavy arm of FSSAI Act, even the mighty MNCs are
helpless. In the pre-FSSAI era, Cadbury managed to do voluntary recalls but, in this case,
Nestle was compelled to destroy stock and even pay cement companies to do so. While
Maggie appears to have now regained its lost market share, the sector will not forget this
lesson in a hurry, and would hopefully remain more compliant.

Return to Indian/Ethnic Styles:

Be it Paperboat’s entry into Indian beverages, Chedda foods making banana/tapioca chips,
Balaji Wafers winning the extruded snacks market, those who have grabbed share from
incumbents have been ethnic-focused players as opposed to say a Mainland China, Kellogs or
Dominos who have seen slower volume growth. So one can expect the prospective new
entrants to have an Indian focus too.

Focus on Health+Taste:
Like some company said ‘Health Bhi taste Bhi’, the company who discovers the holy grail of
making tasty yet healthy food, would become a multi-bagger.

Cooperatives continue to Dominate:

Amul’s market share in the milk/processed foods sector has withstood repeated assaults from
local and national players. On a smaller scale, Lijjat papad is trying to make inroads into
papad.

49
Farm to Fork SMEs Prosper after APMC Curtailment:
Presently, middlemen mint money from farmers and consumers in the APMCs, while adding
negligible value. The APMC reforms permitting direct sale by farmers to customers would
allow farmer’s income to rise without stoking inflation. This would also reduce raw material
costs of those companies who procure presently from APMCs.

Food Parks Become the New SEZs/IT Parks:

The IT parks captivated policymakers imagination from 2001-2010, SEZs from 2010-15, and
now Food parks from 2015-2020. This is further aided by affordable solar power, which is an
income source for the farmer and allows for otherwise expensive operations like drying and
cold storage. With the new Food parks policy allowing smaller entrepreneurs to benefit from
the resources open to their bigger brethren, we can expect a flurry of smaller players in the
years to come

Who will benefit from the FMCG growth in the years to come? Will it be a Patanjali, or will
the existing Indian players/MNCs continue to dominate and fight for market share. Only time
will tell. But one thing is for sure, the market would be unrecognizable from what it is today
given the extent of automation, consumer preferences change and regulatory environment
being in flux.

50
Policies and Regulatory Framework by Government

Union Budget 2018-19

 The standard deduction of Rs 40,000 (US$ 618) for transport allowance and
reimbursement of miscellaneous medical expenses, will increase the disposable income
in the hands of the common people.
 The customs duty on import of products such as shaving and after-shave preparations,
fruit juices and vegetable juices, edible oils of vegetable origin are expected to boost the
domestic sector.

Excise duty
 Excise duty on instant tea, quick brewing black tea, and ice tea would be decreased to
reduce the retail price by 30 per cent
 Excise duty on other beverages and lemonade would be decreased to reduce retail sale
price by 35 per cent
 Excise duty on various tobacco products other than beedi would be increased, resulting
in retail price of tobacco products going up by 10-15 per cent

FDI in organised retail

 The government approved 51 per cent FDI in multi-brand retail in 2006, which will
boost the nascent organised retail market in the country
 It also allowed 100 per cent FDI in the cash and carry segment and in single-brand retail

SETU Scheme
 Government has initiated Self Employment and Talent Utilisation (SETU) scheme to
boost young entrepreneurs. Government has invested US$ 163.73 million for this
scheme

Food Security Bill (FSB)

 FSB would reduce prices of food grains for Below Poverty Line (BPL) households,
allowing them to spend resources on other goods and services, including FMCG
products

51
  This is expected to trigger higher consumption spends, particularly in rural India, which
is an important market for most FMCG companies

Telecom Regulatory Authority of India (TRAI) advertising regulations

 FMCG companies, which are top advertisers on television (above 50 per cent share),
are likely to face the twin risks of reduced inventory to advertise, which could be cut by
25–30 per cent, and increased prices as broadcasters hike prices

Relaxation of license rules

 Industrial license is not required for almost all food and agro-processing industries,
barring certain items such as beer, potable alcohol and wines, cane sugar and
hydrogenated animal fats and oils as well as items reserved for exclusive manufacture
in the small-scale sector

Goods and Service Tax (GST)

 The rate of GST on services lies between 0-18 per cent and on goods lies between 0-28
per cent
 Major consumer product manufacturing companies like PepsiCo, Dabur, Hindustan
Unilever etc. are aligning their supply chains, IT infrastructure and warehousing
systems ahead of unified GST regime, so as to facilitate seamless interstate movement
of goods.
 Prices of commodities in the FMCG sector, like soaps, shampoo, detergents, biscuits,
savory snacks etc decreased after the implementation of GST, leading to a 3-8 per cent
decrease in prices of goods at modern retail stores.
 The GST is expected to transform logistics in the FMCG sector into a modern and
efficient model as all major corporations are remodeling their operations into larger
logistics and warehousing.
 Warehousing cost for FMCG companies is estimated to fall by 25-30 per cent backed
by the implementation of the GST. The number of warehouses will decrease from 45-
50 to 25-30 and the size of warehouses will become larger.

52
Newspaper articles

1. New Goods and Service Tax (GST) would simplify tax structure.

Supply Chain Structure

Introduction of GST as a unified tax regime will lead to a re-evaluation of procurement and
distribution arrangements. Removal of excise duty on products would result in cash flow
improvements. The rate of GST on services is likely to be 16 per cent and on goods to be 20
per cent

Pricing and Profitability

Elimination of tax cascading is expected to lower input costs and improve profitability.
Application of tax at all points of supply chain is likely to require adjustments to profit margins,
especially for distributors and retailers.

Cash Flow
Tax refunds on goods purchased for resale implies a significant reduction in the inventory cost
of distribution. Distributors are also expected to experience cash flow from collection of GST
in their sales, before remitting it to the government at the end of the tax-filing period.

System Changes & Transition Management

Changes need to be made to accounting and IT systems in order to record transactions in line
with GST requirements and appropriate measures need to be taken to ensure smooth transition
to the GST. It is estimated that India will gain US$ 15 billion a year by implementing the Goods
and Services Tax

2. FMCG industry likely to grow by over 15% in 2-3 years

The fast moving consumer goods industry, that witnessed a slowdown for the past three years,
has a potential to grow by more than 15 per cent over the next 2-3 years if players in the sector
focus on improving brand penetration, a recent study revealed.
"India is at the cusp of the FMCG S-curve and there is significant room to grow over the next
5-10 years. A nominal GDP growth rate of roughly 12 per cent over the next three years could

53
signal an FMCG growth by over 15 per cent, depending on player action," the CII-Bain &
Company said.

The industry's growth rate compared to GDP has fallen to 0.8 from a historical ratio of 1.2, it
said. "This slowdown is perplexing; it cannot be fully explained either by changes in
consumer spending power--which have only marginally decelerated in growth or any
significant shifts to non-FMCG categories, including the rise of e-tailing,"

During the slowdown, FMCG companies scaled back growth-oriented investments and
shifted focus to sustaining profits--all at the cost of the top line. The report noted that the
industry has seen the growth rate accelerating in 2016 over the previous two years, with 18 of
the 22 categories recording an uptick, driven by rural markets.

Last year, the FMCG industry grew at 9 per cent till October and rural growth was 1.7 times
the urban. Across these 22 categories, volume growth was driven by underlying penetration
gains and even highly penetrated categories such as toothpaste and hair oil, both with over 95
per cent penetration, recorded material penetration gains, it added.

"Food emerged as the fastest growing segment at 10 per cent, with larger towns and more
affluent consumers driving this growth. On the other hand, home care grew at 9 per cent,
which was driven by less affluent consumers residing in small towns and rural areas," it said.

54
Case Studies

DABUR – RIDING ON STRONG BRAND EQUITY IN INDIA

 Among top four FMCG companies in India

 14 brands with turnover of US$ 16.6 million with 3 brands over US$ 165.9 million
 Wide distribution network covering 2.8 million retailers across the country
 17 world-class manufacturing plants catering to needs of diverse markets
 Dabur’s Vision Plan for 2011-15, successfully got completed with the sales of US$
1,295.6 million recording a growth of 9.7 per cent
 In 2017, Dabur registered sales of FMCG products worth US$ 1,204.93 million growing
at a CAGR of 4.35 per cent over FY11-17.
 The company plans to acquire the personal care, hair care and creams businesses of CTL
group based in South Africa, at an estimated cost of US$ 1.5 million
 As of May 2017, NewU, a beauty retail venture of Dabur, launched Sri Lankan beauty
products brand - Spice Island, in India to strengthen their portfolio.

55
ITC – LEADING FOOD AND BEVERAGES COMPANY

 ITC is one of the foremost company in private sector in terms of sustained value
creation, operating profits and cash profits
 It is the only India-based FMCG company to feature in Forbes 2000 List in 2016.
 ITC is a market leader in its traditional businesses of Cigarettes, Hotels, Paperboards,
Packaging and Agri-Exports
 The company is rapidly gaining market share even in its nascent businesses of Packaged
Foods and Confectionery, Branded Apparel, Personal Care and Stationery
 ITC’s total sales increased at a CAGR of 4.43 per cent between FY11 and FY17 to reach
net sales of US$ 6,115.48 million
 The company is planning to expand further in the FMCG sector due to the growth in
opportunities in the sector. The company has planned an investment package worth Rs
25,000 crore (US$ 3.88 billion), of which it will invest Rs 10,000 crore (US$ 1.55
billion) to expand its food processing segment.
 ITC proposed an investment of Rs 1,100 crore (US$ 169.91 million) in Uttar Pradesh at
the state’s investor summit 2018.

56
Recommendations

The emerging trends in new product launch (FMCG), has seen a wide range of innovations in
India. Companies can benefit by adopting certain strategies.

Capturing the Digital Consumer:

Growing internet connectivity, new business models and increasing digital media has
provided many companies an opportunity to create their product awareness. This can be done
by creating effective supply chain, engaging in online retail partnerships.

Nowadays, companies are spending around 8-10% of their marketing spend in digital
marketing. Creating a personalised E-commerce portal, associating with horizontal E-
commerce players or engaging with vertical E-commerce specialists are the three commonly
used approaches in E-commerce these days.

Understanding the Right Nerve of the Consumer:

In order to create a loyal consumer base for a particular product, it is imperative for the
FMCG companies to understand the nature and target of their proposed product. In order to
create an effective customer loyalty, the segmentation, target and positioning of a particular
product must be emulated. Factors such as geography, income segment, consumption
demand, etc., must be looked after.

Increased Focus on TVC for Aggressive Advertising:

Advertisement is the main source for FMCG companies to increase their product awareness.
FMCG sector was the most dominant sector with 28% share of the total Indian advertising
industry in 2015.

Indian Television Advertising Market, 2012- 2017 (USD Million)

Six out of top ten advertising companies in India are FMCG companies.
Television advertising holds the maximum market share of 40% in Indian advertising market
wherein FMCG contributes a significant 52% of the revenue share. This shows the
significance of Indian TV advertising market. Small as well as growing companies must focus
on advertising through TVC to create maximum awareness.

Analysing the most Efficient Sales Channel:

In order to maximise their volume sales and product penetration the companies need to
identify the most feasible sales channel route. Both national or multinational companies, give

57
importance to supply chain management system to enhance their business especially in rural
areas. Ineffective supply chain can lead to significant losses for the companies, many offers
and schemes launched by the companies are unable to cause a significant impact on the
market as most of these schemes are unable to reach the end consumer due to inefficiency in
supply chain. To prevent such losses, FMCG companies in India have to ensure that they
exercise greater control over their distribution channel and not just leave it to the market
forces.

Prevention of Counterfeiting:
In Indian FMCG sector, counterfeiting has been a major issue which has a potential to
significantly affect the market in a negative way. Since India is an attractive prospect due to
low-cost of manufacturing, it also becomes an attractive base for the production of counterfeit
goods both for domestic sale and export. Counterfeiting leads to brand dilution and losses to
companies.

One of the key reason for the growth of counterfeiting in India is the inability of current
supply chain systems to counter this activity. It is imperative of Indian FMCG companies to
collaborate with the retail industry to offer greater visibility, traceability. Measures such as,
regular spot checks, proper monitoring system, collaboration with local and national law
enforcement agencies can be taken to curb counterfeiting.

FDI and its Implications:

Implementation of FDI in various sectors such as food processing, retail, etc. has been largely
beneficial for the sector. Various multinational companies have now entered India’s retail and
FMCG sector thereby increasing the competitiveness of the sector. Companies in order to
remain profitable in this competitive environment need to focus on innovation and untapped
markets.

Focus on innovation & Volume Sales

Rising income levels, continuously growing demands has led to the development of new
FMCG products. This continuous demand for new innovative products has led to growth in
breakthrough innovation of FMCG products. To meet this demand, FMCG companies need to
focus on R&D and innovation as a means to grow the business. Strategies such as innovation
in packaging, rebranding of products, product innovation etc. are some of the innovation
strategies adopted by the companies to cater the demand market.
58
Conclusion

Indian FMCG market is expected to exhibit a positive growth trend in the coming years.
Positive economic environment, low inflation rates and development initiatives led by the new
government mainly are instrumental in the uptick of the market.

The FMCG industry fared well in India in the recent years with consumer food services, soft
drinks, household and personal care segments experiencing a tremendous growth with the
increasing disposable income and the growing economy. The alcoholic drinks, tobacco had
witnessed low growth given the stricter government policies and the increasing health
awareness among the consumers.

Ready to eat food segment such as instant noodles and pasta would be experiencing enormous
growth given the new FSSAI guidelines with clearly designed rules, along with the relaunch of
the most preferred brand of noodles in the country and with Patanjali starting its own ready to
eat food range. The personal care products are anticipated to witness huge advancements
especially among the haircare segment.

Local Players such as Patanjali, with their aggressive marketing and expansion strategies and
ever diversifying product portfolio would dominate the market in the forthcoming period.

Most of the consumer goods products are moving to Online platforms and most of the major
super markets have their own online ordering portals and mobile apps making it convenient for
the consumers to order online with just a click of a button during their busy schedules. Owing
to lack of awareness and security issues Cash on Delivery (CoD) remains the most preferred
method of payment among the Indian consumers.

An increasing demand from the rural and tire-2 population can be witnessed given the
increasing annual income and the awareness for the products and the increasing digitization
making them one of the major influencers of the FMCG sector. Given the fact that more than
66% of the population in India is rural it widens the scope for the FMCG segment digitally.

59
References

 https://www.businessnewsdaily.com/5446-porters-five-forces.html
 http://www.wikiwealth.com/five-forces:fmcg
 https://www.educba.com/industry-analysis/
 http://fmcg-marketing.blogspot.in/2007/11/porters-five-forces-model.html
 https://economictimes.indiatimes.com/industry/cons-products/fmcg/patanjali-
ranked-indias-most-trusted-fmcg-brand/articleshow/62203569.cms
 http://repository.kln.ac.lk/handle/123456789/17654
 https://www.researchgate.net/publication/314216580_An_Overview_of_Indian_F
MCG_Sector
 http://www.fmcgmanagement.ro/advantages.html
 http://www.studymode.com/subjects/disadvantages-oo-fmcg-page1.html
 https://www.quora.com/What-are-the-advantages-of-working-with-FMCG
 https://consumergoods.indiabizclub.com/info/advantage_india
 http://smallbusiness.chron.com/advantages-fast-moving-consumer-goods-
consumer-packaged-goods-23543.html’
 https://www.ibef.org/industry/indian-food-industry/showcase
 https://economictimes.indiatimes.com/industry/cons-products/fmcg/six-lessons-
that-patanjali-teaches-indias-fmcg-sector/formal-managements-can-over-
sophisticate/slideshow/51874504.cms
 https://www.livemint.com/Companies/WlljZrD1vekZ5U2XIDUMgJ/Patanjali-
turns-pace-setter-for-FMCG-companies-in-India.html
 http://www.motilaloswal.com/article.aspx/1256/Is-there-a-sweet-spot-for-FMCG-
stocks-in-India

60