“STUDY OF FMCG INDUSTRY IN INDIA”

AN INDUSTRY IMMERSION PROJECT

SUBMITTED BY
SANIYA NAIK
ROLL NO.88
BATCH: 2017-2019 (MARKETING)

IN PARTIAL FULLFILLMENT OF THE REQUIRMENTS FOR

THE
POST GRADUATE DIPLOMA IN MANAGEMENT
 DECLARATION

I hereby declare that the Industrial Immersionproject report entitled “A

Study on FMCG Industry in India.’’ submitted in partial fulfilment of the
requirement for the Post Graduate Diploma In Management from
KOHINOOR BUSINESS SCHOOL, KURLA, MUMBAI and not submitted
for the award of any degree, diploma, fellowship or any similar titles or
prizes.

Date: //2018 Name: SANIYA NAIK

Place: Mumbai Roll No: 88

Specialisation: Marketing
 CERTIFICATE

This is to certify that the project entitled “A Study on FMCG Industry

in India.” is successfully completed by “SANIYA NAIK” in partial
fulfilment of the Post Graduate Diploma In Management, AICTE
Approved, through KOHINOOR BUSINESS SCHOOL,
Kurla,Mumbai-400070.

Date: _________________

Place: Mumbai Prof. Sandeep Sawant

 ACKNOWLEDGEMENT

I would like to take this opportunity to express my sincere gratitude to

those who encouraged me to complete this project successfully. First
and foremost, I would like to express my sincere thanks to Prof.
Sandeep Sawant, PGDM head of Kohinoor Business School, Kurla for
giving me this opportunity.

I am especially indebted to my college faculty guide “Prof. Sandeep

Sawant” for providing me continuous support and help in my
Endeavour. I would also be thankful to all the faculty members who
imparted their knowledgeable insights in the class which served to make
my basics strong with clear conceptual knowledge.
Last but not the least I would like to thank each and every one who
helped me to compile my project during the entire period.

Introduction
Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian economy with
Household and Personal Care accounting for 50 per cent of FMCG sales in India. Growing
awareness, easier access and changing lifestyles have been the key growth drivers for the sector.
The urban segment (accounts for a revenue share of around 40 per cent) 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. However, in the last few years, the FMCG market has
grown at a faster pace in rural India compared with urban India. Semi-urban and rural segments
are growing at a rapid pace and FMCG products account for 50 per cent of total rural spending.

Market Size
The Retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 672 billion in
2016, with modern trade expected to grow at 20 per cent - 25 per cent per annum, which is likely
to boost revenues of FMCG companies. In 2016-17, revenue for FMCG sector have reached US$
49 billion and is expected to grow at 9-9.5 per cent in FY18 supported by expectations of the
total consumption expenditure reaching nearly US$ 3,600 billion by 2020 from US$ 1,469
billion in 2015. 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.

What are FMCG goods?

FMCG goods are popularly known as consumer packaged goods. Items in this category include
all consumables (other than groceries/pulses) people buy at regular intervals. The most common
in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,
packaged foodstuff, and household accessories and extends to certain electronic goods. These
items are meant for daily of frequent consumption and have a high return.

ADVANTAGE INDIA

Growing Demand
 Rising incomes and growing youth population have been key growth drivers of the
sector. Brand consciousness has also aided demand
 India’s consumer spending is expected to increase to US$ 3.6 trillion by 2020 and India’s
contribution to global consumption is expected to more than double to 5.8 per cent by
2020.*
 Tier II/III cities are witnessing faster growth in modern trade
 Higher Investments
 Many players are expanding into new geographies and categories
 Modern retail share is expected to triple its growth from US$60 billion in 2015 to
US$180 billion in 2020
  With an investment of US$254.50 million, Wipro is diversifying and expanding its
product range in energy drinks, detergents and fabric conditioners.
 Patanjali will spend US$743.72 million in various food parks in Maharashtra, M.P.
Assam, Andhra Pradesh and Uttar Pradesh.

Attractive Opportunities
 Low penetration levels in rural market offers room for growth
 Disposable income in rural India has increased due to the direct cash transfer scheme
 Exports is another growing segment
 E-commerce companies like Amazon are strengthening their business in FMCG sector,
by positioning their platform pantry as front line offering to drive daily products sales.

Policy Support
 Investment approval of up to 100 per cent foreign equity in single brand retail and 51 per
cent in multi-brand retail
 Initiatives like Food Security Bill and direct cash transfer subsidies reach about 40 per
cent of households in India
 The minimum capitalisation for foreign FMCG companies to invest in India is US$100
million

MARKET OVERVIEW AND TRENDS

FMCG is the 4th largest sector in the Indian economy

Household and Personal Care is the leading segment, accounting for 50 per cent of the overall
market. Hair care (23 per cent) and Food and Beverages (19 per cent) comes next in terms of
market share

Growing awareness, easier access and changing lifestyles have been the key growth drivers for
the sector

The number of online users in India is likely to cross 850 million by 2025.

The fast-moving consumer goods (FMCG) sector is an important contributor to India’s GDP and
it is the fourth largest sector of the Indian economy. Items in this category are meant for frequent
consumption and they usually yield a high return.
The most common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products,
shoe polish, packaged foodstuff, and household accessories and extends to certain electronic
goods. The Indian FMCG sector, which is the fourth biggest sector in the Indian economy, has a
market size of `2 trillion with rural India contributing to one third of the sector’s revenues.

The Indian FMCG sector is highly fragmented, volume driven and characterized by low margins.
The sector has a strong MNC presence, well established distribution network and high
competition between organized and unorganized players. FMCG products are branded while
players incur heavy advertising, marketing, packaging and distribution costs. The pricing of the
final product also depends on the costs of raw material used. The growth of the sector has been
driven by both the rural and urban segments. India is becoming one of the most attractive
markets for foreign FMCG players due to easy availability of imported raw materials and
cheaper labour costs.

Retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 672 billion in
2016, with modern trade expected to grow at 20 per cent - 25 per cent per annum, which is likely
to boost revenues of FMCG companies

People are gracefully embracing Ayurveda products, which has resulted in growth of FMCG
major, Patanjali Ayurveda, with a m-cap of US$ 14.94 billion. The company aims to expand
globally in the next 5 to 10 years

Fast-moving consumer goods (FMCG) are products that are sold quickly and at relatively low
cost. Examples include non-durable goods and soft drinks, toiletries, over-the-counter drugs,
processed foods and other consumables.

In 2016, urban area was the largest contributor to the overall revenue generated by the FMCG
sector in India with about 60% share while the rest came from semi-urban and rural areas.

Historically, growth in private final consumption expenditure (PFCE) relates well with growth
on non-durable goods with a ratio of 0.8 times on an average. Therefore, going forward, with the
nominal GDP expected to be at 11.5%, CARE expects the FMCG industry to grow by about 9-
9.5% in FY18.

Also, with Indian retail market being estimated to reach USD 1.15 trillion by 2020 from USD
672 billion in 2016 by CARE and modern trade projected to grow at about 20% per annum, it is
expected to give an impetus to revenues of FMCG companies going forward.

Top 10 FMCG Companies in India:

1. ITC
John Players and Will lifestyle is the brand of ITC in apparel. Personal care
product portfolio comprises of perfumes, skincare and hair care categories. It has
top brands such as Vivel, Engage, Fiama Di Wills etc. ITC is the large cap stocks
in the Indian stock market. It is the only FMCG stock in large-cap. The total
revenue of the ITC is 37000crore approx. The current market capital of ITC is
331,562crores. ITC net income is reaching to 10000crores.  One can buy ITC
products from online portals such as the big basket, Amazon, Flipkart etc.
2. Hindustan Unilever Ltd (HUL)

The company was renamed in June 2007 to “Hindustan Unilever Limited”. It is

one of the biggest players in FMCG sector in India with the presence in over 20
consumer categories. One of the top selling flour brands, Annapurna atta, is the
major product to add revenue to the company through food segment. It also has
Bru coffee, Brooke bond, Lipton tea, Knorr soups which expand the portfolio. In
homecare segment, it has active wheel detergent, comfort, surf excel, Rin etc.  The
total revenue of the HUL is 32000crore approx. The current market capital of HUL
is 331,562crores. HUL net income is reaching to 4100crores.

3. Britannia

The name of company is Britannia Industries Limited.  The company is the top
leader in cookies segment. It markets its biscuits under brand name Britannia and
Tiger across India. Britannia is a trusted brand with 30% market share in India’s
biscuit category with brands such as Good Day, Marie Gold, Tiger, Milk Bikis,
Nutri Choice, 50-50 etc. The revenue of Britannia is reaching to 8000Crores
Approx. The net income of Britannia is 750Crore approx.
4. Nestle India

The wide range of products offered by Nestle India to its consumers in various
categories such as milk products, beverages, infant foods, chocolates &
confectionery, prepared dishes and cooking aids etc. Nestle has a wide range of
brands such as Nescafe, Maggi, Milkybar, Kitkat, milkmaid, Nestea, Natural Dahi
etc. The Company has eight manufacturing units across India. The revenue of
Nestle is reaching to 8000Crores Approx. The net income of Nestle is 450Crore
approx.
5. Dabur

The Dabur has well diverse product in its portfolio in wide range of categories
such as Health supplements, Oral care, Home care, Oils & shampoos, skin care,
digestives etc. In health supplements, it has very popular products Chyavanprash
and dabur honey. The revenue of Dabur is reaching to 6000Crores Approx. The net
income of Dabur is 1000Crore approx.
6. Marico

It is an Indian FMCG company providing consumer products and services in the

Health and beauty segment, headquartered at Mumbai. There are eight
manufacturing units in India, situated in different cities such as Pondicherry,
Perundurai, Kanjikode, Jalgaon, Dehradun and Paonta Sahib. The revenue of
Marico is reaching to 5000Crores Approx. The net income of Marico is 700Crore
approx.

7. Patanjali Ayurved

Patanjali has the wide range of products in food and personal care category.  The
Patanjali has diversified the business to enter into the variety of segments such as
food products, dental care, cosmetics, hair care etc. The company introduced books
in Hindi, English and other main Indian regional languages dealing with culture,
Yoga, Ayurveda, and patriotism. With low production costs, the company could
make 16% operating profit in 2015. The turnover of the company grew by more
than 150% in FY16 compared to FY14. The company is aiming to invest INR
1150Crores in building 6 processing units the in current fiscal year.
8. Godrej Consumer

GCPL ranked no.1 in hair-colorant, liquid detergents and household insecticides

categories. GCPL also recognized as marvelous place to Work. Godrej FMCG
Company has ranked number one in Asia to work, the top rank for a company
headquartered in Mumbai. The revenue of GCPL is reaching to 4900Crores
Approx. The net income of GCPL is 750Crore approx. One can buy GCPL
products from online portals such as the big basket, Amazon, Flipkart etc.
9. GlaxoSmithKline

Horlicks is one of the most popular health drinks in India and it has captured more
than the half of Indian health drink market. Healthcare products of the company
include Crocin, Eno, and Iodex etc, which are the most recognized brands in the
world.  The revenue of Glaxo is reaching to 4500Crores Approx. The net income
of Glaxo is 700Crore approx. One can buy Glaxo products from online portals
such as the big basket, Amazon, Flipkart etc.

10. Colgate-Palmolive

Colgate-Palmolive products are used by millions of people around the globe. It is

an American MNC operating in FMCG sector. The company was founded in 1806
in New York city by William Colgate. The Indian headquarter is in Mumbai.  The
company is running successfully since 1902.  The personal care product portfolio
includes soaps, liquid hand wash, toiletries, cosmetics, skincare and hair care
products. The current market capital of the company is 26,800.10Crore.  The
company is listed on Indian stock exchange. The net income of Indian is 600Crore
approx.     The products they are offering everyone has used in their day life.
Always use coupon monkey coupon codes to buy the products offered. One can get
the best price by using coupon monkey coupon codes. One can use such codes on
online retailer websites such as Flipkart, Amazon, Big Basket etc.

THREE MAIN SEGMENTS OF FMCG

A. Food Products: Food products under FMCG include dairy products, tea, coffee, sugar,
vegetable oils, bakery products, chocolates & confectionery, processed foods, milling products,
etc.

B. Healthcare: Consumer goods under FMCG include Cosmetics, toiletries, soaps and
detergents, etc.

C. Household: Household and Personal Care under FMCG include oral care and skin care
products, soaps & detergents, tooth powder, hair shampoo, toothpaste, hair oil, creams & lotions,
agarbattis, Fragrances & essentional oils, etc.

Food & Beverages

Food processing industry is one of the largest industries in India, ranking fifth in terms of
production, growth, consumption, and export. The total value of Indian food processing industry
is expected to touch USD 194 billion by 2015 from a value of USD 121 billion in 2012,
according to Indian Council of Agricultural Research (ICAR). The packaged food segment is
expected to grow 9% annually to become a `6 lakh crore industry by 2030, dominated by milk,
sweet and savoury snacks and processed poultry, among other products, according to the report
by CII-McKinsey. The ready-to-drink tea and coffee market in India is expected to touch `2,200
crore in next four years, according to estimatesarrived at the World Tea and Coffee Expo 2013.
Branding could drive the next growth wave in the country’s food processing sector.The total soft
drink (carbonated beverages and juices) market is estimated at ~USD 1 billion. The market is
highly seasonal innature with consumption varying from 25 million crates per month during peak
season to 15 million during offseason. The market ispredominantly urban with more than 25%
contribution from rural areas.

Health Care
Market in India is estimated to be worth ~USD 4 bn p.a. Personal hygiene products
(includingbath and shower products, deodorants etc.), hair care, skin care, colour cosmetics and
fragrances are the key segments of thepersonal care market. Each of these segments exhibits its
unique trends and growth patterns. For example, the largest segment of personal hygiene
products, largely dominated by bar soaps, has grown at ~5% p.a. over the last five years. In
comparison, the second largest segment, hair care products has seen a much higher growth of ~9-
10% p.a. during the same period.

The hair care market can be segmented into hair oils, shampoos, hair colorants & conditioners,
and hair gels. The coconut oil market accounts for 72% share in the hair oil market. The skin
care market is at a primary stage in India. With the change in life styles, increase in disposable
incomes, greater product choice and availability, people are becoming more alert about personal
grooming.

The oral care market can be segmented into toothpaste – 60%; toothpowder – 23%; toothbrushes
– 17%.

Household care
The fabric wash market size is estimated to be ~USD 1 billion, household cleaners to be USD
239 million, with the production ofsynthetic detergents at 2.6 million tonnes. The demand for
detergents has been growing at an annual growth rate of 10 to 11% during the past five years. On
account of convenience of usage, increased purchasing power, aggressive advertising and
increased penetration of washing machines, the urban market prefers washing powder and
detergents to bars. The regional and small unorganized players account for a major share of the
total detergent market in volumes. Household Care category recorded robust volume and value
growth during the year through focused innovation in the portfolio to provide greater consumer
value. Vim bar continues to delight consumers by delivering superior performance and new
offerings like the Anti-Germ Bar and the Monthly Tub Pack. Vim liquid continues to develop the
liquid dish wash category driven by superior product quality and strong advertising. It has
effectively accomplished the dual job of growing the liquids market by reaching out to more
households, while increasing consumption in existing households. Domex continued to provide
clean and germ free toilets to the consu 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 growth in sales of major FMCG companies like Dabur, HUL, Marico, in the June-
September 2017 quarter, is signalling the revival of consumer demand in India.

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.

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
Ayurvedic and herbal products is expected to grow at a strong rate going forward.

Financial Performance

INCREASING SALES OF TOP FMCG COMPANIES

CARE has analysed the revenue and profit structure of the organised FMCG industry in India.

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.

ITC (FMCG) has generated highest revenue till FY17. 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.

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/refineryand finance) for FY17 is 4.7%, that is higher than the
FMCG companies margins. On the other hand, theexpansion for all companies was only about
20 basis points.
Porter’s Five Force Framework Analysis
1. Barriers to Entry and exit: The Indian FMCG Industry is characterized with modest
entry and exit barriers. Integrated business model and increasing capital requirement in the
industry restrict new entrants. Huge investments in setting up distribution networks and
promoting brands and competition from established companies.

2. Threat of substitutes: Being an essential commodity the demand for consumer products
is elastic. Multiple brands positioned with narrow product differentiation. Companies entering a
category /trying to gain market share compete on pricing which increases products substitution.
Hence, threat of substitute is high in the industry.

3. Buyer bargaining power: High brand loyalty for some products, thereby discouraging
customers’ product shift. But low switching cost and aggressive marketing strategies under
intense competition within the FMCG companies, induce Customers to switch between products,
thereby driving value for money deals for consumers.

4. Supplier bargaining power: Prices are generally governed by international commodity

markets, making most FMCG companies price takers. Due to the long term relationships with
suppliers etc., FMCG companies negotiate better rates during times of high input cost inflation

5. Industry Competition: Competitiveness among the Indian FMCG players is high. With
more MNCs entering the country, the industry is highly fragmented. Advertising spends continue
to grow and marketing budgets as well as strategies are becoming more aggressive. Private labels
offered by retailers at a discount to mainframe brands act as competition to undifferentiated and
weak brands.

Analysis Of FMCG Sector PEST analysis

Political
Tax Structure: Complicated tax structure, high in direct tax and changing tax policies are
challenges for this sec-tor.
Infrastructure Issues: Performance of FMCG sector is very much dependent on government
spending on Agri-cultural, Power, and Transportation Infrastructure.
Regulatory Constraints: Multiplicity permits and li-censes for various states, prevailing
outdated labor laws, cumbersome and lengthy export procedures are major constraints.
Policy framework: FDI into Retail sector (single-brand & multi-brand retail), Licenserules in
setting up of Industry, Changes in Statutory Minimum Price of commodities are-barriers for
growth of this sector.

Economical
GDP Growth: Growth of FMCG industry is consistent with the Indian economy. It has grown by
15 % over past 5 years. It shows good scope for this sector in near future. Inflation: Inflationary
pressures alter the purchasing power of consumer which Indian economy is facing in recent
years. But it has not affected much to Indian FMCG sector. Consumer Income: Over the past
few years, India has seen increased economic growth. The GDP per capita in-come of India
increased from 797.26 US dollars in 2006 to 1262.4 US dollars in 2014 . It resulted in increase
of consumer expenditure. Private Consumption: The Indian economy, unlike oth-er economies,
has a very high rate of private consump-tion (61%).

Social
Change in consumer Profile: Rapid urbanization, in-creased literacy, increase in nuclear families
and rising per capita income, have all caused rapid growth and change in demand patterns,
leading to an explosion of new op-portunities. Around 45 per cent of the population in In-dia is
below 20 years of age and the young population is set to rise further.

Change in Lifestyle : In past decade changes are tak-ing place in consumption pattern of Indian
consumer with more spending on discretionary ( 52%) than ne-cessities ( eg food, clothings). In
last decade the apparel, footwear and healthcare segments have registered high-est growth
whereas essentials such as cereals, edible oil, fruits and vegetables shown decline9.• Rural
focus: As market is getting saturated, companies are focusing on rural area for penetration by
providing consumers with small sized or single-use packs such as sachets.
Technology
Effective use of technology is seen only in leading com-panies like HUL, ITC etc. E- Commerce
will boost FMCG sales in future. More than 150 million consumers would be influenced by
digital by 2020 and they will spend more than $45 billion on FMCG categories

SWOT Analysis

Strengths
Low operational costs: One of the important strength of this sector is low operational cost.
Presence of established distribution networks in Both urban and rural areas. A well established
and wide distribution network of both MNC and Indian FMCG companies increased an access
for consumers. Presence of well-known FMCG brands: The Presence of strong brands in Indian
FMCG sector not only results in increased sales but also provides an opportunity in fu-ture.

Weakness
Low scope for investing in technologies and achieving economies of scale, especially in small
sectors. “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.

Opportunities
Untapped rural market, changing life style: An un-tapped, huge and fragmented rural market is
an oppor-tunity for FMCG players. The Penetration level for many FMCG product categories is
very low especially in rural area. Rising income levels, i.e. increase in purchasing power of
consumers: According Mckinesy Global In-stitute report, in next two decades income level of In-
dian consumer will almost triple and India will become world’s fifth – largest consumer market
by 202510.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 purchas-ing power of Indian consumer. Large
domestic market with more population of median age 25 years: India has large young popula-
tion, 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. Ac-cording to a Nielsen report, the spending on consumer
goods set to triple to $ 5 billion by 201511. Export potential to neighboring countries like
Bangla-desh, Pakistan, Srilanka.

Threats
 Entry of MNCs with liberalization: In the post liberaliza-tion era Indian market has become
highly competitive. Many multinational companies have entered in to the In-dian market. The
removal of import restrictions resulted in replace-ment of domestic brands. Rural demand is
cyclical in nature and also depends upon monsoon to large extent. Complicated, changing and
uneven tax structure is one of the major threats for FMCG sector. New packaging norms made
mandatory for all compa-nies to sell products in standard size packs.

GROWTH DRIVERS

Demand drivers
1. Demographic advantage

 The growing Indian population has also led to increase in the ‘earning population’ (age
group 15-60) of thecountry. The proportion of Indian populace in the age group of 15-64
years increased from 55.4% in 1991 to66.2% 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’.
 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.
FMCG products account for almost about 53. Rising income levels & growing per capita
expenditure

 Incomes have risen at a brisk pace in India and will continue rising given the country’s
strong economic growth prospects. According to IMF, nominal per capita income is
estimated to grow at a CAGR of 4.94 per cent during 2010-19F
 An important consequence of rising incomes is growing appetite for premium products,
primarily in the urban segment
 As the proportion of ‘working age population’ in total population increases, per capita
income and GDP are expected to surge
 Low penetration levels of branded products in categories like instant foods indicating a
scope for volume growth
 Investment in this sector attracts investors as the FMCG products have demand
throughout the year.
- In the last decade, Indian economy has progressed rapidly. Correspondingly,
India’s per capita GDP has goneup 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 inFY17 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 increasedthe 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 of12.3% between FY12 and FY16. Also, PFCE on non-durable
goods increased to Rs 32,555,820 million in FY16from 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 from27% 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.

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 forFMCG 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 FMCGproducts 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

MARKET OPPORTUNITIES & CHALLENEGES

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
  Poor Supply Chain Infrastructure:

Lack of storage and transport facilities coupled with rising costs of raw materials and energy has
been a major challenge for the Indian FMCG market. Food items tend to have a significantly
shorter shelf life and requires quick delivery systems, regular replenishment of products on the
shelf, and vast different distribution and storage requirements. In the F&B segment, shelf life can
vary from seven days to three months on average, while in the HPC space the shelf life can be up
to three years. Many small towns and villages in India lack adequate infrastructure, a major
bottleneck in setting up supply Market Challenges Indian FMCG Market 2020 25 Indian FMCG
Market 2020 chain networks. It is easier to bring home and personal care products to consumers
in rural areas of India, as the shelf life is comparatively longer compared to food & beverage
products such as milk, chocolate, and ice-cream, which have a shorter shelf life and need
investments in cold storage facilities.

 Multiple Micro-markets:

Multiple micro-markets across geographies have distinct needs, which triggers category
preferences that vary from state to state and from one district to another. This poses a continuous
challenge for players to balance out the market needs and the inefficiencies related to
customization.

 Fragmented Retail Landscape:

The estimated 8 million retail outlets in India selling F&B are direct indicators of this
fragmentation. Even the best in class companies are able to reach around 2 million outlets
directly and approx. 6 million outlets totally.

 Large Geographical Expanse:

Large states in India such as Madhya Pradesh presents a problem of large distances between two
adjacent markets. This has a crippling effect on viability of channel partners, which are serving
the isolated markets.

 Limited Cold Chain Infrastructure:

Growth of many categories have been severely constrained by the lack of cold chain
infrastructure in the Indian market landscape.

 Multiple Layers of Taxation:

Multiple and inconsistent taxes levied on FMCG products have made it difficult for the
companies to offer their products at a proper/consistent prices. Implementation of GST would
simplify taxation system in the country; thereby, reducing the burden of optimum product pricing
amongst the companies.

 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 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.

RURAL MARKETING BY F.M.C.G. SECTOR

With the urban market saturated, F.M.C.G. companies are now targeting the rural markets. In
spite of the income imbalance between urban and rural India, rural holds great potential since
70% of India's population lives there. Due to the recent government measures like waiver of
loans, national rural employment guarantee scheme and increasing minimum support price,
disposable income in rural India has been rapidly increasing. However, rural markets present
their own sets of problems. These include poor infrastructure, dispersed settlements, lack of
education and a virtually non-existent medium for communication. Furthermore, retailers cannot
be present in all the centers as many of them are so small that it makes them economically
unfeasible.

Supply Chain Analysis

The FMCG industry is characterised by complex distribution network and intense competition,
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.

INCREASING FMCG SHARE IN MODERN RETAIL

Growth of India’s FMCG purchased through modern trade is surpassing growth of FMCG
purchased in general trade

In 2015, market size of the organised FMCG sector was 9 per cent of the overall organised retail
market and is expected to reach 30 per cent by 2020. This represents the influence of modern
retail over the FMCG sector
Share of the modern retail in FMCG sales is estimated to be 12 per cent by 2016.

FMCG companies are partnering with major retail players to increase brand communication and
boost their share in modern retail

Modern retail is expected to reach US$ 180 billion in 2020 from US$ 60 billion in 2015.
Traditional retail is expected to grow at 10 per cent and modern retail growth rate is expected to
be 20 per cent in future. Overall retail market is expected to have 12 per cent growth rate per
annum

Road Ahead
Rural consumption has increased, led by a combination of increasing incomes and higher
aspiration levels; there is an increased demand for branded products in rural India. The rural
FMCG market in India is expected to grow at a CAGR of 14.6 per cent, and reach US$ 220
billion by 2025 from US$ 29.4 billion in 2016.

FMCG brands would need to focus on R&D and innovation as a means of growth. Companies
that continue to do well would be the ones that have a culture that promotes using customer
insights to create either the next generation of products or in some cases, new product categories.

One area that we see global and local FMCG brands investing more 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.

On the other hand, with the share of unorganised market in the FMCG sector falling, the
organised sector growth is expected to rise with increased level of brand consciousness, also
augmented by the growth in modern retail. Another major factor propelling the demand for food
services in India is the growing youth population, primarily in the country’s urban regions. India
has a large base of young consumers who form the majority of the workforce and, due to time
constraints, barely get time for cooking.

Online portals are expected to play a key role for companies trying to enter the hinterlands. The
Internet has contributed in a big way, facilitating a cheaper and more convenient means to
increase a company’s reach. By the year 2025, e-commerce will contribute around 10-15 per cent
sales of few categories in the FMCG sector.

GST and demonetisation are expected to drive demand, both in the rural and urban areas, and
economic growth in a structured manner in the long term and improve performance of companies
within the sector.
CONCLUSION
Today, Fast Moving consumers goods have become an integral part of human life. This sector is
recession proof and creat-ed 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, consist-ent economic
growth by utilizing its strengths . The competi-tion from unorganized sector can be overcomed
by increas-ing brand awareness and by reducing cost through sharing resources such as
distribution network. Favorable develop-ments happening in demand side, supply side and
systematic drivers shows that this sector has very bright future.

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.
References
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https://www.techsciresearch.com/admin/gall_content/2016/11/2016_11$thumbimg102_Nov_201
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https://www.ibef.org/download/FMCG_sectoral.pdf

http://info.shine.com/industry/fmcg/6.html

https://www.ibef.org/download/Retail-February-2018.pdf