History of FMCG in India

In India, companies like ITC, HLL, Colgate, Cadbury and

Nestle have been a dominant force in the FMCG sector well
supported by relatively less competition and high entry
barriers (import duty was high). These companies were,
therefore, able to charge a premium for their products. In this
context, the margins were also on the higher side. With the
gradual opening up of the economy over the last decade,
FMCG companies have been forced to fight for a market
share. In the process, margins have been compromised,
more so in the last six years (FMCG sector witnessed
decline in demand).

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Current Scenario

The growth potential for FMCG companies looks promising

over the longterm horizon, as the per-capita consumption of
almost all products in the country is amongst the lowest in
the world. As per the Consumer Survey by KSATechnopak,
of the total consumption expenditure, almost 40% and 8%
was accounted by groceries and personal care
products respectively. Rapid urbanization, increased literacy
and rising per capita income are the key growth drivers for
the sector. Around 45% of the population in India is below 20
years of age and the proportion of the young population is
expected to increase in the next five years. Aspiration levels
in this age group have been fuelled by greater media
exposure, unleashing a latent demand with more money and
a new mindset. In this backdrop, industry estimates suggest
that the industry could triple in value by 2015 (by some
estimates, the industry could double in size by
2010). Testing times for the FMCG sector are over and
driving rural penetration will be the key going forward. Due to
infrastructure constraints (this influences the cost-
effectiveness of the supply chain), companies were unable
to grow faster. Although companies like HLL and ITC have
dedicated initiatives targeted at the rural market, these are
still at a relatively nascent stage.
The bottlenecks of the conventional distribution system are
likely to be removed once organized retailing gains in scale.
Currently, organized retailing accounts for
just 3% of total retail sales and is likely to touch 10% over
the next 3-5 years. In our view, organized retailing results in
discounted prices, forced-buying by offering many choices
and also opens up new avenues for growth for the FMCG
sector. Given the aggressive expansion plans of players like
Pantaloon, Trent, Shopper’s Stop and Shoprite, FMCG
sector has a bright future.
India offers a large and growing market of 1 billion people of
which 300 million are middle class consumers. India offers a
vibrant market of youth and vigor with 54% of population
below the age of 25 years. These young people work harder,
earn more, spend more and demand more from the market,
making India a dynamic and aspirational society. Domestic
demand is expected to double over the ten-year period from
1998 to 2007. The number of households with "high income"
is expected to increase by 60% in the next four years to 44
million households.
India is rated as the fifth most attractive emerging retail
market. It has been ranked second in a Global Retail
Development Index of 30 developing countries drawn up by
A T Kearney. A.T. Kearney has estimated India's total retail
market at $202.6 billion, is expected to grow at a
compounded 30 per cent over the next five years. The share
of modern retail is likely to grow from its current 2 per cent to
15-20 percent over the next decade, analysts feel.
The Indian FMCG sector is the fourth largest sector in the
economy with a total market size in excess of US$ 13.1
billion. The FMCG market is set to treble from US$ 11.6
billion in 2003 to US$ 33.4 billion in 2015. Penetration level
as well as per capita consumption in most product
categories like jams, toothpaste, skin care, hair wash etc in
India is low indicating the untapped market potential.
Burgeoning Indian population, particularly the middle class
and the rural segments, presents an opportunity to makers
of branded products to convert consumers to branded
products.
India is one of the world’s largest producers for a number of
FMCG products but its FMCG exports are languishing at
around Rs 1,000 crore only.
There is significant potential for increasing exports but there
are certain factors inhibiting this. Small-scale sector
reservations limit ability to invest in technology and quality
up gradation to achieve economies of scale. Moreover, lower
volume of higher value added products reduce scope for
export to developing countries.
The FMCG sector has traditionally grown at a very fast rate
and has generally out performed the rest of the industry.
Over the last one year, however the rate of growth has
slowed down and the sector has recorded sales growth of
just five per cent in the last four quarters.
The outlook in the short term does not appear to be very
positive for the sector. Rural demand is on the decline and
the Centre for Monitoring Indian Economy (CMIE) has
already downscaled its projection for agriculture growth in
the current fiscal. Poor monsoon in some states, too, is
unlikely to help matters.
Moreover, the general slowdown in the economy is also
likely to have an adverse impact on disposable income and
purchasing power as a whole. The growth of imports
constitutes another problem area and while so far imports in
this sector have been confined to the premium segment,
FMCG companies estimate they have already cornered a
four to six per cent market share. The high burden of local
taxes is another reason attributed for the slowdown in the
industry. At the same time, the long term outlook for revenue
growth is positive. Give the large market and the
requirement for continuous repurchase of these products,
FMCG companies should continue to do well in the long run.
Moreover, most of the companies are concentrating on cost
reduction and supply chain management. This should yield
positive results for them.

Industry Category and Products

Household Care

Personal Wash:-

The market size of personal wash is estimated to be around

Rs. 8,300 Cr. The personal wash can be segregated into
three segments: Premium, Economy and Popular. The
penetration level of soaps is 92 per cent. It is available in 5
million retail stores, out of which, 75 per cent are in the rural
areas. HUL is the leader with market share of ~53 per cent;
Godrej occupies second position with market share of 10 per
cent. With increase in disposable incomes, growth in rural
demand is expected to increase because consumers are
moving up towards premium products. However, in the
recent past there has not been much change in the volume
of premium soaps in proportion to economy soaps, because
increase in prices has led some consumers to look for
cheaper substitutes.

Detergents:-

The size of the detergent market is estimated to be Rs.

12,000 Cr. Household care segment is characterized by high
degree of competition and high level of penetration. With
rapid urbanization, emergence of small pack size and
sachets, the demand for the household care products is
flourishing. The demand for detergents has been growing
but the regional and small unorganized players account for a
major share of the total volume of the detergent market. In
washing powder HUL is the leader with 38 per cent of
market share. Other major players are Nirma, Henkel
and Proctor & Gamble.
Personal Care
Skin Care:-

The total skin care market is estimated to be around Rs.

3,400 Cr. The skin care market is at a primary stage in India.
The penetration level of this segment in India is around 20
per cent. With changing life styles, increase in disposable
incomes, greater product choice and availability, people are
becoming aware about personal grooming. The major
players in this segment are Hindustan Unilever with a market
share of 54 per cent, followed by CavinKare with a market
share of 12 per cent and Godrej with a market share of 3 per
cent.

Hair Care:-

The hair care market in India is estimated at around Rs.

3,800 Cr. The hair care market can be segmented into hair
oils, shampoos, hair colorants & conditioners, and hair gels.
Marico is the leader in Hair Oil segment with market share of
33 per cent; Dabur occupies second position at 17 per cent.
Shampoos:-

The Indian shampoo market is estimated to be around Rs.

2,700 Cr. It has the penetration level of only 13 per cent in
India. Sachet makes up to 40 per cent of the total shampoo
sale. It has low penetration level even in metros. Again the
market is dominated by HUL with around ~47 per cent
market share; P&G occupies second position with market
share of around ~23 per cent. Antidandruff segment
constitutes around 15 per cent of the total shampoo market.
The market is further expected to increase due to increased
marketing by players and availability of shampoos in
affordable sachets.

Oral Care:-

The oral care market can be segmented into toothpaste - 60

per cent; toothpowder - 23 per cent; toothbrushes - 17 per
cent. The total toothpaste market is estimated to be around
Rs. 3,500 Cr. The penetration level of
toothpowder/toothpaste in urban areas is three times that of
rural areas. This segment is dominated by Colgate-
Palmolive with market share of ~49 per cent, while HUL
occupies second position with market share of ~30 per cent.
In toothpowders market, Colgate and Dabur are the major
players. The oral care market, es-pecially toothpastes,
remains under penetrated in India with penetration level ~50
per cent.

Food & Beverages

Food Segment :-

The foods category in FMCG is gaining popularity with a

swing of launches by HUL, ITC, Godrej, and others. This
category has 18 major brands aggregating Rs. 4,600 Cr.
Nestle and Amul slug it out in the powders segment. The
food category has also seen innovations like softies in ice
creams, ready to eat rice by HUL and pizzas by both
GCMMF and Godrej Pillsbury.
Tea :-

The major share of tea market is dominated by unorganized

players. More than 50 per cent of the market share is
capture by unorganized players. Leading branded tea
players are HUL and Tata Tea.

Coffee :-

The Indian beverage industry faces over supply in segments

like coffee and tea. However, more than 50 per cent of the
market share is in unpacked or loose form. The major
players in this segment are Nestlé, HUL and Tata Tea.
Growth Prospect

Large Market
India has a population of more than 1.150 Billions which is
just behind China. According to the estimates, by 2030 India
population will be around 1.450 Billion and will surpass
China to become the World largest in terms of population.
FMCG Industry which is directly related to the population is
expected to maintain a robust growth rate.

Spending Pattern
An increase is spending pattern has been witnessed in
Indian FMCG market. There is an upward trend in urban as
well as rural market and also an increase in spending in
organized retail sector. An increase in disposable income, of
household mainly because of in-crease in nuclear family
where both the husband and wife are earning, has leads to
growth rate in FMCG goods.
Changing Profile and Mind Set of
Consumer

People are becoming conscious about health and hygienic.

There is a change in the mind set of the Consumer and now
looking at “Money for Value” rather than “Value for Money”.
We have seen willingness in consumers to move to evolved
products/ brands, because of changing lifestyles, rising
disposable income etc. Consumers are switching from
economy to premium product even we have witnessed a
sharp increase in the sales of packaged water and water
purifier.
Findings according to a recent survey by A. C. Nielsen
shows about 71 per cent of Indian take notice of packaged
goods labels containing nutritional information compared to
two years ago which was only 59 per cent.

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Market Opportunities

Vast Rural Market

Rural India accounts for more than 700 Million consumers,

or 70 per cent of the Indian population and accounts for 50
per cent of the total FMCG market. The working rural
population is approximately 400 Millions. And an average
citizen in rural India has less then half of the purchasing
power as compare to his urban counterpart. Still there is an
untapped market and most of the FMCG Companies are
taking different steps to capture rural market share. The
market for FMCG products in rural India is estimated 52 per
cent and is projected to touch ~ 60 per cent within a year.
Hindustan Unilever Ltd is the largest player in the industry
and has the widest market coverage.

Export - “Leveraging the Cost

Advantage”
Cheap labor and quality product & services have helped
India to represent as a cost ad-vantage over other Countries.
Even the Government has offered zero import duty on
capital goods and raw material for 100% export oriented
units. Multi National Companies out-source its product
requirements from its Indian company to have a cost
advantage.
India is the largest producer of livestock, milk, sugarcane,
coconut, spices and cashew apart from being the second
largest producer of rice, wheat, fruits & vegetables. It adds a
cost advantage as well as easily available raw materials.

Sectoral Opportunities

Major Key Sectoral opportunities for Indian FMCG Sector

are mentioned
below:

Dairy Based Products

India is the largest milk producer in the world, yet only
around 15 per cent of the milk is processed. The organized
liquid milk business is in its infancy and also has large long-
term growth potential. Even investment opportunities exist in
value-added products like desserts, puddings etc.

Packaged Food
Only about 10-12 per cent of output is processed and
consumed in packaged form, thus highlighting the huge
potential for expansion of this industry.

Oral Care
The oral care industry, especially toothpastes, remains
under penetrated in India with penetration rates around 50
per cent. With rise in per capita incomes and awareness of
oral hygiene, the growth potential is huge. Lower price and
smaller packs are also likely to drive potential up trading.

Beverages

Indian tea market is dominated by unorganized players.

More than 50% of the market share is capture by
unorganized players highlighting high potential for organized
players.
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indian-economy#ixzz1jVC8U3c8

SWOT Analysis

Strengths:

• Low operational costs

• Presence of established distribution networks in both urban
and rural areas
• Presence of well-known brands in FMCG sector
Weaknesses:
• Lower scope of investing in technology and achieving
economies of scale, especially in small sectors
• Low exports levels
• "Me-too” products, which illegally mimic the labels of the
established brands. These products narrow the scope of
FMCG products in rural and semi-urban market.

Opportunities:
• Untapped rural market
• Rising income levels, i.e. increase in purchasing power of
consumers
• Large domestic market- a population of over one billion.
• Export potential
• High consumer goods spending

Threats:

• Removal of import restrictions resulting in replacing of

domestic brands
• Slowdown in rural demand
• Tax and regulatory structure