The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess

of US$ 13.1 billion. It has a strong MNC presence and is characterised by a wellestablished distribution network, intense competition between the organised and unorganised segments and low operational cost.

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. India needs around US$ 28 billion of investment in the food-processing industry An average Indian spends around 40 per cent of his income on grocery and 8 per cent on personal care products.

Critical operating rules in Indian FMCG sector

Heavy launch costs on new products on launch advertisements, free samples and product promotions. Majority of the product classes require very low investment in fixed assets Existence of contract manufacturing Marketing assumes a significant place in the brand building process Extensive distribution networks and logistics are key to achieving a high level of penetration in both the urban and rural markets Factors like low entry barriers in terms of low capital investment, fiscal incentives from government and low brand awareness in rural areas have led to the mushrooming of the unorganised sector Providing good price points is the key to success

Most Indian FMCG companies focus on urban markets for value and rural markets for volumes. The total market has expanded from US$ 17.6 billion in 1992-93 to US$ 22 billion in 1998-99 at current prices. Rural demand constituted around 52.5 per cent of the total demand in 1998-99. Hence, rural marketing has become a critical factor in boosting bottomlines. As a result, most companies' have offered low price products in convenient packaging.

Rural markets: small is beautiful By the early nineties FMCG marketers had figured out two things

 Rural markets are vital for survival since the urban markets were getting saturated Rural markets are extremely price-sensitive Thus, a number of companies followed the strategy of launching a wide range of package sizes and prices to suit the purchasing preferences of India's varied consumer segments. Hindustan Lever, a subsidiary of Unilever, coined the term nano-marketing in the early nineties, when it introduced its products in small sachets. Small sachets were introduced in almost all the FMCG segments from oil, shampoo, and detergents to beverages. Cola major, Coke, brought down the average price of its products from around twenty cents to ten cents, thereby bridging the gap between soft drinks and other local options like tea, butter milk or lemon juice. It also doubled the number of outlets in rural areas from 80,000 during 2001 to 160,000 the next year, thereby almost doubling its market penetration from 13 per cent to 25 per cent. This along with greater marketing, led to the rural market accounting for 80 per cent of new Coke drinkers and 30 per cent of its total volumes. The rural market for colas grew at 37 per cent in 2002, against a 24 per cent growth in urban areas. The per capita consumption in rural areas also doubled during 2000-02.

The BRICs report indicates that India's per capita disposable income, currently at US$ 556 per annum, will rise to US$ 1150 by 2015 another FMCG demand driver. Spurt in the industrial and services sector growth is also likely to boost the urban consumption demand.
Source: Euro monitor, BRICs Report (Goldman Sachs).

Categories
The size of the fabric wash market is estimated to be US$ 1 billion, household cleaners to be US$ 239 million and the production of synthetic detergents at 2.6 million tonnes. The demand for detergents has been growing at an annual growth rate of 10 to 11 per cent during the past five years. The size of the personal wash products is estimated at US$ 989 million; hair care products at US$ 831 million and oral care products at US$ 537 million. While the overall personal wash market is growing at one per cent, the premium and middle-end soaps are growing at a rate of 10 per cent. The leading players in this market are HLL, Nirma, Godrej Soaps and Reckitt & Colman. The oral care market, especially toothpastes, remains under penetrated in India (with penetration level below 45 per cent) due to lack of hygiene awareness among rural markets. The industry is very competitive both for organised and smaller regional players.

Personal care and hygiene: The oral care industry, especially toothpastes, remains under penetrated in India with penetration rates below 45 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 uptrading. In the personal care segment, according to forecasts made by the Centre for Industrial and Economic Research (CIER), detergent demand is likely to rise to 4,180, 000 metric tonnes by 2011-12 with an annual growth rate of 7 per cent between 2006 and 2012. The demand for toilet soap is expected to grow at an annual rate of 4 per cent between 2006-12 to 870,000 metric tonnes by 2011-12. Rapid urbanisation is expected to propel the demand for cosmetics to 100,000 metric tonnes by 2011-12, with an annual growth rate of 10 per cent. Beverages: The US$ 2 billion In

Source: Booz & Company Thursday, November 18, 2010 02:55 PM IST (09:25 AM GMT) Editors: General: Consumer interest; Business: Accounting & management consultancy services, Advertising, PR & marketing, Business services FMCG Industry Poised to Grow 12-17% Annually: A Report by Booz & Company Estimated to become Rs 4,000-6,000 Billion industry by the year 2020 New Delhi, Delhi, India, Thursday, November 18, 2010 -- (Business Wire India)

Indian FMCG industry is expected to grow at a base rate of at least 12% annually to become a Rs 4,000 Billion industry in 2020, according to a new report by Booz & Company. The Report titled FMCG Roadmap to 2020 - The Game Changers was released at the CII FMCG Forum 2010 in New Delhi today. The Report noted that the positive growth drivers mainly pertain to the robust GDP growth, opening up and increased income in the rural areas of the country, increased urbanization and evolving consumer lifestyle and buying behaviour.

The report further revealed that if some of the positive factors driven mainly by improved and supportive government policy to remove supply constraints play out favourably, the industry could even see a 17% growth over the next decade, leading to an overall industry size of Rs 6,200 Billion by 2020. The last decade has already seen the sector grow at 12% annually as result of which the sector has tripled in size.

Releasing the report, Abhishek Malhotra, Partner, Booz & Company said, While on an aggregate basis the industry will continue to show strong growth, we will see huge variations at multiple levels product category (e.g. processed foods growing faster than basic staples), companies and geographies

Many Indian customer segments are reaching the tipping point at which consumption becomes broad based and takes off following the traditional S shaped curve seen across many markets. The sector is poised for rapid growth over the next 10 years and by the year 2020, FMCG industry is expected to be larger, more responsible and more tuned to its customers," he further added.

The Report identifies 9 key mega trends across consumers, markets and environment that will have a significant impact in shaping how the industry will look like in year 2020.

1.Increasing Premiumization: Continued income growth coupled with increased willingness to spend will see consumers up-trading, creating demand for higher priced and increased functionality (real or perceived) products. The size of this segment will be large

2.Evolving Categories: Many consumers will move up the ladder and will shift from basic need to want based products. In addition evolving behaviour and emphasis on beauty, health & wellness will see increased requirements for customized and more relevant product offerings.

3.Value at BoP: Significant majority of the population in the country, especially in the rural markets, will become a consumption source by moving beyond the survival mode. This segment will require tailored product at highly affordable prices which will come with the potential of very large volumes

4.Increasing Globalisation: While many leading MNCs have operated in the country for years given the liberal policy environment, the next 10 years will see increased competition from Tier 2 and 3 global players. In addition, larger Indian companies will continue to seek opportunities internationally and also have an access to more global brands, products and operating practices

5.Decentralization: Despite the complexity of the Indian market (languages, cultures, distances) the market has mainly operated in a homogenous set-up. Increased scale and spending power will result in more fragmented and tailored business models (products, branding, operating structures)

6.Growing Modern Trade: Modern trade share will continue to increase and is estimated to account for nearly 30% by year 2020. This channel will complete existing traditional trade (~8 million stores which will continue to grow) and offer both a distribution channel through its cash & carry model as well as more avenues to interact with the consumer

7.Focus on Sustainability: Global climatic changes, increasing scarcity of many natural resources (e.g. water, oil) and consumer awareness (e.g. waste) are leading to increased concerns for the environment.

The pressure on companies to be environmentally responsible is gradually increasing due to involvement of various stakeholders from government (through policy) to consumers (through brand choice) and NGOs (through awareness).

8.Technology as a Game Changer: Increased and relevant functionality coupled with lower costs will enable technology deployment to drive significant benefits and allow companies to address the complex business environment. This will be seen both in terms of efficiencies in the back-end processes (e.g. supply chain, sales) as well as the front-end (e.g. consumer marketing)

9.Favourable Government Policy: Many government actions in discussions as well as planned will help in creating a more suitable operating environment. This will be done both on the demand side by increased income and education as well as on the supply side by removing bottlenecks and encouraging investments in infrastructure.

The confluence of many of these change drivers consumers, technology, government policy, and channel partners will have a multiplication impact and magnify both the amount as well as the pace of change. Winning in this new world will require enhancing current capabilities and building new ones to bridge gaps. In this new world FMCG companies will have 6 imperatives from a business strategy perspective:

1. Disaggregating the operating model 2. Winning the talent wars 3. Bringing sustainability into the strategic agenda 4. Re-inventing marketing for i-consumers 5. Re-engineering supply chains 6. Partnering with modern trade

The report urges the need for other stakeholders government, retailers, NGOs and investors to play a key role and evolve in a similar fashion to support the growth of the industry while continuing to deliver on their core business and social mandates.

About Booz & Company

Booz & Company is the oldest management consulting firm still in business, the first to use the term management consultant, and the only firm to be a top-tier provider of consulting services in both the public and private sectors around the world. Their founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914.

In 2008, Booz separated its operations from its U.S. Government consulting business, which retains the name Booz Allen Hamilton. Booz continues its work with businesses, governments, and organizations around the world, now under the name Booz & Company. In 2009, the firm combined with U.S.-based management consultancy Katzenbach Partners, a leader in the domain of organizational performance.

Booz & Co has been involved in some of the most celebrated business episodes of its day. The dawn of the contract system for Hollywood movies, the merger of the National and American football leagues, the rescue of the Chrysler corporation from bankruptcy, and the creation of Deutsche Telekom from government agencies that had grown up on both sides of the Iron Curtain all involved Booz assignments. Currently, Booz operates across 61 offices with more than 3300 people. In India, Booz has offices in Mumbai and Delhi.

Please visit www.booz.com to learn more about Booz & Company.

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madhavi@2020india.com