CHAPTER 4
INDUSTRY STUDY OF FMCG
Industry Analysis of FMCG Products which have a quick turnover, and relatively low cost
known as Fast Moving Consumer Goods(FMCG). FMCG products are those that get replaced
within a year. Examples of FMCG generally include a wide range of frequently purchased
consumer products such as toiletries, soap, cosmetics, tooth cleaning products, shaving products
and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products,
and plastic goods. India’s FMCG sector is the fourth largest sector in the economy and creates
employment for more than three million people in downstream activities. Its principal
constituents are Household Care, Personal Care and Food & Beverages. The total FMCG market
is in excess of Rs. 85,000 Crores. It is currently growing at double digit growth rate and is
expected to maintain a high growth rate. FMCG Industry is characterized by a well established
distribution network, low penetration levels, low operating cost, lower per capita consumption
and intense competition between the organized and unorganized segments. 2010 Budget FMCG
Industry Expectations- The FMCG sector is one that saw a growth in the year 2009. The steady
rise in prices saw an industry growth by 12%. Additionally there was a excise reduction as
offered by the stimulus package as offered by the previous budget. In 2010 the FMCG industry is
slated for a growth of 15% compared with that of 2009.Expectations of the FMCG industry- The
primary expectation of the FMCG industry from the Budget of 2010 -11 is that of tax benefits
and better infrastructural benefits. Despite the economic turbulence along with factors like the
swine flu in 2009 there were signs of revival in the hospitality industrial sector towards the end
of the year. This industry is however expecting tax benefits along with better infrastructural
facilities like better roads and increased connectivity with airports and railway stations and road
42
ways. In 2009 the Sugar industry was badly hit with repercussions in its prices. A severe
shortage of supply saw a severe rise in the domestic price of sugar in India. In the 2010 Budget
of the FMCG Industry certain governmental decontrolling is expected. Production enhancements
through a recovery of sick units are also essential. Tax benefits will be an added advantage so
that a process of recovery and increased production can be pursued. Market share movements
indicate that companies such as Marico Ltd and Nestle India Ltd, with domination in their key
categories, have improved their market shares and outperformed peers in the FMCG sector. This
has been also aided by the lack of competition in the respective categories. Single product
leaders such as Colgate Palmolive India Ltd and Britannia Industries Ltd have also witnessed
strength in their respective categories, aided by innovations and strong distribution. Strong
players in the economy segment like Godrej Consumer Products Ltd in soaps and Dabur in
toothpastes have also posted market share improvement, with revived growth in semi-urban and
rural markets.
Industry Analysis of FMCG
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
•
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:
43
•
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
Industry Analysis of FMCG
Political Factor
1. GST Regime
2. Transportation and infrastructure development in rural areas helps in distribution network.
3. Restrictions in import policies.
4. Help for agricultural sector .
Economic factor
1. GDP rate increase along
2. Increase in disposable income at 10 % annually for next 8 yrs.
3. Indian FMCG Recorded 16% Sales Growth in Last Fiscal.
4. The FMCG sector is a 4th largest sector of Indian
Social Factor
1. Rural employment
2. Volume-driven growth in rural market.
3. Major young population can increase revenue.
44
4. The Indian culture, social & life styles are changing drastically.
Technological Factor
1. Technology has been simplified and available in the industry.
2. Foreign players helps in high technological development
Rivalry among Competing Firms:
In the FMCG Industry, rivalry among competitors is very fierce. There are scarce customers
because the industry is highly saturated and the competitors try to snatch their share of market.
Market Players use all sorts of tactics and activities from intensive advertisement campaigns to
promotional stuff and price wars etc. Hence the intensity of rivalry is very high.
Potential Entry of New Competitors:
FMCG Industry does not have any measures which can control the entry of new firms. The
resistance is very low and the structure of the industry is so complex that new firms can easily
enter and also offer tough competition due to cost effectiveness. Hence potential entry of new
firms is highly viable.
Potential Development of Substitute Products:
There are complex and never ending consumer needs and no firm can satisfy all sorts of needs
alone. There are plenty of substitute goods available in the market that can be re-placed if
consumers are not satisfied with one. The wide range of choices and needs give a sufficient room
for new product development that can replace existing goods. This leads to higher consumer’s
expectation.
45
Bargaining Power of Suppliers: The bargaining power of suppliers of raw materials and
intermediate goods is not very high. There is ample number of substitute suppliers available and
the raw materials are also readily available and most of the raw materials are homogeneous.
There is no monopoly situation in the supplier side because the suppliers are also competing
among themselves.
Bargaining Power of Consumers: Bargaining power of consumers is also very high. This is
because in FMCG industry the switching costs of most of the goods is very low and there is no
threat of buying one product over other. Customers are never reluctant to buy or try new things
off the shelf.
Research encompasses activities that increase the sum of human knowledge. Research and
Experimental Development comprises:
• Creative work undertaken on a systematic basis in order to increase the stock of knowledge,
including knowledge of humanity, culture and society, and the use of this stock of knowledge to
devise new applications.
• Any activity classified as research and experimental development is characterized by
originality; it should have investigation as a primary objective and should have the potential to
produce results that are sufficiently general for humanity's stock of knowledge of theoretical or
practical to be recognizably increased.
Most higher education research work would qualify as research and experimental development.
Research carries with it a professional and ethical responsibility to disseminate and apply the
results of research activity and to conduct research in a manner consistent with the Statement and
Guidelines on Research Practice. An essential characteristic is that it leads to publicly verifiable
46
outcomes which are open to peer appraisal. The complementary activity of scholarship refers to
possession of an extensive and profound knowledge of an academic discipline and the analysis
and interpretation of existing knowledge aimed at improving, through teaching or by other means
of communication, the depth of human understanding. Types of Research Activity
Research includes pure basic research, strategic basic research, applied research and
experimental development.
Pure basic research is experimental and theoretical work undertaken to acquire new knowledge
without looking for long-term benefits other than the advancement of knowledge. Strategic basic
research is experimental and theoretical work undertaken to acquire new knowledge directed into
specified broad areas in the expectation of useful discoveries. It provides the broad base of
knowledge necessary for the solution of recognized practical problems. Applied research is
original work undertaken primarily to acquire new knowledge with a specific application in
view. It is undertaken either to determine possible uses for the findings of basic research or to
determine new ways of achieving some specific and predetermined objectives. Experimental
development is systematic work, using existing knowledge gained from research or practical
experience, that is directed to producing new materials, products or devices, to installing new
processes, systems and services, or to improving substantially those already produced or
installed. The purpose of the research is to discover answers to questions through the application
of scientific procedures. The main aim of research is to find out the truth which is hidden and
which has not been discovered as yet. Aim: Analysis and Assessment of Fast Moving Consumer
Goods, which refer to things that we buy from local supermarkets on daily basis, the things that
have high turnover and are relatively cheaper.
47
DESIGN RESEARCH
Research design is the controlling plan for a marketing research study in which the methods and
procedures for collecting and analyzing the information to be collected is specified. Research
design can be thought of as the structure of research -- it is the "glue" that holds all of the
elements in a research project together. Types of Research Designs • Randomized experiment
• Non-experimental design
• Quasi-experimental design. We can classify designs into a simple threefold classification by
asking some key questions. First, does the design use random assignment to groups? [Don't
forget that random assignment is not the same thing as random selection of a sample from a
population!] If random assignment is used, we call the design a randomized experiment or true
experiment. If random assignment is not used, then we have to ask a second question: Does the
design use either multiple groups or multiple waves of measurement? If the answer is yes, we
would label it a quasi-experimental design. If no, we would call it a non-experimental design. A
randomized experiment generally is the strongest of the three designs when our interest is in
establishing a cause-effect relationship. A non-experiment is generally the weakest in this
respect.
COLLECTION OF DATA
Methods of primary data collection
Semi-structured interview / unstructured interview
Focus groups
Diaries / written accounts
Participant observation / non-participant observation
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Media sources
Through schedule
Warranty cards
Distributors or Store audits
Consumers panels
Use of mechanical device
Projective technique Methods of secondary data collection
Various publications of the central, state local governments
Various publication of foreign governments or international bodies and their subsidiary
organisations
Reports and publication of various associations
Reports prepared by research scholars
Public records and statistics, historical documents
Technical and trade journals
Newspapers
Magazines
Books
ANALYSE DATA
This will be much more substantial, and much more discursive, than the results section of a
typical experimental report. Our purpose here is twofold - we need to give an account of our data
to communicate a sense of ‘what it is like’ and to offer an interpretation of to make a case for
‘what it means’.
49
This should be based upon our codes and/or themes, but there is plenty of scope for we to be
imaginative in both the way that we choose to structure our analysis section, and in the way that
we choose to lay out our evidence. Many of our decisions will depend on our chosen approach.
By the time we get to the analysis of our data, most of the really difficult work has been done.
It's much more difficult to: define the research problem; develop and implement a sampling plan;
conceptualize, operationalize and test our measures; and develop a design structure. If we have
done this work well, the analysis of the data is usually a fairly straightforward affair. In most
social research the data analysis involves three major steps, done in roughly this order:
• Cleaning and organizing the data for analysis (Data Preparation)
• Describing the data (Descriptive Statistics)
• Testing Hypotheses and Models (Inferential Statistics) Data Preparation involves checking or
logging the data in; checking the data for accuracy; entering the data into the computer;
transforming the data; and developing and documenting a database structure that integrates the
various measures. Descriptive Statistics are used to describe the basic features of the data in a
study.
They provide simple summaries about the sample and the measures. Together with simple
graphics analysis, they form the basis of virtually every quantitative analysis of data. With
descriptive statistics we are simply describing what is, what the data shows. Inferential Statistics
investigate questions, models and hypotheses. In many cases, the conclusions from inferential
statistics extend beyond the immediate data alone. For instance, we use inferential statistics to try
to infer from the sample data what the population thinks. Or, we use inferential statistics to make
judgments of the probability that an observed difference between groups is a dependable one or
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one that might have happened by chance in this study. Thus, we use inferential statistics to make
inferences from our data to more general conditions; we use descriptive statistics simply to
describe what's going on in our data.
INTERPRET AND REPORT
The best advice is to consider our particular writing context carefully and to let it guide our
writing. If we’re writing in a workplace context, find out if our organization has document or
style guidelines and look at previous reports put out by the organization. Whenever we write, we
should keep our purpose and audience clearly in focus. Begin by considering
• What we want to accomplish with our report: what are our primary and secondary objectives?
• Who will be reading our report and for what purposes: What is their background?
• What questions might they have? What might they expect in terms of content and format?
INTRODUCTION OF FMCG MARKET INTRODUCTION
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 characterized by a well
established distribution network, intense competition between the organized and unorganized
segments and low operational cost. Availability of key raw materials, cheaper labor costs and
presence across the entire value chain gives India a competitive advantage. 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. Growth is also likely to come from
consumer 'upgrading' in the matured product categories.
51
With 200 million people expected to shift to processed and packaged food by 2010, India needs
around US$ 28 billion of investment in the food-processing industry. Automatic investment
approval (including foreign technology agreements within specified norms), up to 100 per cent
foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is
allowed for most of the food processing sector.
WHAT IS FMCG?
FMCG’s or fast moving consumer goods are the products which are frequently purchased by
consumers including toiletries, soaps, cosmetics, teeth cleaning products, shaving products,
detergents, other non-durables such as glassware, bulbs, batteries, paper products ,plastic goods
etc. It used to be called the grocery industry, now it’s just called FMCG. FMCG is an ugly
acronym for Fast Moving Consumer Goods , which translated into English means 'things we buy
on a regular basis at places like our local supermarket. Scope of the FMCG Sector The Indian
FMCG sector with a market size of US$13.1 billion is the fourth largest sector in the economy.
A well-established distribution network, intense competition between the organized and
unorganized segments characterize the sector. FMCG Sector is expected to grow by over 60% by
2010.
That will translate into an annual growth of 10% over a 5-year period. It has been estimated that
FMCG sector will rise from around Rs 56,500 crores in 2005 to Rs 92,100 crores in 2010. Hair
care, household care, male grooming, female hygiene, and the chocolates and confectionery
categories are estimated to be the fastest growing segments, says an HSBC report.
Though the sector witnessed a slower growth in 2002-2004, it has been able to make a fine
recovery since then. For example, Hindustan Levers Limited (HLL) has shown a healthy growth
52
in the last quarter. An estimated double-digit growth over the next few years shows that the good
times are likely to continue. Recent Developments in Fast Moving Consumer Goods (FMCG)
Sector FMCG sector is no doubt registering an up trend in growth. According to CNBC, FMCG
sector growth story will continue because of the positive budget. Nevertheless, there are some
barriers to the growth of the sector. Indirect taxes constitute no less than 35% of the total cost of
consumer products - the highest in Asia. Last year, Finance Minister proposed to introduce an
integrated Goods and Service Tax by April 2010.
This is an exceptionally good move because the growth of consumption, production, and
employment is directly proportionate to reduction in indirect taxes. Budget 2007-2008 for
FMCG Sector ? Reduction of duty on edible oil will have a positive impact on Marico. ? Full
exemption of excise duty on biscuits priced at 50 rupees or less per kg is positive for ITC,
Britannia, and Parle. ? Reduction of custom duty on food processing machinery and their parts
from 7.5% to 5%. ? Reduction of excise duty on food mixes from 16% or 8% to nil is positive
for ITC. ? Development of rural infrastructure is in focus, which is beneficial for FMCG
companies because it is a big market for FMCGs. Better infrastructure will improve the supply
chain. ? Exemption of free samples and displays from the purview of FBT will be beneficial for
FMCG companies because they spend huge amount of money on advertising and brand building.
HLL, Dabur, ITC, and Marico will be amongst the most benefited companies. 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 characterized by a well established distribution
network, intense competition between the organized and unorganized segments and low
operational cost. Availability of key raw materials, cheaper labour costs and presence across the
entire value chain gives India a competitive advantage.
53
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. Growth is
also likely to come from consumer 'upgrading' in the matured product categories. With 200
million people expected to shift to processed and packaged food by 2010, India needs around
US$ 28 billion of investment in the food-processing industry. WHY INDIAN MARKET Large
Domestic Market India is one of the largest emerging markets, with a population of over one
billion. India is one of the largest economies in the world in terms of purchasing power and has a
strong middle class base of 300 million. Around 70 per cent of the total households in India (188
million) resides in the rural areas. The total numbers of rural households are expected to rise
from 135 million in 2001-02 to 153 million in 2009-10. This presents the largest potential market
in the world. The annual size of the rural FMCG market was estimated at around US$ 10.5
billion in 2001-02. With growing incomes at both the rural and the urban level, the market
potential is expected to expand further. India - A Large Consumer Goods Spender An average
Indian spends around 40 per cent of his income on grocery and 8 per cent on personal care
products.
The large share of fast moving consumer goods (FMCG) in total individual spending along with
the large population base is another factor that makes India one of the largest FMCG markets.
CONSUMPTION PIE CHART :- Even on an international scale, total consumer expenditure on
food in India at US$ 120 billion is amongst the largest in the emerging markets, next only to
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China. Change in the Indian consumer profile Rapid urbanisation, increased literacy and rising
per capita income, have all caused rapid growth and change in demand patterns, leading to an
explosion of new opportunities. Around 45 per cent of the population in India is below 20 years
of age and the young population is set to rise further. Aspiration levels in this age group have
been fuelled by greater media exposure, unleashing a latent demand with more money and a new
mindset. Demand-supply gap Currently, only a small percentage of the raw materials in India are
processed into value added products even as the demand for processed and convenience food is
on the rise.
This demand supply gap indicates an untapped opportunity in areas such as packaged form,
convenience food and drinks, milk products etc. In the personal care segment, the low
penetration rate in both the rural and urban areas indicates a market potential.
INDIA COMPETITIVENESS AND COMPARISON WITH THE WORLD MARKETS
Materials Availability India has a diverse agro-climatic condition due to which there exists a
wide-ranging and large raw material base suitable for food processing industries. India is the
largest producer of livestock, milk, sugarcane, coconut, spices and cashew and is the second
largest producer of rice, wheat and fruits & vegetables. India also has an ample supply of caustic
soda and soda ash, the raw materials in the production of soaps and detergents – India produced
1.6 million tonnes of caustic soda in 2003-04. Tata Chemicals, one of the largest producers of
synthetic soda ash in the world is located in India. The availability of these raw materials gives
India the locational advantage. Apart from the advantage in terms of ample raw material
availability, existence of low-cost labour force also works in favour of India.
55
Labour cost in India is amongst the lowest in Asian countries. Easy raw material availability and
low labour costs have resulted in a lower cost of production. Many multi-nationals have set up
large low cost production bases in India to outsource for domestic as well as export markets.
Leveraging the cost advantage Global major, Unilever, sources a major portion of its product
requirements from its Indian subsidiary, HLL. In 2003-04, Unilever outsourced around US$ 218
million of home and personal care along with food products to leverage on the cost arbitrage
opportunities with the West. To take another case, Procter & Gamble (P&G) outsourced the
manufacture of Vicks Vaporub to contract manufacturers in Hyderabad, India. This enables P&G
to continue exporting Vicks Vaporub to Australia, Japan and other Asian countries, but at more
competitive rates, whilst maintaining its high quality and cost efficiency. Presence across value
chain Indian firms also have a presence across the entire value chain of the FMCG industry from
supply of raw material to final processed and packaged goods, both in the personal care products
and in the food processing sector. For instance, Indian firm Amul's product portfolio includes
supply of milk as well as the supply of processed dairy products like cheese and butter. This
makes the firms located in India more cost competitive.
Trends and Players
The Indian FMCG sector is the fourth largest sector in the economy and creates employment for
three million people in downstream activities. Within the FMCG sector, the Indian food
processing industry represented 6.3 per cent of GDP and accounted for 13 percent of the
country's exports in 2003-04. A distinct feature of the FMCG industry is the presence of most
global players through their subsidiaries (HLL, P&G, Nestle), which ensures new product
launches in the Indian market from the parent's portfolio.
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MAJOR SEGMENTS OF THE FMCG INDUSTRIES
•
HOUSEHOLD CARE
The detergents segment is growing at an annual growth rate of 10 to 11 per cent during the past
five years. The local and unorganized players account for a major share of the total volume of the
detergent market. The preference is given to detergents in urban area compared to bars.
Household care segment is featured by intense competition and high level of penetration. With
rapid urbanization, emergence of small pack size and sachets, the demand for the household care
products is booming. In washing powder segment, HUL is the leader with ~38 per cent of market
share. Other major players are Nirma, Henkel and Proctor & Gamble.
•
PERSONAL CARE
Personal care segment includes personal wash products, hair care products, oral care products,
cosmetics etc. The Indian skin care and cosmetics market is valued at $274 million and is
dominated by HUL, Colgate Palmolive, Gillette India and Godrej. The coconut oil market
accounts for 72 per cent share in the hair oil market. The hair care market can be segmented into
hair oils, shampoos, hair colorants & conditioners, and hair gels. In the branded coconut hair oil
market, Marico (with Parachute) and Dabur are the leading players. Sachet makes up to 40 per
cent of the total shampoo sale. 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.
Personal wash can be further segregated into three segments namely Premium, Economy and
Popular. Here also, HUL is the leader with market share of ~53 per cent; Godrej occupies second
57
position with market share of ~10 per cent. Swelling disposable incomes of the Indian
consumers, growth in rural demand and upgrading to the premium products are the key drivers
for future demand growth in major FMCG categories.
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 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. The oral care market can be segmented into
toothpaste - 60 per cent; toothpowder - 23 per cent; toothbrushes - 17 per cent. 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.
•
FOOD AND BEVERAGES
This segment comprises of the food processing industry, health beverage industry, bread and
biscuits, chocolates & confectionery, Mineral Water and ice creams. The three largest consumed
categories of packaged foods are packed tea, biscuits and soft drinks. Indian hot beverage market
is a tea dominant market. The major share of tea market is dominated by unorganized players.
Leading branded tea players are HUL and Tata Tea. Mjaor players in food segment are HUL,
ITC, Godrej, Nestle and Amul.
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2%
Lighting
10%
Household Care
15%
53%
Tobacco
20%
Personal Care
1.2 Major Segment of the FMCG
INDIAN CONSUMER SPENDING PATTERN
Graph: 1.3
Home Textiles
, 2%
Saving &
Investiments
, 4%
Personal Care
, 8%
Books and Music
Accessories
Clothing
, 7%
Consumer
Durables
, 7%
Vacation
, 4%
Eating Out
, 10%
Foot Entertinement
Music &
ware, 2% Theater,
, 2%5%
Outlook (Point of View)
59
Grocery
Entertinement
Grocery , 40%
Music & Theater
Foot ware
Eating Out
Vacation
Consumer Durables
Accessories, 1 Books and
%
Music, 8%
Clothing
India has 17% of the world's population and that half of these people are below the age of 25.
With a median age of 25 years, increasing numbers are joining the Indian workforce. India's
share in world consumer spending is set to enlarge from 1.9% in 2005 to 3.1% in 2020.
Income in the hands of younger consumers with a higher propensity to spend, is providing
optimism to the economy while opening up new categories in the FMCG space. India is under
changing phase as more women are joining India's workforce, FMCG players are finding
opportunities to introduce products in the convenience and health foods segments. While
spending on women's personal care products is also becoming far more acceptable.
Distribution of smaller pack sizes, innovations like single use sachets to reach out to the rural
and lower section of the economy is gaining demand. Innovative products to cater to regional or
local tastes and the needs of niche consumers is also benefiting in growth of the industry.
Key growth drivers to the Industry are as follows:
60
•
Robust growth in India’s GDP
•
Growing urbanization
•
Evolving consumer life style
•
Increased income in rural areas
•
Spending Pattern
•
Changing Profile and Mind Set of Consumer
•
Growth of modern retail
The FMCG sector has a great opportunity for growth in the country, with the growing
population, the rising disposable incomes, education, urbanization, the advent of modern retail,
and a consumption-driven society. There is a potential for all the FMCG companies as the per
capita consumption of almost all products in the country is very low compared to world
standards, thee exists there huge untapped opportunities.
MARKET OPPORTUNITIES FOR INVESTMENT:-
According to estimates Indian FMCG market is set to billion in 2015. The change in eating
habits and the population presents an convert consumers to branded based on China's current per
capita consumption, the treble from US$ 11.6 billion in 2003 to US$ 33.4 dominance of Indian
markets by unbranded products, increased affordability of the growing Indian opportunity to
makers of branded products, who can products.
A recent survey of (FMCG) sector conducted and Industry (FICCI) has shown various segments
.The survey terms of value have recorded industries in the Fast Moving Consumer Goods by the
Federation of Indian Chambers of Commerce positive growth trends and signs of recovery in
notes, some sectors showing negative growth in positive growth in volumes.
The survey attributes the
1) Several cost saving measures
2) Various tax benefits
61
3) Rising demand
4) Growing GDP
5) Good monsoon
6) Strong economic fundamentals
7) The expected policy packages to be announced by the new government for farmers for raising
rural income is bound to stimulate growth further.
GROWTH PROSPECTS
With the presence of 12.2% of the world population in the villages of India, the Indian rural
FMCG market is something no one can overlook. Increased focus on farm sector will boost rural
incomes, hence providing better growth prospects to the FMCG companies. Better infrastructure
facilities will improve their supply chain.
FMCG sector is also likely to benefit from growing demand in the market. Because of the low
per capita consumption for almost all the products in the country, FMCG companies have
immense possibilities for growth. And if the companies are able to change the mindset of the
consumers, i.e. if they are able to take the consumers to branded products and offer new
generation products, they would be able to generate higher growth in the near future.
It is expected that the rural income will rise in 2007, boosting purchasing power in the
countryside. However, the demand in urban areas would be the key growth driver over the long
term. Also, increase in the urban population, along with increase in income levels and the
availability of new categories, would help the urban areas maintain their position in terms of
consumption. At present, urban India accounts for 66% of total FMCG consumption, with rural
India accounting for the remaining 34%.
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However, rural India accounts for more than 40% consumption in major FMCG categories such
as personal care, fabric care, and hot beverages. In urban areas, home and personal care category,
including skin care, household care and feminine hygiene, will keep growing at relatively
attractive rates. Within the foods segment, it is estimated that processed foods, bakery, and dairy
are long-term growth categories in both rural and urban areas.
The survey confirms higher growth rates for some FMCGs belonging to personal care products,
fabric & personal wash products, oral care products and Hair care products. The sectors which
have recorded double digit growth in terms of value are shaving cream (20 per cent), deodorant
(40 per cent), branded coconut oil (10 per cent), anti dandruff shampoos (15 %), hair dyes (25
per cent), cleaners & repellents (20 per cent). Some sectors which have recorded negative growth
are personal health care (-3 %) Laundry soaps (-5 percent), dish wash (-3 %), toilet soap (-4.5%)
Tooth paste (-5 percent), toothpowder (-8percent).
The research report offers insights into the dynamics of growth in a competitive market
environment. The salient features of development the survey has identified include:
•The improvement has been much more pronounced in volume terms than in value terms for
most of the products.
Post liberalization period provided the consumers the opportunity to make choices amongst the
products of domestic companies and imported products.
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•One of the greatest achievements made by the FMCG industry has been the ‘sachet’ bugs which
have helped the companies to introduce products in smaller package sizes, at lower price points
and reach new users and to expand market share for value added products in urban India.
• Several cost saving measures, various tax benefits, rising demand, good monsoon
have helped the industry to achieve positive growth.
• Most of the multinational companies have started sourcing their products from India. HLL has
become the production center in respect of personal consumer products like oral care, skin care
products, soap, detergents globally for Unilever.
There has been a trend from shift to own manufacturing from third party manufacturing or
procuring goods from third party small-scale manufacturers.
Though the companies are going global, they are focusing on the overseas markets like
Bangladesh, Pakistan, Nepal, Middle East and CiS countries because of the lifestyles,
consumption habits similar to India. Godrej Consumer, Marico, Dabur, Vicco laboratories are
among the companies.
The offshoots and mushrooming of regional companies which are posing a threat to bigger
FMCG companies like HLL. The rise of Jyothi Laboratories, throwing challenge to Reckitt
Benckiser is a case in point.
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• FMCG market remains highly fragmented with almost half of the market representing
unbranded, unpackaged home made products. This presents a tremendous opportunity for makers
of branded products who can convert consumers to branded products.
There is competition between the organized and the unorganized sectors in the FMCG sector.
• Marketing and distribution are very important in FMCG companies. New products require a
large investment in product development, market research, and awareness campaign, developing
franchise for a new brand advertisements, free samples and product promotions.
All these developments have made the consumers strong, who are in a position now to choose a
variety of products, from a number of companies, at different price points. Bargaining power of
customers is high.
Key factors to success are distribution (in rural markets) and advertising (in urban markets).
Critical factors for success are the ability to build, develop and maintain a robust distribution
network. The fact that a lot of women have started looking for specialized products has driven
growth.
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