FMCG (Fast Moving Consumer Goods) Sector

he Indian FMCG sector is the fourth largest sector in the economy with an size of Rs.1,300 billion. The sector has shown an average estimated annual of about 11% per annum over the last decade. Unlike growth developed the markets, which are prominently dominated by few large players, Indias market is highly fragmented and a considerable part of the market FMCG comprises of unorganized players selling unbranded and unpackaged products. There are approximately 12-13 million retail stores in India, out of which 9 million are FMCG kirana stores. India FMCG sectors significant characteristics can be listed as strong MNC presence, well established distribution network, intense competition between the organised and unorganised players and low operational cost. Easy availability of important raw materials, cheaper labor costs and presence across the entire value chain gives India a competitive advantage. Products which have a swift turnover and relatively low cost are known as Fast Moving Consumer Goods (FMCG). FMCG items are those which generally get replaced within a year. Examples of FMCG commonly include a wide range f repeatedly purchased consumer products such as toiletries, soap, cosmetics, oral products, shaving products and detergents, as well as other non-durables care such as glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also include pharmaceuticals, consumer electronics, packaged food products etc. Penetration level and per capita consumption in many product categories is very low compared to world av erage standards representing the unexploited market Mushrooming Indian population, particularly the middle class and the potential. rural segments, presents the huge untapped opportunity to FMCG players. Growth is also to come from consumer 'upgrading' in the matured product categories likely like processed and packaged food, mouth wash etc. A distinct feature of the FMCG is the presence of international players through their subsidiaries (HLL, industry P&G, which ensures innovative product launches in the market from their Nestle), parent's portfolio . Our country has a varied agro-climatic condition which enables to offer extended raw material base suitable for many FMCG sub sections like food processing industries is the one of the major producer of livestock, milk, sugarcane, etc. India coconut, spices and cashew and is the second largest producer of rice, wheat and fruits & vegetables. Similarly, India has an abundant supply of caustic soda and soda ash, the raw materials required in the production of soaps and detergents, chief which the household section of the industry to excel and grow. The enables accessibility materials giv es India the locational these raw of advantage.

582 4

Labor Cost (in US $ p.a.)

Labor cost in India is amongst the lowest in emerging Asian countrie s 1052 943

2250 1619

1889

Malasiya China Nepal India

Srilanka Pakistan

Source: IMF World economic Outlook Database, Oct 2010

As can be seen from the above diagram, labor cost in India is amongst the lowest in emerging Asian countries. Easymaterial availability and low labor costs have resulted in a lower cost of production. Many multiraw nationals have cost production bases in India to outsource for domestic as well as export set up large low markets. MAJOR SEGMENTS OF THE FMCG INDUSTRY: Household Care The detergents segment is growing at an annual growth 10 to 11 per cent during the past five years. rate of The and unorganized players account for a major local share total volume of the detergent market. of the The preference is given to detergents in urban area compared Household care segment is featured by to bars. 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. powder segment, HUL is the leader with In washing ~38 cent of market share. Other major players are per Nirma, and Proctor & Henkel Gamble. Personal Care Personal care segment includes personal wash products, hair care products, oral care products, cosmetics etc. The skin care and cosmetics market is v alued at $274 million and is dominated by HUL, Colgate Palmolive, Indian Gillette Godrej. The coconut oil market accounts for 72 per cent share in the hair oil market. The hair care India and market segmented into hair oils, shampoos, hair colorants & conditioners, and hair gels. In the branded coconut can be hairmarket, Marico (with Parachute) and Dabur are the leading players. Sachet makes up to 40 per cent of oil the total sale. Again the market is dominated by HUL with around ~47 per cent market share; P&G occupies shampoo second with market share of around ~23 per position cent. Personal wash can be further segregated into three segments namely Premium, Economy and Popular. Here also, is the leader with market share of ~53 per cent; Godrej occupies second position with market share of HUL ~10 per cent. Swelling disposable incomes of the Indian consumers, growth in rural demand and upgrading to the premium are the key drivers for future demand growth in major FMCG products 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 segment are Hindustan Unilever with a market share of ~54 per cent, followed by CavinKare with a in this market ~12 per cent and Godrej with a market share of ~3 per share of cent. The oral care market can be segmented into toothpaste - 60 per cent; toothpowder - 23 per cent; toothbrushes - 17 cent. This segment is dominated by Colgate-Palmolive with market share of ~49 per cent, while HUL per occupiesposition with market share of ~30 per cent. In toothpowders market, Colgate and Dabur are the second major players . Food and Beverages This segment comprises of the food processing industry, health beverage industry, bread and biscuits, chocolates & Mineral Water and ice creams. The three largest consumed categories of packaged foods are confectionery, packed tea, biscuits and soft drinks. Indian hot beverage market is a tea dominant market. The major share of tea market is by unorganized players. Leading branded tea players are HUL and Tata Tea. Mjaor players in dominated food segment are HUL, ITC, Godrej, Nestle and Amul. INDIAN CONSUMERS SPENDING PATTERN Accessories
Entertainment 2% 1% Books and Music 8% Music & Theatre 5% Footwear 2% Eating Out 10% Grocery 40%

Vacation 4% Consumer Durables 7% Personal care 8% Saving and Investments 4% Home Textiles 2%

Clothin g 7%

INDI OCCUPIES 17% OF THE WORLDS POPUL TION TH T H LF OF THESE PEOPLE RE BELOW THE GE OF 25 Others
31% Thailan d 1% Cong o 1% Iran 1% German y 1% Vietna m 1% France 1% Chin a19% Indi a 17%

Turke y 1% Egyp t 1%

Ethiopi a 1% Philippine s 2% Japan 2%

Nigeri a 2% Russi a 2%

Pakista n 3% Banglades h 2%

United States 5% Indonesi a 4% Mexic o 2%

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 Favorable governmental oPolicy: Indian Government has passed the policies aimed at attaining international competitiveness through of the quantitative restrictions, lifting reducing excise duties, 100 per cent export oriented units set up by government approval and use can be of foreign brand names etc. Foreign Direct Investment (FDI): Automatic investment to 100 per cent foreign equity or 100 approval up per for NRI and Overseas Corporate cent Bodies investment is allowed for most of the food processing sector except malted food, alcoholic beverages and reserved for small scale industries those (SSI). Opportunities : Untapped rural market, changing life style income levels, i.e. increase in purchasing Rising power of consumers Large domestic market with more population of median age 25 High consumer goods spendingthe largest milk producer in the world, yet India is only 15 per cent of the milk is processed. around The organized liquid milk business is in its infancy and also large long-term growth potential. Even has investment exist in value-added products opportunities like desserts, puddings etc. about 10-12 per cent of output is processed Only and consumed in packaged form, thus highlighting the huge potential. India is under penetrated in many FMCG categories as shown in below diagram. With rise in per capita and awareness, the growth potential is incomes huge. price and smaller packs are also likely to Lower drive potential up trading for major FMCG products demand Rural etc.

Weaknesses: Lower scope of investing in technology and achieving of scale, especially in small economies sectors Low levels exports

Threats : Removal of import restrictions resulting in replacing of domestic brands Tax and structure regulatory

Rural demand is cyclical in nature and also depends upon monsoon.

THE TOP 10 COMPANIES IN FMCG SECTOR

1. Hindustan Unilever Ltd. 6. Asian Paints (India) (Indian Tobacco Company) 7. Cadbury 2. ITC India Nestl 3. 8. Britannia India Industries 4. GCMMF (AMUL) 9. Procter & Gamble Hygiene and Health Care Dabur 5. 10. Marico India Industries
LOW PER C PIT CONSUMPTION IN INDI COMP RED TO WORLDS OTHER COUNTRIES :: HUGE UNT PPED OPPRTUNITY (Data for the year 2001)

OUTLOOK : India has 17% of the world's population and that half of these are below the age of 25. With people a median age of 25 years, increasing are joining the numbers Indian workforce. India's share in world consumer spending is set to enlarge1.9% in 2005 to 3.1% in from 2020. (Source: Technopak) Income in the hands of younger consumers with a higher propensity Source: AC to Nielsen 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 in the convenience and health foods segments. While spending on women's personal care products is products 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: Robust growth in Indias GDP Growing urbanization Evolving consumer life style Increased income in rural areas Spending Pattern Changing Profile and Mind Set of Consumer

Growth retail

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The FMCG sector has a great opportunity for growth in the country, with the growing population, the rising disposable education, urbanization, the advent of modern retail, and a consumption-driven society. There is a incomes, potential FMCG companies as the per capita consumption of almost all products in the country is very low for all the compared to world standards, thee exists there huge untapped opportunities.