FMCG Industry Profile:

Fast-moving consumer goods (FMCG) are products that are sold quickly and at relatively low
cost. Many fast moving consumer goods have a short shelf life, either as a result of high
consumer demand the product deteriorates rapidly. Some FMCGs, such as meat, fruits and
vegetables, dairy products, and baked goods, are highly perishable. Other goods, such as pre-
packaged foods, soft drinks, chocolate, candies, toiletries, and cleaning products have high
turnover rates. The sales are sometimes influenced by holidays and seasons.

Characteristics:

The following are the main characteristics of FMCGs:

From the consumer's perspective

 Frequent purchase
 Low involvement (little or no effort to choose the item)
 Low price
 Short shelf life
 Rapid consumption

From the marketer's perspective

 High volumes
 Low contribution margins
 Extensive distribution networks
 High stock turnover
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IMPACT OF FMCG SECTOR IN INDIA:

Employment:
Direct employment is estimated at approximately 6% of turnover Rs. 7,000 crores .Approximately 12-13
million retail stores in India, out of which 9 million are FMCG kirana stores. Thus the sector is
responsible for the livelihood of almost 13 million people.

Fiscal Contribution:
Cascading Multiple Taxes by the FMCG sector(Import duty, service tax, CST, income tax). 30% revenue
of the sector goes into both direct and indirect taxes .Estimated size Rs. 120,000 crores, that would
constitute a contribution to the exchequer of approximately Rs. 31,000 crores.

Social Contribution:
FMCG firms have also undertaken some specific projects to integrate with upcountry and rural areas for
both inputs and for distribution as well as to fulfill CSR.

Contribution to Other Sectors:

Agriculture:
Its intake of agricultural output as raw material is estimated to constitute roughly 9% of total
turnover for the sector. That would put its total value to agriculture at Rs. 10,500crores.

Third Party Logistics :

We clearly identify that Bihar is the leader in the rural contribution to total FMCG sales, and Tamil Nadu
is the state with the lowest rural contribution.

Ancillary Industries:
Manufacturing :
Almost 9-10% of total sector’s production is outsourced to contract manufacturing units taking the
total size to Rs. 8,000 – Rs. 9,500 crores approximately.
Distribution :
ITC services 1.1 million outlets at an average frequency of three days down to villages with
population of 2,000 and has 1,000 wholesale dealers.

Packaging Industry:
The packaging industry for the FMCG sector alone is worth Rs. 14,000 crores, and is expected to
grow faster due to the growth of private label FMCG products.
Media Industry :
The media industry has a scope to gain from the FMCG sector. Around 40% of media industry
earnings from advertising are estimated to come from the FMCG sector, a contribution of Rs. 9,500
crores.

Fast-moving consumer electronics:

Fast-moving consumer electronics are typically low-priced generic or easily substitutable consumer
electronics, including mobile phones, MP3 players, game players, earphones, headphones, OTG cables,
and digital disposable cameras.
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List of Indian FMCG companies:

 Asian Paints Ltd

 ITC FMCG
 Amul
 Godrej Consumer Products Limited
 Dabur India Ltd
 Emami
 Zydus Wellness
 Britannia
 Pidilite Industries
 Wipro Consumer Care & Lighting Ltd
 Marico
 Future Consumer Enterprises Ltd
 CavinKare
 Parle Agro
 Jyothy Laboratories
 Haldiram's
 Nirma
 Himalaya Healthcare Ltd
 Bikanervala
 Manpasand Beverages Limited
 Hindustan Unilever
 Patanjali Ayurved
 Nestle
 PepsiCo
 Coca-Cola India

FMCG industry in india 2015:

The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian economy.
The market size of FMCG in India is estimated to grow from US$ 30 billion in 2011 to US$ 74 billion in
2018.

Food products is the leading segment, accounting for 43 per cent of the overall market. Personal care (22
per cent) and fabric care (12 per cent) come next in terms of market share.

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

Rural – set to rise

Rural areas expected to be the major driver for FMCG, as growth continues to be high in these regions.
Rural areas saw a 16 per cent, as against 12 per cent rise in urban areas. Most companies rushed to
capitalise on this, as they quickly went about increasing direct distribution and providing better
FMCG Industry Profile:

infrastructure. Companies are also working towards creating specific products specially targeted for the
rural market.

The Government of India has also been supporting the rural population with higher minimum support
prices (MSPs), loan waivers, and disbursements through the National Rural Employment Guarantee Act
(NREGA) programme. These measures have helped in reducing poverty in rural India and given a boost
to rural purchasing power.

Hence rural demand is set to rise with rising incomes and greater awareness of brands.

Urban trends:

With rise in disposable incomes, mid- and high-income consumers in urban areas have shifted their
purchasing trend from essential to premium products. In response, firms have started enhancing their
FMCG Industry Profile:

premium products portfolio. Indian and multinational FMCG players are leveraging India as a strategic
sourcing hub for cost-competitive product development and manufacturing to cater to international
markets.

Top Companies

According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by MNCs, and the
balance by Indian companies. Fifteen companies own these 62 brands, and 27 of these are owned by
Hindustan Uni Lever.

The top ten India FMCG brands are:

1.Hindustan Unilever Ltd.

2.ITC (Indian Tobacco Company)
3.Nestlé India
4.GCMMF (AMUL)
5. Dabur India
6.Asian Paints (India)
7.Cadbury India
8.Britannia Industries
9.Procter & Gamble Hygiene and Health Care
10. Marico Industries

Millenniums expect:

According to a study by TMW and Marketing Sciences that surveyed 2,000 people across different age
groups ranging, young consumers are the most ‘rational’ and likely to spend more time weighing up
potential purchases. The survey also suggests that younger people are using recommendations from their
peers about products and services in order to make rational purchase decisions. According to the study,
shoppers aged 18 to 24 are 174 per cent more likely to use recommendations on social media than
shoppers aged 25 and over.

Another key factor today is – speed. Today's consumer wants packaged goods that work better, faster,
and smarter. The “ need for speed" trend highlights the importance of speed as a potentially decisive
purchase factor for packaged goods products in a world where distinctions between products are
shrinking.

Younger consumers express the greatest need for speed, not a huge surprise for the smartphone
generation. Datamonitor's 2013 Consumer Survey found that younger consumers those in the 15-24 year
old age group were twice as likely to say that "results are achieved quickly" has a "very high amount of
influence" on their health and beauty product choices than consumers in the oldest age group, those aged
65 or older. Speed matters, and 2014 will almost certainly see the introduction of new game-changing
timesavers.

Road Ahead:

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.
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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.

According to the PwC-FICCI report Winds of change, 2013: the wellness consumer, nutrition foods,
beverages and supplements comprise a INR 145 billion to 150 billion market in India, is growing at a
CAGR of 10 to 12%.

 Favourable demographics and rise in income level to boost FMCG market.

 FMCG market in India is expected to grow at a CAGR of 20.6 per cent and is expected to reach
RS.6738.14 crores by 2020 from RS.3183.89 in 2016.

Market Size:

The Retail market in India is estimated to reach 71.47 trillion by 2020 from 43664.72 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 32,500 billion and is
expected to grow at 9-9.5 per cent in FY18 supported by expectations of the total consumption
expenditure reaching nearly 3,600 billion by 2020 from 95451 billion in 2015. Direct selling sector in
India is expected to reach 159.3 billion by 2021, if provided with a conducive environment through
reforms and regulation.

Investments/ Developments

The government has allowed 100 per cent Foreign Direct Investment (FDI) in food processing and single-
brand retail and 51 per cent in multi-brand retail. This would bolster employment and supply chains, and
also provide high visibility for FMCG brands in organised retail markets, bolstering consumer spending
and encouraging more product launches. The sector witnessed healthy FDI inflows of 78000 billion,
during April 2000 to September 2017. Some of the recent developments in the FMCG sector are as
follows:

 The Hershey Co plans to invest 32500 million over the next five years in India, its fastest growing
core market outside of US.
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 As a part of its Rs 25,000 crore investment package, ITC will invest Rs 10,000 crore to expand its
food processing segment.
 The bottling arm of Coca-Cola India, Hindustan Coca-Cola Beverages (HCCB) is planning to
increase its retail reach by one million new outlets and is targeting a revenue of 16200 billion by
2020.
 Future Retail will acquire HyperCity, which is owned by Shoppers Stop for Rs 911 crore further
consolidate its business and have a better footing in the hypermarket segment.

Government initiatives

Some of the major initiatives taken by the government to promote the FMCG sector in India are as
follows:

 In the Union Budget 2017-18, the Government of India has proposed to spend more on the rural
side with an aim to double the farmer’s income in five years; as well as the cut in income tax rate
targeting mainly the small tax payers, focus on affordable housing and infrastructure development
will provide multiple growth drivers for the consumer market industry.
 The Government of India’s decision to allow 100 per cent Foreign Direct Investment (FDI) in
online retail of goods and services through the automatic route has provided clarity on the
existing businesses of e-commerce companies operating in India.
 With the demand for skilled labour growing among Indian industries, the government plans to
train 500 million people by 2022 and is also encouraging private players and entrepreneurs to
invest in the venture. Many governments, corporate and educational organisations are working
towards providing training and education to create a skilled workforce.
 The Government of India has drafted a new Consumer Protection Bill with special emphasis on
setting up an extensive mechanism to ensure simple, speedy, accessible, affordable and timely
delivery of justice to consumers.
 The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of the FMCG
products such as Soap, Toothpaste and Hair oil now come under 18 per cent tax bracket against
the previous 23-24 per cent rate.

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 14,295 billion by 2025 from 1910 billion in
2016.

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*.
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Mr. Mark Mobius, Executive Chairman, Templeton EM, opined that the Goods and Services Tax (GST)
will lead to mergers and rise of world class consumer companies in India. 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.

Exchange Rate Used: INR 1 = US$ 0.015 as on January 4, 2018

References: Media Reports, Press Information Bureau (PIB), Union Budget 2017-18

Hindustan Unilever Limited (HUL) - Shakti

Hindustan Unilever Limited (HUL) to tap this market conceived of Project Shakti. This project was
started in 2001 with the aim of increasing the company's rural distribution reach as well as providing rural
women with income-generating opportunities. This is a case where the social goals are helping achieve
business goals.

The recruitment of a Shakti Entrepreneur or Shakti Amma (SA) begins with the executives of HUL
identifying the uncovered village. The representative of the company meets the panchayat and the village
head and identify the woman who they believe will be suitable as a SA. After training she is asked to put
up Rs 20,000 as investment which is used to buy products for selling. The products are then sold door-to-
door or through petty shops at home.

On an average a Shakti Amma makes a 10% margin on the products she sells.

An initiative which helps support Project Shakti is the Shakti Vani program. Under this program, trained
communicators visit schools and village congregations to drive messages on sanitation, good hygiene
practices and women empowerment. This serves as a rural communication vehicle and helps the SA in
their sales.

The main advantage of the Shakti program for HUL is having more feet on the ground.
Shakti Ammas are able to reach far flung areas, which were economically unviable for the company to tap
on its own, besides being a brand ambassador for the company. Moreover, the company has ready
consumers in the SAs who become users of the products besides selling them.
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ITC E-Choupal:
Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based
interventions in rural India. As India's 'kissan' Company, ITC has taken care to involve farmers in the
designing and management of the entire 'e-Choupal' initiative. The active participation of farmers in this
rural initiative has created a sense of ownership in the project among the farmers. They see the 'e-
Choupal' as the new age cooperative for all practical purposes.

The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features
of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of
numerous intermediaries, among others.

Appreciating the imperative of intermediaries in the Indian context, 'e-Choupal' leverages Information
Technology to virtually cluster all the value chain participants, delivering the same benefits as vertical
integration does in mature agricultural economies like the USA.

'E-Choupal' makes use of the physical transmission capabilities of current intermediaries - aggregation,
logistics, counter-party risk and bridge financing, while dis-intermediating them from the chain of
information flow and market signals.
INSIGHT:
-From all the above information's it is clear that the rural India can be one of the most feasible market for
the development of the FMCG in INDIA as 70% of the total population resides there.

-Rural market is still an untapped market potential for major players including MNC’s who can operate
on low margin but at large volumes. Such companies which can sustain with delayed breakeven on longer
run.

-FMCG’s companies or marketers make consistent attempts to innovate tools and strategies to overcome
the challenges the face in the business area.
-Infrastructural development is a major requirement for rural market as still 37% (population less than
500) of the village are still not connected by roads.
-Corporate India and government bodies alike have made several efforts to bridge the gap between rural
and urban India. “Indira Awas Yojna”, “Rajiv Gandhi Grameen Vidyutikaran Yojna”, “The Mahatma
Gandhi National Rural Employement Guarantee Act”, The Swarnjayanti Gram Swarozgar Yojna”,
“Pradhan Mantri Rojgar Yojna”, etc are some of the initiatives by the government.
Companies like Yamaha, Dabur, etc have different marketing strategies and marketing budget allocation
for rural areas. This helps them to target the consumer base that gets easily influenced by such strategies.
Thus if planned properly and with the use of new strategies and technologies the rural India market can
be captured and a great margin of profit can be earned by the FMCG companies.

Mintel and The Economist Intelligence Unit collaborate to forecast global FMCG trends:
 Consumer spending in these emerging markets expected to grow between 7.7% and 15.2% a year
between 2013-2016.
 China expected to see strongest growth but paper illustrates unique trends within each market.

For the first time, economic forecaster The Economist Intelligence Unit has teamed up with Mintel,
the consumer market experts to predict key trends for the future of different Fast Moving Consumer
Goods (FMCG) categories in emerging markets.
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 Convergence with Divergence’, which analyses how household spending in China, India,
Mexico, Turkey and South Africa will change in comparison to the USA and UK over the
next three years. Providing an in-depth picture of micro and macro trends, the report reveals
Consumer spending in these emerging markets expected to grow between 7.7% and 15.2% a
year between 2013 and 2016.

The FMCG segments forecast to be the fastest growing in each country are:
– Prepared food in China by nearly 21% annually 2013-16.
– Beverages in Mexico by 16.9% annually 2013-16.
– Household products in India and South Africa by almost 21% and 12% respectively annually
2013-16.
– Beauty products in Turkey by close to 20% annually 2013-16.
– Beauty and Food service in the US by over 5% annually 2013-16.
– Non-alcoholic drinks in the UK by some 4% annually 2013-16.

In summary, key findings for each of the markets is as follows:

– China is likely to see a growth in laundry detergents due to growth in washing machines (grown from
1% of rural households in 2000 to 16% in 2010).
– India’s prepared food market has more than doubled with cereal consumption increasing. Household
products are expected to grow by over 20% a year in the forecast period.
– In Mexico the pet food market is booming – with sales doubling in the last five years.
– South Africans are acquiring more expensive tastes in drinks and coffee is expected to see an annual
growth of 8.8% a year.
– Turkey is experiencing a growth in sun cream as cultural changes mean more people are willing to
sunbathe in public.
– In the UK chocolates and other cheap treats are proving popular – particularly individually wrapped
branded sweets.
– The US is seeing a growth in its soft drinks market, along with the alcohol market – which has grown
strongly by 3.2% a year on average between 2009 – 2012.
FMCG Industry Profile:

Packaging is critical for FMCGs. The logistics and distribution systems often require secondary
and tertiary packaging to maximize efficiency. The unit pack or primary package is critical for
product protection and shelf life and also provides information and sales incentives to
consumers.

Though the profit margin made on FMCG products is relatively small (more so for retailers than
the producers/suppliers), they are generally sold in large quantities; thus, the cumulative profit
on such products can be substantial. FMCG is a classic case of low margin and high volume
business.