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Industry Snapshot- FMCG Industry

  • Aug 1st, 2017

1. Introduction

Information on Fast Moving Consumer Goods

FMCG or Fast Moving Consumer Goods are the goods which are purchased by the consumers at regular intervals. These items are a part of daily usage and thereby, purchased from time to time. These are also known as Consumer Packaged goods. Though this sector has a high return, it also has extensive competition. FMCG industry is currently the fourth largest sector in the Indian economy. The FMCG sector includes goods like toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, and household accessories along with certain electronic goods. Increasing Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to attract consumers to branded products. A large number of consumers are upgrading to branded product categories. The number of people entering the middle-class category is increasing which will further increase the demand for such products. The big names in this sector include Hindustan Unilever Ltd., Nestle, Reckitt Benckiser, Procter & Gamble, Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi, Mars, and others.


2. Classification of FMCG

2.1. Personal Care

Rising income, urbanisation, and promotion are key factors driving the Personal Care Sector. According to the surveys, the most used apps or the most popular apps are beauty and personalisation apps. The personal care segment comprises of hair care, skin care, bath products, and oral care. Purchase of personal care items such as toilet soaps, toothpaste, and shampoo has seen the steepest decline by retailers during the last two months of the year 2016 post demonetisation. Smaller packs of the products have been launched to rescue during the demonetisation period. The urban cities had a difficult time whereas rural India remained stable due to small currency transaction and flourishing barter system.

It can be divided into the following categories:

  • Skin Care - Creams, Lotions, Gellies
  • Hair Care - Hair oil, Shampoos
  • Personal Wash - Soaps
  • Oral Care - Toothpaste

FMCG Skin Care

FMCG Hain Care

FMCG Bath Products

2.2. Household Care

This segment includes dish wash soaps and liquid detergent, fabric care, home insecticides, surface care, air-care etc. Improved lifestyle and tips from home experts along with rising awareness for personal hygiene, growing concerns over the spread of infectious diseases and increased focus on communal hygiene are driving the market for household care products. These are taking household maintenance to the next level which is a boost to the household cleaning and safety products.

The analysts forecast global household cleaning products market to grow at a CAGR of 4.97% over the period 2015-2019. The rise in personal disposable income along with the changing lifestyles of the rural and urban population and the rising awareness pertaining to maintenance of hygienic conditions at home have contributed towards promoting the sales of toiletries and household cleansing products in India. The toiletries and household cleaning market are expected to grow at a CAGR of 17.42% from FY’2014-FY’2019. According to India Household Cleaning Market Outlook, 2021, the overall market for household cleaning is anticipated to grow at a CAGR of 22.74% in the next five years. Laundry care has the highest penetration rate but due to matured market, the projected growth is expected to remain low at around 2% for the next five years but as the number of working women is increasing customers look for faster ways of washing clothes. Thus, the market for powder detergents will expand at 4% a year to Rs 4,500 crore by 2021.

FMCG Household Care

2.3. FOOD & BEVERAGES

FMCG Food & Beverages

2.3.1 FOOD

The packaged food industry comprises of baked goods, convenience food, dairy, and confectionaries. Biscuits (cookies) are one of the most popular baked goods in India. India-based Parle is a leader in this category with its biscuit brand Parle-G, an Indian favourite. Another India-based company Britannia Industries Ltd. specializes in bakery goods and dairy products.

The convenience food segment includes frozen meals, packaged snacks, and ready-to-cook foods. India-based Mother Dairy’s Safal Fruits & Vegetables is the most significant initiative empowering farmers in the form of collectives and assisting them technologically so that the crops are acquired directly from the farmers and the best quality of products are produced. Another Indian company MTR Foods specializes in ready-to-eat foods allowing working middle-class consumers to conveniently recreate traditional Indian dishes. Prominent international brands in this segment include Nestle’s Maggi instant noodles and ready-to-eat meals, PepsiCo’s Lay’s and Kurkure snacks, and Hindustan Unilever Ltd.’s Kissan condiments, juices, and jams.

India is the largest producer and consumer of milk in the world. Local vendors contribute to the majority of the dairy segment. India-based Amul provides milk-based products such as ghee, an ingredient used in traditional Indian meals. Nestle is a popular choice for milk substitutes, buttermilk, and probiotic yogurt. The confectionary segment includes desserts and sweets. Chicago-based Mondelez’s Cadbury chocolate is very popular in India. India-based Haldiram’s produces Indian desserts, snacks, and ice cream.

2.3.2 BEVERAGES

Tea is the one of the most popular beverages of India and is famous across north, west and east India. The south of the country prefers coffee either brewed, blended or instant. HUL leads the segment of Tea with Brooke Bond Red Label, Brooke Bond 3 Roses, Brooke Bond Taj Mahal, Taaza and the Lipton tea brand. Tetley Tea, a product of Tata Global Beverage is also a popular brand. Cold drinks such as soft drinks and fruit drinks are becoming more common in the country. Coca-cola and PepsiCo dominate this category. Packaged water is increasingly gaining market across India as the Indian population does not trust the quality of municipal water supplied to households. Parle Agro’s Bisleri, PepsiCo’s Aquafina and Coca-Cola’s Kinley, and Tata’s Himalaya are the most well-known brands. Other local brands are available across regional areas. Alcoholic beverages are also popular in India.


3. The retail market for FMCGs includes businesses in the following International Standard Industrial Classification (ISIC):

ISIC 5211 retail sales in non-specialized stores

ISIC 5219 other retail sale in non-specialized stores

ISIC 5220 retail sale of food, beverages, and tobacco in specialized stores

ISIC 5231 retail sale of pharmaceutical and medical goods, cosmetic and toilet articles

ISIC 5251 retail sale via mail order houses

ISIC 5252 retail sale via stalls and markets

ISIC 5259 other non-store retail sale


4. INDUSTRY VS GDP

The Indian beauty, cosmetic and grooming market is estimated to reach US$ 20 billion by 2025 from the current US$ 6.5 billion. The Indian fast-moving consumer goods (FMCG) companies have performed well as the consolidated revenue of country's seven leading FMCG companies stood at US$ 11.1 billion in FY 2015-16, as compared with US$ 9.4 billion revenue generated by seven Multinational Companies (MNCs) in the same period.The CII-Bain & Company said, "A nominal GDP growth rate of roughly 12 per cent over the next three years could signal an FMCG growth of over 15 per cent, depending on the player action." The FMCG Business in India achieved a turnover of INR 1,035 crore (USD 155 million) during the quarter ended March 2017 and INR 4,579 crore (USD 683 million) during the year 2016-17, a growth of 6% and a decline of 2% respectively over the same period last year.

FMCG top 15 Categories

Research firm Nielsen projected that rural India’s FMCG market will surpass the US$ 100 billion mark by 2025. Online portals are expected to play a key role for companies trying to enter the uncaptured spaces. The Internet has contributed in a big way, facilitating a cheaper and more convenient means to increase a company’s reach. Volume growth was driven by high penetration and even highly penetrated categories such as toothpaste and hair oil, both with over 95 per cent penetration, recorded material penetration gains. With services like ‘Amazon Pantry’, which includes the sale of everyday groceries and household products, and with FMCG companies debuting premium products on e-commerce platforms, online channels can help tap untapped markets.

Food emerged as the fastest growing segment at 10 per cent, with larger towns and more affluent consumers driving this growth. Household care grew at 9 per cent, which was driven by less affluent consumers residing in small towns and rural areas. Consumer demand is expected to improve even more in the rural markets and that will be the main trigger for FMCG consumption in 2017.


5Top 10 players in India(in terms of revenue)

   
Company Headquarter CEO/ Chairman Revenue(2016) Products

Hindustan Unilever Limited.

(1933)

Mumbai, India Sanjiv Mehta US$5.35billion Food:Annapurna salt and atta, Bru coffee, Brooke Bond (3 Roses, Taj Mahal, Taaza, Red Label) tea, Kissan squashes, ketchups, juices and jams,Lipton tea, Knorr soups, soupy noodles,Kwality Wall's frozen dessert, ModernBread, Magnum (ice cream)
Homecare: Wheel, Cif Cream Cleaner, Domex, Rin, Sunlight detergent, Surf Excel, Vim , Magic – Water Saver
Personal Care: Aviance Beauty Solutions Axe, LEVER Ayush Therapy , Breeze, Brylcreem, Clear, Clinic Plus, Close Up, Dove, Denim,Fair & Lovely, Hamam, Indulekha, Lakmé, Lifebuoy, Liril 2000 ,Lux, Pears, Pepsodent, Pond's, Rexona, Sunsilk Sure, Vaseline, TRESemmé

Amul

(1946)

Anand, Gujarat Tribhuvandas Patel US$4.21 billion (2016–17) Milk powders, milk, butter, ghee, cheese, dahi, yoghurt, buttermilk, chocolate, ice cream, cream, shrikhand, paneer, gulab jamuns, flavoured milk, basundi, Mithai Mate, Amul Kool, Kool Koko,  Amul's ice creams, Amul Taaza, Any Time Milk

Emami

(1974)

Kolkata RS Agarwal  US$3.8 Billion Hair care, skin creams, soaps and lotions, talcum powder, Ayurvedic health care products
R S Goenka

Godrej Consumer Products Limited

(2001)

Mumbai, Maharastra Vivek Gambhir US$3.1 Billion Cinthol, Godrej Fair Glow, Godrej No.1 and Godrej Shikakai in soaps, Godrej Powder Hair Dye, Renew, ColourSoft in hair colorants and Ezee liquid detergent.

P&G

(1837)

Mumbai   US$1.9 Billion Ambi Pur, Ariel, Duracell, Gillette, Head & Shoulders, Olay, Oral B, Pampers, Pantene, Tide, Vicks, Wella, Whisper
Al Rajwani (India)
Patanjali Ayurveda Ltd.(2006) Haridwar S. K. Patra. US$1.64 Billion Foods, beverages, cleaning agents, personal care products& Ayurvedic medicine
ITC FMCG(1910) Kolkata Sanjeev Puri US$1.6 Billion  Aashirvaad, Mint-o, gum-o, B natural, Sunfeast, Candyman, Bingo! and Yippee!
Fiama Di Wills, Vivel, Essenza Di Wills, Superia and Engage. Classmate, PaperKraft and Colour Crew.
Dabur India Ltd(1884) Ghaziabad, Uttar Pradesh Anand Burman US$1.3 Billion Amla Hair Oil, Red toothpaste, Real Juice, Fem Bleach, Real Juices, Vatika, Honey, Odonil, Odomos, Glucose D, Gulabari, Badam Hair oil, Meswak, Dabur Lal, Hajmola, Pudin Hara, Oxylife, Honitus, Dabur and Vatika shampoos, Sani fresh, Babool, Lemoneez, baby care and health care products
Britannia(1892) Bangalore, Karnataka Varun Berry US$1.3 Billion Bakery products, including biscuits  VitaMarieGold, Tiger, Nutrichoice Junior, Good day, 50 50, Treat, Pure Magic, Milk Bikis, Good Morning, Bourbon, Thin Arrowroot, Nice, Little Hearts, bread, cakes and rusk, and dairy products, including milk, butter, cheese, ghee and dahi
Marico(1991) Mumbai Saugata Gupta US$0.25 Billion Parachute Coconut Oil, Parachute Advansed, Parachute Advansed, Body Lotion. Saffola,
Hair and Care, Nihar Uttam, Nihar Naturals, Set Wet, Mediker, Revive.

 

6. Factors affecting the Industry

  • Disposable Income

Consumers in India are moving beyond basic necessities. As the households disposable income is growing, the share of spending on branded, hygienic lifestyle etc. have seen a tremendous growth in the sector that varies across categories of products. However, the Top 20% are the major purchaser of the goods. The income inequality will be more in the upcoming years as the share of disposable income will be more in the hands of richer households.

  • Growing Middle class

As there is a growth in the middle class there will be rise in the purchasing power of the customers thus changing the consumption pattern of the people. People move from necessities to more premium products with the rise in Income. In India we can see a new class of middle-class growing which comprises of the people like taxi drivers, vendors, barbers etc. as they earn anywhere between $2 to $10 per capita per day. By the year 2025, the ‘affluent’ consumer segment will be the largest and account for 40% of all Indian consumption, up from about 26% in 2015. Currently, 600 million people are part of the Indian Middle Class.

The Changing face of Indian consumers - FMCG

  • Internet

Internet has changed the lifestyle of people. Even the FMCG industry is witnessing a change due to this Internet era. People are getting busy and prefer to buy the household products over the Internet. After the advent of Internet the scope of FMCG markets have extended as now people purchase the goods online in addition to purchasing offline. Working women, less time spent at home, nuclear families, increased usage of internet, superior information, growth in the number of applications on mobile phones, hectic schedules are some of the reasons giving way to further growth in this market.

FMCG Digital is transforming everything we do

 

  • Distribution Network

Given the fragmented nature of the Indian retailing industry and the problems of infrastructure, FMCG companies need to develop extensive distribution networks to achieve a high level of penetration in both the urban and rural markets. Once they are able to create a strong distribution network, it will provide them significant advantages over their competitors.

  • Inflation

People are sensitive to prices. With an increase in price they tend to reduce consumption and vice-versa. When inflation occurs it has an impact on the consumer spending. This is one reason that the Producer Price Index (PPI) and the Consumer Price Index (CPI) are considered leading economic indicators. However, for necessary goods either they buy them by forgoing other products or settle down for a less premium product.

  • Health Awareness

Rise in health awareness across the globe has certainly effected the FMCG industry. Food Industry people, an increase in the number of health awareness groups, government agencies are spreading awareness about the benefits of the healthy food consumption. The FMCG companies are taking up this as an opportunity to expand their market by providing high fibre, high nutrients, low cholesterol, high calcium, low-fat meats, organic oils, and other foods products to the customers.

  • Branding

FMCG category comes under highly competitive market. As the number of companies and products is increasing day by day, the competition has gone up. The companies are adopting aggressive advertising to keep hold of the market. These brought in the concept of brands. Creating strong brands is important for FMCG companies and they devote considerable money and effort in developing brands. With differentiation on functional attributes being difficult to achieve in this competitive market, branding results in consumer loyalty and sales growth.

  • Large Unorganized Sector

The unorganised sector has a presence in most product categories of the FMCG sector. People in their own state or regional areas manufacture products and their local presence gives them an advantage over other consumer goods and products as they reach out to the remotest of the places. This is possible due to the fact, the manufacturers and sellers in the local regions get cost advantage and are able to provide cheaper products.


7.IMPACT OF GST

The impact of GST on the FMCG industry is welcoming as well as disappointing. The rates vary from product to product making some goods cheaper and some others costlier.  The GST rate schedule indicates that nearly 81% of all the items are in the 18% tax bracket or below, and the remaining 19% falls in the 28% tax slab. Items of mass consumption—toothpaste, soaps, hair oil—have been put under the 18% tax slab, significantly lower than the 22-24% tax rate they have been paying. The effect of the GST rates will be dependent upon the product mix of any given company.

In the period from April to June, wholesalers and retailers purchased limited inventory due to GST. This has marked slow growth in the Industry during this period. The volume has declined over 2% during the period. The companies whose prices have risen due to high GST rates are passing the burden of tax to the customer in the form of higher prices. The companies whose products prices have decreased due to GST will pass on the benefits of the lower price to the customers as per the anti-profiteering clause. As the prices of the products will come down this will give a boost to mass production of certain products.

The extent of impact would depend on the product mix of the companies. According to Motilal Oswal report, Colgate Palmolive is going to be biggest beneficiary as Toothpaste which makes 80% of the total sales of the company have come under the 18% tax slab which is lower than 25-26% which it was paying previously. Hair and edible oil companies will also benefit from GST. Some products belonging to the premium category have been placed in the highest tax slab of 28%. Paints, Baby Products, detergents, shampoos, health supplements, skin care, aerated drinks, liquid soap etc. are all kept in the highest tax slab. This is a set back to the companies which produce them as these are goods of mass consumption E.g. Asian Paints, Nestle etc. The increase, in some cases, is only marginal. Ayurvedic products—a segment that is seeing increased focus from leading FMCG players are taxed at 12%, which is higher than the previous rate which will hurt companies like Dabur and Emami. Firms will have to realign their product portfolio to check on the effects of GST.

GST Rates on Items & Services


8. CHALLENGES

  • Consumer dynamics

Consumer preferences have altered greatly in recent years as demand shifts toward healthier and sustainable options. Consequently, manufacturing success is closely related to time-to-market and new product introduction (NPI) capabilities. The demand as well as the preferences for the products are changing rapidly, making it difficult to understand the changing consumer dynamics.

  • Lack of visibility

As there are a lot of products fighting for the same basket space, many products are just missed out due to less visibility. A lot of products have less shelf space which in turn lessens their sales. Advertisement too plays an important role in increasing the visibility of the products. The higher the investment in advertisements, higher is the visibility and vice-versa.

  • Diversity Marketing

Consumers have plenty of options, there is so much choice and a lot of fragmentation is taking place, so the companies need to ensure that there is attention across all the platforms. Some of the brands in the FMCG space today are using social space so well in terms of the diverse segments. Campaign dates and Air timings are becoming important day by day. Digital media is also playing an important role in promoting the products across various channels and the choice of the channels is also of strategic concern to the companies. Content creation has become extremely important to have an edge over other players.

  • Cashless Economy

Gradual movement towards cashless economy is having a negative impact on non-urban consumption. Rural India is driven by cash and with the increased emphasis on digital payments customers are restrained to purchase products.

  • Research in Customer Insights

Relevant data and insight on consumer trends impact the FMCG purchases and purchasing behaviour. Multi-channel consumers, an increasing desire and ability to shop around for the best deals and impact of online reviews and recommendations have totally changed the way customers makes purchases. The constantly changing trends and customer preferences are making development of research based customer insights difficult.


9. OPPORTUNITIES

FMCG Opportunities

  • Growing demand: With the rise in the incomes, growing middle-class population and a recorded growth in the population of the youths, the industry has witnessed a constant growth in the sector. Tier II/III cities are witnessing change in lifestyle and growth in modern trade which will automatically increase the usage of FMCG products. Brand consciousness has also aided to increase the demand. First Time Modern Trade Shoppers spend has tripled to USD1 billion in 2015. FMCG industry is looking forward to rural areas to expand their sales by focussing on distribution and looking at rural-focused products.One third of the sales comes from rural areas so they have a great impact on the volume of business a company does. If the companies are able to tap this market, it will help the company to grow in this segment.

(As of June 2016)

FMCG Growth

  • Policy support: Investment approval of up to 100 per-cent foreign equity in single brand retail, 51 per-cent in multi-brand retail, initiatives like Food Security Bill,  new Consumer Protection Act and direct cash transfer subsidies have provided clarity on the existing businesses. The minimum capitalisation for foreign FMCG companies to invest in India is USD100 million.
  • Higher investments: Many players are expanding into new geographies and categories. Modern retail share is expected to triple its growth from USD60 billion in 2015 to USD180 billion in 2020. With the implementation of GST, the sector is expected to gain profits and so investors too are looking forward to invest in this sector. Whatever may be the economyic conditions, people will continue to buy essentials, making this sector an all time favourite investment area.
  • Attractive opportunities: As the income level is rising, the demand for premium products is also rising. Exports is also witnessing growth. Low penetration levels in rural market offers room for growth however, the disposable income in rural India has increased due to the direct cash transfer scheme. In 2015, rural India accounted for more than 40 per cent of the total FMCG market. The total rural income is currently around USD572 billion which is estimated to reach USD1.8 trillion by FY21. India’s rural per capita disposable income is estimated to increase at a CAGR of 4.4 per cent to USD631 by 2020. As income levels are rising, there is also a clear uptrend in the share of non-food expenditure in rural India.


10. INVESTMENTS IN INDIA

FMCG INVESTMENTS IN INDIA


11. GOVERNMENT INITIATIVES

  • 100 per cent Foreign Direct Investment (FDI) in online retail of goods and services through the automatic route has given clarity on the existing businesses of e-commerce companies operating in India.
  • 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.
  • In the Union Budget 2017, the government has proposed to spend more in the rural regions with an aim to double the farmer’s income in five years. Cut in income tax rates targeting mainly the small tax payers, affordable housing and infrastructure development will futher lead to growth in the consumer market industry. Reforms like implementation of the Goods and Services Tax (GST) and Seventh Pay Commission are expected to give a boost to consumer durable sector in India.

12. FMCG:Highest paying Industry

As per survey report of Randstad, FMCG is the highest paying industry in India with an average annual cost to company (CTC) of `11.3 lakh across all levels and functions, 56% more than the ecommerce industry. As per Salary Trend Study, demand for experienced and qualified personnel in sales and marketing and supply chain management roles, coupled with close to 30% of jobs being posted in the Rs 10 lakh plus category is being seen as a primary driver for the FMCG industry.


13.RELEVANT QUESTIONS

  • What are the broad classifications of the FMCG industry?
  • Is GST a boon or bane for FMCG Industry?
  • How can the FMCG players exploit the rural markets?
  • What methods can FMCG companies apply to tap the rural market where local brands are more prevalent?
  • Do you think Cashless economy will negatively affect the FMCG Industry?

14.INDUSTRY LATEST NEWS


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