ctm report on fmcg sector

8/2/2019 CTM Report on FMCG Sector

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INTRODUCTION

The Indian FMCG industry at INR 1300 billion (in FY2010) accounts for 2.2 per cent of theGDP of the country. Given the inherently essential nature of the products, the sector is more orless immune to recessionary pressures. The last decade has seen the sector grow by 11 per cent

annually. Robust GDP growth, opening up of rural markets, increased income in rural areas,growing urbanization along with evolving consumer lifestyles and buying behaviors have allbeen drivers of this growth. Over the next decade, all the above drivers are expected to continueto impact the industry favorably. Based on discussions with industry experts as well as Booz &Company analysis, we believe that the FMCG industry will grow at a base rate of at least 12 percent annually to become an INR 4000 billion industry by 2020. Additionally, if some of thefactors play out favourably within an environment of enabling policy and easing of supplyconstraints, 17 per cent growth may be expected over the next decade, leading to an overallindustry size of INR 6200 billion by 2020. FMCG consumption is becoming more and morebroad-based, and has reached an inflexion point where the growth can be expected to take off,

following the traditional S-shaped curve witnessed across many markets. While on an average,the growth of the industry will be strong, it will not be uniform. Variations are likely acrossproduct categories, companies and locations.

1. The FMCG Industry: Growth in the Last Decade

The fast moving consumer goods (FMCG) industry, which accounts for 2.2 per cent ofIndiasGDP, is expected to attain a size of INR 1300 billion by FY2010. Over the last few years theindustry has witnessed a high rate of growth boosted by favourable macroeconomic conditions,increased rural incomes, a rising consumption-culture in India and a proliferation of consumer

awareness campaigns.The sector witnessed a robust year-on-year growth of approximately 11per cent in the last decade, almost tripling from INR 470 billion in FY2001 to the current size.The last five years have augured well for the industry with an annual growth rate ofapproximately 17 per cent since FY2005. Even in the meltdown years of FY2008 and FY2009,the FMCG industry witnessed sustained growth rates of 14 per cent and 11 per cent, respectively,demonstrating that unlike other sectors, this sector was relatively recession-proof.

2. Growth across FMCG Categories

The FMCG industry in India has grown rapidly and the growth rates across different product

categories are good indicators of how the Indian consumer has evolved.Within the category offood products, which accounts for nearly 45 percent of the industry size, staple products like

edible oils have grown at single digits given a high degree of penetration as well as establishedusage patterns. Fruit juices on the other hand have reported exponential growth, moving fromnear-zero levels in FY2000 to INR 9 billion at present. Similar trends are visible in the personalproducts category with skin-care creams outpacing the growth of more mundane product lines


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Current Situation

The two fastest-growing categories in the FMCG sector are food and personal and beautycare products. Food is growing at a brisk 43 per cent, followed by personal care at 22 per cent.Categories such as home care and baby care record growths in single digits. Packaged food like

biscuits, sauce, dairy products, jam, bread, wheat flour, chocolates and confectionaries and juicesand drinks form part of the food basket. The rise of nuclear and double-income families has seena major change in consumer preferences, with the result that the packaged food business is oneof the fastest growing.

Interestingly, growing competition between the leading players has seen the consumergain substantially because of the launch of new categories of products, new flavours, betterpackaging and more quantity for less money. Personal care and beauty products too have

Modern retail format is also helping transform the FMCG sector and move away from thekirana store to organised retailing providing huge opportunities for the FMCG sector.

Analysts believe that the increased preference for beauty productsespecially in urbanareasis another factor for the recent upturn in the FMCG sector. The $4.5 billion personal careindustry in India is growing at a healthy 10-12 per cent per annum due to the interplay ofeconomic, demographic and sociological factors. Many players are also focussing on the beauty,hygiene and personal care and wellness segments.

Also, consumers have started demanding customised products, specifically tailored totheir individual tastes and needs. The complexities within the categories are increasing

significantly. Earlier a shampoo used to have two variantsnormal and anti-dandruff. Now,you have anti-dandruff shampoos for short hair, oily hair, curly hair, and so on. Everything isgetting customised.

The trend towards mass-customisation of products will intensify with FMCG playersprofiling the buyer by age, region, personal attributes, ethnic background and professionalchoices. Micro-segmentation will amplify the need for highly customised market research so asto capture the specific needs of the consumer segment targeted, before the actual product designphase gets underway.

The beauty products market will grow by 20 per cent per annum as result of the changingsocio-economic status of consumers, especially women. Middle-class women are now moreconscious of their appearance and are willing to spend more on enhancing it. Products such ascolour cosmetics (growing by 46 per cent) and sun care products (growing at 13 per cent) havelatched on to this trend rapidly.


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Indian FMCG Sector Trends

The fourth largest sector in the Indian economy is all set for 16% growth during 2008-09,from a base of Rs. 85470 crores, as predicted by FICCI. Going forward, as anticipated byCRISIL, FMCG sector will touch around Rs. 140000 crores by 2015 (33.4B$). Following are

some of the major trends observed in the Indian FMCG sector.

1. Disposable Income: There is increase in disposable income, observed in both rural and urbanconsumers, which is giving opportunity to many rural consumers to shift from traditionalunorganized unbranded products to branded FMCG products and urban fraternity to splurge onvalue added and lifestyle products. The increasing salaries, along with rising trend of perks in thecorporate sector at regular intervals, have increased peoples spending power. As per some

research, there is a high correlation between Disposable per capita and HPC per capita.

2. Organized Retail: The emergence of organized retail have lead to more variety with ease in

browsing, opportunity to compare with different products in a category, one stop destination(entertainment, food and shopping) etc, which is playing an important role in bringing boom inthe Indian FMCG market. Currently the modern trade is capturing 5% of the total retail space,which will increase to 10% and 25% in 2010 and 2025 respectively. Also, as the credit card andorganized retail trend picks up, people wont think much while buying and buy more.

3. Distribution Depth - Rural Penetration: There are 5500 towns and 6.38 Lakh villages with2.5Mln and 5Mln outlets respectively. Due to saturation and cut throat competition in urbanIndia, many FMCG companies are devising strategies for targeting rural consumers in a big way.Many FMCG companies are focusing on increasing their distribution network to penetrate with a

step by step plan. This is the reason that FMCG urban market size has dropped from 50% to 29%in last 5 years. The FMCG market size for semi-urban and rural segment was 19% and 52%respectively for the year 2006-07. As per FICCI, the FMCG market size for urban, semi-urbanand rural for year 2007-08 was 57%, 21% and 22%, which clearly shows that rural market is thegrowth engine for FMCG growth. Though the urban markets are growing too, the incrementaladdition in consumers households is much more in rural space as compared to urban markets.The planned development of roads, ports, railways and airports, will increase FMCG penetrationin the long term. 180 million rural and semi-urban peoples attention has already been divertedtowards FMCG products, according to latest estimates released by industry chamber, Assocham

in 2008. The estimated number of households using FMCG products in rural India has grownfrom 131 million in 2004 to 140 million in 2007, according to market research company IMRB.Over 70% sale of FMCG products is made to middle class households and over 50% of middleclass is in rural India.

4. Buying Pattern Shift: The crisis of declining FMCG markets during 2001-04 was driven bynew avenues of expenditure for growing consumer income such as consumer durables,


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entertainment, mobiles, motorbikes etc. Now, as many consumers have already upgraded, theirincome is being directed towards pampering themselves.

5. Favorable Indian Economy & Demographics: 45% people in India are under 20 years ofage. Per capita disposable income has increased from $550 to $600 in 2007 (9% increase). GDP

is growing at a CAGR between 8 to 9%.In the next five years, affluent and aspirers as a total willsupersede strivers and will be dominated by aspirers, as per NCAER.

6.Underpenetrated Growth Categories: Within the Indian FMCG industry, there are fewcategories that will grow more than 20% during 2008-2009, like shaving cream, skin/fairnesscream, shampoos, skin care & cosmetics, tooth powder. Some other growth categories will behair colour, skin care, anti-aging solution, deodorants and mens products. Most of thesecategories are under penetrated and there is a huge scope for growth.

7. Penetrated Growth Categories: Even mainstream categories with high penetration levelssuch as washing detergents, soaps and hair oils have shown strong underlying volume growth,despite sharp inflation led price increases in FY08. This is partly related to the growth inorganised retail (3-5% of turnover for most FMCG players) that gives more visibility to nationalbrands with strong brand equity.

8. Theme Based Categories: Anand Shah, an FMCG research analyst at Angel Broking, saysmost FMCG companies are responding to the new demand by concentrating on developing a big

theme and building a portfolio around it. Nestle, for example, has identified 'health andwellness' as its focus area, while Dabur is positioning itself around ayurvedic (a traditionalIndian system of healthcare), natural and herbal products. At the higher price end, companiesare leveraging health and wellness trends by focusing on providing 'experiential' and 'higherorder' benefits rather than purely functional ones.

9. Health Food Categories: FMCG majors are widening their health food portfolio to cash in onthe rich, urban, health conscious Indian. Sugar free Chywanprash, organic spices and multi grainpastas and biscuits are few examples. Urban India is high on health and FMCG majors are

cashing in on the opportunity. Processed foods particularly juices that are based on the healthplatform would see stronger growth. Also, with the Indian consumer becoming increasinglyhealth conscious, the demand for juices has witnessed rapid growth.

10. Impact of inflation: The expenditure of FMCG in the consumer's wallet is coming downyear on year. This is leading to low sensitivity with price increases. Almost a decade back people


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used to downtrade from expensive brands to value for money ones. But now the trend ischanging. Consumers are not switching to cheaper substitutes. Rather companies have come withlower quantity SKUs and made consumers switch from higher to lower SKUs and not frompremium to popular brands (like Dove to Lux International). Just to give an example, Henkelinstead of increasing the price of their Henkel detergent from Rs. 46 to Rs. 50, they have

launched a new SKU of 400gms for Rs. 40. During the time of inflation, people shift to sachetsof their brands. Sales numbers of FMCG companies are quite robust. FMCG spend nowcomprises a smaller share of consumers wallet

11. Low Per Capita Consumption: Currently we are nowhere near to other developingcountries in terms of per capita consumption. Be it Laundry, Skin Care, Shampoos or deodorants.Marketers have put in efforts to increase the consumption frequency or quantum of consumptionper occasion. Colgate started the "twice a day" campaign few years back. Recently Good Nightcame up with Double power pack. Per Re1 increase in per capita consumption of a category willlead to growth of more than 100 crores (with a popular base of more than 1 Billion)

12. Evolved Product Forms: 20 years back consumers had limited choices to pick from. Thedays of Tortoise Mosquito repellent coils are gone. This is the age of aerosols with value addedfunctionality. Following are some examples, where we have seen a change in the product forms.Here is the list:Dish Wash: Powder to Bar to LiquidShaving: Creams to Foams/ GelsRepellents: Coils to Aerosols/ Body Creams/ GelsAir Freshners: Sprays to Electric

Toilet Cleaner: Acid to Harpic to In-Cistern

13.Accelerating Premiumisation: The rising income of Indian consumers has accelerated thetrend towards premiumisation or up-trading. The trend can be observed prominently in the toptwo income groupsthe rich with annual income exceeding Rs 10 lakh, and the upper middleclass with annual income ranging between Rs 5 lakh and Rs 10 lakh. The reports says, the richare willing to spend on premium products for their emotional value and exclusive feel, andtheir behaviour is close to consumers in developed economies. They are well-informed aboutvarious product options, and want to buy products which suit their style. The upper middle classwants to emulate the rich and up-trade towards higher-priced products which offer greater

functional benefits and experience compared to products for mass consumption.

14. Evolving categories: Categories are evolving at a brisk pace in the market for the middleand lower-income segments. With their rising economic status, these consumers are shiftingfrom need- to want-based products. For instance, consumers have moved from toothpowders totoothpastes and are now also demanding mouthwash within the same category.


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Major Companies in the FMCG sector

Hindustan Unilever Limited

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Companywith a heritage of over 75 years in India and touches the lives of two out of three Indians.

HUL works to create a better future every day and helps people feel good, look good and getmore out of life with brands and services that are good for them and good for others.

With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skincare, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and waterpurifiers, the Company is a part of the everyday life of millions of consumers across India. Itsportfolio includesleading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair& Lovely, Ponds, Vaseline, Lakm, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe,

Brooke Bond, Bru, Knorr, Kissan, Kwality Walls and Pureit.

The Company has over 16,000 employees and has an annual turnover of around Rs.19, 400crores (financial year 2010 - 2011). HUL is a subsidiary of Unilever, one of the worlds leadingsuppliers of fast moving consumer goods with strong local roots in more than 100 countriesacross the globe with annual sales of about 44 billion in 2011. Unilever has about 52%

shareholding in HUL

Indian Tobacco Company

ITC is one of India's foremost private sector companies with a market capitalisation of over US $33 billion and a turnover of US $ 7 billion. ITC is rated among the World's Best Big Companies,Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India'sMost Respected Companies by BusinessWorld and among India's Most Valuable Companies byBusiness Today.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging,Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel,


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Personal Care, Stationery, Safety Matches and other FMCG products. ITC has various brandslike Classic, Gold Flake, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol and Flake, SilkCut and Duke (Cigarettes& Cigars),Kitchen of India, Aashirvaad , Sunfeast, Mint-o, Candyman,Bingo(Food), Wills Lifestyle, John Players(Lifestyle Retailing),'Essenza Di Wills, Fiama DiWills, VivelUltraPro, Vivel and Superia(Personal Care), Colour Crew, Classmate,

Paperkraft(Education & Stationery),iKno, Mangaldeep, Stylites, Aim and Aim Mega(SafetyMatches), MangaldeepAgarbattis(Agarbattis).

Nestle

The journey of Nestle India began in the year 1912 in the name of the Nestle Anglo-Swiss

Condensed Milk Export Company Limited and they are dealing with selling and importingfinished products in Indian market. The company is one among the top wealth creators of India.The company is manufacturing Indian Consumer products with international standards.

Nestl India is a subsidiary of Nestl S.A.of Switzerland. With seven factories and a largenumber of co-packers, Nestl India is a vibrant Company that provides consumers in India withproducts of global standards and is committed to long-term sustainable growth and shareholdersatisfaction.

Nestl India has a wide portfolio for Milk Products and Nutrition which constitutes for themaximum share (43%) of the total sales of the organisation.Nestl has a very clear Charter of ethics and responsible behaviour in selling infant nutritionproducts .NESCAF CLASSIC has the unmistakable taste of 100% pure coffee and is madefrom carefully selected coffee beans picked from the finest plantations, blended and roasted toperfection. 100% coffee..100% pleasure..Some of the products are Nescafe CLASSIC, NescafeSUNRISE PREMIUM, Nescafe SUNRISE SPECIAL, NescafeCAPPICCINO etc. Nestle is alsointo ready prepared dishes and cooked aids. Some of the products in this category are Maggie 2-Minutes noodles, Maggie Cuppa mania, Maggie healthy soup, Maggie Sauces , Maggie pichkoo,Maggie Bhuna Masala, Maggie coconut milk Powder etc. Nestle is also into the business ofmanufacturing Chocolates and Confectionery, and the products categorised under this blanket areKit-Kat, Munch, Milkybar, MilkybarEclairs, Polo etc.
http://www.nestle.in/nestlestory.aspxhttp://www.nestle.in/nestlestory.aspxhttp://www.nestle.in/nestlestory.aspx


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Dabur

Dabur India Limited is the fourth largest FMCG Company in India with Revenues of US$910Million (Rs 4110 Crore) & Market Capitalisation of US$4 Billion (Rs 20,000 Crore). Buildingon a legacy of quality and experience of over 125 years, Dabur operates in key consumerproducts categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care & Foods.

Dabur India is also a world leader in Ayurveda with a portfolio of over 250 Herbal/ Ayurvedicproducts. Dabur's FMCG portfolio today includes five flagship brands with distinct brandidentities -- Dabur as the master brand for natural healthcare products, Vatika for premiumpersonal care, Hajmola for digestives, Real for fruit juices and beverages and Fem for fairnessbleaches and skin care products.

Dabur's Health Care range brings for you a wide selection of Ayurvedic andnatural products thatoffer complete care for varying individual needs. Our products are derived from the time-testedheritage of Ayurveda, and backed by the most modern scientific test & trials thatensure unfailing quality and safety in anything you pick. Some of those are

Amul

Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF), is India's largest food productmarketing organisation with annual turnover (2010-11) US$ 2.2 billion. Its daily milkprocurement is approx 12 million lit (peak period) per day from 15,712 village milk cooperativesocieties, 17 member unions covering 24 districts, and 3 million milk producer members.

It is the Apex organisation of the Dairy Cooperatives of Gujarat, popularly known as 'AMUL',which aims to provide remunerative returns to the farmers and also serve the interest ofconsumers by providing quality products which are good value for money. Its success has notonly been emulated in India but serves as a model for rest of the World. It is exclusive marketing


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organisation of 'Amul' and 'Sagar' branded products. It operates through 47 Sales Offices and hasa dealer network of 5000 dealers and 10 lakh retailers, one of the largest such networks in India.Its product range comprises milk, milk powder, health beverages, ghee, butter, cheese, Pizzacheese, Ice-cream, Paneer, chocolates, and traditional Indian sweets, etc.

Asian Paints

Asian Paints is Indias largest paint company and Asias third largest paint company, with a

turnover of Rs 77.06 billion. The group has an enviable reputation in the corporate world forprofessionalism, fast track growth, and building shareholder equity. Asian Paints operates in 17countries and has 23 paint manufacturing facilities in the world servicing consumers in over 65

countries. Besides Asian Paints, the group operates around the world through its subsidiariesBerger International Limited, Apco Coatings, SCIB Paints and Taubmans.

In Decorative paints, Asian Paints is present in all the four segments v.i.z Interior Wall Finishes,Exterior Wall Finishes, Enamels and Wood Finishes. It also introduced many innovativeconcepts in the Indian paint industry like Colour Worlds (Dealer Tinting Systems), HomeSolutions (painting solutions Service), Kids World (painting solutions for kids room), ColourNext (Prediction of Colour Trends through in-depth research) and Royale Play Special EffectPaints, just to name a few.

Cadbury

Cadbury India Ltd. is a part of the Kraft Foods Group. Cadbury India operates in five categories- Chocolate confectionery, Beverages, Biscuits, Gum and Candy. In the Chocolate Confectionerybusiness, Cadbury has maintained its undisputed leadership over the years. In India. Cadburybegan its operations in 1948 by importing chocolates. After 60 years of existence, it today has

five company-owned manufacturing facilities at Thane, Induri (Pune) and Malanpur (Gwalior),Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New Delhi, Mumbai, Kolkota andChennai). The corporate office is in Mumbai.

Cadbury enjoys a value market share of over 70% - the highest Cadbury brand share in theworld! Our billion-dollar brand Cadbury Dairy Milk is considered the "gold standard" forchocolates in India. The pure taste of CDM defines the chocolate taste for the Indian consumer.


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Since 1965 Cadbury has also pioneered the development of cocoa cultivation in India. For overtwo decades, we have worked with the Kerala Agriculture University to undertake cocoaresearch and released clones, hybrids that improve the cocoa yield. Our Cocoa team visitsfarmers and advise them on the cultivation aspects from planting to harvesting. We also conductfarmers meetings & seminars to educate them on Cocoa cultivation aspects. Our efforts have

increased cocoa productivity and touched the lives of thousands of farmers. Hardly surprisingthen that the Cocoa tree is called the Cadbury tree! Cadbury is into various brands- Chocolates,Beverages, Candy, Biscuits and Gums.

Cadbury Dairy Milk emerged as the No. 1 most trusted brand in Mumbai for the 2005 edition ofBrand Equity's Most Trusted Brands survey. During the 1st World War, Cadbury Dairy Milksupported the war effort. Over 2,000 male employees joined the armed forces and Cadbury sentbooks, warm clothes and chocolates to the front.

Procter & Gamble

P&G Home Products Limited is one of India's fastest growing Fast Moving Consumer GoodsCompanies that has in its portfolio P&G's global brands such as Ariel and Tide in the FabricCare segment, and in the Hair Care segment: Head & Shoulders - world's largest selling anti-dandruff shampoo; Pantene - world's No. 1 beauty shampoo; and Rejoice - Asia's No. 1shampoo.

P&G Home Products Limited is a 100% subsidiary of The Procter & Gamble Company, USA,that in India, has carved a reputation for delivering superior quality, value-added products tomeet the needs of consumers.

Colgate Palmolive (India)

With Rs.11,000 crores as the market capitalisation & Rs.500 crores revenues with a net profitmargin of 11% in December 2010, Colgate Palmolive Ltd. is a truly global company servinghundreds of millions of consumers worldwide. Started as a small soap & candle company, thecompany is now 200 years old. Colgate is well known for its Oral care products like toothpastes& toothbrushes. Lately introducedColgate sensitive toothpaste takes care of the sensitive teeth.


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It has also diversified its business into personal care & home care, professional caretrusted bydentists across the country.

Godrej Consumer Products

Rs.350 crores 18%.is a leader among Indias Fast Moving Consumer Goods (FMCG)companies, with leading Household and Personal Care Products. The major brands are Goodknight, Cinthol, Godrej No. 1, Expert, Hit, Jet, Fairglow, Ezee, Protekt and Snuggy arehousehold names across the country. With Rs. 11,000 crores as the market capitalisation, thecompany is largest marketers of toilet soaps in the country and are also leaders in hair coloursand household insecticides. The Good knight brand has been placed continues to be the most

trusted household care brand in the country in Brand Equitys Most Trusted Brands Survey 2010.

The company has an emerging presence in markets outside India. With the acquisition ofKeyline Brands in the UK, Rapidol and Kinky Group, South Africa and Godrej Global MideastFZE, Godrej owns international brands and trademarks in Europe, Australia, Canada, Africa andthe Middle East. Godrej has also recently acquired Tura, a leading medicated brand in WestAfrica, Megasari Group, a leading household care company in Indonesia and Issue Group andArgencos, two leading hair colorant companies in Argentina.

Marico

Marico is a leading Indian Group in Consumer Products & Services in the Global Beauty andWellness space. Maricos Products and Services in Hair care, Skin Care and Healthy Foods

generated a turnover of about Rs. 26.6 billion during 2009-10. The company has a marketcapitalisation of Rs.8,000crores. Marico markets well-known brands such as Parachute, Saffola,Sweekar, Hair & Care, Nihar, Shanti, Mediker, Revive, Manjal, Kaya, Aromatic, Fiancee,HairCode, Caivil, Code 10 and Black Chic. Maricos brands and their extensions occupyleadership positions with significant market shares in most categories- Coconut Oil, Hair Oils,Post wash hair care, Anti-lice Treatment, Premium Refined Edible Oils, niche Fabric Care etc.Marico is also present in the Skin Care Solutions segment through Kaya Skin Clinics in India,Middle East and Bangladesh.


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United Spirits Limited

United Spirits Limited (USL) is the largest spirits company in the world by volume, selling 114million cases for the fiscal ending March 21, 2011.

Besides Whyte & Mackay and Bouvet Ladubay being 100% subsidiaries of USL, the companyhas 21 millionaire brands (selling more than a million cases a year) in its portfolio and enjoys astrong 59% market share for its first line brands in India. United Spirits' brands have won themost prestigious awards for flavors, ranging from Mondial to International Wine and SpiritCompetition (IWSC) to International Taste & Quality Institute (ITQI); more than 115 awards &certificates.


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Market Share

The companies mentioned, are the leaders in their respective sectors. The personal care categoryhas the largest number of brands, i.e., 21, inclusive of Lux, Lifebuoy, Fair and Lovely, Vicks,and Ponds. There are 11 HLL brands in the 21, aggregating Rs. 3,799 crore or 54% of the

personal care category. Cigarettes account for 17% of the top 100 FMCG sales, and just belowthe personal care category. ITC alone accounts for 60% volume market share and 70% by valueof all filter cigarettes in India.

The foods category in FMCG is gaining popularity with a swing of launches by HLL, ITC,Godrej, and others. This category has 18 major brands, aggregating Rs. 4,637 crore. Nestle andAmul slug it out in the powders segment. The food category has also seen innovations likesofties in ice creams, chapattis by HLL, ready to eat rice by HLL and pizzas by both GCMMFand Godrej Pillsbury. This category seems to have faster development than the stagnatingpersonal care category. Amul, India's largest foods company has a good presence in the food

category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia also ranks in the top100 FMCG brands, dominates the biscuits category and has launched a series of products atvarious prices.

In the household care category (like mosquito repellents), Godrej and Reckitt are two players.Goodknight from Godrej, is worth above Rs 217 crore, followed by Reckitt's Mortein at Rs 149crore. In the shampoo category, HLL's Clinic and Sunsilk make it to the top 100, although P&G'sHead and Shoulders and Pantene are also trying hard to be positioned on top. Clinic is nearlydouble the size of Sunsilk.

Dabur is among the top five FMCG companies in India and is a herbal specialist. With a turnoverof Rs. 19 billion (approx. US$ 420 million) in 2005-2006, Dabur has brands like Dabur Amla,Dabur Chyawanprash, Vatika, Hajmola and Real. Asian Paints is enjoying a formidable presencein the Indian sub-continent, Southeast Asia, Far East, Middle East, South Pacific, Caribbean,Africa and Europe. Asian Paints is India's largest paint company, with a turnover of Rs.22.6billion (around USD 513 million). Forbes Global magazine, USA, ranked Asian Paints amongthe 200 Best Small Companies in the World

Cadbury India is the market leader in the chocolate confectionery market with a 70% marketshare and is ranked number two in the total food drinks market. Its popular brands include

Cadbury's Dairy Milk, 5 Star, Eclairs, and Gems. The Rs.15.6 billion (USD 380 Million) Maricois a leading Indian group in consumer products and services in the Global Beauty and Wellnessspace.


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Growth Drivers, Challenges and Opportunities for FMCG Sector

Growth Drivers:

The current economic trend, exhibiting modest demand and supply is likely to have a medium-term impact on the demand for FMCG products but promises revival and higher growth in thelong term based on the following fundamentals:

1. Expanding purchase basket resulting in higher penetration of products

2. Increased consumption with higher disposable household family income

3. More consumers entering the market place (Rural and urban base of pyramid)

For these developments to catalyse faster there are two sides of the equation that need to come

togetherdemand and supply along with other systemic factors.Each of the driver mentioned above are detailed in the following section.

Demand Side Drivers:

1. Growth Prospect (Large Market)

India has a population of more than 1.150 Billions which is just behind China. According to theestimates, by 2030 India population will be around 1.450 Billion and will surpass China tobecome the World largest in terms of population. FMCG Industry which is directly related to thepopulation is expected to maintain a robust growth rate.


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2. Increasing Consumer Income

Increase in incomes is largely an outcome of economic growth across sectors. Over the past fewyears, India has seen increased economic growth, with a continuing and substantial impact onconsumer disposable incomes enabling good growth for the FMCG sector, among others.

3. Changing profile and mindset of Consumer

People are becoming conscious about health and hygienic. There is a change in the mind set ofthe Consumer and now looking at Money for Value ratherthan Value for Money. We haveseen willingness in consumers to move to evolved products/ brands, because of changinglifestyles, rising disposable income etc. Consumers are switching from economy to premiumproduct even we have witnessed a sharp increase in the sales of packaged water and waterpurifier.Findings according to a recent survey by A. C. Nielsen shows about 71 percent of Indian takenotice of packaged goods labels containing nutritional information compared to two years ago

which was only 59 per cent.4. Rising Urbanisation

India has 70% of its population living in rural areas. With rising urbanization, more people willhave exposure to modern products and brands and thus shift to branded and packaged goods andproducts.

By 2015, an additional 75 million consumers will have moved into cities, not only buyingFMCG products for themselves but also serving as a conduit for information and goods to theirfamilies still in rural India.


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Supply Side Drivers:

1. Growth in Retail Sector

From US$ 410 billion in 2010 (Rs. 2,000,000 crores), Indian retail is expected to grow to US$

535 billion by 2013 (Rs. 2,600,000 crores) and US$ 755 billion by 2018 .

2. Low Labour cost

India has by far the lowest labor cost compared to many emerging countries giving it an edge forestablishing manufacturing base for both Domestic and International FMCG brands. Averagelabor cost in India is ~US$ 90/month compared to US$190/month in China, US$ 210/month inThailand and even higher US$1,300/month in Taiwan.


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Systematic Drivers for Sectoral Growth:

1. Favorable changes in Government Policies

The Indian government has been trying to foster the growth of various categories of FMCG byway of making policy changes. Some of the policy changes include:

Automatic investment approval (including foreign technology agreements within specifiednorms), up to 100 per cent foreign equity for most of the food processing sector

Five-year tax holiday for new food processing units in fruits and vegetable processing

Customs duties reduced on plant and equipment, raw materials and intermediates, especiallyfor export production

Capital goods freely importable, including second hand ones

De-reservation of most FMCG categories from SSI

Many states have also begun competing with each other to offer incentives to different sectorsincluding FMCG, in the form of tax holidays, fiscal incentives, land at concessional rates andsubsidies to encourage economic development.

2. Infrastructure Development

The government has invested a considerable amount in the Golden quadrilateral project toconnect the four corners of the country, of which over 96% has been completed. 50% of existinghighways are being improved and expanded. An outlay of Rs. 59,000 crores was earmarked forroad development projects in the 10th Plan, between the aforementioned projects as well asprojects to develop the National highways (Primary system), the state highways (secondarysystem), major district roads and rural roads. The railways are also increasing capacity throughincreasing tracks, improving existing tracks and adding more freight compartments to enablebetter carrying of goods and products.


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Challenges for FMCG Sector

1. Tax Structure:

i. Complicated Tax Structure - In India, problems are exacerbated by the complicated tax

structure. There is a VAT which is to be levied at state level, there are other state taxes such asoctroi and entry taxes and then centre levies excise duties and service tax. As a result, no productcost is exactly the same from one state to the next.ii. High Indirect Tax - Indirect Tax levels are quite high, especially in light of the fact that thesector provides goods meant for daily consumption. China, for instance, levies a tax of 10%19 onaverage, whereas in India, the average is around 30%.

iii. Lack of uniformity - Despite VAT states do not implement rates and procedures uniformly.Each state still continues to approach taxation differently, and thus moving goods from one stateto another is like moving them from one country into another. The taxation rate policies on many

FMCG goods differ from state to state and centre to state. Centre has classified many FMCGproducts under Merit (VAT exempt) list, such as processed foods, tooth powder, sanitary napkinsbut states levy on the same products high rate of 12.5%20.

iv. High Octroi & Entry Tax - There are Octroi and Entry Tax at city and state entry points in afew states, which leads to an increase in pricing and affords opportunities for arbitrage. Forinstance, Mumbai has octroi of 4-6% on goods produced outside of Mumbai. Thus, a bottle ofmineral water produced by Coke or Pepsi which have their plants in Thane, which is consideredoutside the city limits of Mumbai, have to pay this extra charge, while Parle, which has a bottlingplant within the city limits does not. So Bisleri is sold in Mumbai for Rs. 12, while Kinley orAquafina cost Rs. 13, just because of the factory location. This opens up possible arbitrage

opportunities, apart from causing a genuine grievance to the consumer.

v. Changing Tax Policies - Tax policies keep changing which makes it difficult to plan for thelong term. For instance, tax havens were created in J&K some years ago and many companiesopened facilities there. However, recently part of the exemption was withdrawn by thegovernment, thus leading to a sudden hike in costs.

2. Infrastructure Bottlenecks:

i. Agricultural Infrastructure - Agriculture infrastructure in India is particularly weak. Firstly,

irrigation and modern farming methods are not widespread and thus agriculture in India is at themercy of nature. Thus, it makes for grossly varying amounts of harvest of critically neededinputs into FMCG manufacture, from one season to the next and one year to the next.

ii. Power Costs - Power costs in India are very high and they contribute substantially to cost ofgoods sold. They are 3-4 times the optimal costs.


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iii. Transportation Infrastructure - To compound this problem is the poor transportation androadways infrastructuremany of the villages are extremely poorly connected with means oftransportationeither road, rail or seaso the amount of time it takes for the harvest to betransported to the FMCG manufacturers is unpredictable, and results in substantial spoilage ofthe goods. For example, it costs nearly 12 days to transport goods from Baddi in Himachal

Pradesh to South India, a distance of 3000 km. The lack of a cold chain adds to this problem,because it means a tremendous amount of farm output actually rots or gets spoiled in transit.Nearly 8% -10% of dairy produce is lost to pilferage.

iv. Cost of Infrastructure - It takes almost Rs. 7- 8 crores to lay 1km. of road. Along with thisproblems in land acquisition due to fragmented land holding further delay development of roadand rail infrastructure increasing the cost associated

3. Counterfeit and Pass-offs:

Counterfeit products are another issue for the FMCG sector. Taking advantage of the lack ofliteracy and consumer knowledge, several small manufacturers churn out spurious productswhich they label akin to the big brands, Lifeboy or Lax soap or Fivestare chocolate bars, Vickybalm, for instance. These spurious pass off products affect large, high quality brands which haveactually invested money in research and development to create their products and build brandequity. These account for almost 10% - 15% of the total sector revenue and pose seriouschallenge to its growth and also impact governments tax revenue significantly. But the onlyrecourse available to FMCG manufacturers against counterfeit and pass off products is to file anFIR. There are no Bureau of Industrial Standards norms laid out for each product category whichcould help prevent the mushrooming of counterfeit products. And an FIR results only in localaction, if at all, while the source of the counterfeit products continues to remain in existence.

4. Emergence of Private Labels:

Apart from the pressure on margins, the biggest fear of FMCG players when facing MR is theintroduction of private labels or own brands. The fear is justified because world over, privatelabels have served to lower the consumers price points, particularly at the mass level. Moreover,

there are inevitable conflicts of interest when a retail chain has its own label whose packaginglooks like category leaders and stocks brands of other manufacturers, in terms of display space,promotions etc.A Technopak analysis undertaken across product categories revealed that private labels couldconstitute as much as one fourth of all sales in the FMCG category by 2011. While the exact yearcould shift marginally, there is no denying the fact that private label FMCG goods will be hereand will constitute a formidable threat to add to the already fierce competition in the FMCGcategory. Brands which currently appeal to price conscious value shoppers will be facing thehighest risk with advent of store brands.


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5. Regulatory Constraints:

i. State borders cause a lot of delays and it is common for 2-3 days of finished goods inventoryout of 20 -30 days total stuck on various state borders due to a requirement for multiplicity ofpermits and licenses.

ii. The Indian labour laws were drafted in the 1940s and take no note of modern manufacturingmethods and strategies. They need to be changed on a more dynamic basis to reflect presentrealities.

iii. There is lack of uniformity in definitions, and these do not follow international norms either.Currently, drugs and cosmetics come under the same set of laws when in fact they need to betreated differently. Weights and Measures used under FDA do not conform to those under theWeights and Measures Act followed in India. Some products come under the OTC categoryinternationally but come under Schedule H drugs in India, requiring doctors prescription and

require to be distributed only in drug licensed stores

iv. Acquiring manufacturing licenses is a long and painful process, beset with red tape andcorruption. It takes 10-12 months to get multiple licenses and to set up a manufacturing unit.

v. Reservation of jobs for employees creates many problems. For instance, Himachal Pradesh hasa reservation of 70% of jobs for people domiciled in Himachal Pradesh. Since they are few innumber, attrition happens for as little as Rs. 50 pm, and it becomes a problem to maintain therequisite labour force.

vi. Export procedures are cumbersome and lengthy. There is no single-party interface so multipledepartments and officers have to be followed up with to get the requisite licenses. A transportpermit has to be sourced for each consignment rather than assigning a blanket permit for a periodof time.

vii. Subsidies are announced by the government but to avail of them is both confusing and timeconsuming.

a. Firstly, the amount of subsidy is restricted to Rs. 50 lakhs, regardless of the total quantum ofinvestment required by a project. Thus, if large projects and small get the same incentives,Large projects may not find takers.b. Secondly, the release of the said monies is not time-bound and gets done in an ad-hocBasis.

6. Prices of Inputs:

i. Commodity prices fluctuate, which make it difficult to finalise raw material prices, affectingthe final price of the product. The petroleum price fluctuation also impacts the cost of supply ofmaterials. As a result, the entire supply chain dynamics need to be constantly planned afresh withthe changing prices.


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ii. Indian consumers are more price-sensitive and value conscious, making it difficult for FMCGfirms to pass on the increased costs, leading to depressed margins.

ctm report on fmcg sector

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