Fast Moving Consumer Goods

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BY:Sanjay RajanNikunj ParekhEralee BhedaSanket WaikarKaran KapadiaSunil ShettyMilan Zaveri

FAST MOVING CONSUMER GOODS

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The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion.

The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015.

Growth is also likely to come from consumer 'upgrading' in the matured product categories. With 200 million people expected to shift to processed and packaged food by 2010, India needs around US$ 28 billion of investment in the food-processing industry.

Why India a huge market for FMCG

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Large domestic market India is one of the largest emerging markets, with a population of over one billion. India is one of the largest economies in the world in terms of purchasing power and has a strong middle class base of 300 million.

Around 70 per cent of the total households in India (188 million) resides in the rural areas. The total number of rural households are expected to rise from 135 million in 2001-02 to 153 million in 2009-10. This presents the largest potential market in the world. The annual size of the rural FMCG market was estimated at around US$ 10.5 billion in 2001-02. With growing incomes at both the rural and the urban level, the market potential is expected to expand further.

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India - a large consumer goods spender An average Indian spends around 40 per cent of his income on grocery

and 8 per cent on personal care products. The large share of fast moving consumer goods (FMCG) in total individual spending along with the large population base is another factor that makes India one of the largest FMCG markets.

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Good International market

Even on an international scale, total consumer expenditure on food in India at US$ 120 billion is amongst the largest in the emerging markets, next only to China.

POLICY

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India has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions, reduced excise duties, automatic foreign investment and food laws resulting in an environment that fosters growth. 100 per cent export oriented units can be set up by government approval and use of foreign brand names is now freely permitted.

FDI Policy

Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector except malted food, alcoholic beverages and those reserved for small scale industries (SSI). 24 per cent foreign equity is permitted in the small-scale sector. Temporary approvals for imports for test marketing can also be obtained from the Director General of Foreign Trade.

Removal of Quantitative Restrictions And Reservation Policy

The Indian government has abolished licensing for almost all food and agro-rocessing industries except for some items like alcohol, cane sugar, hydrogenated animal fats and oils etc., and items reserved for the exclusive manufacture in the small scale industry (SSI) sector. Quantitative restrictions were removed in 2001 and Union Budget 2004-05 further identified 85 items that would be taken out of the reserved list. This has resulted in a boom in the FMCG market through market expansion and greater product opportunities.

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Central and state initiatives Various states governments like Himachal Pradesh, Uttaranchal and Jammu & Kashmir have encouraged companies to set up manufacturing facilities in their regions through a package of fiscal incentives. Jammu and Kashmir offers incentives such as allotment of land at concessional rates, 100 per cent subsidy on project reports and 30 per cent capital investment subsidy on fixed capital investment upto US$ 63,000. The Himachal Pradesh government offers sales tax and power concessions, capital subsidies and other incentives for setting up a plant in its tax free zones. Five-year tax holiday for new food processing units in fruits and vegetable processing have also been extended in the Union Budget 2004-05.

Food laws Consumer protection against adulterated food has been brought to the fore by "The Prevention of Food Adulteration Act (PFA), 1954", which applies to domestic and imported food commodities, encompassing food colour and preservatives, pesticide residues, packaging, labelling and regulation of sales.

Exports

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The Indian FMCG sector is the fourth largest sector in the economy and creates employment for three million people in downstream activities.

Within the FMCG sector, the Indian food processing industry represented 6.3 per cent of GDP and accounted for 13 per cent of the country's exports in 2003-04.

.India is one of the world's largest producers for a number of FMCG products but its exports are a very small proportion of the overall production. Total exports of food processing industry was US$ 2.9 billion in 2001-02 and marine products accounted for 40 per cent of the total exports.

Though the Indian companies are going global, they are focusing more on the overseas markets like Bangladesh, Pakistan, Nepal, Middle East and the CIS countries because of the similar lifestyle and consumption habits between these countries and India. HLL, Godrej Consumer, Marico, Dabur and Vicco laboratories are amongst the top exporting companies.

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The Main Players

Hindustan Lever Limited (HLL)Hindustan Lever Ltd is a 51 per cent owned subsidiary of the Anglo-Dutch giant Unilever, which has been expanding the scope of its operations in India since 1888. It is the country's biggest consumer goods company with net sales of US$ 2.4 billion in 2003. HLL is amongst the top five exporters of the country and also the biggest exporter of tea and castor oil. The product portfolio of the company includes household and personal care products like soaps, detergents, shampoos, skin care products, colour cosmetics, deodorants and fragrances. It is also the market leader in tea, processed coffee, branded wheat flour, tomato products, ice cream, jams and squashes. HLL enjoys a formidable distribution network covering over 3,400 distributors and 16 million outlets. In the future, the company plans to concentrate on its herbal health care portfolio (Ayush) and confectionary business (Max). Its strategy to grow includes focussing on the power brands' growth through consumer relevant information, cross category extensions, leveraging channel opportunities and increased focus on rural growth.

Products Brands

Talcum powder

Pond, Lifebuoy

Creams and Toners

Clinic Active, Fair & Lovely

Shampoo Sunsilk, Clinic All Clear, Clinic Plus, Lux, Ayush

Haircare oils

Clinic All-Clera Oil, sunsilk Hot Oil, Ayush

Make-up Lakmé

Detergents Powder Wheel, Surf-Rin

Soap Breeze, Fair & Lovely, Liril, Dove, Pears, Rexona, Hamam, Lux, Lifebuoy, Ayush

Toothpaste Pepsodent, Close Up

Toothbrushes

Pepsodent

Shaving Foam

Denim, Axe

After-Shave

Denim, Axe

Deodorants Axe, Rexona

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Colgate Palmolive Pvt Ltd

Colgate Palmolive India is a 51 per cent subsidiary of Colgate Palmolive Company, USA. It is the market leader in the Indian oral care market, with a 51 per cent market share in the toothpaste segment, 48 per cent market share in the toothpowder market and a 30 per cent share in the toothbrush market. The company also has a presence in the premium toilet soap segment and in shaving products, which are sold under the Palmolive brand. Other well-known consumer brands include Charmis skin cream and Axion dish wash. The company reported sales of US$ 226 million in 2003-04. The company's strategy is to focus on growing volumes by improving penetration through aggressive campaigning and consumer promotions. The company plans to launch new products in oral and personal care segments and is prepared to continue spending on advertising and marketing to gain market share. Margin gains are being targeted through efficient supply chain management and bringing down cost of operations.

Products Brands

Creams and Toners

Palmolive Brilliantine

Toothpaste Colgate Total, Colgate Gel, Colgate Herbal, Colgate Dental Protection, Colgate Max Fresh

Toothbrushes Colgate

Soap Palmolive Extra Care, Palmolive Naturals

Shaving Products

Palmolive

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Procter & Gamble Hygiene & Health Care Ltd

Products BrandsDetergents Ariel Compact, Ariel Matic,

Ariel, Ariel Power Compact, Gain, Tide

Shampoo Pantene, Head & Shoulders, Lively Clean, Rejoice, Pantene Pro-V

Razors 7 o’clock Ejtek Super Platinum, 7 o’ clock Ejtel Super Stainless, 7 o’clock PII, Mach III

Shaving Foam

Gillette Aeorosol, Gillette Shave Foam

Toothbrushes Oral B

Richardson Hindustan Limited (RHL), manufacturer of the Vicks range of products, was rechristened 'Procter & Gamble India' in October 1985, following its affiliation to the 'Procter & Gamble Company', USA. Procter & Gamble Hygiene and Health Care Limited (PGHHCL) acquired its current name in 1998, reflecting the two key segments of its business. P&G, USA has a 65 per cent stake in PGHHCL. The parent also has a 100 per cent subsidiary, Procter & Gamble Home Products (PGHP). The overall portfolio of the company includes healthcare; feminine-care; hair care and fabric care businesses. PGHH operates in just two business segments - Vicks range of cough & cold remedies and Whisper range of feminine hygiene. The detergent and shampoo business has been relocated globally to Vietnam. The company imports and markets most of the products from South East Asian countries and China, while manufacturing, marketing and export of Vicks and sanitary napkins has been retained in India. The company reported sales of US$ 91 million in 2002-03. The parent company has announced its plan to explore further external collaborations in India to meet its global innovation and knowledge needs.

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Nirma Ltd

Nirma Ltd, promoted by Karsanbhai Patel, is a homegrown FMCG major with a presence in the detergent and soap markets. It was incorporated in 1980 as a private company and was listed in fiscal 1994. Associate companies' Nirma Detergents, Shiva Soaps and Detergents, Nirma Soaps and Detergents and Nilnita Chemicals were merged with Nirma in 1996-1997. The company has also set up a wholly owned subsidiary Nirma Consumer Care Ltd, which is the sole marketing licensee of the Nirma brand in India. Nirma also makes alfa olefin, fatty acid and glycerine. Nirma is one of the most successful brands in the rural markets with extremely low priced offerings. Nirma has plants located in Gujarat, Madhya Pradesh and Uttar Pradesh. Its new LAB plant is located in Baroda and the soda ash complex is located in Gujarat. Nirma has strong distributor strength of 400 and a retail reach of over 1 million outlets. The company reported gross sales of US$ 561 million in 2003-04. It plans to continue to target the mid and mass segments for future growth.

Products Brands

Detergents Nirma Blue, Nirma Fabric Wash

Soap Nirma Lime Fresh, Nirma Beauty

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Godrej Consumer Products Limited (GCPL)

Godrej is part of a large Indian group with diversified products/services and a 120 million euro turnover (2005-06).

Henkel Spic India LtdCreated in 1987 in collaboration with Tamilnadu Petroproducts Ltd Chennai & Henkel KgsA, Germany The company achieved a 52 million euro turnover in 2005.

Modi RevlonModi Revlon is a joint venture (74:26) between Modi-Mundi Pharma and Revlon.Originally positioned as a prestige segment company, Modi Revlon had to review its strategy due to other key players’price-competitiveness, in particular Lakmé’s. 5 years after it launched in India, Modi Revlon has now been repositioned as a mass market player. Modi Revlon’s product range comprises make-up, haircare, deodorants, talcum powder and mass market fragrances (Charlie and Fire & Ice).

Marico IndustriesMarico Lts was founded in 1962 and has built its reputation in India on food oils (Saffola), haircare and body oils (Parachute).Parachute is a coconut-based body and haircare oil and is one of the most popular and most widely distributed oils in India (with a 22% market share). Marico is also present in approximately 20 other countries and achieved a 183 million euro turnover in 2005-06.

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CavinKare Pvt LtdCavinKare started operations in 1983. Its turnover in 2006-07 was 99.6 million euros.

Emami GroupEmami Products, whether beauty products (talcum, essential oils, day creams or shampoo) or OTC pertain to traditional Indian medicine (ayurvedic) and target a mass market audience. Emami’s turnover is 52 million euros (2005-06).

Reckitt Benckiser LtdCreated in 1998 following a merger between Reckitt & Colman India, a branch of Reckitt & colman PLC (UK) and Benckiser, this company ranks as one of the main consumer goods suppliers in India.Positioned as a cleaning homecare products as well as OTC (including Dettol, Cherry, Harpic, Mortein, Disprin, Robin, Colin, etc…), Reckitt Benckiser (India) Ltd launched VEET, the depilatory cream brand, in 2004. Sales turnover: 174 million euros (2005-06)

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Dabur India Ltd

Family-run and managed by Dr S.K Burman, Dabur India specialises in the manufacture of health and beauty care products and in particular ayurvedic products targeting the mass market (eg shampoos, make-up remover and oral care). Dabur also markets food spices and exports to approximately 50 countries. The company’s turnover in 2005-06 was 239 million euros.

Amway India Avon Ayur Herbals

Fem Care

Johnson & Johnson Lotus Herbals Modicare Oriflamme Paramount Cosmetics Shanaz Herbals The Himalaya Drugs Company

Vicco Laboratories

VLCC

Other players

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Recent Developments in Fast Moving Consumer Goods (FMCG) Sector

Budget 2007-2008 for FMCG Sector

Reduction of duty on edible oil will have a positive impact on Marico.

Full exemption of excise duty on biscuits priced at 50 rupees or less per kg is positive for ITC, Britannia, and Parle.

Reduction of custom duty on food processing machinery and their parts from 7.5% to 5%.

Reduction of excise duty on food mixes from 16% or 8% to nil is positive for ITC.

Development of rural infrastructure is in focus, which is beneficial for FMCG companies because it is a big market for FMCGs. Better infrastructure will improve the supply chain.

Exemption of free samples and displays from the purview of FBT will be beneficial for FMCG companies because they spend huge amount of money on advertising and brand building. HLL, Dabur, ITC, and Marico will be amongst the most benefited companies.

FMCG sector is no doubt registering an up trend in growth. According to CNBC, FMCG sector growth story will continue because of the positive budget. Nevertheless, there are some barriers to the growth of the sector. Indirect taxes constitute no less than 35% of the total cost of consumer products - the highest in Asia. Last year, Finance Minister proposed to introduce an integrated Goods and Service Tax by April 2010.This is an exceptionally good move because the growth of consumption, production, and employment is directly proportionate to reduction in indirect taxes.

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· Presence across value chain

Indian companies have their presence across the value chain of FMCG sector, right from the supply of raw materials to packaged goods in the food-processing sector. This brings India a more cost competitive advantage. For example, Amul supplies milk as well as dairy products like cheese, butter, etc. Top Ten Players in FMCG Sector

S. NO. Companies

1. Hindustan Unilever Ltd.

2. ITC (Indian Tobacco Company)

3. Nestle India4. GCMMF (Amul)5. Dabur India6. Asian Paints(India)7. Cadbury India8 Britannia Industries

9. Proctor & Gamble (Hygiene & Health Care)

10. Marico Industries19

FMCG As A Career

Industry BackgroundFMCG is one of the most dynamic domains of the business world. A career in this sector encompasses a large number of job roles like market research, pricing and product development, purchasing, advertising and brand awareness. FMCG is a sector where graduates can gain excellent rewards if they work hard. FMCG products are those that move off the shelves in retail outlets very quickly. In the Fast Moving Consumer Goods (FMCG) sector, one needs to be fast in translating the ideas into new products. There is a requirement to create the products that people trust, enjoy and use in their daily lives. Advertising and marketing have a vital role to play in this.

Qualifications Required FMCG career structures are fairly slow to progress. One may not get as high a package initialy as in some other sectors like IT, Real Estate, etc. Having once entered the secotor, however, candidates would find any number of opportunities and would see their salary packages rise fast enough.There are plenty of options in FMCG sector if you entere as a graduate, but strong educational qualifications are an advantage.

Skills RequiredFMCG sector requires huge amount of commercial awareness; one must have the skills of a team player. Apart from that, good numerical skills, communication and organisational skills are all essential for a successful career in this industry. Key skills will also depend upon the type of position you want to pursue, i.e. marketing, human resources, finance, etc.

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1. Job securityIt is a stable industry. Unlike some other industries, such as automobiles, computers, and airlines, FMCG industry does not suffer from mass layoffs, every time the economy starts to dip. One may drop the idea of buying a car but not the idea of having dinner. This lends FMCG a level of job security unknown in other industries.

2. A high profile industryIndia has 1.1 billion people and all are consumers. Therefore everyone is affected by FMCG sector. People now are getting more & more health conscious. They are getting concerned about what they are eating. All this has become possible because of the frequent display of various advertisements, such as protests against the genetic modification of foods, the growing problem of obesity, etc.

3. Quick experience Consider an example: One person is working in the sales of cars while the other one is working in the sales of juice. At the end of the month, the person who is working for the sales of cars makes a maximum of 2 or 3 sales, if he is fortunate. On the other hand, the other person sells a large number of products every day. Definitely, the juice seller will get more experienced in less time working in FMCG than any other sector, no matter whether in sales, marketing, operations, accounting, etc. In the end, one will land up learning more and gaining a firm grasp of basic business skills.

4. A wide range of experienceOne can have a wide range of choices if one desires a career path in FMCG sector. Wide availability of options for working in a large MNC or a small local company ensures that people in FMCG sector have a range of job roles available to them. The "fast moving" part of FMCGs requires people who are flexible. Transfer from sales to marketing or to operations is very common. In fact all three roles can be played at once in smaller firms. One will get to learn a lot, even if one enters this sector for a short duration.

5. An industry that thrives on innovationFMCG sector gives the opportunity to do creative work. There is a constant requirement of innovation in production, advertising, packaging and branding. FMCG offers an opportunity to express your creativity through developing new ideas for products, as brands compete head to head on the shelf.

6. Nationwide opportunities, both urban and ruralFMCG sector offers opportunities through its connection to the primary sector in rural and urban areas. The sector is particularly attractive for those interested in working in different parts of the country, as it has a nationwide base, unlike many other sectors confined to particular locations.

7. Offshore opportunitiesThe International offices of most FMCG multinationals regularly recruit staff from our country, either for short projects or for longer stints.

Here are seven good reasons why one should pursue one's career in FMCG sector:

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Forecast 2015

• Rural and semi-urban

– 128 million population thrice the urban– Market size growth from 48k to 100k Crores (Growth of 50% at 10%CAGR)– Increase penetration from the current less than 1%– Problems in the rural sector

• Low per capita disposable incomes• Large number of daily wage earners• Acute dependence on vagaries of monsoon• Seasonal consumption• Poor infrastructure – roads and power supply

• Urban– Market 16.5k to 35k Crores (Growth of 100% at 20%CAGR)– Intense competition – severe pressure on margins – Focus on newer products,

such as fruit juices

Source: Assocham Report ‘Future Prospects of FMCG’

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The Indian rural market with its vast size and demand base offers a huge opportunity for investment. Rural India has a large consuming class with 41 per cent of India's middle-class and 58 per cent of the total disposable income. With population in the rural areas set to rise to 153 million households by 2009-10 and with higher saturation in the urban markets, future growth in the FMCG sector will come from increased rural and small town penetration. Technological advances such as the internet and e-commerce will aid in better logistics and distribution in these areas. Already Indian corporates such as HLL and ITC have identified the opportunity and have initiated projects such as 'Project Shakti' and 'e-Choupal' to first, expand rural income, and then, to penetrate this market.

Forecast 2015

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Thank You !!

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