FMCG SECTORFMCG SECTOR

PRESENTED BY:PRESENTED BY:ABHIJEET BELTHARIAABHIJEET BELTHARIA

MANIKANT SINHAMANIKANT SINHASHIVANGI BARIARSHIVANGI BARIAR

DWARKA NATH GUPTADWARKA NATH GUPTAABHISHEK KUMARABHISHEK KUMARRADHA KUMARIRADHA KUMARI

ABOUT FMCGABOUT FMCG

• Products having a quick turnover and relatively low cost.

•They get replaced within a year.

•Also known as consumer packaged goods.

•They cater to 3 very distinct aspects- necessity, comfort,

luxury.

•Consumer spends little time on the purchase decision.

•Limited inventory of these products are kept.

• Brand switching is often induced by heavy advertisement,

recommendation of the retailer or word of mouth.

INDIAN FMCG SECTOR IN 2003INDIAN FMCG SECTOR IN 2003

ABOUT FMCG SECTORABOUT FMCG SECTOR

fourth largest sector of Indian economy with total market size in fourth largest sector of Indian economy with total market size in

excess of $14.7 billion in Oct 2009.excess of $14.7 billion in Oct 2009.

Characterized by:Characterized by:

Well established distribution networkWell established distribution network

Intense competition between organised & unorganised segmentsIntense competition between organised & unorganised segments

Low operational costLow operational cost

Strong brandingStrong branding

directly related to the population directly related to the population

expected to grow by over 60% by 2010 (as per HSBC report)expected to grow by over 60% by 2010 (as per HSBC report)

INDUSTRY SEGMENTSINDUSTRY SEGMENTS

Personal Care Household

Care

Spirits and Tobacco

Branded & packaged food and

beverages

Major PlayersMajor Players

Segment Major Players

Household careHUL, Nirma, Godrej consumer products, ITC,

P&G, Dabur, Reckitt & Colman

Personal careColgate-Palmolive, HUL, Dabur, Lakme, Marico,

Emami, P&G, Himalaya ITC

Food & beverages

Parle Agro, Britannia, ITC, Nestle, Cadbury India, Dabur Pepsico; United Breweries,

Coca-Cola, GlaxoSmithKline

Market sizeMarket size

Market size of various segments in Rs. Crores

8300

120003400

3800

2700

3500

4600 Personal wash

Detergent

Skincare

Haircare

Shampoos

Oral care(toothpaste)

Food segment

Source: UN Population Division: Medium variant

Some FactsSome Facts

  Urban Rural

Population 2001-02 (mn household)53 135

Population 2009-10(mn household)69 153

% Distribution (2001-02)28 72

Market (Towns/Villages)3768 627000

Universe of Outlets (mn)1 3.3

Source: Statistical Outline of India (2001-02), NCAER

Top 10 FMCG Companies

Hindustan Unilever Ltd.

ITC (Indian Tobacco Company)

Nestlé India

GCMMF (AMUL)

Dabur India

Asian Paints (India)

Cadbury India

Britannia Industries

Procter & Gamble Hygiene and Health Care

Marico Industries

FMCG – EvolutionFMCG – Evolution

1950’s-80’s – Low Investment in the sector1950’s-80’s – Low Investment in the sector

Low purchasing powerLow purchasing power

Govt’s emphasis on small scale sectorGovt’s emphasis on small scale sector

HLL and other company’s urbane focusHLL and other company’s urbane focus

Post liberalizationPost liberalization

Entry of MNCsEntry of MNCs

Focus shifted to getting to rural consumer firstFocus shifted to getting to rural consumer first

Strengths:Strengths:

Low operational costsLow operational costs Presence of established distribution Presence of established distribution

networks in both urban and rural areasnetworks in both urban and rural areas Presence of well-known brands in FMCG Presence of well-known brands in FMCG

sectorsector

Weaknesses:

Low exports levelsLow exports levels products which illegally mimic the labels products which illegally mimic the labels

of the established brands narrow the of the established brands narrow the scope of FMCG products in rural and scope of FMCG products in rural and semi-urban market.semi-urban market.

Opportunities:

Untapped rural marketUntapped rural market Rising income levels, i.e. increase in Rising income levels, i.e. increase in

purchasing power of consumerspurchasing power of consumers Large domestic market- a population of Large domestic market- a population of

over one billion.over one billion. Export potentialExport potential High consumer goods spendingHigh consumer goods spending

ThreatsThreats::

Removal of import restrictions resulting in Removal of import restrictions resulting in replacing of domestic brandsreplacing of domestic brands

Tax and regulatory structure Tax and regulatory structure

Porter’s Five Forces ModelPorter’s Five Forces Model

Threat of New

Entrants

Bargaining Power of Buyers

Threat of Substitute Products

Bargaining Power of Suppliers

Rivalry Among Competing Firms in

Industry

Implication of Porter’s Model to FMCG Implication of Porter’s Model to FMCG sectorsector

Barriers to Entry Huge investments in promoting brands setting up distribution networks intense competition

Bargaining Power of Suppliers

Some of the companies are integrated backwards, which reduces the supplier's clout.

Manufacturing is largely outsourced.

Bargaining Power of Customers

In case of branded products, there is little that the consumer can influence, but intense competition within the FMCG companies results in value for money deals for consumers (e.g. buy one, get one free concept).

Competition Competition is faced from both domestic, MNCs and also from cheaper imports.

Price wars are a common phenomenon.

PASTPAST

FMCG sales grew by 14.8 per cent in the April to September period & by seven per cent in the October-November 2009 period.

top 10 players saw a deceleration in sales growth from 9.9% in Apr-Sep to 3.3% in Oct-Nov period.

registered a 12% growth in 2009 despite the economic downturn The Sector accounted for 5 per cent of the total factory employment and

created employment for over 3 million people in downstream activities in 2007

Source: AC Nielsen data

Morgan Stanley report

Source: Rural Marketing Association of India

Rural per capita consumption to equal Rural per capita consumption to equal current urban levels by 2017current urban levels by 2017

Industry analysis expect the FMCG Industry analysis expect the FMCG sector in rural areas to grow 40% against sector in rural areas to grow 40% against 25% in urban25% in urban

Source: Rural Marketing Association of India

Pattern of salesPattern of sales

sales of HUL in various segments

05

101520253035404550

April 2009( %)

April 2010 ( %)

Source: Nielsen data

FDI PolicyFDI Policy Automatic investment approval up to 100 per cent foreignAutomatic investment approval up to 100 per cent foreign

equity or 100 per cent for NRI and Overseas Corporate Bodiesequity or 100 per cent for NRI and Overseas Corporate Bodies

(OCBs) investment allowed for most of the food processing(OCBs) investment allowed for most of the food processing

sector ; exceptions:-sector ; exceptions:-

malted food,malted food,

alcoholic beverages and alcoholic beverages and

those reserved for small scale industries (SSI). those reserved for small scale industries (SSI).

24 per cent foreign equity is permitted in the small-scale sector.24 per cent foreign equity is permitted in the small-scale sector.

Temporary approvals for imports for test marketing can also be Temporary approvals for imports for test marketing can also be

obtained from the Director General of Foreign Trade.obtained from the Director General of Foreign Trade.

PRESENTPRESENT

Strong volume and price hikes led to the Strong volume and price hikes led to the sector grow at a strong 12% growth in sector grow at a strong 12% growth in 2009 2009

April 2010 recorded the highest sales April 2010 recorded the highest sales growth in eight months. growth in eight months.

data from market researcher Nielsen.

FMCG in rural IndiaFMCG in rural India

Expected revenue growth for Expected revenue growth for 44thth quarter quarter

Cost competitiveness of IndiaCost competitiveness of India (in terms of labour cost)(in terms of labour cost)

Income level of FMCG sectorIncome level of FMCG sector

UNION BUDGET & FMCG UNION BUDGET & FMCG SECTORSECTOR

Budget measuresBudget measures ImpactImpact

Allocation of Rs 661 bn toward Allocation of Rs 661 bn toward rural infrastructure development .rural infrastructure development .

help provide FMCG companies help provide FMCG companies better access to the rural heartlandsbetter access to the rural heartlands

Adjustment in income tax slabs Adjustment in income tax slabs increase the disposable income in increase the disposable income in

the hands of urban consumersthe hands of urban consumers Reduction in duty of replaceable Reduction in duty of replaceable kits for household type water filters kits for household type water filters

positive for HUL which has positive for HUL which has launched a water filter nationally. launched a water filter nationally.

Decrease in excise duty on Decrease in excise duty on

corrugated boxes and cartonscorrugated boxes and cartons reduced packaging costs reduced packaging costs

Contd…Contd…

Increase in excise duty for Increase in excise duty for cigarettes and tobacco cigarettes and tobacco

negative for companies like ITC, negative for companies like ITC, VST and Godfrey Phillips as it will VST and Godfrey Phillips as it will increase the price of cigarettes. increase the price of cigarettes.

Spending on roads and Spending on roads and concessions for setting up concessions for setting up warehousing and cold storages warehousing and cold storages

positive for companies like Nestle, positive for companies like Nestle, HUL, ITC and Britannia as it would HUL, ITC and Britannia as it would help provide better logistics and lower help provide better logistics and lower wastages. wastages.

Allocation of Rs 401 bn towards Allocation of Rs 401 bn towards MNREGSMNREGS

improved living standards & improved living standards & spending abilitiesspending abilities

Focus on rural spending Focus on rural spending big positive for most FMCG big positive for most FMCG companies that have started targeting companies that have started targeting the rural sector the rural sector

futurefuture

expected to register a 15% growth in 2010 expected to register a 15% growth in 2010 by 2030 India’s population will be around 1.450 Billionby 2030 India’s population will be around 1.450 Billion FMCG Industry which is directly related to the FMCG Industry which is directly related to the

population is expected to maintain a robust growth population is expected to maintain a robust growth rate.rate.

FutureFutureSegmentSegment OpportunitiesOpportunities

Dairy Based Products only around 15 per cent of milk is processed. The organized liquid milk business is in its infancy & has large long-term growth potential.

Packaged Food Only about 10-12 % of output is processed & consumed in packaged form, thus highlighting the huge potential for expansion.

Beverages More than 50% of market share is capture by unorganized players highlighting high potential for organized players.

Oral Care remains under penetrated in India with penetration rate around 50%

Company Prospects Company Prospects

Hindustan Unilever Limited

lowering its expenditure on packaging across its portfolio of food brands as part of

a wider cost-cutting drive.

Unilever’s product - Pureit (a water purifier) has received the UNESCO Water

Digest Water Award 2008-2009.

Procter & Gamble Hygiene & Health Care Limited (P&G)

21 product categories out of which only 8 product have presence in India

planning to launch the rest 13 product in India.

aggressive plan to set up 20 new factories across the World out of which 19 is

expected to come in emerging markets (BRIC)

Godrej Consumer Products Limited (Godrej)

acquired 100 per cent stake in the Kinky Group Limited, South Africa (hair

segment)

Dabur India Limited (Dabur)

entered into the malted food drink market with the launch of a new health drink

“Dabur Chyawan Junior “

acquired 72.15 per cent of Fem Care Pharma Ltd (FCPL) for Rs 203.7 Crores

got approval from Government of Himachal Pradesh to set up a medicine

manufacturing unit .

Reasons to consider a Reasons to consider a career in FMCGcareer in FMCG

1. Its a stable industry

2. Its a high profile industry

3. You get a depth of experience very quickly

4. You can get a wide range of experience

5. Its an industry that thrives on innovation

6. There are opportunities nationwide, both urban and rural

8. Lots of choices and opportunities for advancement