inbics fmcg report

8/7/2019 Inbics Fmcg Report

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FMCG Sector Report

Indi

www.inbics.


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Table of Contents

Market Overview ......3

Demand Dynamics ..5

FDI Opportunities ......8

Market Outlook ......11


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Market Overview

Total Market Size

The Indian FMCG sector is the fourth largest sector in the economy with a total market size ofUS$18 billion as of 2007.

By 2015, the sector is predicted to scale up to US$33.4 billion.

The sector generates 5% of total factory employment in the country and is creating employmentfor three million people, especially in small towns and rural India1.

Indias FMCG Market Size (In USD Billion)

Sources: Naukri Hub, IBEF, Chennai Online

Key Segments

The FMCG sector consists of four product categories, each with its own hosts of products that have

relatively quick turnover and low costs:

Household Care

Personal Care

Food & Beverage

Product Categories Products

Household Care Personal Care Foods & Beverages

Fabric wash (laundry soaps andsynthetic detergents); Household

cleaners(dish/utensilcleaners, floor cleaners, toiletcleaners, air fresheners,insecticides and mosquitorepellents, metal polish andfurniture polish)

Oral care, hair care, skin care,personal wash (soaps); cosmetics

and toiletries; deodorants;perfumes; feminine hygiene;paper products.

Health beverages; soft drinks;staples/cereals; Beverages bakery

products (biscuits, bread, cakes);snack food; chocolates; icecream; tea; coffee; soft drinks;processed fruits, vegetables;dairyproducts; bottled water; brandedflour; branded

1Naukrihub Web Site: http://www.naukrihub.com/india/fmcg/overview/


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rice; branded sugar; juices etc.Source: CII

Household Care

The fabric wash market and household cleaner market are well in excess of US$1.2billion.

Traditionally, the fabric wash market has driven the majority of Indias total household care sales. Major players in this segment includeHindustan Lever, Nirma and Reckitt & Colman.

Household Care Product Segments Contributions

76%

24% FabricWash(>US$1B)

HouseholdCleaners(>US$239M)

Source: IBEF

Personal Care

Traditionally, personal wash and hair care products, the basics personal hygiene, dominated the

personal care segment with excess of USD$1.8 million. Demand for skin and cosmetic care products, compared to other personal care product categories,

has been relatively low.

Major players in this segment includeHindustan Lever; Godrej Soaps, Colgate-Palmolive,Marico, Dabur and Procter & Gamble.

Personal Care Products Market Sizes (In USD Million)

Source: IBEF


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Food & Beverage2

The size of the food processing industry exceeds US$65.6 billion.

The size of the semi-processed/ready-to-eat food segment is over $1.1 billion.

Of the food processing industry,

o Bread and biscuits sales exceeds US$1.7 billion;

o Health beverage sales exceeds US$ 230 million;

o Ice cream exceeds US$188 million

o Chocolates sales exceeds US$73 million

In the hot beverage market, tea rather than coffee dominates. Coffee is consumed largely in the

southern states.

The soft drink (carbonated beverages and juices) market is in excess of US$1 billion,predominantly urban (>70%), and its consumption is highly seasonal.

Major players in this segment include Hindustan Lever, Nestle, Cadbury and Dabur

Major Players in Each Product Category

ProductCategories MajorPlayersHouseholdCare Hindustan Lever, Nirma and Reckitt & ColmanPersonalCare Hindustan Lever, Godrej Soaps, Colgate-

Palmolive, Marico, Dabur and Procter & Gamble.

Food&Beverages Hindustan Lever, Nestle, Cadbury and DaburSource: CII, IBEF, Naukri Hub

Demand Dynamics

The general factors driving the growth of the FMCG sector are increase in disposable income, rural areas,and companies aggressive promotion of product awareness.

Rise in Disposable Income

With increasing disposable income and subsequent rise in quality of living and hygiene concerns,the average Indians spending on grocery and personal care products will likely increase.

Currently, the average Indian spends about 48%, also the majority, of his total income ongroceries (~40%) and personal care products (~8%)3.

Rise in Disposable Income (In USD Thousands)

2 IBEFs Fast Moving Consumer Goods Report3KSA Technopak Consumer Outlook 2004


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Sources: Euro Monitor, Goldman Sachs BRICS Report

Higher Penetration of the Rural Population

Many companies are deepening their penetration in the rural areas as:o The FMCG sector in the urban areas is becoming quite saturated (though it will continue

to dominate in the next 8 10 years4) while the penetration in the rural areas are onlyabout 1%5.

o The rural areas have and will continue to make up more than 50% (153 million) of

Indias total households and accounting for more than its current 66% contribution tototal FMCG consumption6.

o Rural India has a large consuming class with 41 per cent of India's middle-class and 58per cent of thetotal disposable income7.

o Currently, nearly 34% of the offtake of FMCG companies come form rural areas.Companies like HUL, ITC and Colgate have already established good distributionnetworks in these regions. Other companies would start catering to these regions in nearfuture8.

o Between 2005 and 2010, the FMCG sector in the rural and semi-urban areas willexperience some 50% growth, at a CAGR of 10% and increase its market size to nearlyUS$ 23 billion from the 2005 level of US$11.4 billion.

Rural Vs. Urban Households Growth

4 Red Orbit news:http://www.redorbit.com/news/business/1359302/indias_fmcg_brands_ready_to_move_into_the_fast_lane/index.html

5 The Hindu Business Line: http://www.thehindubusinessline.com/2005/07/19/stories/2005071903080400.htm

6Equitymaster.com:http://www.equitymaster.com/researchit/sectorinfo/consprds/

7 IBEFs Fast Moving Consumer Goods Report8 Equity Master: http://www.equitymaster.com/detail.asp?date=1/9/2008&story=2

+107%


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Rural

(In Millions)

Urban

(In Millions)

2001-02 135 53

2009-10 153 69

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

Aggressive Promotion of Product Awareness

In a volume driven and competitively intense environment, FMCG players are aggressively

promoting their brands to gain product awareness, customer base, and their shares of the

customers wallets.

Promotions include innovative BTL and ATL advertisements that sometimes have education and

social responsibility slants and even extend to highly organized distribution networks in rural

areas.

In 2007 alone, some FMCG companies scaled up their promotion spending to as much as 50%

and even 120%.

Company 2007 Promotion Spending Increase

ITC Foods Increased by 120%

Godrej Consumer Products Increased by 30%, with subsequent increase of11%- 12% of sales each year

GCMFL (Gujarat Co-operative Milk Marketing Federation Ltd Increased by 20%Parle Argo Increased budget by 50%

Source: The Financial Express

Product Promotion Strategies in Rural Areas

Combination of Media &

PersonalizedMarketing

Social Initiatives

Companies relies less on outdoor advertising and

more on radio or TV and one-to-one contact

ro rammes in rural areas.

Hindustan Unilever's whitening brand Fair &Lovely marketing program provides rural womenmicro credit and basics of entrepreneurships and

informs villagers about the company's productthrough contests, paper chart presentations, liveproduct demonstrations and usage basics.


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Source: Red Orbit News

FDI Opportunities

As their incomes and standards of living improve, Indian customers for FMCGs are shifting

towards higher lifestyle categories like skin care, hair care, deodorants, convenience foods, health

foods etc.

In fact, skin care, hair care, deodorants, convenience foods, and health foods are expected to

experience notably higher growth than others in the near term, spurring various types of MNC

investments to improve their lifestyle products businesses.

For personal care lifestyle products, consumers are becoming increasingly willing to pay

premium prices for them. This trend has compelled some companies to raise prices and even

create products aimed at the premium segment.

In fact, deodorants, hair dyes and shampoos alone helped the FMCG industry to grow by

16% in 2007-08 (April-February), and 15% in the same period in 2006-079.

Skin Care Business Investments

9 The Financial Express: http://www.financialexpress.com/news/Deodorants-shampoos-help-FMCG-sector-to-achieve-16-growth-study/296369/


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Company Investment

Lever In 2005, Lever introduces high-end pricedPerfect Radiance and Lakme Matteffect productsto capture premium market share

P&G In 2007, P&G launched four new skin careproducts, including one for anti-ageing and

promoted them through online and printmediums. Its Olay Total Effects productsalone contributed 10%-US$2 billion to Indiastotal personal care market of US$20 billion.

Marico As early as 2002, Marico opened Kaya skin carecenters offering range of skin care treatments.

Sources: Sify, The Times of India

Between 2007-2008, the skin care and cosmetics market will grow18% 10.

In 2007, Indias anti-ageing products market doubled from 2004 and scaled up to US$ 14.2

million. It is expected to continue to grow at a faster pace in coming years.11

Hair Product Business Investments

Company Investment

Godrej Consumer (GCPL) In 2007, GCPL, the second biggest soap makerextended its #1 soap brand into shampoos for themass market

Hindustan Unilever (HUL) In 2007, HUL extended its Dove soap brand intoa range of hair care products for the premium-endmarket

Wirpo In 2006, Wipro exploited its traditional popularproduct, shikakai soaps to extend into the

shampoo market. It re-launched the WiproShikakai soap as one than can nourish hair withthe newly added herbal extracts, almond oil andhair softeners.

Sources: Rediff News, Hindu Business Line

Between 2007 20008, anti-dandruff shampoo will grow 22% and hair dye 30%12

Deodorant Business Investments

Company Investment

Menezes Cosmetics India Pvt Ltd (MCPL) In early 2008, MCPL launched Insignia, amens deodorant product available in five

10 The Financial Express: http://www.financialexpress.com/news/Deodorants-shampoos-help-FMCG-sector-to-achieve-16-growth-study/296369/11 The Times of India:http://timesofindia.indiatimes.com/Business/PG_to_enter_Indian_skin_care_market/articleshow/2255492.cms12 The Financial Express: http://www.financialexpress.com/news/Deodorants-shampoos-help-FMCG-sector-to-achieve-16-growth-study/296369/


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fragrances. Will also extend product portfolio forwomen in near future.

Wipro, Unza In 2007, Wipro acquired Singapore-based UnzaHoldings Ltd, Southeast Asias largest personalcare products maker for US$246 million. Dealallows Wipro to tap into Unzas successful

portfolio of deodorants to supply to India.P&G, Gillette In 2005, P&G acquired Gillette to mark greater

presence in Indias shaving gels and aftershavesmarkets aside from other personal care productsbusinesses.

MTV In 2003, MTV entered the FMCG businessoffering a range of unisex eau de parfums, eau detoilettes, after shaves and deodorants.

Sources: Hindu Business Line, Digital Inspiration

According to industry estimates, the organized deodorant market, which is replacing the

traditional talcum powders market (especially in the major metropolitan areas), is growing at 15%

annually13.

Convenience and Health Foods Business Investments

Company Investment

Nestle In 2008, Nestle plans to capitalize on the healthand convenience food consumption trend byexpanding its brand portfolio through newlaunches in dairy products (probiotic and low fatdahi, milkshake and fruit yoghurt), preparedfoods (Maggi Healthy Soups, Rice Noodles) andbeverages (Nescafe Mild and an expanding chainof vending machines).

Kellogg In 2008, Kellogg position its Special K cereal asa health management alternative for urbanwomen

ITC ITC Foods, who entered into the health foodcategory in early 2007 with Sunfeast Sachin FitKit range, today earns more than 50% of itsrevenue from health-related products.

Pepsi, Coca Cola From 2008, Pepsi and Coca Cola will grow focuson non-carbonated drinks. Pepsi is consideringlaunching milk-based drinks. Coca Cola willintroduce energy and sports drinks this summer.

Dabur In 2007, Dubur offered the 'Real Activ' juicesportfolio with the introduction of first packagedvegetable juice. In 2008, Dabur will low-fruitconcentrate drinks and low calorie baked goods.

Sources: The Hindu Business Line, IBEF, MoneyControl.com, The Economic Times

Some retail chains are allocating 2%- 5% of their retail spaces for organic products14.

13 Rediff News: http://in.rediff.com/money/2006/dec/15products.htm


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Some of Indias organic retailers include the Khadi Gramudyog, Navdanya, Greenway,Namdharis, Natures Basket, Organic India, Satvic, Sresta,IITC Organic and Fab India15.

Market Outlook

14 India Reports: http://chilli.blogs.com/indiareports/company_profiles/index.html15 India Reports: http://chilli.blogs.com/indiareports/company_profiles/index.html


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With the income rise and consequent living standards improvements, more Indian consumers will shift

their needs from basic to premium. Beyond basic food and sanitary needs, they will desire more what

they consider luxuary life style products - some of which extend into FMCGs personal care and health

& wellness product categories. Particularly skin care, hair care, deodorants, convenience foods, and

health foods are expected to experience notably high growth in the near term.

With more players entering the FMCG sector, particularly the skin care, hair care, deodorants,

convenience foods, and health foods markets,

Indian consumers have more choices than ever.

Some are even willing to pay premium prices for their higher aspirations

Margin are becoming thinner for FMCG players as they battle higher raw material costs and

invest more in marketing, slick packaging and distribution networks to gain volume and

retain/gain market shares

Consumers FMCG Players

More choices available

Purchasing power increases,

especially in rural areas

Demand shift from basic

products to more premium

lifestyle products

Willing to pay premium prices

Increase growth via price hike

Keep pulse on new customer

insights and product developments

to cater to changing needs

Focus on growth engines: health

and personal care product

categories

Penetrate rural areas

Invest into creative promotions,


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What does the context on the FMCG environment mean for FMCG players? Their strategies will likely

take the form of all or some of the outlined below:

Increase growth via price hike

o Define a niche and strong positioning, and capitalize on the customer segments willing to

pay premium prices for certain personal care and health& wellness products

Keep pulse on new customer insights and product developments to cater to changing needs

o Stay tuned to shifting consumer demands and forces shaping them, especially those in the

rural areas

o Invest into product innovations, whether it be in the products ingredients or packaging

that address changing consumer demands

Focus on growth engines: health and personal care product categories

o Product developments will likely be focused on the health and personal care product

categories, particularly deodorants, skin care, hair products, and health & convenience

foods for both men and women.

o Brand some products as premium as they can be key value growth drivers.

o Target the premium products to the urban consumers first as they are far ahead of the

rural consumers in terms of products awareness and demands.

Penetrate rural areas

o

Develop and widen distribution network especially in the rural areas as they promisehuge potential (while being aware of the inadequate infrastructures in some areas)

Invest into creative promotions, reaching especially rural areas segments

o Aggressively educate about and promote the use of FMCG products, especially in the

rural areas.

o Rely on localized distribution networks, personalized marketing and social initiatives as

traditional media channels may not be accessible to the rural consumers.

About INBICS

INBICS, with its specialized focus and in-depth expertise on India, provides market intelligence and consulting for

Asian firms seeking to explore business opportunities in India through joint ventures, licensing, franchising,

outsourcing and strategic alliances.

INBICS through its combination of client service offices in Seoul and Hong Kong and extensive on-ground network

in India brings Indian market access right to the doorstep of Asian firms. For further information email us at

[email protected]


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providing research-based advisory services for MNCs exploring market opportunities in the Asia Pacific region and

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