Fast Moving
Consumer Goods
Learning Objectives
FMCG Evolution
Analysis of FMCG Sector
Scope of FMCG sector
Growth Prospects
Recent Development in FMCG Sector
CSR in FMCG
FUTURE of FMCG sector
What are Fast Moving Consumer
Goods (FMCG)?
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Products which have a quick turnover, and relatively low cost are
known as Fast Moving Consumer Goods (FMCG). FMCG products
are those that get replaced within a year. Examples of FMCG generally
include a wide range of frequently purchased consumer products such
as toiletries, soap, cosmetics, tooth cleaning products, shaving products
and detergents, as well as other non-durables such as glassware, bulbs,
batteries, paper products, and plastic goods. FMCG may also include
pharmaceuticals, consumer electronics, packaged food products, soft
drinks, tissue paper, and chocolate bars.
A subset of FMCGs are Fast Moving Consumer Electronics which
include innovative electronic products such as mobile phones, MP3
players, digital cameras, GPS Systems and Laptops. These are
replaced more frequently than other electronic products.
White goods in FMCG refer to household electronic items such as
Refrigerators, T.Vs, Music Systems, etc.
In 2005, the Rs. 48,000-crore FMCG segment was one of the fast
growing industries in India. According to the AC Nielsen India study,
the industry grew 5.3% in value between 2004 and 2005.
What are FMCGs?
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What are FMCGs?
Things like butter, potato chips, toothpastes, razors,
household care products, packaged food and beverages,
etc. But do we know under which category these things
come? They are called FMCGs. FMCG is an acronym for
Fast Moving Consumer Goods, which refer to things
that we buy from local supermarkets on daily basis, the
things that have high turnover and are relatively cheaper.
FMCG Products and Categories
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FMCG Products and Categories
- Personal Care, Oral Care, Hair Care, Skin Care, Personal
Wash (soaps);
- Cosmetics and toiletries, deodorants, perfumes, feminine
hygiene, paper products;
- Household care fabric wash including laundry soaps and
synthetic detergents; household cleaners, such as
dish/utensil cleaners, floor cleaners, toilet cleaners, air
fresheners, insecticides and mosquito repellents, metal
polish and furniture polish
FMCG Products and
Categories
- Food and health beverages, branded flour, branded
sugarcane, bakery products such as bread, biscuits,
etc., milk and dairy products, beverages such as tea,
coffee, juices, bottled water etc, snack food,
chocolates, etc.
- Frequently replaced electronic products, such as
audio equipments, digital cameras, Laptops, CTVs;
other electronic items such as Refrigerator, washing
machines, etc. coming under the category of White
Goods in FMCG;
FMCG – Evolution
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1950’s-80’s – Low Investment in the sector
 Low purchasing power
 Govt’s emphasis on small scale sector
 HLL and other company’s urbane focus
Post liberalization
 Entry of MNCs
 Focus shifted to getting to rural consumer first
 Others, like Nestle, remained with the urban population
 Latest fad to hit the market is the ‘sachet’ bug.
Mushrooming of regional brands
 Nirma enters and changes the focus to ‘Value for Money’ in the
70’s
 Post liberalization, Jyothi Laboratories, ‘Ghari’ Detergent and
‘Anchor’ toothpaste giving the nation-wide brands a run for their
money.
Advantages
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Large base
India - a large consumer goods spender
Changing lifestyles
Low penetration and low per capita
consumption
Outsourcing hub
Retailing-the new growth area
Analysis of FMCG Sector
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Strengths:
1. Low operational costs
2. Presence of established distribution networks in both urban and
rural areas
3. Presence of well-known brands in FMCG sector
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Weaknesses:
1. Lower scope of investing in technology and achieving economies
of scale, especially in small sectors
2. Low exports levels
3. "Me-too" products, which illegally mimic the labels of the
established brands. These products narrow the scope of FMCG
products in rural and semi-urban market.
Analysis of FMCG Sector
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Opportunities:
1. Untapped rural market
2. Rising income levels, i.e. increase in purchasing power of
consumers
3. Large domestic market- a population of over one billion.
4. Export potential
5. High consumer goods
Threats:
1. Removal of import restrictions resulting in replacing of domestic
brands
2. Slowdown in rural demand
Tax and regulatory structure
Fast Moving Consumer Goods
Supply
Abundant supply in metros. Distribution networks are being
beefed up to penetrate the rural areas.
Demand
HLL expects the FMCG market to triple in market size by
FY10, which highlights the potential.
Barriers to Entry
Huge investments in promoting brands, setting up
distribution networks and intense competition, but the
sector is not capital intensive.
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, which are increasingly visible in
urban markets. Price wars are a common phenomenon.
Scope Of The Sector
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The Indian FMCG sector with a market size of US$13.1 billion is the
fourth largest sector in the economy. A well-established distribution
network, intense competition between the organized and
unorganized segments characterize the sector. FMCG Sector is
expected to grow by over 60% by 2010. That will translate into an
annual growth of 10% over a 5-year period. It has been estimated
that FMCG sector will rise from around Rs 56,500 crores in 2005 to
Rs 92,100 crores in 2010. Hair care, household care, male
grooming, female hygiene, and the chocolates and confectionery
categories are estimated to be the fastest growing segments, says
an HSBC report. Though the sector witnessed a slower growth in
2002-2004, it has been able to make a fine recovery since then.
For example, Hindustan Levers Limited (HLL) has shown a
healthy growth in the last quarter. An estimated double-digit
growth over the next few years shows that the good times are
likely to continue.
Growth Prospects
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With the presence of 12.2% of the world population in the villages of
India, the Indian rural FMCG market is something no one can
overlook. Increased focus on farm sector will boost rural incomes,
hence providing better growth prospects to the FMCG companies.
Better infrastructure facilities will improve their supply chain. FMCG
sector is also likely to benefit from growing demand in the market.
Because of the low per capita consumption for almost all the
products in the country, FMCG companies have immense
possibilities for growth. And if the companies are able to change the
mindset of the consumers, i.e. if they are able to take the consumers
to branded products and offer new generation products, they would
be able to generate higher growth in the near future. It is expected
that the rural income will rise in 2007, boosting purchasing power in
the countryside.
Growth Prospects
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However, the demand in urban areas would be the key growth
driver over the long term. Also, increase in the urban
population, along with increase in income levels and the
availability of new categories, would help the urban areas
maintain their position in terms of consumption. At present,
urban India accounts for 66% of total FMCG consumption, with
rural India accounting for the remaining 34%. However, rural
India accounts for more than 40% consumption in major FMCG
categories such as personal care, fabric care, and hot
beverages. In urban areas, home and personal care category,
including skin care, household care and feminine hygiene, will
keep growing at relatively attractive rates. Within the foods
segment, it is estimated that processed foods, bakery, and
dairy are long-term growth categories in both rural and urban
areas
Indian Competitiveness and Comparison
with the World Markets
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· Availability of raw materials
· Labor cost comparison
· Presence across value chain
Indian Consumer Class
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India has a population of over 1 billion and 4 climatic zones .
Several religious and personal beliefs, 15 official languages,
different social customs and food habits characterize Indian
consumer class. Besides , India is also different in culture if
compared with other Asian countries. Therefore, India has high
distinctiveness in demand and the companies in India can get
lot of market opportunities for various classes of consumers.
Consumer goods marketers experience that dealing with India
is like dealing with many small markets at the same time.
Indian consumer goods market is expected to reach $400 billion by
2010. India has the youngest population amongst the major
countries. There are a lot of young people in India in different
income categories.
Indian Consumer Class
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Consumer goods marketers are often faced with a dilemma
regarding the choice of appropriate market segment. In India
they do not have to face this dilemma largely because rapid
urbanization, increase in demand, presence of large number of
young population, any number of opportunities are available .
The bottom line is that Indian market is changing rapidly and is
showing unprecedented consumer business opportunity
Indian consumer class can be classified according to the
following criteria:
1. Income
2. Socio-Economic status
3. Age demographics
4. Geographical dispersion
Recent Developments in (FMCG)
Sector
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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.
Corporate Social
Responsibility
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FMCG companies have now started taking
Corporate Social Responsibility seriously. For
instance, to encounter domestic violence, Ponds
has tied up with the United Nations Development
Fund(UNDF) for Women.
Surf Excel is funding the education of children.
Most brands link themselves with the social
causes, thereby linking consumers with the
brands and gaining goodwill in the market
Top Ten Players in FMCG
Sector
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1. Hindustan Unilever Ltd.
2. ITC (Indian Tobacco Company)
3. Nestlé India
4. GCMMF (AMUL)
5. Dabur India
6. Asian Paints (India)
7. Cadbury India
8 Britannia Industries
9. Procter & Gamble Hygiene and Health Care
10. Marico Industries
Secondary Players
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1. Colgate-Palmolive (India) Ltd.
2. Godrej Consumers Product Ltd.
3. Nirma Ltd.
4. Tata Tea Ltd.
5. Parle Agro
6. H. J. Heinz
Budget 2007-2008 for FMCG
Sector
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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.
Forecast 2010
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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
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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
Spending Pattern
Per capita consumption
Fmcg Modern Trade
Looking ahead...
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The FMCG sector is characterised by a well-established distribution
network, intense competition between the organised and unorganised
segments and low operational cost. As per the BRIC report, India's per
capita disposable income currently stands at US$ 556 per annum,
which will rise to US$ 1,150 by 2015. With the rise in the share of the
middle class, the FMCG market is all set to treble from US$ 11.6 bn in
2003 to US$ 33.4 bn in 2015. However, poor infrastructure, the
affordability of a product or a service to a rural consumer with low
disposable income, intense competition would be the key challenges.
Nevertheless, with the rapidly growing economy, rising disposable
income, changing consumer expenditure pattern and increasing number
of middle class families, the FMGC market is set to take a big leap in
the coming years.