Consult Club, IIM Ahmedabad October 2017

Sector Report: FMCG

Introduction Urban & Rural FMCG Market
Fast-moving consumer goods (FMCG) sector is the 4th largest sector A shift to the organized sector, easy
in the Indian economy. Growing awareness, easier access and access/ availability of products, rapid
changing lifestyles have been the key growth drivers for the sector. increase in penetration levels and a
The urban segment (accounts for a revenue share of around 60 per growing rural consumption are
cent) is the largest contributor to the overall revenue generated by the expected to drive growth in the
FMCG sector in India and recorded a market size of around US$ 29.4 FMCG sector.
billion in 2016-17. However, in the last few years, the FMCG market
Rural consumption has increased, led
has grown at a faster pace in rural India compared with urban India.
by a combination of increasing
Semi-urban and rural segments are growing at a rapid pace and
incomes and higher aspiration levels,
FMCG products account for 50 per cent of total rural spending.
there is an increased demand for
branded products in rural India. The
rural FMCG market in India is
expected to grow at a CAGR of 14.6
per cent, and reach US$ 220 billion by
2025 from US$ 29.4 billion in 2016.

The overall Retail market in India is estimated to reach US$ 1.1 trillion
by 2020 from US$ 672 billion in 2016, with modern trade expected to
grow at 20 per cent - 25 per cent per annum, which is likely to boost
revenues of FMCG companies.

Household and Personal Care (50 per cent). Includes oral

care, hair care, skin care, cosmetics/deodorants,
perfumes, feminine hygiene and paper products, Fabric Industry Trends
wash, household cleaners etc. Modern
On retail
the other is expected
hand, with the to reach
share of
US$ 180 billion in 2020
unorganised market in the FMCGfrom US$ 60
billion falling,
sector in 2015.the Traditional
organisedretail is
sector
Health care (31 per cent), includes OTC products and
Segments expected isto grow
growth expectedat 10toperrise
centwith
and
ethicals.
modern retail growth
increased level rate of is expected
brand
to be 20 per cent
consciousness, in future.
also augmented by the
Food and Beverages (19 per cent): includes health growth in modern retail.
beverages, staples/cereals, bakery products, snacks, People are gracefully embracing
chocolates, ice cream, tea/coffee/soft drinks, processed Ayurveda products, which has
fruits and vegetables, dairy products, and branded flour
resulted in growth of Patanjali
Ayurveda as an FMCG major.
Key Opportunities Growth Drivers
The government has allowed 100 per cent Foreign Direct Investment
(FDI) in food processing and single-brand retail and 51 per cent in Shift to organized market
multi-brand retail. This could bolster employment and supply chains, Increased level of brand consciousness
and also provide high visibility for FMCG brands in organised retail Growth in Modern retail
markets. The sector witnessed healthy FDI inflows of US$ 12.25 Increase in Penetration
billion, during April 2000 to June 2017. Low current penetration in various
categories indicate scope for volume
Another major factor propelling the demand for food services in growth
India is the growing youth population, primarily in the countrys Attractive investment as FMCG products
have demand throughout the year
urban regions. India has a large base of young consumers who form
the majority of the workforce and, due to time constraints, barely get Easy Access
time for cooking. Greater availability of products through
online retail channels

Rural Consumption
Increased incomes and higher
aspirational levels in rural market
Huge untapped market - high potential

Industry Buzz
ITC Ltd has forayed into the frozen
food market with the launch of frozen
prawns and further plans to launch
frozen vegetables and fruits, in a move
towards reaching Rs 1 trillion (US$
15.54 billion) in FMCG revenue by
2030.
Porter's Five Forces Analysis
Indian FMCG major, Patanjali
Challenges Ayurved, is targeting a 10-fold growth
The Indian FMCG companies face aintense in sales and is set to achieve a turnover
Online portals are expected to play key rolecompetition
for companiesfrom the
trying
players in the organized and the unorganized sector. Further, of Rs 1 lakh crore (US$ 15.52 billion)
to enter the hinterlands. The Internet has contributed in a big way,
aggressive price wars and increasing advertisement and promotional over the next five years.
facilitating a cheaper and more convenient means to increase a
activity also heighten competition.
companys reach. Britannia Industries Ltd (BIL), is
Increasing abundance of counterfeit goods- Trade of counterfeits and setting up its largest plant ever, in
Indian consumers
pass-offs productshave
is abeen highly
serious adaptable
concern for to
thenew and innovative
companies in the
Ranjangaon, Maharashtra, with an
products.
FMCG For instance
sector. there has
The top brands been any
within an easy acceptance
category of mens
be it cosmetics,
investment of Rs 1,000 crore (US$
detergents or soaps are affected the most by counterfeiting
fairness creams, flavored yoghurt, cuppa mania noodles, gel based and pass-
offs. 156.89 million).
facial bleach, drinking yogurt, and sugar free Chyawanprash.
Consumer Dabur India Ltd set up its largest
With the riseHealth and Safety
in disposable is especially
incomes, critical forconsumers
mid and high-income F&B and
Personal care segment which have been under high public and manufacturing plant globally, spread
in urban areas have shifted their purchase trend from essential to
regulatory scrutiny recently. over 30 acres, at a cost of Rs 250 crore
premium products, which presents a great profit potential for major
There in Tezpur, Assam, which will produce
FMCG is lack of
players basic
going economy infrastructure like physical and
forward.
telecom connectivity, non-availability of cold-chains and power to Dabur's complete range of ayurvedic
sustain cold-chains. Hence companies have to make significant medicines, health supplements&
infrastructural investments across their supply chain in order to personal care products.
continue to tap into the rural markets.