2020

FMCG SECTOR ANALYSIS

PALAK MEHTA
MBA CHRIST UNIVERSITY
Introduction

• Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian
economy with Household and Personal Care accounting for 50 per cent of FMCG
sales in India. Growing awareness, easier access and changing lifestyles have
been the key growth drivers for the sector. The urban segment (accounts for a
revenue share of around 55 per cent) is the largest contributor to the overall
revenue generated by the FMCG sector in India However, in the last few years,
the FMCG market has grown at a faster pace in rural India compared with urban
India. Semi-urban and rural segments are growing at a rapid pace and FMCG
products account for 50 per cent of total rural spending.
• There are three major divisions in the sector–food and beverages covering 19
percent of the market, 31 percent of health care, and the remaining 50 percent of
household and personal care. The FMCG sector grew from crore Rs 2,20,852.4
(US$ 31.6 billion) in 2011 to crore Rs 3,68,669.75 (US$ 52.75 billion) in 2017-
18. The sector is further expected to grow to Rs 7,24,759.3 crore (US$ 103.7
billion) by 2020 at a Compound Annual Growth Rate (CAGR) of 27.86 per cent.
In 2019, the sector is projected to rise 11-12 per cent. The urban segment of the
FMCG experienced a growth rate of 8%.

Market size

The Indian retail market is estimated to cross US$ 1.1 trillion by 2020 from US$ 840 billion in
2017, with modern trade expected to grow by 20 per cent-25 per cent annually, which is likely to
boost FMCG companies ' revenues. FMCG sector revenues in FY18 reached Rs 3.4 lakh crore
(US$ 52.75 billion), and are expected to cross US$ 103.7 billion in 2020.

Investments/ Developments
The government has made 100% Foreign Direct Investment (FDI) available in food processing
and single-brand retail, and 51% in multi-brand retail. This would improve jobs and supply
chains, as well as give FMCG brands high visibility in regulated retail markets, raise consumer
spending and promote further product launches.

Some of the recent developments in the FMCG sector are as follows:

• In November 2019, ITC Ltd acquired 33.42 per cent stake in Delectable Technologies,
which is a vending machine start-up.
• Nestle plans to invest Rs 700 crore (US$ 100.16 million) to open a new plant in Sanand
for Maggi.
• ITC to invest Rs 700 crore (US$ 100 million) in food park in Madhya Pradesh
• Patanjali will spend US$743.72 million in various food parks in Maharashtra, Madhya
Pradesh, Assam, Andhra Pradesh and Uttar Pradesh.
• Dabur is planning to invest Rs 250-300 crore (US$ 38.79-46.55 million) in FY19 for
capacity expansion and is also planning to make acquisitions in the domestic market.
• In May 2018, RP-Sanjiv Goenka Group created an Rs 1 billion (US$ 14.92 million)
venture capital fund to invest in FMCG start-ups.

Technological Advancements

Digitization and automation are thus reimagining the traditional sales and distribution set-up of
the FMCG market in India. Innovation has sat at the core of FMCG sector now since last few
years. It is providing sumptuous magnification to several attributes of the industry. We have
come long past the time when customer experience, analytics, store management, chain
management etc. where seen as the biggest FMCG challenges. Not ingraining technology and
halting the digital transformation in the FMCG market is inevitable. Confidently enough, making
that bold statement is just right. As a known fact, the retail sector relies heavily on deep analysis,
consumer behavior research, shifts in market trends and preferences. Therefore, technology is
sublimating FMCG's future. In harsh market environments it has become a must for small and
large-scale companies to survive. Technology lets companies overcome their challenges and
emerge as leaders. Digitization and automation revamp from the very heart of the whole process.
The food companies in India, for example, are channeling great help in controlling the sales and
distribution chains.
• For the big fishes of the FMCG market, new world technology is provider of
dependable and precise R&D facilitation. Connecting the dots, there are hundreds
of flag bearers because of the quality of customization and personalization of
customer experience. Same can be said for chat bots, now more evolved and data-
driven customer services is leveraged by consumers. Bypassing the casualties of a
human-intelligence driven customer service team is easier now.
• Sensing so much going on, it is believed that digitization has become an
influential tool for branding and creating a fact-driven sale. Notably, heaps of
useless data is now converted into meaningful business insight. Hence, improved
sales, customer experience, business operations, B2B relations and distribution
network are enjoyed by businesses.
• Companies need to adopt new technological trend and innovate their business
models continuously in order to avoid the risk of extinction. Advancements in
digital technologies and platforms such as social media, e-commerce, and online
reviews are empowering customers. They hold the power to influence many
decisions within the established companies. New technology is already disrupting
and transforming food industry. Their impact will be felt more in the coming
years. The following technologies are disrupting different stages of the value
chain- from manufacturing to last mile delivery:
➢ Internet of Things
➢ Artificial intelligence / Machine learning
➢ Robotics
➢ Digital traceability
➢ Augmented reality / Virtual reality.
➢ 3D Printing
Government Initiatives

• Some of the major initiatives taken by the government to promote the FMCG sector in
India are as follows:

• The Government of India has approved 100 per cent Foreign Direct Investment (FDI) in
the cash and carry segment and in single-brand retail along with 51 per cent FDI in multi-
brand retail.

• The Government of India has drafted a new Consumer Protection Bill with special
emphasis on setting up an extensive mechanism to ensure simple, speedy, accessible,
affordable and timely delivery of justice to consumers.

• The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of the
FMCG products such as Soap, Toothpaste and Hair oil now come under 18 per cent tax
bracket against the previous 23-24 per cent rate. Also rates on food products and hygiene
products have been reduced to 0-5 per cent and 12-18 per cent respectively.

• The GST is expected to transform logistics in the FMCG sector into a modern and
efficient model as all major corporations are remodeling their operations into larger
logistics and warehousing.
Future Growth
• New production facilities are equipped with machinery to reduce the wastage of products
during production. Transport and infrastructure development are improving the methods
of distribution to even the remotest areas of India.

• There are economical packages and one-time use packs for the people who have less
spending power or who want the ease of unit packs. With the latest packaging
technologies, FMCG companies are able to innovate and manufacture long-lasting
products with the minimum damage of packages during transportation.

India Vision 2030

• By 2030, India will become world’s fifth largest consumer market, according to KPMG.
The FMCG industry has also seen a rise in M&A deals and more investors will pump
money into this thriving sector.
 • As per a report by Indian Brand Equity Foundation, by the year 2015, the Indian FMCG
market will reach US$ 100 billion. With the rising per capita income of the Indian
population and the growth of the rural sector, total consumption expenditure will increase
from US$ 1411 billion in 2014 to US$ 3600 billion in 2020.

• Brands will expand to new markets. FMCG companies will continue to utilize e-
commerce platforms for selling their products. Government initiatives such as the Food
Security Bill, cash subsidies, foreign investment policies etc. will push the growth of the
FMCG sector.

Problems Due to Environment Health & Safety Issues

➢ There are several stages in the manufacturing, promotion, and distribution of FMCG
products. Because FMCG products are consumed by the masses and if anything goes
wrong, there will be the greater number of casualties among the consumers. Therefore,
several training programs for professionals are available to efficiently manage operations
and to effectively implement safety procedures in the food industry.

➢ Soaps and Shampoos may contain chemical ingredients that need to be inaccurate
proportions. Any change in the chemical composition of the products can lead to skin
issues or severe health conditions. Similarly, manufacturing of edible products requires
special attention especially the cleanliness of the facility.

➢ Also, the information printed on the label of the products should be checked by the
relevant teams so as to provide accurate product usage and expiration details. Any lapse
in the printed information can lead to unfortunate events, legal issues and can also lead to
a tarnished brand image.

➢ With growing number of startups and the new initiatives by established FMCG brands,
the industry will continue to offer new products. Also, these are times when the consumer
 is excited to try the new product hitting the shelves. Of course, to manage these FMCG
products there will be a need for more and more skilled professionals.

➢ Training programs are essential for equipping professionals in areas such as new product
development, production technology training, marketing of products, rebranding,
packaging, food preservation, food, and safety management and more.

➢ Environmental is one of the major components of the PESTLE analysis. From the word
environment it may seem that what businesses and companies have to do with this factor.
But the environmental factor plays a very important role in it. As and now the consumer
food industry companies produce different types of the products which uses water as a
basic ingredient in most of its product and besides this sometimes companies use water
on a very large scale which can create problem for the surroundings people and nature.
Because of this government applied certain charges on the usage of water for the big
companies. Following are the charges applicable on the industries.
➢ Water connection charge
➢ Sewerage connection charge
➢ Security deposits for connection and sewerage separately
➢ Fixed/minimum charges
➢ Volumetric charges
➢ Meter charges
➢ Sewerage charge