As witnessed India has come up as one of the major emerging economies of the world in the recent years. Due to this enormous growth personal disposable income of consumers has increased to satisfy their lifestyle needs. This trend has proved to be beneficial to FMCG companies as they have been able to achieve high growth in their sales through increase in the penetration of personal products and get consumers to spend more on processed food.
FMCG market is something no one can overlook. Increased focus on farm sector will boost income of the rural population and provide more growth prospects for the FMCG companies. FMCG sector is also likely to benefit from growing demand in the market. Since the per capita consumption for almost all the products is low in the country, FMCG companies have extensive opportunities for growth.
Products which have quick turnover and low cost are known as fast moving consumer goods. These goods are also popularly named as consumer packaged goods.FMCG is the fourth largest sector in Indian economy having total market size of Rs 60,000 crores.
Structural Analysis of FMCG Sector
Characteristics of FMCG products are as follows:
The products cater to usually 3 aspects: necessity, comfort and luxury. They meet the demands of entire cross section of population. Price and income elasticity of demand varies across the products and consumers.
Individual items are of small value although all FMCG products put together form significant part of the consumer budget.
FEATURES OF FMCG BUSINESS
FMCG have wide distribution network and they sell their products directly to the consumers. Major features of this sector include the following:
Design and Manufacturing
Marketing and Distribution
Analysis of FMCG Sector
Low operational costs
Presence of well established distribution networks both in urban and rural areas.
Presence of well known brands in FMCG sector.
Low scope for investment in technology and reaping economies of scale.
Low export levels.
Untapped rural market.
Large domestic market.
Rising income levels i.e. increase in purchasing power of consumers.
Removal of import restrictions resulting in replacing of domestic brands.
Slowdown in rural demand.
Tax and regulatory structure.
With 12.2% of the world population in villages of India, the Indian rural FMCG market is something that no one can overlook. Increased focus and improvement in the farm sector will boost rural incomes which in turn will provide more growth prospects for FMCG sector. In addition to this better infrastructure facilities will improve their supply chain.
Some of the major companies of Indian FMCG Sector which will contribute to this high growth are:
The companies mentioned above are leaders in their respective sectors. The personal care category has largest number of brands that 21 inclusive of lux, lifebuoy, fair and lovely , Vicks and ponds. 11 out of these 21 are HUL brands aggregating Rs .3, 799 crores or 54% of the personal care category. Cigarettes’ account for 17% of the top 100 FMCG sales, and just below the personal care category. ITC alone account for 60% volume market share.
Food category in FMCG sector is gaining momentum with number of launches by HUL, ITC, Godrej and others. This category consists of 18 major brands aggregating Rs 4,637 crores. Amul is one of the India’s leading foods company with good presence in the food category with its ice-creams, curd, butter, milk and so on. Britannia also ranks in the top 100 brands, dominates biscuits category and had launched many products at various prices.
Indian Competetiveness and Comparision with World Markets
The factor’s which make India a competitive player in FMCG sector are the following:
Availability of raw materials
Since India is blessed with diverse agro- climatic conditions, there is a large raw material base for food processing industries. India leads in the production of livestock, milk, sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat, fruits and vegetables. The availability of these raw materials gives India the location advantage.
Labor cost comparison
India is a labor intensive country where cost of labor is very low and is lowest in the world after china and Indonesia. Low labor cost gives the advantage of low cost production. Many MNC’s have established their plants in India to outsource for domestic and export market. Presence across value chain
Indian companies have presence across value chain of FMCG sector. This gives India more competitive advantage.
Recent Developments in the FMCG Sector
FMCG sector is registering an upward trend in growth and this growth story will continue because of the positive budget.
Some steps taken in budget 2007-08 for FMCG sector are:
Reduction of duty on edible oil will have positive impact on Marico.
Full exemption of excise duty on biscuits priced at 50 rupees or less per kg for ITC, Britannia and Parle.
Reduction of custom duty on food processing machinery and their parts from 7.5% to 5 %.
Reduction on excise duties on food mixes 16% to 8% to nil is positive for ITC.
Development of rural infrastructure is on high which is essential for FMCG companies because it is a big market for FMCG. 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.
Challenges Before FMCG Sector
At macro level Indian economy will be equanimous to remain resilient at 8.5% growth. This economic growth would impact large number of population, thus leading to more money in hands of the consumer. Changes in the demographic composition of the population and thus market will continue to impact the Indian FMCG industry.
One of the major challenges which FMCG has to face is rural marketing. Rural India is vast with immense opportunities. 70% of Indian population resides in rural areas and these can bring in much needed volume and help FMCG companies to achieve higher growth. This should be a melody for FMCG companies who have reached saturation point in urban India.