Indian FMCG industry

INDIAN FMCG INDUSTRY:

What is Industry analysis ?

—  Structured study to provide a good understanding of an industry

—  involves reviewing the economic, political and market factors that influence the way the industry develops

—  Focuses on issues like : overview of industry, trends, growth drivers, swot analysis, regulations, major players

—  Supports strategy formulation, know the industry attractiveness, create differential advantage

Overview

—  FMCG - consumables (other than groceries/pulses) people buy at regular intervals

—  toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, and household accessories and extends to certain electronic goods

—  The size of the Indian FMCG industry is estimated at

    around  Rs. 250000 crores representing nearly 2.5% of the country’s GDP

—  In the last decade the FMCG sector has grown at an average of 11% a year;  grown at approximately 17%

                CAGR in the last 5 years

—  The industry is volume driven and is characterized by low margins. The products are branded and backed by skilled marketing, heavy advertising, slick packaging and strong distribution networks. Also, raw material prices play an important role in determining the pricing of the final product

—  The urban market

    accounts  for a major

                chunk of revenues

—  However, high inflation, muted salary hikes, and slowing economic growth have slowed down the industry growth rate since late 2012

—  Combined sales of companies including Hindustan Unilever , Dabur, GodrejConsumers, Emami, Marico, GSK Consumer, Nestle India, ITC and Colgate India grew 13% during the quarter ended June ‘13, down from 15% a year earlier and 22% in June quarter 2011

—  Growth will come from rural dwellers that are expected to see a rise in disposable incomes due to the direct cash transfer scheme, while urban consumers will continue to be affected by the macroeconomic environment. 

Trends:

•Product innovation

•Indian FMCG companies are consolidating their existing business portfolios

•Focus on rural market

•Companies are now focusing on the rural market segment which is growing at a rapid pace and contributes about 33 per cent to the total FMCG market

•Expanding distribution networks

•Companies are now focused on improving their distribution networks to expand their reach in rural India

•Rising importance of smaller-sized packs

•Companies are increasingly introducing smaller stock keeping units at reduced prices. This helps them to sustain margins, maintain volumes from price-conscious customers and expand their consumer base

•Focus on enhancing presence in Africa

•FMCG companies entering Africa as it helps to be close to consumption markets within Africa

•Such foreign investments are encouraged by local governments, as they offer incentives to enter the markets

•Reducing carbon footprint and eco-friendly products

•FMCG players in India are increasingly focusing on reducing their carbon footprint by creating eco-friendly products. They generate the required energy from renewable sources and earn CER credits for the same

•Premiumization

•Consumers are becoming more brand conscious and prefer lifestyle and premium range products given their increasing disposable income

Growth Drivers:

•          Rise of rural consumers

•          Increasing per capita income of urban and rural population

•          Growing popularity of organised retail

•          Government’s pro-industry policies

•          Education and urbanization

•          Greater awareness of products, brands

•          Changing Profile and mind set of consumer

•          Led to new product launches

Changing mind set of consumer

•        shift towards quality products, rather than just the cheaper ones

•       Growth will come from the fringes—categories that are not among the mainstays—such as oats, conditioners, liquid fabric conditioners, and liquid soaps and face wash 

•       Focus on health and wellness is going to fuel the demand for health based food products  viz. Britannia launched Nutrichoice biscuits, Danone launching probiotic yogurt, Dabur introduced a juice with fiber and HUL introduced Soya and multigrain atta, iodized salt, energy drinks

 Sales of olive oil, for instance, exceed that of Saffola, a premium cooking oil from Marico, at grocery retail chain Big Bazaar.

Oats, which didn't exist as a category until three years ago, are now a Rs.200 crore market. 

Need for Innovation

India’s FMCG market is mature, competitive, and crowded with local and global brands. In this market, innovation is critical for:        

Market                

•       Remaining competitive

•       Generating new avenues for sales and profits

•       Driving growth by entering new categories through relevant innovation

•       Increasing market share and moving towards market dominance positions in:   

                Brand share

                Overall FMCG market share

                Category share

•       Growing product and category penetration

               

Consumer          

•       Creating products that match consumers’ evolving tastes, preferences and needs

•       Reaching new customers

•       Growing the share of wallet from current customers

               

Product               

•       Launching new products and keeping the product portfolio fresh

               

Channel              

•       Leveraging new distribution channels to boost revenue and penetration (e g. social media, multi-channel, omnichannel)