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Fast moving consumer goods (FMCG), which constitute the fourth largest sector in the Indian economy, are likely to reach $74 billion in 2018 and $20.6 billion by 2020. High consumer demand is enabling various brands to emerge in the Indian market and generate a lot of revenue. While the average FMCG sector has witnessed an annual average growth of about 11% in the last few years, the overall  market is expected to increase at a Compound Annual Growth Rate (CAGR) of 14.7% to $110.4 between 2012 and 2020. Similarly, an IBEF report anticipates the rural FMCG market to increase at a CAGR of 17.7% to reach $100 billion during 2012-2025.

Growth drivers

Growing awareness, easy access to materials and a shift in lifestyle have considerably been the growth drivers for the consumer durable goods market. Government’s Make in India project and regulatory frameworks like relaxation of licence rules and approval of 51% foreign direct investment (FDI) in multi-brand and 100% in single-brand retail are the turning points in this sector. Digitisation will also be a major thrust for the FMCG sector and influence buying consumer patterns.

According to a CII-BCG Report ‘Re-Imagining FMCG in India’, “Households with more than 10 lakh of annual income would spend around 50% in this category. This would lead to premiumisation across categories – from unbranded to branded and luxuriating of products. They also introduced an approach called the demand centric growths that helps, companies demystify the consumer decision making process, i.e., understand how and why consumers make choices.”

The report also estimates that by 2020, more than 150 million consumers would be digitally influenced in FMCG and their decision-making process would be influenced by  digital considerations. FMCG companies would need to build capabilities in digital marketing.

Hari Menon, Co-founder and Chief Executive Officer, Bigbasket.com, also said that the one trend that would shape and impact the future of FMCG companies would be their ability to adapt to the digital world. The next decade will see digital technologies ruling consumer behaviour. The next generation will live their lives digitally. Apps, social media, advanced messaging, and analytics/big data will rule. It’s critical for FMCG companies to build capability in this space.

Consumer products manufacturers ITC, Godrej Consumer Products Limited (GCPL), Dabur, and Marico had healthy sales in FY15 and F16.  ITC has generated highest revenue till FY16. IBEF also states that during 2015-16, seven leading FMCG companies in the country have fared better than their multinational peers, in terms of revenue growth. In December 2016, GCP acquired remaining 49% in Kenyan Co Charm Industries and Reckitt Benckiser posted a 14% growth in sales. The biscuits and confectionery maker, Parle Products, is aiming to increase its market share in the premium biscuits category from 15% in 2016-17 to around 20% by 2017-18.

Emerging brands like Patanjali with low pricing, quality product, product innovation, and cultural appeal are a adding a new dimension to the Indian FMCG sector. The constant competition between the leading brands is undoubtedly enabling them to produce the best for their customers.

FMCG reaches the rural

Rural areas aren’t much behind their urban counterparts. “Majority of Consumer durable products are easily available in the rural markets as well,” said Pranab Ghosh, an electrician hailing from the outskirts of Kolkata.

“May it be toiletries, detergents, food products or non-durables like bulbs, batteries, and paper products, all products are easily available in the market near us,” he said.

The Indian urban market accounts for 65% of total revenues in the consumer durable sector. The penetration of brands is also likely to increase consumption of goods in the rural areas. In terms of market share, food product leads the consumer durable market with a share of 43%, following the personal care sector which constitutes  22% and fabric accounting for a 12% share in the market.

Neilsen states that distribution growth, innovations around sachet offerings, employment rates, and the index of industrial production (IIP) are key influencers of FMCG sales in India.

Ajay Mimani, Director, Ganesh Sharbat, told BE, “Recently we have come out with `1 sachet of sauce and pickles primarily for the rural areas. As our main content is sugar which is quite costly, we are keeping the packaging small for cost cutting measures and easily affordability for every rural household.”

Recent governmental measures like loan waiver, national rural employment guarantee schemes etc. have boosted their purchase power. Companies like Hindustan Unilever Ltd.,  ITC and other corporate giants are still tapping potentials in the rural retail market.

ITC’s e-Choupal, launched in 2001, had turned out to be one of the largest initiatives in rural India. ITC has projected itself as India’s ‘kisan’ company and involved farmers in the management of the entire e-Choupal initiative, which was designed to deal with the challenges of Indian agriculture like fragmented farms, weak infrastructure, etc.

Hindustan Unilever Limited (HUL) had launched its project Shakti way back in 2001. The main aim of Shakti was to provide rural women with various income-generating opportunities.

An IBEF report states that the rural FMCG market accounts for 40% of the overall FMCG market in India in terms of  revenue. Amongst the leading retailers, Dabur generates over 40- 45% of its domestic revenue from rural sales. HUL rural revenue accounts for 45% of its overall sales while other companies earn 30- 35% of their revenues from rural areas.

Government initiatives like Indira Awas Yojna, Rajiv Gandhi Grameen Vidyutikaran Yojna, The Mahatma Gandhi National Rural Employement Guarantee Act, The Swarnjayanti Gram Swarozgar Yojna, and the Pradhan Mantri Rojgar Yojna have generated awareness among the rural people.

Prospects

According to the PwC-FICCI report, ‘Winds of change, 2013’, the wellness consumer, nutrition foods, beverages and supplements comprise a `145 billion to 150 billion market in India and this market is growing at a CAGR of 10% to 12%. Global and local FMCG brands have started investing in health and wellness. Leading global and Indian food and beverage brands have embraced this trend.

A PwC report also states that FMCG companies need to focus on R&D and innovation as a means to grow the business. At the same time, product lifecycles are shrinking, companies of consumer durables and electronics are launching new products.

Digitisation and e-commerce sites would aid the FMCG companies to perform bigger and better. According to Suresh  Narayanan,  Chairman and Managing Director, Nestle India Limited, “In India, the single most important challenge will be the multiple usage of channels by  shoppers and consumers. E- commerce platforms will jostle for share of wallet traditionally going to unorganised trade and the organised trade banners. This will define portfolio, shopper insights, occasion, pricing, and emerging niche
opportunities for marketers.”

However, the FMCG sector is eagerly waiting for the roll out of the Goods and Services Tax (GST) in April 1, as the rate of GST on services is  likely to be 14% and on goods 20%, which would considerably reduce the supply chain constraints and improve competitiveness of FMCG companies against unorganised players. Giants like PepsiCo., Dabur, and HUL are aligning their supply chains, IT infrastructure, and warehousing systems ahead of GST to  facilitate seamless movement of goods. Excise duty on instant tea, quick brewing black tea, and ice tea would be decreased to reduce the retail price by 30%.