IIP on Fast Moving Consumer Goods

INTRODUCTION:

 Fast-moving consumer goods: are products that are sold quickly and at
relatively low cost.

 Examples of FMCG generally includes a wide range of frequently purchased

consumer product such as  milk, gum, fruit and vegetables, toilet paper,
soda, beer and over-the-counter drugs like aspirin toiletries, soap,
cosmetics, teeth cleaning products and plastic goods, shaving products and
detergent.

 As well as other non-durables such as glassware, light bulbs, batteries,

paper products and plastic goods

 Though the absolute profit made on FMCG product is relatively small, they
generally sell in large quantities, so the cumulative profits on such
products can be large..

 Consumer generally puts less thought into the purchase of FMCG than they
do for other products.

 FMCG products are generally replaced or fully used up over a short period
of days, weeks or months, and within one year.

 FMCG MARKET HAS THREE MAIN SEGMENTS

1. Household and Personal care: Market share 50%

Oral care: Toothpaste, toothbrush, mouth gel

Hair care: – L’Oreal

Skin care: Face wash and Creams

Cosmetics: - Lakme, Himalaya

Deodorants, perfumes: feminine hygiene and

Paper products: Paper cups, paper plates, Craft papers

Fabric wash: such as Ariel, Tide Bar, Tide Detergent, Nirma washing powder etc.

Household cleaners: Phenyl, surface cleaner

2. Food & beverages: 19%

Health beverages: Horlicks, Complain, Bournvita

Staples/cereals: - Cereals and popcorn etc.

Bakery products: Bread, Candy, Sweets, Cakes

Snacks: Boondi, jalebi, halva, masala puri

Chocolates, ice cream, tea/coffee/soft drinks, processed fruits and vegetables,

dairy products, and branded flour.

Health care: 31%

SEGMENT REVENUE
 REVENUE
SKIN CARE
5%
DIGESTIVE
7%
HOME CARE HAIR CARE
6% 23%
OTC & ETHNIC
9%
ORAL CARE FOOD
15% 19%

HEALTH
16%

Hair Care is the leading segment, accounting for 23 per cent of the overall market
in terms of revenue

Food Products is the 2nd leading segment of the sector accounting for 19 per cent
followed by health supplements & oral care which has a market share of 16 per
cent & 15 per cent, respectively

 Market Growth

 Right now Indian FMCG market is around USD 49 billion i.e.

RS3234000000000

 Due to increase in population and rise in income level Indian FMCG market
is expected to boost.

 India has a population of more than 1.2 Billion which is just behind China.

 According to the estimates, by 2030 India population will be around 1.50

billion.

 And will surpass China to become the world largest in term of population.

 FMCG industry which is directly related to the population is expected to

maintain a robust growth rate.
  During 2016–2020, FMCG market in India is expected to grow at a
Compounded Annual Growth Rate (CAGR) of 20.6 per cent.

 And is expected to reach USD103.7 billion by 2020.

 Consumption

 The more is the consumption the more will be the growth.

 As I said the Indian population is increasing so the consumption will also

increase.

 Total consumption expenditure in 2014 was USD1411 billion i.e.

RS77605000000

 Which is expected to reach USD3600 billion by 2020 i.e. RS

23760000000000 at a Compounded Annual Growth Rate (CAGR) of
16.89%.

 Disposable Income:

Amount of discretionary income an individual has to purchase goods and

services. Higher disposable income generally means a higher amount of
consumer spending.

 Rural India’s per capita disposable income

 As per the news in Business line on February 25’ 2015 Rural India’s per
capita disposable income is USD516 in 2015 i.e. Rs 30960.

 And is estimated to rise to USD631 by 2020 i.e. Rs 37860.

 Rural Consumption

 Rural India accounts for more than 700 million consumers or 70% of the
Indian population and accounts for 50% of the total FMCG market.

 As of 2016, the overall rural FMCG consumption stands at an estimated

USD29.4 billion i.e. RS 194000000000.
 Due to increase in disposable income the rural FMCG market in India is
expected to grow at a CAGR of 14.6 per cent, during 2016–2025 and reach
to USD100 billion by 2025.

 STRONG GROWTH IN THE INDIAN FMCG SECTOR

 The FMCG sector in India generated revenues worth USD47.3 billion in

2015

 Over 2007-16F, the sector is expected to post CAGR of 11.9% in revenues

In 2016, revenues for FMCG sector is expected to reach USD49 billion

 During 2015-16, seven leading FMCG companies in the country have fared
better than their multinational peers, in terms of revenue growth. The
combined revenue of seven leading Indian FMCG companies during 2015-
16 stood at USD 11,066.46 million

 In the long run, with the system becoming more transparent & easily
compliable, demonetisation is expected to benefit organised players in the
FMCG industry.

 Because unorganised players are expected to have a negative impact of

demonetisation

 Reason being small scale business and limited capital they will find it
difficult to survive in the market

 URBAN VS RURAL MARKET

 Urban segment is the largest contributor to the overall revenue generated

by the FMCG sector in India accounting for revenue share of around 60%
i.e. USD29 billion.

 While Semi-urban and rural segments are growing at a rapid pace; &
accounted for a revenue share of 40 per cent in the overall revenues
recorded by FMCG sector in India i.e. USD20 billion.
 Market Share

Rural
40%

Urban
60%

 RURAL MARKET GROWTH: RURAL SEGMENT QUICKLY CATCHING UP

 Urban segment recorded a market size of around USD29.4 in 2016 while

Rural segment Recorded around USD20 billion out USD49.4.

 But in the last few years, the FMCG market has grown at a faster pace in
rural India compared with urban India.

 FMCG products account for 50 per cent of total rural spending which means
that whatever rural people earn almost half of that they spent on FMCG
products.

 In 2015, rural India accounted for more than 40 per cent of the total FMCG
market

 Total rural income, which is currently at around USD572 billion i.e. RS

37752000000 is projected to reach USD1.8 trillion by FY21 i.e. RS
349800000.

 India’s rural per capita disposable income is estimated to increase at a

CAGR of 4.4 per cent to USD631 i.e. RS 41646 by 2020.

 As income levels are rising, there is also a clear uptrend in the share of
non-food expenditure in rural India
 The Central Government announced its plans to spend USD9.16 billion for
creating more jobs opportunities in the rural sector, which will in turn
propel demand for FMCG products.

Annual per capita disposable income level in rural

region (USD)
631

516

411

5
2010 2015 2020

 The Fast Moving Consumer Goods (FMCG) sector in rural and semi-urban
India is estimated to cross USD23 billion by 2018 and USD100 billion by
2025.

 The rural FMCG market is anticipated to expand at a CAGR of 17.41 per cent
to USD100 billion during 2009–25
 Rural FMCG market (USD billion

100

29.4

18.92
14.8
10.4 12.3 12.1
9

2009 2010 2011 2012 2013 2015 2018 2025

RURAL MARKET LEADERS:

Rural FMCG market accounts for 40 per cent of FMCG market in India Amongst the
leading retailers,

 Dabur generates over 40-45per cent of its domestic revenue from rural
sales.

 HUL rural revenue accounts for 45 per cent of its overall sales

 While other companies earn 30- 35 per cent of their revenues from rural
areas.

GROWTH IN TOP 10 CATEGORIES:

MARKET SHARE

69% 68% 67%

61% 59%
56% 55%
52%
47%
  The urban FMCG market in India has been growing at a fairly steady and
healthy rate over the years; encouragingly, the growth in rural markets has
been more fast-paced

 More than 80 per cent of FMCG products posted faster growth in rural
markets as compared to urban ones

 Shampoo shave maximum penetration at 69 per cent, followed by biscuits

at 68 per cent

 Skin Creams have been listed in the top 10 category

MARKET SHARE OF COMPANIES IN A FEW FMCG CATEGORIES:

CATEGORIES MARKET LEADER OTHER LEADING PLAYER

SHAMPOOS HUL-47% P&G-27%

HAIR OIL MARICO-30% DABUR-19%

ORAL CARE COLGATE-54.9% HUL-30% & DABUR-14%

SKIN CARE HUL-54% CAVINKARE-12% &

GODREJ-3%

FRUIT JUICE DABUR-60% PEPSICO-30%

 INCREASING SALES OF TOP FMCG COMPANIES:

 Consumer products manufacturers ITC, Godrej Consumer Products

Limited (GCPL), Dabur and Marico reported healthy net sales in FY15
and F16

 Aggregate financial performance of the leading 10 FMCG companies

over the past 8 quarters displays that the industry has grown at an
average 16-21 per cent in the past 2 years

 ITC (FMCG) has generated highest revenue till FY16

 During 2015-16, 7 leading FMCG companies in the country have fared

better than their multinational peers, in terms of revenue growth. The
combined revenue of 7 leading Indian FMCG companies during 2015-16
stood at USD11, 066.46 million

 In December 2016, Godrej Consumer Products Ltd (GCPL) acquired

remaining 49 per cent in Kenyan Co Charm Industries

 Reckitt Benckiser, posted 14 per cent growth in sales in FY16, on the

back of a forced distribution push in rural market, in support from the
Swach Bharat Campaign

 Biscuits and confectionery maker - Parle Products, is aiming to increase

its market share in the premium biscuits category from 15 per cent in
2016—17 to around 20 per cent by 2017-18.
 REVENUE
6000

5000

4000

Axis Title 3000

2000

1000

0
GCPL DABUR MARICO HUL ITC

NOW A DAYS TRENDS IN FMCG:

Consolidation: Indian FMCG companies are consolidating their existing business portfolios
which is leading to divestments, mergers and acquisitions

Product innovation: Several companies have started innovating or customising their existing
product portfolios for new consumer segments

Parle quality:

The quality has also gone down as it is much harder now .Earlier when dipped in hot
water /milk, it soaked faster as it was soft. Now when u dips it, it comes out unsoaked.

No, taste not changed it has decrease the size of biscuit. Price has remained same but quantity
has changed ... If company increase the price consumer will try to buy another product of
same benefits. For example lays, Price 5 but it has reduce the quantity.

Good day orange and cashew

Premiumisation: Despite the slowdown and cash crunch due to demonetisation, consumers
are still willing to buy premium goods at higher prices in the space of convenience, health,
and wellness.

Product customisation:

Consumers have started demanding customised products specifically tailored to their

individual tastes and needs
• The trend toward mass-customisation of products is expected to intensify further.

• To get more value for dairy products and to improve margins, dairy firms are looking at
selling protein supplements added milk.

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

• Companies are required to continuously focus on innovation and customer engagement to

strengthen their brand appeal in market

Expanding horizons
• A number of companies are exploring the business potential of overseas markets & several
regional markets. In 2016, Acrysil acquired the additional 13 per cent equity in UK-based
"Home style Products Ltd.

Backward integration

• Backward integration is becoming the preferred strategy for increasing profit margins,
securing capacity & sources of supply.

Focus on rural market

• Companies are now focusing on the rural market segment which is growing at a rapid pace
and contributes about 50 per cent to the total FMCG market. Companies like Dabur are trying
to increase its penetration in rural areas to generate more revenues from rural India

Expanding distribution networks

• Companies are now focused on improving their distribution networks to expand their reach
in rural India. ITC one of the leading FMCG Company in India is trying to reduce its lead
time by making its distribution channel more efficient and aiming to reach the retail outlets
directly from manufacturing facility

Third-party manufacturing

• This approach has helped FMCG companies focus on front-end marketing • Reservation of
several items for SSI as well as additional tax incentives have made 3rd party manufacturing
a popular route for many big players

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 for example sachets.
Increased hiring from tier II/III cities

• Small towns are emerging as significant hiring zones. FMCG companies are hiring field
staff from areas such as Kalpa (HP), Mangaliya (MP), Kota (Rajasthan) & Shirdi
(Maharashtra) to sell diverse products

Focus on enhancing presence in Africa

• FMCG companies entering Africa as it helps to be close to consumption markets within
Africa. In 2015, Godrej had acquired South Africa based company Frika Hair

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

• 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. In India, organic skincare market is estimated to be
around USD81.8 million and growing at a rate of 20-25 per cent growth per year

Increasing private label penetration

• With the rise of retail players, private label has become popular in the FMCG space. Private
Label goods are considered substitutes of premium branded goods.

STRATEGIES ADOPTED by FMCG COMPANIES:

Promotions & offers: FMCG companies are trying to influence consumers with intelligent
deals • Firms like ITC offers combo deals to the consumers. For example, in the case of soaps
& cosmetics; 4 soap cases are offered at the price of 3, selling the range of deodorants for
men & women at a discounted price

Research online Purchase offline

• The internet enables consumers to make their own research on the kind of products or
commodities they want to purchase. 1 in 3 FMCG shoppers goes online 1st & then to the
stores • Almost half of the automobile consumers follow Research Online Purchase Offline
(ROPO) method

Production innovation
Indian consumers have become choosy & are less likely to stay loyal to a brand • Colgate-
Palmolive has launched a toothpaste for the inflammatory gum problem of pyorrhoea • ITC is
coming up with new multigrain Bingo • Dabur has launched its sugar free variant for
Chyawanprash in India

Customisation

Product Flanking: Introduction of different combinations of products at different prices, to

cover as many market segments as possible • Different types of same product for different
users’ population. For example: Calcium Sandoz & Calcium Sandoz Women & Horlicks for
older women, Junior Horlicks