FMCG Sector History

FMCG are products that have a quick shelf turnover, at relatively low cost and don't require a
lot of thought, time and financial investment to purchase. Everything from toothpaste to
processed foods and health drinks to body care products comes from FMCG or alternatively
called as consumer packed goods. Three of the largest and best known examples of Fast
Moving Consumer Goods companies are Nestle, Unilever and Procter & Gamble.
The Indian FMCG sector is an important contributor to the country's GDP. It is the fourth
largest sector in the economy and is responsible for 5% of the total factory employment in
India and captures a market capitalization of around 60,000 crore rupees .This has been due
to liberalization, urbanization and increase in the disposable incomes and altered lifestyle of
the people. The lower-middle income group accounts for over 60% of the sector's sales and
rural markets account for 56% of the total domestic FMCG demand. FMCG sector is
expected to grow by over 60% by 2011 and by 2015, the sector is predicted to scale up to
US$33.4 billion.

Current scenario in FMCG

2015 may be a year of deal making for FMCG sector. After two dull years in a row, the year
2015 could see a steady increase in outbound deals in the fast-moving consumer goods
(FMCG) space, given that most top companies in the sector are sitting on huge cash reserves.
Deals already seem to have started flowing, with Godrej Consumer Products acquiring South
Africas Frika Hair for an estimated Rs 75-80 crore earlier this week. This was the companys
fifth acquisition in Africa since it entered the continent nine years ago. The previous ones
included those of Darling Group in June 2011 and a small acquisition in Chile the next year.
It also took over a top-up in the UK in January 2013.
The year 2012 was one of the most active ones in terms of outbound FMCG deals, with
Wipro buying into LD Waxon in Singapore and VLCC acquiring Malaysias Wynn
International, among key transactions. The previous year had been one of the most active in
terms of inbound deals, with Reckitt Benckiser completing the acquisition of Ahmedabadbased Paras Pharmaceuticals and Jyothy Laboratories buying into Henkel India. The biggest
inbound deal, though, came in 2013-14, when Unilever spent $5.4 billion for a 23 per cent
stake

in

Hindustan

Unilever.

According to advisory firm Grant Thorton, the total value of FMCG deals rose from $47.94
million in 2009 to $947.43 million in 2010, and fell to $366.85 million in 2011. The result:
Companies cash reserves showed a marked rise. The listed FMCG companies in India were
sitting on a combined cash reserve of more than Rs 52,000 crore as of the end of 2013-14.
Companies, primarily the home-grown majors active in the deal market, are looking for
acquisition opportunities. The total reserves of Godrej Consumer Products, which has, over a
decade, acquired 13 assets, eight of those between 2010 and 2012, have seen a four-fold jump
to Rs 2,990.32 crore in 2013-14 from Rs 796.65 crore in 2009-10.

Many of these companies are debt-free. Hindustan Unilever, Emami, Gillette India, P&G
India, Colgate Palmolive and GSK reported zero debt at the end of 2013-14. Marico reduced
its net debt to Rs 273.39 crore from Rs 652.70 crore the previous year and Rs 334.42 crore in
2009-10. Daburs net debt dropped to Rs 188.76 crore in 2013-14 from Rs 770.55 crore in

2010-11. Godrej Consumers net debt declined to Rs 1,668.05 crore in 2013-14 from Rs
1,773.84 crore in 2009-10.

Global Economic fluctuation and its impact on your Industry? (For

Example, Greece Economic crisis and Its Impact on Indian Economy)
FMCG industry reported an average 6 per cent increase in demand for talent between Jan-Feb
2015. In the year-on-year analysis between February 2014 and February 2015, FMCG
industry showed 8 per cent increase in demand for talent. Experts foresee growth in hiring to
continue in 2015 as companies plan expansion in rural and semi-rural locations in Uttar
Pradesh, Madhya Pradesh, Andhra Pradesh, Punjab and the North Eastern states. To gain
ground in upcoming and existing centres the industry is looking for talent in sales, marketing,
HR, supply chain management and IT domains.
Demand for IT and technology professionals will rise in 2015 as companies increase their
focus on technological advancements in their product offerings (in development and
maintenance).
In 2015, demand for digital marketers, data analytics professionals and brand managers will
rise as companies try to woo new consumers and hold back loyal ones. Customer centric roles
such as sales, marketing and brand management will continue to be in demand.
As we had discussed in our GD on China & Greece crisis, there is any impact of these two
crisis has any impact on Indian economy. So we expect that the FMCG sector wont affect
much in the short run. If the crisis will continue for long period of time, then it might affect
the FMCG sector.

Leading Players in the industry

1. ITC Limited- It is a company of Indian origin that started its business with sales of
cigarettes. Slowly the company has started expanding its portfolio and thereby
including Sunfeast range of processed foods, Fiama di wills personal care products.
However 49% of revenue still comes from sale of tobacco products. The company not
only has a strong market capitalization but also is capturing the market share. ITC
divested its oil business to Indian subsidiary of Con Agra Foods.
Sales Rs. 29901cr

Market Capitalisation Rs. 267930cr

Profit Rs.7418cr

2. HUL- HUL is owned by Anglo Dutch Company and Unilever which has 52% control
share in HUL happens to be a mammoth player in the FMCG domain. It is an Indian
company based in Mumbai, Maharashtra. The product segments that it spans include
foods, beverages, cleaning agents, and personal care products. HUL is a house of
brands. It has marked in several countries and has been growing its presence in India
as well. HUL happens to have a huge distribution network covering over 2 million
retail outlets across India directly and its products are available in over 6.4 million
outlets in the country. The major success point for the company was the support of
Shakti Amma.
Sales- Rs.28019cr
Market capitalization-Rs.138092cr
Profit-Rs.3867cr

3. Nestle - Nestle is in the food processing sector and its products range from the most
consumed Maggi to recently in the field Ice tea. Nestle has embarked its presence
countrywide. It is the world's leading Nutrition, Health and Wellness Company. Their
mission is of "Good Food, Good Life". Some of the market innovation that they
brought in was wet and dry sampling of Maggi noodles. The company now wants to
give health and taste to its consumers. This happens to be the company mission.
Carrying forward its mission they come up with innovative strategies to launch and
establish its products.
Sales-Rs.9101cr
Market Capitalisation- Rs.47258cr

Profits-Rs.1117cr

4. Dabur- Dabur was formed in 1884. It started as a small pharmacy and it had the
objective to provide affordable health care. Dabur is known worldwide as an
ayurvedic and natural products company. Dabur had been dedicated to serve since
past 125 years and it has helped people to stay naturally healthy or Life-Fit. The
global portfolio of the company suggests 1000 products in the skin, hair, oral and
health care space spreading the expanse over 60 countries, 5 continent and million of
loyal customers. It is of indian origin however it has expanded to other parts of the
world as well. As they call themselves, the Indian FMCG company. The portfolio of
the company includes brands like Real and Vatika. Real enjoys considerable market
share.
Sales-Rs.4349cr
Market Capitalization-Rs.33561cr
Profit-Rs.590cr

5. GCPL (Godrej Consumer Care private Limited)- Godrej Consumer Products

Limited (GCPL) is an Indian consumer goods company based in Mumbai, India. The
categories that it deal with include hair colorants, soaps, toiletries and liquid
detergants. The brand portfolio comprises of the following brands namely:- Cinthol,
Godrej No.1, Godrej Fair Glow, Godrej Shikakai, godrej Power hair dye, Ezee,
Colour Soft and many others. The operating and manufacturing of the company is
spread over seven locations and grouped into 4 Operating Clusters in India.
Sales-Rs.3581cr
Market Capitalization-Rs.30147cr
Profit-Rs.510cr

Market Size
The growing purchasing power and the rising influence of the social media have helped the
Indian consumers to splurge on good things. A study done by a leading industry body and Yes
Bank has stated that the consumer spending in India is expected to quadruple to US$ 4.2
trillion by 2017.
As per GSMA's study 'Smartphone forecasts and assumptions, 2007-2020' India ranks fourth
in the top 10 global smartphones markets. The country had 111 million smartphone
connections in the April-June quarter of 2014, behind leader China, US and Brazil.
India could become the world's largest middle class consumer market with a total consumer
spend of nearly US$ 13 trillion by 2030, as per a report by Deloitte titled 'India matters:
Winning in growth markets'.
On the back of better incomes and increasing affordability, the consumer durables market is
anticipated to expand at a compound annual growth rate (CAGR) of 14.8 per cent to US$
12.5 billion in FY15 from US$ 7.3 billion in FY12.
Online retailing, both direct and through marketplaces, will grow threefold to become a Rs
50,000 crore (US$ 8.06 billion) industry by 2016, as per rating agency Crisil. Also, the
growth of internet retail is expected to boost offline retail stores.

Porters 5 force analysis

1. Barriers to Entry and exit: The Indian FMCG Industry is characterized
with modest entry and exit barriers. Integrated business model and
increasing capital requirement in the industry restrict new entrants. Huge
investments in setting up distribution networks and promoting brands and
competition from established companies.
2. Threat of substitutes: Being an essential commodity the demand for
consumer products is elastic. Multiple brands positioned with narrow
product differentiation. Companies entering a category /trying to gain
market share compete on pricing which increases products substitution.
Hence, threat of substitute is high in the industry.
3. Buyer bargaining power: High brand loyalty for some products,
thereby discouraging customers product shift. But low switching cost and
aggressive marketing strategies under intense competition within the
FMCG companies, induce Customers to switch between products, thereby
driving value for money deals for consumers.
4. Supplier bargaining power: Prices are generally governed by
international commodity markets, making most FMCG companies price
takers. Due to the long term relationships with suppliers etc., FMCG
companies negotiate better rates during times of high input cost inflation

5. Industry Competition: Competitiveness among the Indian FMCG

players is high. With more MNCs entering the country, the industry is
highly fragmented. Advertising spends continue to grow and marketing
budgets as well as strategies are becoming more aggressive. Private
labels offered by retailers at a discount to mainframe brands act as
competition to undifferentiated and weak brands.

Financial performance

Factors that affect growth

Increasing per capita income

Better living standards
Declining percentage of poor people
Low Labour costs in India
Favourable govt policies for SMEs
Presence of efficient distribution network in rural and urban market
High disposable income
Govt policies related to FDI and SEZ

Government Regulations

Removal of quantitative restrictions

Various food laws and Industrial production laws
Quality standards (FSSAI etc.)
Allowance of foreign investment
Promotion of SMEs and export oriented units
Establishment (Entry) Procedures and minimum requirements set by govt

Determine current trends within the industry? (PESTEL Analysis)

Political factors

Goods and Service Tax

Transportation and infrastructural development in rural areas helps in distribution

network
Restriction in import policies
Help for agricultural sector
FDI issues

Economical

GDP rate increase along

Increase in disposable income at the rate of 10% annually for the next 8 years
Indian FMCG sector recorded 16% sales growth in the last fiscal year
The FMCG sector is the 4th largest sector in India

Social

Rural employment
Volume-driven growth in rural market
Major young population can increase revenue
The Indian culture, social and life styles are changing drastically
Increasing education standards

Technology

High use of technology in production

Foreign players and investors help in high technological development

Improvement in logistics due to technology

Technology enabled and data driven decisions.
Digital marketing

Environmental

Various environment safety measures to be implemented with production process

Follow of environmental laws

Legal

Govt rules and regulations

Various control bodies (like FSSAI etc.)