Analysis Of FMCG

Sector
Fast Moving Consumer Goods

SUBMITTED BY
GROUP 4

A Report
on
Analysis of FMCG Sector

By:
Name
Sumit Agarwal
Ayushi Agarwal
Amit Gunjan
Aditya Jain
Abhay Nigam
Kaushik Cheekotey
CLK Kiran

ID
13A3HP029
13A2HP010
13A2HP019
13A1Hp046
13A1HP027
13A1HP010
13A3HP053

Approved BY:
Mr. Nitin Gupta

A Report Submitted in Partial Fulfilment Of

The Requirement
Of Course BC-541 Report Writing
IMT Hyderabad

Acknowledgement
Our Team would like to express the gratitude to Dr. Nitin Gupta, Associate Professor and
Area Coordinator-Marketing, Institute of Management Technology Hyderabad for allowing
us to present this report on FMCG Sector and we would also like to thank him for introducing
us to the format of report writing, giving us guidance in understanding formal report and
provided materials in order to present it in a systematic way.
We would also like to thank our batch mates who helped in providing us the inner view of
FMCG sector and constantly motivated us in completing this report.

Table Of Contents
Acknowledgement
Abstract
1. Introduction
1.1 Size Of FMCG Sector
1.2 History of FMCG Sector in India
2. Growth Rate of the FMCG Sector
3. Top 10 Companies in Sector with Turnover
4. Major Players in FMCG
5. Growth Drivers and Challenges for FMCG Sector
5.1 Growth Drivers
5.2 Supply Side Drivers
5.3 Systemic Drivers for Sectorial Growth
5.4 Challenges
6. Top Personalities Of FMCG Sector
7. FMCG Trends
7.1 Introduction
7.2 Features and benefits
7.3Merger And Acquisition
8. Conclusions

Abstract
This report provides an overview on FMCG Sector, which is one of the multimillion dollar
sectors. It spans over other specific sectors such as household care, personal care, food and
beverages and health care. We have also tries to focus on percentage growth rate of FMCG,
the growth drivers involved for this growth rate. Also, details about top market players and
their strategy to capture Indian market, then to sustain in this competitive environment. The
emphasis was also laid on top personalities, market trend, merger and acquisition,
peculiarities and profitability.

Introduction
Fast Moving Consumer goods are also called as consumer packaged goods that are sold quickly
and relatively at low cost. FMCG is probably the most classic case of low margin/ high volume
business. The Indian FMCG sector is the fourth largest sector in the economy with an estimated
size of more than Rs1300 billion. Indias FMCG market is highly fragmented and considerable
part of market comprise of unorganised players selling unbranded and unpackaged products.

Food & Personal

Beverages Care

Household
Care

Health
Care

FMCG Sector has four main segments:

, Skin Care, Cosmetics/ deodorant, Feminine Hygiene & Paper Products

ash, Household Cleaners

ereals, Bakery Products, Snacks, Chocolates, Ice cream, Tea/coffee/soft
drinks,
processed fruits &
OTC Products and
Ethicals

Size of FMCG Sector

The Indian FMCG sector is the fourth largest in the economy and has a market size of
US$13.1 billion. Well-established distribution networks, as well as intense competition
between the organised and unorganised segments are the characteristics of this sector. FMCG
in India has a strong and competitive MNC presence across the entire value chain. It has been
predicted that the FMCG market will reach to US$ 33.4 billion in 2015 from US $ billion
11.6 in 2003. The middle class and the rural segments of the Indian population are the most
promising market for FMCG, and give brand makers the opportunity to convert them to
branded products. Most of the product categories like jams, toothpaste, skin care, shampoos,
etc, in India, have low per capita consumption as well as low penetration level, but the
potential for growth is huge.

The Indian Economy is surging ahead by leaps and bounds, keeping pace with rapid
urbanization, increased literacy levels, and rising per capita income.
The big firms are growing bigger and small-time companies are catching up as well.
According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by
MNCs, and the balance by Indian companies. Fifteen companies own these 62 brands, and 27
of these are owned by Hindustan Lever. Pepsi is at number three followed by Thums Up.
Britannia takes the fifth place, followed by Colgate (6), Nirma (7), Coca-Cola (8) and Parle
(9). These are figures the soft drink and cigarette companies have always shied away from
revealing. Personal care, cigarettes, and soft drinks are the three biggest categories in FMCG.
Between them, they account for 35 of the top 100 brands.
Following is the market share of the top 5 FMCG Companies:
EXHIBIT 1
S.No.

Company Name

1
2
3
4
5

Hindustan Unilever Ltd.

ITC(Indian Tobacco Company)
Nestle India
GCCMF(Amul)
Dabur

Turnover(in Rs. Crores)

For the period April 1,2010 to March 31,
2011
Rs.19,401 crores
Rs. 3,629 crores
Rs. 5,204 crores
Rs. 7,977 crores
Rs. 2,864 crores

Source: Step In Academy Title FMCG Industry

The companies mentioned in Exhibit I, are the leaders in their respective sectors. The
personal care category has the largest number of brands, i.e., 21, inclusive of Lux, Lifebuoy,
Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in the 21, aggregating Rs. 3,799
crore 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 accounts for 60% volume market
share and 70% by value of all filter cigarettes in India.
The foods category in FMCG is gaining popularity with a swing of launches by HLL, ITC,
Godrej, and others. This category has 18 major brands, aggregating Rs. 4,637 crore. Nestle
and Amul slug it out in the powders segment. The food category has also seen innovations

like softies in ice creams, chapattis by HLL, ready to eat rice by HLL and pizzas by both
GCMMF and Godrej Pillsbury. This category seems to have faster development than the
stagnating personal care category. Amul, India's largest foods company, has a good presence
in the food category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia also
ranks in the top 100 FMCG brands, dominates the biscuits category and has launched a series
of products at various prices.
In the household care category (like mosquito repellents), Godrej and Reckitt are two players.
Goodknight from Godrej, is worth above Rs 217 crore, followed by Reckitt's Mortein at Rs
149 crore. In the shampoo category, HLL's Clinic and Sunsilk make it to the top 100,
although P&G's Head and Shoulders and Pantene are also trying hard to be positioned on top.
Clinic is nearly double the size of Sunsilk.
Dabur is among the top five FMCG companies in India and is a herbal specialist. With a
turnover of Rs. 19 billion (approx. US$ 420 million) in 2005-2006, Dabur has brands like
Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola and Real. Asian Paints is enjoying a
formidable presence in the Indian sub-continent, Southeast Asia, Far East, Middle East, South
Pacific, Caribbean, Africa and Europe. Asian Paints is India's largest paint company, with a

turnover of Rs.22.6 billion (around USD 513 million). Forbes Global magazine, USA, ranked
Asian Paints among the 200 Best Small Companies in the World.
Cadbury India is the market leader in the chocolate confectionery market with a 70% market
share and is ranked number two in the total food drinks market. Its popular brands include
Cadbury's Dairy Milk, 5 Star, Eclairs, and Gems. The Rs.15.6 billion (USD 380 Million)
Marico is a leading Indian group in consumer products and services in the Global Beauty and
Wellness space.

History of FMCG Sector in India

The Indian FMCG industries witnessed significant changes through the 1990s.Many players
had to face severe problems on account of increased competition from small and regional
players and also from slow growth rate across various product categories. As a result, most of
the companies were forced to repair and edit their product, marketing, distribution and
consumer serving strategies to strengthen their position in the market.
By the 20th century, FMCG industry changed significantly. With the liberalization and growth
of economy, the Indian customer witnessed an increasing exposure to new domestic and
foreign products through different media, such as television and Internet. Also social changes
such as increase in the number of nuclear families and growing number of working couples
resulted in increased spending power which further contributed to increase in the Indian
consumers Personal Consumption. The realization of Customers growing awareness and the
need to meet changing requirements and preferences on account of changing lifestyle
required the FMCG producing companies to formulate customer-centric strategies. These
changes lead to rapid growth in the FMCG industry.

In India, companies like ITC, HUL, Cadbury, Colgate and Nestle have been a dominant force
in the FMCG sector supported by less competition and high entry barriers(import duty was
high).Thus, these companies were able to charge a premium for their products leading to high
margins.

Growth Rate of the FMCG Sector

The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian
economy. The market size of FMCG in India is expected to grow from US$ 34.8 billion in
2011 to US$ 74 billion in 2018.
The FMCG sector in India generated revenues worth USD34.8 billion in 2011, a 15.2 per
cent rise compared to the previous year.
The strong growth in 2011 should come as no surprise given the impressive performance
of the sector over the years.
Over 2006-11, the sectors revenues posted a CAGR of 17.3 per cent.

Trends in FMCG Revenues

40
35
30

CAGR- 17.3%

25

Revenues in Billions (USD)

20
15
10
5
0
2006

2007

2008

2009

2010

2011

Source: Dabur, AC Nielsen, Aranca Research

Food products are the leading segment, accounting for 43 per cent of the overall market.
Personal care (22 per cent) and fabric care (12 per cent) are the other leading segments.
Growing awareness, easier access, and changing lifestyles have been the key growth drivers
for the sector. Rural demand is set to rise with rising incomes and greater awareness of
brands.
The Government of India has been supporting the rural population with higher minimum
support prices (MSPs), loan waivers, and disbursements through the National Rural
Employment Guarantee Act (NREGA) program. These measures have helped in reducing
poverty in rural India and have thus propped up rural purchasing power.
With rise in disposable incomes, mid- and high-income consumers in urban areas have
shifted their purchasing trend from essential to premium products. In response, firms have
started enhancing their premium products portfolio. Indian and multinational FMCG players
are leveraging India as a strategic sourcing hub for cost-competitive product development and
manufacturing to cater to international markets.
Food products and personal care together make up two-thirds of the sectors revenues
Food products is the leading segment, accounting for 43.0 per cent of the overall market
Personal care (22.0 per cent) and fabric care (12.0 per cent) are the other leading segments

Market break-up by revenues (2009)

Baby Care; 2% Others; 5%
OTC Products; 4%
Households; 4%
Food Products; 43%
Hair Care; 8%
Fabric Care; 12%

Personal Care; 22%

Source: Dabur, Aranca Research

The urban market accounts for a major chunk of revenues:

The

urban segment is the largest contributor to the sector, accounting for over two-thirds of
total revenue
Semi-urban

and rural segments are growing at a rapid pace; they currently account for 33.5 per
cent of revenues
FMCG

products account for 53.0 per cent of total rural spending

Urban-rural revenue break-up (2011)

3.2
URBAN
RURAL
66.5

Source: Dabur, AC Nielsen, Aranca Research

The rural segment is fast catching up:

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
During FY11, more than 80 per cent of FMCG products posted faster growth in rural
markets as compared to urban ones

Notable high growth sectors include salty snacks, refined edible oil, healthcare products,
iodised salt, etc
Hair oils, toothpastes and shampoos have significantly high penetration in both urban and
rural markets
Instant noodles, floor cleaners and hair dyes are picking up in the rural areas due to
increased awareness.
A total of 7.8 million retail outlets sell FMCG in India
Grocers are the dominant retail format, accounting for 59.0 per cent

Growth in urban and rural FMCG markets (FY11)

70
60
50
40
30
20
10
0

URBAN

RURAL

Source: AC Nielson, Aranca Research

The burgeoning middle class Indian population, as well as the rural sector, presents a huge
potential for this sector. The FMCG sector in India is at present, the fourth largest sector with
a total market size in excess of USD 13 billion as of 2012. This sector is expected to grow to
a USD 33 billion industry by 2015 and to a whooping USD 100 billion by the year 2025.
This sector is characterized by strong MNC presence and a well established distribution
network. In India the easy availability of raw materials as well as cheap labour makes it an
ideal destination for this sector. There is also intense competition between the organized and
unorganized segments and the fight to keep operational costs low.

Market share of companies in a few

FMCG categories

Market Leader

Others

Hair Oil
4
2%

15%

8%

24%

10%

23%

13%

5%

Shampoo

46%

Oral
Care

6%

50%

Skin
Care
59%
7%

7%

6%

Fruit
Juice
52%

35%

Source: Industry estimates

THE TOP 10 COMPANIES IN FMCG

SECTOR:

1. Hindustan Unilever Ltd.

2. ITC (Indian Tobacco Company)
3. Nestl India
4. GCMMF (AMUL)
5. Dabur India

Company
HUL

Sales* in
MN $
3921.5

6. Asian Paints (India)

7. Cadbury India
8. Britannia Industries
9. Procter & Gamble Hygiene and Health
Care
10. Marico Industries

Segments

Amul India

1771.1

Personal care, Food Products, Household,

Baby Care, Fabric Care
Food and Beverage Products

Nestle India

1155.4

Food and Beverage Products

ITC**

305.7

Personal Care, Food Products

Britannia

759.9

Food Products

Dabur

635.9

Personal Care, Food Products, Household

Marico
Industries
GSK
Consumers
Cadbury
Industry
Colgate
Palmolive
P&G

449.3

Personal Care, Food Products, Household

447.9

Personal Care, Food Products

430.1

Food Products

391.8

Personal Care, Oral Care

388.5

Godrej

280.5

Personal care, Food Products, Household,

Baby Care, Fabric Care
Personal Care, Fabric Care

Source: Relevant company websites, IBEF report

*Yearly sales as of March 2010, ** FMCG business excluding tobacco

Major Players in FMCG

HUL
Overview
Hindustan Unilever Limited (HUL) is India's largest consumer goods company based in
Mumbai, Maharashtra.
It is owned by the British-Dutch company Unilever which controls 52% majority stake in
HUL. Its products include foods, beverages, cleaning agents and personal care products.HUL
is the market leader in Indian consumer products with presence in over 20 consumer
categories such as soaps, tea, detergents and shampoos amongst others with over 700 million
Indian consumers using its products. Eighteen of HULs brands featured in the ACNielsen
Brand Equity list of 100 Most Trusted Brands Annual Survey (2012).
The company has a distribution channel of 6.3 million outlets and owns 35 major Indian
brands.

ITC
Overview
ITC Limited is an Indian public conglomerate company (25.4% owned by British
corporation, British American Tobacco) headquartered in Kolkata, West Bengal, India. Its
diversified business includes four segments:
Fast Moving Consumer Goods (FMCG)
Hotels, Paperboards
Paper & Packaging
Agri Business
ITC's annual turnover stood at $7 billion and market capitalization of over $34 billion. The
company has its registered office in Kolkata. It started off as the Imperial Tobacco Company,
and shares ancestry with Imperial Tobacco of the United Kingdom, but it is now fully
independent, and was rechristened to Indian Tobacco Company in 1970 and then to I.T.C.
Limited in 1974. It employs over 29,000 people at more than 60 locations across India and is
listed on Forbes 2000. ITC Limited completed 100 years on 24 August 2010.
ITC has a diversified presence in FMCG (Fast Moving Consumer Goods), Hotels,
Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology.
While ITC is an outstanding market leader in its traditional businesses of Hotels,
Paperboards, Packaging, Agri-Exports and Cigarettes, it is rapidly gaining market share even
in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal
Care and Stationery.

Marico
Overview
Marico is an Indian consumer goods company providing consumer products and services in
the areas of Health and Beauty based in Mumbai. Marico's own manufacturing facilities are
located at Goa, Kanjikode, Jalgaon, Pondicherry, Dehradun, Baddi, Paonta Sahib and Daman.
Key brands: Parachute, Saffola, Hair&Care, Nihar, Mediker, Revive, Manjal, Kaya Skin
Clinic, Aromatic, Fiancee, HairCode, Eclipse, Xmen, Hercules, Caivil, Code 78 and Black
Chic.
The Board of Directors of Marico has approved the restructuring of businesses, corporate
entities and the organization involving a) the demerger of Kaya Skin Care Solutions (Kaya)
into a separate company by the name Marico Kaya Enterprises Ltd (Make) and b) formation
of an unified FMCG business with operations in India and abroad, headed by a single CEO.
The restructuring plan would be effective from April 1, 2013.

Kaya to be demerged into a separate listed company: As per the proposed demerger plan for
Kaya, Make will become the holding company of Kaya Ltd (India) and Kaya entities in the
Middle East and South East. Currently the promoters of Marico have a 60% stake in the
company (Marico); post demerger the shareholding structure of Make will be identical to
Maricos current shareholding structure. Shareholders of Marico will be allotted one share of
MaKE for every 50 shares held in Marico. Marico will not hold any stake in Make post
demerger. The equity shares of MaKE will be listed after all the statutory approvals are
obtained.
Formation of a unified FMCG business: Marico currently has three business verticals namely
a) Indian consumer products b) The international FMCG business and c) Kaya with
operations in India and abroad. Post the restructuring, Kaya would operate as a separate listed
entity (Make). The Indian and International FMCG businesses, which were till date headed
by two different CEOs, will be unified and headed by a single CEO.

Britannia Industries
Overview
Britannia is one of the foremost food companies in India. The company is present across the
biscuits, dairy products and breads segments and has recently forayed into the breakfast
cereals category with the launch of Healthy Start. Britannia derives ~85% of its revenue from
the biscuits segment, where it has formidable brands such as Tiger (glucose biscuits), Treat
(cream biscuits), 50-50 (crackers), Good Day (premium cookies and the company's highest
selling brand) and NutriChoice (premium high-fibre biscuits). During the first quarter of
2012, Britannia launched Bourbon, Cappuccino, Pure Magic Praline and a new range of
creamy flavours for Treat.

Godrej Consumer Products Limited

Overview
Godrej Consumer Products Limited (GCPL) is an Indian consumer goods company based in
Mumbai, India. GCPLs product range includes soaps, hair colourants, toiletries and liquid
detergents. Some of the leading brands are Cinthol, Godrej Fair Glow, Godrej No.1 and
Godrej Shikakai in soaps, Godrej Powder Hair Dye, Renew, ColourSoft in hair
colourants and Ezee liquid detergent. GCPL has five manufacturing facilities in India at
Malanpur (Madhya Pradesh), Guwahati (Assam), Baddi- Thana (Himachal Pradesh), BaddiKatha (Himachal Pradesh) and Sikkim.

Growth Drivers and Challenges for

FMCG Sector
Growth Drivers
The current economic trend, exhibiting modest demand and supply is likely to have a
medium-term impact on the demand for FMCG products but promises revival and higher
growth in the long term based on thefollowing fundamentals:
1. Expanding purchase basket resulting in higher penetration of products
2. Increased consumption with higher disposable household family income
3. More consumers entering the market place (Rural and urban base of pyramid)
For these developments to catalyse faster there are two sides of the equation that need to
come together demand and supply along with other systemic factors.

Systemic Drivers:
Favourable Changes in Government Policies.
Infrastructure Development

Demand Side Drivers:

Increasing Consumer Income
High Private Consumption
Rising Urbanization

Supply Side Drivers:

Growth of Modern Retail
Labour Cost

Increasing Consumer Income:

Increase in income is largely a outcome of economic growth across sectors. Over the past few
years India has increased economic growth, with a continuing and substantial impact on
consumer disposable incomes enabling good growth of the FMCG sector, among others.
Annual Household Income
Annual
Household
Income
(000 INR p.a.)
<45
45-90
90-135
135-180
180-200
200-1000

2001-02
(000 HH)

61351
70196
26159
12797
2258
10727

2005-06
(000HH)

52410
79225
33721
16251
3250
16251

Growth
(05-06/01-02)

-15%
13%
29%
27%
44%
51%

2009-10
(000 HH)

34623
79678
49050
21307
4883
28409

Growth
(09-10/05-06)

-34%
1%
45%
31%
50%
75%

1000+
Source: NCAER

753

2235

197%

3995

79%

High Private Consumption:

The Indian economy, unlike most Asian economies, has a very high rate of private
consumption (61%) of that, a future 60% is due to retail spends-goods and products that
people consumer, as opposed to service or essential consumption items like rent and
education.

GDP US$
1.61 Bn*
Public
Spending &
PublicHealth
Spending
&
Private
Care
Private
Gross
Capital
Gross Capital
Food
Consumption
US$
Consumption US$
Formation
Transport US$
708
Bn (61%)
(61%)
708 Bn
Apparels
453
bn (39%)
453
bn
(39%)
Communicat
Beverages
ion
Footwear
Recreation
Retail US$ 411Bn
Non Retail US$297
Consumer
Cultural
(58%)
Bn(42%)
(58%)
Bn(42%)
Durables
Services
Kitchen
Education
Utensils
Rent
Urban (5100
Furniture Cities)
Cities) US$
US$
Utilities
185Bn(45%)
185Bn(45%)
Sports Goods
Personal Care
Jewellery
Rurals
(6,27,000
Rurals (6,27,000
Vill)
US$ 226Bn
Vill) US$
226Bn
(55%)
(55%)

Source: Central Statistical Organization(CSO) and Technopak Analysis, On 31 March 2008

Rising Urbanization:
India has 70% of its population living in rural areas. With rising urbanization, more people
will have exposure to modern products and brands and thus shift to branded and packaged
goods and products.
80%
70%
60%
50%
Urban

40%

Rural
30%
20%
10%
0%
2007

2015

By 2015, An additional 25 million consumer will have moved into cities, not only buying
FMCG for themselves but also serving as a conduit for information and goods for their
families still in rural India.
Source: Technopak Analysis

Supply Side Drivers:

Growth of Retail:
From US$ 410 billion in 2008 (Rs. 2,000,000 Crores), Indian retail is expected to grow to
US$ 535 billion by 2013(Rs. 2,600,000 Crores) and US$755 billion by 2018 (Rs. 3,600,000
Crores).

Growth of Retail (US$ Billion)

755

800
700
600

535

500

410

400
300
200
100
0

Year 2008

Year 2013

Year 2018

Source: Technopak Analysis

Low Labor Cost:

India has by far the lowest labour cost compared to many emerging countries giving it an
edge for establishing manufacturing base for both Domestic and International FMCG brands.
Average labourcost in India is ~US$ 90/month compared to US$190/month in China, US$
210/month in Thailand and even higher US$1,300/month in Taiwan.

Labour Cost(US$ P.M.)

3000

2766

2500
2000
1500

1301

1000
500
89

188

210

China

Thailand

0
India

Taiwan

US

Source:CEIC, Morgan Stanley Research and Investment Commission of India, 2008

Systemic Drivers for Sectorial Growth:

Several other factors are also encouraging for FMCG sector growth in the long run, such as
policy change and investments in infrastructure development.
1. Favourable changes in Government Policies:
The Indian government has been trying to foster the growth of various categories of FMCG
by way of making policy changes. Some of the policy changes include:

Automatic investment approval (including foreign technology agreements within specified

norms), up to 100 per cent foreign equity for most of the food processing sector.
Quantitative restrictions removed
Five-year tax holiday for new food processing units in fruits and vegetable processing.
Customs duties reduced on plant and equipment, raw materials and intermediates, especially
for export production.
Capital goods freely importable, including second hand ones.
2. Infrastructure Development
The government has invested a considerable amount in the Golden quadrilateral project to
connect the four corners of the country, of which over 96% has been completed. 50% of
existing highways are being improved and expanded. An outlay of Rs. 59,000 crores was
earmarked for road development projects in the 10th Plan, between the aforementioned
projects as well as projects to develop the National highways (Primary system), the state
highways (secondary system), major district roads and rural roads. The railways are also
increasing capacity through increasing tracks, improving existing tracks and adding more
freight compartments to enable better carrying of goods and products.

Challenges:
There are many challenges faced by the FMCG sector in todays world. In India there are
many complicated policies and regulation, by the government, which are very difficult to
follow and also structure of the market is totally different from comparison to other well
developed countries. Here are some key challenges which are faced by the FMCG Sector in
India are:1. Tax Structure - Complicated tax structure, high indirect tax, lack of uniformity, high octroi
& entry tax and changing tax policies.
2. Infrastructural Bottlenecks - Agriculture infrastructure, power cost, transportation
infrastructure and cost of infrastructure.
3. Counterfeits and Pass-offs
4. Emergence of Private Labels
5. Regulatory Constraints
6. Price of Inputs

1.Tax Structure:
i. Complicated Tax Structure - In India, problems are exacerbated by the complicated tax
structure. There is a VAT which is to be levied at state level, there are other state taxes such as
octroi and entry taxes and then centre levies excise duties and service tax. As a result, no
product cost is exactly the same from one state to the next.
ii. High Indirect Tax - Indirect Tax levels are quite high, especially in light of the fact that the
sector provides goods meant for daily consumption. China, for instance, levies a tax of 10%
(Source: Mr.RajanVerma, CFO, Dabur India Ltd) on average,whereas in India, the
average is around 30%.
iii. Lack of uniformity - Despite VAT states does not implement rates and procedures
uniformly. Each state still continues to approach taxation differently, and thus moving goods

from one state to another is like moving them from one country into another. The taxation
rate policies on many FMCG goods differ from state to state and centre to state. Centre has
classified many FMCGproducts under Merit (VAT exempt) list, such as processed foods,
tooth powder, sanitary napkins but states levy on the same products high rate of 12.5%
(Source:Mr. Krishnan S, Parle Agro).
iv. High Octroi& Entry Tax - There are Octroi and Entry Tax at city and state entry points in a
few states, which leads to an increase in pricing and affords opportunities for arbitrage. For
instance, Mumbai has octroi of 4-6% on goods produced outside of Mumbai. Thus, a bottle of
mineral water produced by Coke or Pepsi which have their plants in Thane, which is
considered outside the city limits of Mumbai, have to pay this extra charge, while Parle,
which has a bottling plant within the city limits does not. So Bisleri is sold in Mumbai for Rs.
12, while Kinley or Aquafina cost Rs. 13,just because of the factory location. This opens up
possible arbitrage opportunities, apart from causing a genuine grievance to the consumer.
v. Changing Tax Policies - Tax policies keep changing which makes it difficult to plan for the
long term. For instance, tax havens were created in J&K some years ago and many
companies opened facilities there. However, recently part of the exemption was withdrawn
by the government, thusleading to a sudden hike in costs.
2. Infrastructural Bottlenecks:
i. Agricultural Infrastructure - Agriculture infrastructure in India is particularly weak. Firstly,
irrigation and modern farming methods are not widespread and thus agriculture in India is at
the mercy of nature. Thus, it makes for grossly varying amounts of harvest of critically
needed inputs into FMCG manufacture, from one season to the next and one year to the next.
ii. Power Costs - Power costs in India are very high and they contribute substantially to cost
of goods sold. They are 3-4 times the optimal costs.
iii. Transportation Infrastructure - To compound this problem is the poor transportation and
roadways infrastructure many of the villages are extremely poorly connected with means of
transportation either road, rail or sea so the amount of time it takes for the harvest to be
transported to the FMCG manufacturers is unpredictable, and results in substantial spoilage
of the goods. For example, it costs nearly 12 days to transport goods from Baddi in Himachal
Pradesh to South India, a distance of 3000 km. The lack of a cold chain adds to this problem,
because it means a tremendous amount of farm output actually rots or gets spoiled in transit.
Nearly 8% -10% of dairy produce is lost to pilferage.
iv. Cost of Infrastructure - It takes almost Rs. 7- 8 crores to lay 1km. of road. Along with this
problems in land acquisition due to fragmented land holding further delay development of
road and rail infrastructure increasing the cost associated.
3. Counterfeit and Pass-offs:
Counterfeit products are another issue for the FMCG sector. Taking advantage of the lack of
literacy and consumer knowledge, several small manufacturers churn out spurious products
which they label akin to the big brands, Lifebuoy or Lax soap or Fivestar chocolate bars,
Vicky balm, for instance. Thesespurious pass off products affect large, high quality brands
which have actually invested money in research and development to create their products and
build brand equity. These account for almost 10% - 15% (Source:ICCI-BPC initiated ORG
study)of the total sector revenue and pose serious challenge to its growth and also impact
governments tax revenue significantly. But the only recourse available to FMCG
manufacturers against counterfeit and pass off products is to file an FIR. There are no Bureau
of Industrial Standards norms laid out for each product category which could help prevent the
mushrooming of counterfeit products. And an FIR results only in local action, if at all, while
the source of the counterfeit products continues to remain in existence.

4. Emergence of Private Labels:

Apart from the pressure on margins, the biggest fear of FMCG players when facing MR is the
introductionof private labels or own brands. The fear is justified because world over, private
labels have served to lower the consumers price points, particularly at the mass level.
Moreover, there are inevitable conflicts of interest when a retail chain has its own label
whose packaging looks like category leaders and stocks brands of other manufacturers, in
terms of display space, promotions etc. A Technopak analysis undertaken across product
categories revealed that private labels could constitute as much as one fourth of all sales in
the FMCG category by 2011. While the exact year could shift marginally, there is no denying
the fact that private label FMCG goods will be here and will constitute a formidable threat to
add to the already fierce competition in the FMCG category. Brands which currently appeal
to price conscious value shoppers will be facing the highest risk with advent of store brands.
5. Regulatory Constraints
i. State borders cause a lot of delays and it is common for 2-3 days of finished goods
inventory out of 20 -30 days total stuck on various state borders due to a requirement for
multiplicity of permits and licenses.
ii. The Indian labour laws were drafted in the 1940s and take no note of modern
manufacturing methods and strategies. They need to be changed on a more dynamic basis to
reflect present realities.
iii. There is lack of uniformity in definitions, and these do not follow international norms
either. Currently, drugs and cosmetics come under the same set of laws when in fact they
need to be treated differently. Weights and Measures used under FDA do not conform to those
under the Weights and Measures Act followed in India. Some products come under the OTC
category internationally but come under Schedule H drugs in India, requiring doctors
prescription and require to be distributed only in drug licensed stores
iv. Acquiring manufacturing licenses is a long and painful process, beset with red tape and
corruption. It takes 10-12 months to get multiple licenses and to set up a manufacturing unit.
v. Reservation of jobs for employees creates many problems. For instance, Himachal Pradesh
has a reservation of 70% of jobs for people domiciled in Himachal Pradesh. Since they are
few in number, attrition happens for as little as Rs. 50 pm, and it becomes a problem to
maintain the requisite labour force.
vi. Export procedures are cumbersome and lengthy. There is no single-party interface so
multiple departments and officers have to be followed up with to get the requisite licenses. A
transport permit has to be sourced for each consignment rather than assigning a blanket
permit for a period of time.
vii. Subsidies are announced by the government but to avail of them is both confusing and
time consuming.
a. Firstly, the amount of subsidy is restricted to Rs. 50 lakhs, regardless of the total quantum
of investment required by a project. Thus, if large projects and small get the same incentives,
large projects may not find takers.
b. Secondly, the release of the said monies is not time-bound and gets done in an ad-hoc
basis.
6. Prices of Inputs:
i. Commodity prices fluctuate, which make it difficult to finalise raw material prices,
affecting the final price of the product. The petroleum price fluctuation also impacts the cost

of supply of materials.As a result, the entire supply chain dynamics need to be constantly
planned afresh with the changing prices.
ii. Indian consumers are more price-sensitive and value conscious, making it difficult for
FMCG firms to pass on the inc

Top Personalities Of FMCG Sector

Kishore Biyani- A postgraduate in Marketing, Kishore Biyani heads Future Group. He made
his foray in modern retailing in 1997 with the opening of the first Pantaloon outlet in Kolkata.
Today future group employs over 30,000 people and operates around 11 million square feet
of retail space, has over 1000 stores across 63 cities and 65 rural locations in India. The group
covers the entire Indian consumption space through its multiple business verticals including
Future Retail, Future Capital, Future Brands.
Mohan- Mohan is AVP of Business Development at Pine Labs. He heads One desk, a VAS
payment platform for small merchants. Prior to joining Pine labs, Mohan was a Senior
Associate with The Boston Consulting Group in Mumbai, where he specialised the financial
services sector. Mohan began his career as Project manager at ITC. He is an MBA from IIM
Calcutta and holds a Bachelors Degree in Mechanical Engineering from IIT Madras
DPS Kohli- Koutons Retail India Ltd. is the founding pillar of Koutons which has taken
Koutons from a relatively small beginning to a dominant player in the organised fashion retail
industry. Prior to the formation of Koutons Kohli was involved with his family business. He
was joined by his brother in law B.S Sawhney and thereafter Charlie Creations was born in
1994. In 2002, Kohli launched Koutons with a focus on complete mens wardrobe at the
advent of organised retail industry in India with the presence of exclusive brand outlets in
almost every city in the country. DPS Kohli is a graduated Mechanical Engineer from
Sambalpur University in Orissa.
Y C Deveshwar- Under his leadership, ITC's Sustainability initiatives were given shape by
fashioning corporate strategies that not only enhance shareholder value but add significantly
to the development of natural and social capital. ITC is a global exemplar in sustainable
business practices and is the only company in the world, of comparable dimensions to be
'carbon positive', 'water positive' and 'solid waste recycling' positive.

Mr. Nitin Paranjpe- Mr. Paranjpe was appointed as the Managing Director and Chief
Executive Officer of the Company in April 2008. He is also an Executive Vice President of
Unilever Companies in South Asia. Mr. Paranjpe holds a Bachelor Degree in Engineering
(Mechanical) and MBA in Marketing from JBIMS, Mumbai. Mr. Paranjpe is a member of the
Nomination & Remuneration Committee, Stakeholder Relationship Committee and
Corporate Social Responsibility Committee of the Company.

FMCG TRENDS
Introduction
India is changing rapidly as a society and as a consumer culture. An understanding of these
changes and the causes behind them will be key to success for a FMCG player in India, so as
to focus on the key trends, product categories and consumer segments, to profit the most from
the
positive
economic
climate.
Features

and

benefits

- India specific insights that help derive a richer appreciation of the nature and direction of
Indian
consumerism
- Tracks seven key trends that will define the Indian FMCG industry's growth trajectory, in
terms
of
product,
market
and
consumer-related
aspects
- Insights from an annual consumer survey among Indians respondents, coupled with macroeconomic indicators, to showcase market potential
Facts & Future
Fast moving consumer goods will become a Rs 400,000-crore industry by 2020. A Booz &
Company study finds out the trends that will shape its future
Consider this. The anti-ageing skincare category grew five times between 2007 and 2008. Its
today the fastest-growing segment in the skincare market. Olay, Procter & Gambles premium
anti-ageing skincare brand, captured 20 per cent of the market within a year of its launch in
2007 and today dominates it with 37 per cent share. Who could have thought of ready
acceptance for anti-ageing creams and lotions some ten years ago? For that matter, who could

have thought Indian consumers would take oral hygiene so seriously? Mouth-rinsing seems to
be picking up as a habit mouthwash penetration is growing at 35 per cent a year. More so,
who could have thought rural consumers would fall for shampoos? Rural penetration of
shampoos increased to 46 per cent last year, way up from 16 per cent in 2001.
Consumption patterns have evolved rapidly in the last five to ten years. The consumer is
trading up to experience the new or what he hasnt. Hes looking for products with better
functionality, quality, value, and so on. What he needs is fast getting replaced with what he
wants. A new report by Booz & Company for the Confederation of Indian Industry (CII),
called FMCG Roadmap to 2020: The Game Changers, spells out the key growth drivers for
the Indian fast moving consumer goods (FMCG) industry in the past ten years and identifies
the big trends and factors that will impact its future.
The report estimates the FMCG sector witnessed robust year-on-year growth of
approximately 11 per cent in the last decade, almost tripling in size from Rs 47,000 crore in
2000-01 to Rs 130,000 crore now (it accounts for 2.2 per cent of the countrys GDP). Growth
was even faster in the past five years almost 17 per cent annually since 2005. It identifies
robust GDP growth, opening up of rural markets, increased income in rural areas, growing
urbanisation along with evolving consumer lifestyles and buying behaviours as the key
drivers of this growth.
The report further estimates that the FMCG industry will grow at least 12 per cent annually to
become Rs 400,000 crore in size by 2020. Additionally, if some of the factors play out
favourably, say, GDP grows a little faster, the government removes bottlenecks such as the
goods and services tax (GST), infrastructure investments pick up, there is more efficient
spending on government subsidy and so on, growth can be significantly higher. It could be as
high as 17 per cent, leading to an overall industry size of Rs 620,000 crore by 2020.

Mergers and acquisitions of FMCG sector: KPMG

The food, drinks and consumer goods industry is likely to see a consolidation in the coming
months, with large size firms looking to improve margins by acquiring smaller peers,
according to global consulting firm KPMG.
"The Indian household and personal care market is likely to continue to see deal interest from
strategic players in 2010 because it requires significant marketing and advertising spend, as
well as distribution channel investments, to build scale," said a recent global KPMG report on
mergers and acquisitions in consumer markets.
A report, says that it is a busy market driven by consolidation and economic growth. Another
reason for consolidation is the expanding footprint of large organised retailers such as the
Future Group, Shopper's Stop, Reliance Retail and Aditya Birla Retail.
The retail chains are squeezing the margins of food, drink and consumer goods (FDCG)
companies. Though foreign players are barred from operating in the multi-branded retail
segment, global retailers such as Wal-Mart, Metro and Tesco have still entered India through
franchises and partnerships in their cash and carry wholesale businesses.
Add to this the pressure from multi-national behemoths like Hindustan Unilever and Procter
& Gamble, which are taking the pricing war to smaller Indian firms.
"This has pushed Indian FDCG businesses into consolidation as many believed they had
reached the limit of their growth. We believe the pressures behind this will continue
throughout 2010 and result in increased transaction volumes," practice head, consumer and

retail corporate finance, KPMG in India.

"However, the lack of large acquisition targets and the number of acquirers looking for
opportunities means valuations will continue to be at a premium,"
The food and drink sector in India is, however, unlikely to see any large deals because the
local brands have not scaled up beyond the $20-25- million mark and the larger deals have
already taken place.
Since French food and facilities management firm Sodexo SA acquired Radhakrishna
Hospitality Services for $125 million in March 2009, activity in this sector has been
relatively slow.
Indian Consumer goods are now increasingly looking beyond their shores for the next growth
wave. Godrej, Wipro, Dabur and Marico have made several acquisitions across Asian and
African markets.
India will continue to see merger and acquisitions (M&A) and private equity activity within
the FMCG sector both on a domestic and cross-border basis, notwithstanding the global
economic slowdown, according to a report by consulting firm PwC.
"The fast growing and differentiated Indian FMCG sector will continue to receive interest
from financial investors, who will remain focused on the demand being created by Indian
consumers, and western corporate who need to look at emerging markets to meet wider
growth aspirations," said the report.
As per the report titled 'The Indian Consumer Sector: What's the deal?', it established that
Indian corporates will continue to seek out acquisitions in overseas markets. "While the slow
growth and mature profile of western markets is unlikely to be appealing, Indian companies
are likely to continue to focus on high growth markets such as South-East Asia, Africa, Latin
America," the report added.
Acquirers can gain significantly from choosing to follow an inorganic growth route, said
PwC. There is an opportunity to gain market share and footprint in other fast growing
countries/regions through acquisitions and also access to an established and well invested
distribution infrastructure capable of leveraging existing products that will be adaptable to the
new geography, the report added.
Example: Companies that was active in acquisitions
Indian FMCG companies have been active in overseas acquisitions with the likes of Godrej
and Wipro taking the lead. While Godrej had made a series of acquisitions in the past three
years in Indonesia, Africa and Argentina, Wipro Ltd acquired Singapore based LD Waxon,
which sells skincare and healthcare products, in December 2012. Wellness and beauty
company VLCC acquired Malaysia's Wyann International in November, 2012. On the other
hand, multinationals have also been in M&A activities in India. After acquiring Ahmadabadbased FMCG firm Paras Pharmaceuticals in 2011, Reckitt Benckiser had sold part of it homegrown firm Marico Industries

Conclusions
This sector will continue to see growth as it depends on ever increasing internal market for
consumption and demand remains more or less constant, irrespective of recession or inflation.
Hence the sector will grow though it may not continue at same pace, due to the present
worldwide economic slowdown, rising inflation and fall of rupee. The sectors hiring will
continue to remain robust.

A look at some sectors that will drive growth in this sector:

Increasing rate of urbanization, expected to see major growth in coming years.
Rise in disposable incomes, resulting in premium brands having faster growth and deeper
penetration.
Innovative and stronger channels of distribution to the rural segment, leading to deeper
penetration into this segment.
Increase in rural non-agricultural income and benefits from government welfare programs.
Investment in stock markets of FMCG companies, which are expected to grow constantly.