(FMCG), Are Products That Are Sold Quickly at Relatively Low Cost
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Fast Moving Consumer Goods ((FMCG), are products that are sold quickly at relatively low cost. Though the absolute profit made on FMCG products are relatively small, they generally sell in large quantities, so the cumulative profit on such products can be large. Examples of FMCG generally include a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, teeth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, light bulbs, batteries, paper products and plastic goods. Products which have a quick turnover, and relatively low cost are known as Fast Moving Consumer Goods (FMCG). FMCG products are those that get replaced within a year. The Indian FMCG sector is the fourth largest in the economy and has a market size of US$13.1 billion. Well-established distribution networks, as well as intense competition between the organized and unorganized segments are the characteristics of this sector. FMCG in India has a strong and competitive MNC presence across the entire value chain. The Indian economy is all set for 16% growth during 2008-09, from a base of Rs. 85470 crores, as predicted by FICCI. Going forward, as anticipated by CRISIL, FMCG sector will touch around Rs. 140000 crores by 2015 (33.4B$), i.e. 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 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. • The sector generates 5% of total factory employment in the country and is creating employment for three million people, especially in small towns and rural India1. India’s FMCG Market Size (In USD Billion) Sources: Naukri Hub, IBEF, Chennai Online Household Care Personal Care Foods & Beverages Fabric wash (laundry soaps Oral care, hair care, skin care, Health beverages; soft drinks; and personal wash (soaps); staples/cereals; Beverages synthetic detergents); cosmetics bakery Household and toiletries; deodorants; products (biscuits, bread, cleaners(dish/utensil perfumes; feminine hygiene; cakes); cleaners, floor cleaners, toilet paper products. snack food; chocolates; ice cleaners, air fresheners, cream; tea; coffee; soft drinks; insecticides and mosquito processed fruits, vegetables; repellents, metal polish and dairy furniture polish) products; bottled water; branded flour; branded Major Players in Each Product Category Product Categories Major Players Hindustan Lever, Nirma and Reckitt & Household Care Colman Personal Care Hindustan Lever, Godrej Soaps, Colgate- Palmolive, Marico, Dabur and Procter & Gamble Food & Beverages Hindustan Lever, Nestle, Cadbury and Dabur A BRIEF HISTORY OF FMCG India has a prominent role in the field of FMCG since it has a large population. At around 1980, the investors found the scope of fresh investment into FMCG. With the decline in purchase power and government‟s explicit support to regional players, extent of fresh investment into FMCG dried up in India. Most of the leading players like HLL had quite an urban approach to their operations with limited focus on huge rural market, which was changed with the entry of Nirma. Taking a cue from Nirma, more and more companies are launching the „value for money‟ products to target the lower strata of the society. At the same time, government‟s relaxation of norms encouraged companies to exploit the benefits of scale to make the FMCG products. With the onset of liberalization consumers had many products to choose from both domestic and imported goods. This phase lowered trade barriers and encouraged MNCs to invest in the country. Growth in standards of living and support from rural India prompted companies to extend their product offering all through the price-value equation. In this process, many existing customers upgraded themselves to users of premium products. Companies such as HLL, Godrej consumer, Marico, Henkel, Reckitt Benckitt Benckiser and Colgate all have tried to touch the rural consumers by expanding into the mid-sized towns and villages. Smaller players like Marico have utilized the distribution network of bigger players like P&G for their strategy. RELEVANCE IN INDIAN ECONOMY 1.1. Disposable Income: There is increase in disposable income, observed in both rural and urban consumers, which is giving opportunity to many rural consumers to shift from traditional unorganized unbranded products to branded FMCG products and urban fraternity to splurge on value added and lifestyle products. The increasing salaries, along with rising trend of perks in the corporate sector at regular intervals, have increased people‟s spending power. As per some research, there is a high correlation between Disposable per capita and HPC per capita. With increasing disposable income and subsequent rise in quality of living and hygiene concerns, the average Indian‟s spending on grocery and personal care products will likely increase. Currently, the average Indian spends about 48%, also the majority, of his total income on groceries (~40%) and personal care products (~8%). 2. Organized Retail: The emergence of organized retail have lead to more variety with ease in browsing, opportunity to compare with different products in a category, one stop destination (entertainment, food and shopping) etc, which is playing an important role in bringing boom in the Indian FMCG market. Currently the modern trade is capturing 5% of the total retail space, which will increase to 10% and 25% in 2010 and 2025 respectively. Also, as the credit card and organized retail trend picks up, people won‟t think much while buying and buy more. 3. Distribution Depth - Rural Penetration: There are 5500 towns and 6.38 Lacs villages with 2.5Mln and 5Mln outlets respectively. Due to saturation and cut throat competition in urban India, many FMCG companies are devising strategies for targeting rural consumers in a big way. Many FMCG companies are focusing on increasing their distribution network to penetrate with a step by step plan. This is the reason that FMCG urban market size has dropped from 50% to 29% in last 5 years. Though the urban markets are growing too, the incremental addition in consumer‟s households is much more in rural space as compared to urban markets. The planned development of roads, ports, railways and airports, will increase FMCG penetration in the long term. 180 million rural and semi-urban people‟s attention has already been diverted towards FMCG products, according to latest estimates released by industry chamber, Assocham in 2008. Many companies are deepening their penetration in the rural areas as: The FMCG sector in the urban areas is becoming quite saturated (though it will continue to dominate in the next 8 – 10 years4) while the penetration in the rural areas are only about 1%. The rural areas have and will continue to make up more than 50% (153 million) of India‟s total households and accounting for more than its current 66% contribution to total FMCG consumption. Rural India has a large consuming class with 41 per cent of India's middle-class and 58 per cent of the total disposable income. Currently, nearly 34% of the offtake of FMCG companies come form rural areas. Companies like HUL, ITC and Colgate have already established good distribution networks in these regions. Other companies would start catering to these regions in near future. Between 2005 and 2010, the FMCG sector in the rural and semi-urban areas will experience some 50% growth, at a CAGR of 10% and increase its market size to nearly US$ 23 billion from the 2005 level of US$11.4 billion. The estimated number of households using FMCG products in rural India has grown from 131 million in 2004 to 140 million in 2007, according to market research company IMRB. Over 70% sale of FMCG products is made to middle class households and over 50% of middle class is in rural India. Rural Vs. Urban Households Growth YEAR RURAL (in millions) URBAN (in millions) 2001-02 135 53 2009-10 153 69 Sources: Statistical Outline of India (2001-02), NCAER 4. Buying Pattern Shift: The crisis of declining FMCG markets during 2001-04 was driven by new avenues of expenditure for growing consumer income such as consumer durables, entertainment, mobiles, motorbikes etc. Now, as many consumers have already upgraded, their income is being directed towards pampering themselves. 5. Favorable Indian Economy & Demographics: 45% people in India are under 20 years of age. Per capita disposable income has increased from $550 to $600 in 2007 (9% increase). GDP is growing at a CAGR between 8 to 9%.In the next five years, affluent and aspirers as a total will supersede strivers and will be dominated by aspirers, as per NCAER. FMCG CATEGORY TRENDS 1. Underpenetrated Growth Categories: Within the Indian FMCG industry, there are few categories that will grow more than 20% during 2008-2009, like shaving cream, skin/fairness cream, shampoos, skin care & cosmetics, tooth powder.