FMCG: Growing fast and furious

As the fourth largest sector in Indian economy, FMCG is distinguished by a good

distribution network and a strong competition between organised and
unorganised segment. Its growing demand in market will also support it in an
effective manner.

CJ: Udita Lal

Mon, Jan 25, 2010 10:14:59 IST

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THE 86,000 crore FMCG (fast moving consumer goods) sector in India is running
full throttle and is expected to have a lot of action in 2010. As the fourth largest
sector in the Indian economy, it is distinguished by a good distribution network
and a strong competition between organised and unorganised segment.
According to Financial Express, the sector will witness a growth of 15 per cent in
2010, compared to last year.

Growth Potential

Most of India’s population still lives in villages and hence, it is one area that can’t
be overlooked. As an agricultural economy, which is gaining a lot of focus, rural
income is bound to increase. That will definitely provide a better growth prospect
for the FMCG companies. The growing demand in the market will also support
the sector in an effective manner. Per capita consumption of various products is
very low in India and hence it will have varied growth possibility. The new
generation customer is brand savvy. However, now the companies need to focus
on rural customer to make them more aware of the kind of new products and
services that the FMCG basket can offer. The purchasing power of the people
also plays an important role. The urban area will continue to dominate the
market share of the FMCG products, what with increasing incomes and new
categories. Currently urban populace has a 66 per cent share in terms of
consumption. The home and personal care category, including skin care,
household care and feminine hygiene will keep going stronger. In the food
segment- processed foods, bakery and dairy are key growth areas in both rural
and urban areas.

Indian and the world markets

India will continue to be a major FMCG player because of reasons like abundance
of raw material,labour costs and an effective value chain. The climatic conditions
across India is varied which gives it a huge raw material base for food processing
industries. It is coming up as major coffee market. For a long time it has been the
largest producer of milk, spices cashew and livestock. The production of caustic
soda and soda ash also gives it a local advantage, since they are the basic
ingredients in soaps and detergents.

Labour cost

It makes good business sense to look for cheaper options to make profits – and
that will stand true for any company. Hence, it is definitely one area where India
can make a mark with its low cost labour. India happens to have lowest labour
cost in the world to be topped only by China and Indonesia. This has led to low
cost of production. One of the reasons why many MNCs have established their
plants in India.

Another major factor as to why the country is a potential growth area for FMCG is
because of its strong presence in the value chain –be it from raw materials to
packaged goods.

Present and the future

While the global economic ire consumed everyone in its fire, FMCG happened to
be one area that stood tall and strong by overcoming its impact. Although the
input costs were high, the sector didn’t witness any price rise in fairness/anti
ageing creams, soaps and the likes. The Indian consumer continued to enjoy
royalty and hence the sales saw a hike. The issue was balanced by downsising
packaging. “The sector has coped well with recent challenges and grew by 15
per cent over the last year,” says industry chamber FICCI.

According to AC Nielson as reported by The Mint, the year 2009, also saw
modern retail format stores and aggressive marketing which helped home-grown
FMCG firms wrest market share from leader Hindustan Unilever Ltd (HUL). HUL’s
share in the estimated Rs 8,000 crore personal care market fell to 44.5 per cent
from about half last year, as others like ITC, Godrej and Wipro fought for space in
markets like Uttar Pradesh, Bihar and Gujarat with a rural push, says AC Nielsen.

The sector saw rarely any merger and acquisition except for Wipro’s Rs 210
crore acquisition of United Kingdom’s Yardley. The optimism in Indian market
was shown when PepsiCo, for the first time held its board meeting here. Its
investments are up by another 100 million dollar from 500 million dollar that was
announced last year.

Overall, the prospects of the FMCG sector remain good. According to FICCI, it has
grown consistently during the last three to four years. The sector is expected to
grow at 12 to 15 per cent over the next three to four years.