FMCG Industry in India

Introduction

Fast-moving consumer goods (FMCG) sector is India’s fourth largest sector with household and personal care accounting for 50% of FMCG sales in India. Growing awareness, easier access and changing lifestyles have been the key growth drivers for the sector. The urban segment (accounts for a revenue share of around 55%) is the largest contributor to the overall revenue generated by the FMCG sector in India. However, in the last few years, the FMCG market has grown at a faster pace in rural India compared to urban India. Semi-urban and rural segments are growing at a rapid pace and FMCG products account for 50% of the total rural spending.

Market Size

The retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840 billion in 2017, with modern trade expected to grow at 20 25% per annum, which is likely to boost revenue of FMCG companies. Revenue of FMCG sector reached Rs. 3.4 lakh crore (US$ 52.75 billion) in FY18 and is estimated to reach US$ 103.7 billion in 2020. FMCG market is expected to grow at 9-10% in 2020.

Rise in rural consumption will drive the FMCG market. It contributes around 36% to the overall FMCG spending. In the third quarter of FY20 in rural India, FMCG witnessed a double-digit growth recovery of 10.6% due to various government initiatives (such as packaged staples and hygiene categories); high agricultural produce, reverse migration and a lower unemployment rate.

Investments/ Developments

The Government has allowed 100% Foreign Direct Investment (FDI) in food processing and single-brand retail and 51% in multi-brand retail. This would bolster employment, supply chain and high visibility for FMCG brands across organised retail markets thereby bolstering consumer spending and encouraging more product launches. The sector witnessed healthy FDI inflows of US$ 17.8 billion from April 2000 to September 2020.

Some of the recent developments in the FMCG sector are as follows:

• In November 2020, Emami Ltd. announced its entry into home hygiene segment with products under ‘Emasol’ range.
• In December 2020, FreshToHome (FTH), which sells online fresh fish and meat, announced that it aims to more than double its revenue over the next 12 months to Rs 1,500 crore, supported by business-wide expansion, including its 'FTH Daily' service.
• In November 2020, NIVEA, by launching the first ever e-commerce ready-to-ship kit,' NIVEA CARE BOX’, in collaboration with Amazon India, has taken a step towards being more sustainable through its packaging.
• In November 2020, Bahrain's Investcorp stated it had invested in Xpressbees, an Indian start-up in logistics, as part of a group of local and global investors. With more than 1,000 customers across sectors including e-commerce, pharmaceuticals, consumer goods, retail, manufacturing, electronics and consumer durables, Xpressbees has presence in >2,000 cities and towns in India. The size of the investment was not disclosed.
• In November 2020, TradeIndia announced to conduct the ‘Consumer Goods Expo India 2020’ to minimise geographical barriers and generate new opportunities in the manufacturing industry and MSME sector.

Government Initiatives

Some of the major initiatives taken by the Government to promote the FMCG sector in India are as follows:

• On November 11, 2020, Union Cabinet approved the production-linked incentive (PLI) scheme in 10 key sectors (including electronics and white goods) to boost India’s manufacturing capabilities, exports and promote the ‘Atmanirbhar Bharat’ initiative.
  • Developments in the packaged food sector will contribute to increased prices for farmer and reduce the high levels of waste. In order to provide support through the PLI scheme, unique product lines—with high-growth potential and capabilities to generate medium- to large-scale jobs—have been established.
• The Government of India has approved 100% FDI in the cash and carry segment and in single-brand retail along with 51% FDI in multi-brand retail.
• The Government has drafted a new Consumer Protection Bill with special emphasis on setting up an extensive mechanism to ensure simple, speedy, accessible, affordable and timely delivery of justice to consumers.
• The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of the FMCG products such as soap, toothpaste and hair oil now come under the 18% tax bracket against the previous rate of 23-24%. Also, GST on food products and hygiene products have been reduced to 0-5% and 12-18% respectively.
• GST is expected to transform logistics in the FMCG sector into a modern and efficient model as all major corporations are remodelling their operations into larger logistics and warehousing.

Road Ahead

Rural consumption has increased, led by a combination of increasing income and higher aspiration levels. There is an increased demand for branded products in rural India. The rural FMCG market in India is expected to grow to US$ 220 billion by 2025 from US$ 23.6 billion in FY18.

On the other hand, with the share of unorganised market in the FMCG sector falling, the organised sector growth is expected to rise with increased level of brand consciousness, augmented by the growth in modern retail.

Another major factor propelling the demand for food services in India is the growing youth population, primarily in urban regions. India has a large base of young consumers who form majority of the workforce, and due to time constraints, barely get time for cooking.

Online portals are expected to play a key role for companies trying to enter the hinterlands. Internet has contributed in a big way, facilitating a cheaper and more convenient mode to increase a company’s reach. It is estimated that 40% of all FMCG consumption in India will be made online by 2020. The online FMCG market is forecast to reach US$ 45 billion in 2020 from US$ 20 billion in 2017.

It is estimated that India will gain US$ 15 billion a year by implementing GST. GST and demonetisation are expected to drive demand, both in the rural and urban areas, and economic growth in a structured manner in the long term and improved performance of companies within the sector.

Note: Conversion rate used for December 2020 is Rs. 1 = US$ 0.014

References: Media Reports, Press Information Bureau (PIB), Union Budget 2019-20, Firstpost

Note: ^ - According to CRISIL report, ^@ - according to Nielsen

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.