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. The FMCG market in India is expected to increase at a CAGR of 14.9% to reach US$ 220 billion by 2025, from US$ 110 billion in 2020. According to Nielsen, the Indian FMCG industry grew 9.4% in the January-March quarter of 2021, supported by consumption-led growth and value expansion from higher product prices, particularly for staples. The rural market registered an increase of 14.6% in the same quarter and metro markets recorded positive growth after two quarters. Final consumption expenditure increased at a CAGR of 5.2% during 2015-20. According to Fitch Solutions, real household spending is projected to increase 9.1% YoY in 2021, after contracting >9.3% in 2020 due to economic impact of the pandemic.

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. Rise in rural consumption will drive the FMCG market. The Indian processed food market is projected to expand to US$ 470 billion by 2025, up from US$ 263 billion in 2019-20.

FMCG giants such as Johnson & Johnson, Himalaya, Hindustan Unilever, ITC, Lakmé and other companies (that have dominated the Indian market for decades) are now competing with D2C-focused start-ups such as Mamaearth, The Moms Co., Bey Bee, Azah, Nua and Pee Safe. Market giants such as Revlon and Lotus took ~20 years to reach the Rs. 100-crore revenue mark, while new-age D2C brands such as Mamaearth and Sugar took four and eight years, respectively, to achieve that milestone.

Companies with dedicated websites recorded an 88% YoY rise in consumer demand in 2020. Since then, more businesses have begun to adopt the D2C model, and India is now home to >800 D2C brands looking at a US$ 101 billion opportunity by 2025.

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$ 18.19 billion from April 2000 to March 2021.

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

• In July 2021, Emami Ltd. increased its stake (by 15% to 46%) in Helios Lifestyle, which sells male-grooming products under The Man Company brand in line with its ambition to tap emerging online opportunities.
• In July 2021, Tata Consumer Products Ltd. introduced 'Eight O'Clock', America's Original Gourmet Coffee, under D2C, besides Tata Coffee 1868 and Sonnets, as a part of its strategy to enhance its D2C approach for select coffee brands and their specific websites. The company plans to add more brands in the D2C space as these three coffee brands stabilise.
• In July 2021, HUL launched in-store vending machine model, Smart Fill machine, for its home care products with the aim to reuse and recycle plastic. Smart Fill machine will allow consumers to reuse plastic bottles by refilling products from its brands like Surf Excel, Comfort and Vim.
• As of June 2021, e-commerce share has already touched 7-8% for some of the largest FMCG companies in the country, according to Accenture India.
• In June 2021, Dabur India announced its Rs. 550 crore (US$ 75.6 million) investment to set up a new plant in Madhya Pradesh for manufacturing of food products, ayurvedic medicines and health supplements.
• In May 2021, Tata Digital Ltd., a 100% subsidiary of Tata Sons, acquired a 64.3% stake in supermarket grocery supplies, the business-to-business arm of BigBasket in tandem with Tata Group’s strategy to build a digital consumer ecosystem. According to the Economic Times, the deal is worth U$ 1.8-2 billion.
• In May 2021, Nepal-based CG Corp Global, known for its popular noodles brand Wai Wai, announced its plan to invest Rs. 200 crore (27.42 million) to set up two new manufacturing plants in West Bengal and Uttar Pradesh.
• In April 2021, Rasna launched affordable immunity boosting syrup concentrates, comprising Vitamin E, B12, B6, Selenium and Zinc.
• In March 2021, ITC Ltd. launched milkshakes and cakes to expand in categories such as chocolates and staples.
• In March 2021, Sanjay Ghodawat Group launched RIDER, an energy drink. It is available across all modern retail formats such as supermarkets, general stores and e-commerce platforms.
• In February 2021, Nestle India announced plans to reach ~1.2 lakh villages (with each having population of over 5,000) over the next 2-3 years.
• In February 2021, Food and snack company, Haldiram's partnered with Africa's Futurelife to bring its nutritional food product range to India. The two companies launched a range of four products—Smart Foods, Smart Oats and Ancient Grains, Crunchy Granola and High Protein.
• In January 2021, Tata Consumer Products announced that it is looking for ways to add more of its beverages’ portfolio onto a direct-to-consumer platform to capture the urban online market.
• In January 2021, Tata Consumer Products introduced two new products, TATA Tea Tulsi Green and TATA Tea Gold Care, and reformulated its existing Tetley Green Tea, with added Vitamin C.
• In January 2021, Dabur India decided to foray into the ‘cow ghee’ category. These product will be prepared from milk sourced from indigenous cows bred in Rajasthan.
• In January 2021, Dabur India decided to foray into the ‘cow ghee’ category. These product will be prepared from milk sourced from indigenous cows bred in Rajasthan.
• In January 2021, Del Monte has launched a special 1 litre pouch pack in India, priced at Rs. 250 (US$ 3.42), thereby making olive oil affordable to consumers.
• In January 2021, FMCG businesses in India are planning to expand their oral care portfolio by entering new and niche categories such as mouth sprays, ayurvedic mouth cleansers and mouthwashes to meet the rising consumer demand for hygiene products.
  • For example, Pulling oil, an ayurvedic concoction used as a morning oral cleansing ritual based on centuries-old Ayurvedic regimen, was launched by companies such as Colgate Palmolive (India) Ltd. and Dabur India.

  Government Initiatives

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

  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.

  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. The number of internet users in India is likely to reach 1 billion by 2025. 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.

  References: Media Reports, Press Information Bureau (PIB), Firstpost

  • • 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.

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