Trade Analytics
FMCG Industry in India

FMCG Industry in India

Latest update: June, 2018

  • FMCG is the 4th largest sector in the Indian economy
  • Household and Personal Care is the leading segment, accounting for 50 per cent of the overall market. Hair care (23 per cent) and Food and Beverages (19 per cent) comes next in terms of market share
  • Growing awareness, easier access and changing lifestyles have been the key growth drivers for the sector
  • The number of online users in India is likely to cross 850 million by 2025.
  • Retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 672 billion in 2016, with modern trade expected to grow at 20 per cent - 25 per cent per annum, which is likely to boost revenues of FMCG companies
  • People are gracefully embracing Ayurveda products, which has resulted in growth of FMCG major, Patanjali Ayurveda, with a revenue of US$ 1.57 billion in FY17. The company aims to expand globally in the next 5 to 10 years.
Growth

Source: Dabur Annual Report, Economic Times, Emami Annual Report, McKinsey Global Instotute, CII, Boston Consulting Group Report

  • By 2020, the revenues of the sector are forecasted to reach US$ 104 billion
  • In the long run, with the system becoming more transparent and easily compliable, demonetisation is expected to benefit organised players in the FMCG industry.
  • Direct selling sector in India is expected to reach Rs 159.3 billion (US$ 2.5 billion) by 2021, if provided with a conducive environment through reforms and regulation
  • The focus on agriculture, MSMEs, education, healthcare, infrastructure and employment under the Union Budget 2018-19 is expected to directly impact the FMCG sector. These initiatives are expected to increase the disposable income in the hands of the common people, especially in the rural area, which will be beneficial for the sector.
Growth

Notes: F - Forecast
Source: Dabur , AC Nielsen

Last Updated: June, 2018

Introduction

Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian economy with Household and Personal Care accounting for 50 per cent 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 40 per cent) is the largest contributor to the overall revenue generated by the FMCG sector in India and recorded a market size of around US$ 52.75 billion in 2017-18. However, in the last few years, the FMCG market has grown at a faster pace in rural India compared with urban India. Semi-urban and rural segments are growing at a rapid pace and FMCG products account for 50 per cent of 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 per cent - 25 per cent per annum, which is likely to boost revenues of FMCG companies. In 2016-17, revenue for FMCG sector have reached US$ 49 billion and is expected to grow at 9-9.5 per cent in FY18 supported by expectations of the total consumption expenditure reaching nearly US$ 3,600 billion by 2020 from US$ 1,595 billion in 2016. Direct selling sector in India is expected to reach Rs 159.3 billion (US$ 2.5 billion) by 2021, if provided with a conducive environment through reforms and regulation. #

Investments/ Developments

The government has allowed 100 per cent Foreign Direct Investment (FDI) in food processing and single-brand retail and 51 per cent in multi-brand retail. This would bolster employment and supply chains, and also provide high visibility for FMCG brands in organised retail markets, bolstering consumer spending and encouraging more product launches. The sector witnessed healthy FDI inflows of US$ 13.07 billion, during April 2000 to December 2017. Some of the recent developments in the FMCG sector are as follows:

  • The Hershey Co plans to invest US$ 50 million over the next five years in India, its fastest growing core market outside of US. 
  • As a part of its Rs 25,000 crore (US$ 3.88 billion) investment package, ITC will invest Rs 10,000 crore (US$ 1.55 billion) to expand its food processing segment.
  • The bottling arm of Coca-Cola India, Hindustan Coca-Cola Beverages (HCCB) is planning to increase its retail reach by one million new outlets and is targeting revenue of US$ 2.5 billion by 2020.
  • Future Retail will acquire HyperCity, which is owned by Shoppers Stop for Rs 911 crore (US$ 139.7 million) to further consolidate its business and have a better footing in the hypermarket segment.
  • Patanjali will spend US$743.72 million in various food parks in Maharashtra, Madhya Pradesh, Assam, Andhra Pradesh and Uttar Pradesh.

Government initiatives

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

  • In the Union Budget 2017-18, the Government of India has proposed to spend more on the rural side with an aim to double the farmer’s income in five years; as well as the cut in income tax rate targeting mainly the small tax payers, focus on affordable housing and infrastructure development will provide multiple growth drivers for the consumer market industry.
  • The Government of India’s decision to allow 100 per cent Foreign Direct Investment (FDI) in online retail of goods and services through the automatic route has provided clarity on the existing businesses of e-commerce companies operating in India.
  • With the demand for skilled labour growing among Indian industries, the government plans to train 500 million people by 2022 and is also encouraging private players and entrepreneurs to invest in the venture. Many governments, corporate and educational organisations are working towards providing training and education to create a skilled workforce.
  • The Government of India 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 18 per cent tax bracket against the previous 23-24 per cent rate. 

Road Ahead

Rural consumption has increased, led by a combination of increasing incomes 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 at a CAGR of 14.6 per cent, and reach US$ 220 billion by 2025 from US$ 29.4 billion in 2016. In FY18, FMCG’s rural segment contributed an estimated 10 per cent of the total income and it is forecasted to contribute 15-16 per cent in FY 19. ^

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, also 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 the country’s urban regions. India has a large base of young consumers who form the 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. The Internet has contributed in a big way, facilitating a cheaper and more convenient means to increase a company’s reach. It is estimated that 40 per cent of all FMCG purchases in India will be online by 2020, thereby making it a US$ 5-6 billion business opportunity. By the year 2025, e-commerce will contribute around 10-15 per cent sales of few categories in the FMCG sector*.

Mr Mark Mobius, Executive Chairman, Templeton EM, opined that the Goods and Services Tax (GST) will lead to mergers and rise of world class consumer companies in India. 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 improve performance of companies within the sector.

Exchange Rate Used: INR 1 = US$ 0.016 as on FY2018

References: Media Reports, Press Information Bureau (PIB), Union Budget 2017-18

Note - * According to a CII-BCG report, # - according to a study by Assocham, ^ - According to CRISIL report

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

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