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. From October 2020 to December 2020, the FMCG market rose 7.1%, driven by food items, health, hygiene and rural areas.

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 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 products 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.
• In December 2020, Godrej Consumer Products Limited (GCPL), under its Godrej ProClean brand, has ventured into home cleaning products to meet the rising demand for cleaning and hygiene products among Indian consumers. The home cleaning products segment, which includes branded floor, toilet and bathroom cleaners, is estimated to be ~ Rs. 2,600 crore (US$ 354.05 million).
• FMCG companies are focusing on strengthening their e-commerce engagement. An Ayurveda baby care range has been introduced by Dabur, which will be sold only on e-commerce platforms. With its contribution expanding from 1.5% to 5.6%, the e-commerce division of the group has more than doubled over the previous year. Similarly, in the first quarter of FY21, Marico's e-commerce sector has grown 37% YoY, while Emami’s e-commerce business doubled to >100%.

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. 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.

Note: Conversion rate used for January 2021 is Rs. 1 = US$ 0.0137

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

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