Trade Analytics
Consumer Markets
India’s FMCG industry is expected to grow at 12 per cent in 2016, reaching the sales figure of US$ 49 billion.

Indian Consumer Market

Latest update: March, 2017

Consumer durables revenues have been growing at a healthy pace

  • In 2015, revenue from consumer durables sector in India stood at US$ 9.7 billion, which further increased to US$ 12.5 billion in FY16. 
  • Consumer durable market expected to grow at CAGR of 13 per cent from FY05 to FY20. 
  • Around two third of the total revenue is generated from urban population and rest is generated from rural population. 

 

Last Updated: March, 2017

DURABLES SECTOR REPORT | March, 2017

FMCG SECTOR REPORT | March, 2017

Introduction

Indian consumer segment is broadly segregated into urban and rural markets, and is attracting marketers from across the world. The sector comprises of a huge middle class, relatively large affluent class and a small economically disadvantaged class, with spending anticipated to more than double by 2025.

India stood first among all nations in the global consumer confidence index with a score of 133 points for the quarter ending September 2016. Further, in the discretionary spending category, 68 per cent respondents from India indicated the next 12 months as being good to buy, thus ensuring once again that India leads the global top 10 countries for this parameter during the quarter.

Global corporations view India as one of the key markets from where future growth is likely to emerge. The growth in India’s consumer market would be primarily driven by a favourable population composition and increasing disposable incomes. A recent study by the McKinsey Global Institute (MGI) suggests that if India continues to grow at the current pace, average household incomes will triple over the next two decades, making the country the world’s fifth-largest consumer economy by 2025, up from the current 12th position.

India’s robust economic growth and rising household incomes are expected to increase consumer spending to US$ 3.6 trillion by 2020#. The maximum consumer spending is likely to occur in food, housing, consumer durables, and transport and communication sectors. The report further stated that India's share of global consumption would expand more than twice to 5.8 per cent by 2020.

Market size

The growing purchasing power and rising influence of the social media have enabled Indian consumers to splurge on good things. The Indian consumer sector has grown at an annual rate of 5.7 per cent between FY2005 to FY 2015. Annual growth in the Indian consumption market is estimated to be 6.7 per cent during FY2015-20 and 7.1 per cent during FY2021-25.

The Indian fast-moving consumer goods (FMCG) companies have performed better than their multinational peers as the combined revenue of country's seven leading FMCG companies stood at US$ 11.1 billion in FY 2015-16, as compared with US$ 9.4 billion revenue generated by select seven Multinational Companies (MNCs)†.

A study by US-based networking solution giant CISCO, reveals that in India, the second-largest smartphone market globally, the number of smartphones is expected to grow strongly to over 650 million by 2019. Indian smartphone shipments reached 103.6 million in 2015, thus crossing the 100 million mark, and becoming one of the fastest growing smartphone markets in Asia Pacific region. Smartphone shipments rose to 30 million in July-September 2016 quarter, maintaining its healthy traction with 11 per cent YoY growth. It is estimated that smartphone sales in India will grow about 15 per cent to 125 million in 2017††.

The number of tablets is estimated to reach more than 18 million by 2019 in India, one of the world’s fastest growing Internet market‡.

The online retail sector in India is expected to be a US$ 1 trillion (Rs 660,000 crore) market by 2020@.

Amazon expects India to become its quickest market to reach US$ 10 billion in gross merchandise value (GMV) and to become its largest overseas market surpassing Japan, Germany and the UK.

The Indian beauty, cosmetic and grooming market is likely to reach US$ 20 billion by 2025 from the current US$ 6.5 billion, on the back of growing aspirations and rising disposable income of middle class.!

Investments

Following are some major investments and developments in the Indian consumer market sector.

  • US-based food company Cargill Inc, aims to double its branded consumer business in India by 2020, by doubling its retail reach to about 800,000 outlets.
  • Yum!Brands, plans to open 100 Taco Bell outlets in India over the next five years, which makes Indian expansion a key part of its plan to triple its outlets outside US to 1,000.
  • Hamleys has stated that India is one of the most important markets for Hamleys globally, and outlined plans of opening six more stores, taking its total store count in the country to 32 by the end of March 2017.
  • Roche Bobois Group, outlined plans of opening new stores in cities like Hyderabad, Chennai, Pune, Kolkata and Ahmedabad, in order to make India one of its top five markets by 2021.
  • Diageo, the world’s largest spirit maker, has announced opening of a new business service centre called Diageo Business Services India (DBSI) in Bengaluru, which aims to increase its workforce to 1,000 from 100 currently.
  • Amway, India’s largest company in the Rs 7,500 crore (US$ 1.12 billion) direct-selling market, plans to invest Rs 400 crore (US$ 60 million) over the next five years to expand its product portfolio and open 50 ‘express’ stores in top 20 cities of India, in addition to strengthening its e-commerce website.
  • Furlenco, an online furniture rental company, has raised US$ 30 million in series B round of funding led by LightBox Ventures, Axis Capital and a number of high net-worth individuals, which will be used to expand its geographical presence and product offerings in the next 12 months.
  • Dyson, the UK-based manufacturer of innovative vacuum cleaners and air purifiers, plans to enter Indian consumer market by 2017 and invest GBP 154 million (US$ 190 million) over the next five years in areas of retail infrastructure, marketing, promotion and taxes to the government.
  • Zefo, a Bengaluru-based refurbished goods marketplace, has raised Rs 40 crore (US$ 6 million) in a funding round led by Sequoia India, with participation from Beenext and Helion Venture Partners, which will be used to expand its team, invest in technology, and expand its presence in Mumbai and Delhi, which were recent additions.
  • Adidas India Private Limited, outlined plans of opening around 30-40 big flagship stores across Delhi, Mumbai and Bengaluru, by 2020.
  • Swiss watchmaker Montres Corum Sàrl, better known as Corum, has partnered with the luxury watch retailer Ethos Watch Boutiques to sell Corum watches in India, in order to strengthen its presence in India by rebuilding its distribution network and boosting revenues.
  • AO Smith, a US based water technology and air purification solutions company, sees India as one of key markets and plans to grow at double-digit growth rate, having invested US$ 75 million so far.
  • Crocs India Pvt Ltd, outlined plans of increasing its store count in India from 38 to 100 by the end of 2017, and increasing its focus on the casual footwear category to expand its consumer base and thereby boost its overall revenue.
  • Panasonic Corporation plans to set up a new manufacturing plant for refrigerators in India with an investment of Rs 250 crore (US$ 37.5 million), and also invest around Rs 20 crore (US$ 3 million) on an assembly unit for lithium ion batteries at its existing facility in Jhajjar.
  • Bosch & Siemens, the largest manufacturer of home appliances in Europe, plans to manufacture more products in India in the next three years, led by rise in demand for premium home and kitchen appliances.

Government Initiatives

The Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in online retail of goods and services through the automatic route, thereby providing 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.

In the Union Budget 2017, the government 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.

Union Cabinet reforms like implementation of the Goods and Services Tax (GST) and Seventh Pay Commission are expected to give a boost to consumer durable sector in India.

Road Ahead

The food services market in India is expected to expand at a CAGR of over 12 per cent through 2020##, primarily driven by increasing disposable income, changing lifestyle, and changing tastes and preferences of consumers. 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.

India's e-commerce market is expected to reach US$ 220 billion in terms of gross merchandise value (GMV) and 530 million shoppers by 2025**, led by faster speeds on reliable telecom networks, faster adoption of online services and better variety as well as convenience.

Further, the M2M modules market in India is expected to exceed US$ 4.4 billion by 2020@@, as India has become one of the fastest growing markets for M2M modules in Asia-Pacific (APAC).

Research firm Nielsen projected that rural India’s FMCG market will surpass the US$ 100 billion mark by 2025. 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.

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.

Exchange Rate Used:

  • INR 1 = US$ 0.015 as on February 9, 2017
  • INR 1 = GBP 0.012 as on February 9, 2017

References: Media reports, press releases, Press Information Bureau (PIB), Union Budget 2017-18

Notes: # - According to a report by Boston Consulting Group (BCG) and the Confederation of Indian Industry (CII), @ - According to a recent report by the Confederation of Indian Industry (CII) and Deloitte, ## - According to a TechSci Research report, "India Food Services Market Forecast & Opportunities, 2020", ** - as per a report by Bank of America Merrill Lynch (BofA-ML), @@ - According to the report titled "India Machine-to-Machine (M2M) Modules Market Opportunities & Forecast, 2020", ! - as per a study by Assocham, July 2016, † - According to a report by The Associated Chambers of Commerce of India (ASSOCHAM) and TechSci Research, †† - According to JP Morgan, ‡ - According to CISCO’s Visual Networking Index (VNI) Global Mobile Data Traffic Forecast Update for 2014-2019

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

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