Fast Moving Consumer Goods Learning Objectives FMCG Evolution Analysis of FMCG Sector Scope of FMCG sector Growth Prospects Recent Development in FMCG Sector CSR in FMCG FUTURE of FMCG sector

What are Fast Moving Consumer Goods (FMCG)? Products which have a quick turnover, and relatively low cost are known as Fast Moving Consumer Goods (FMCG). FMCG products are those that get replaced within a year. Examples of FMCG generally include a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, tooth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also include pharmaceuticals, consumer electronics, packaged food products, soft drinks, tissue paper, and chocolate bars. A subset of FMCGs are Fast Moving Consumer Electronics which include innovative electronic products such as mobile phones, MP3 players, digital cameras, GPS Systems and Laptops. These are replaced more frequently than other electronic products. White goods in FMCG refer to household electronic items such as Refrigerators, T.Vs, Music Systems, etc. In 2005, the Rs. 48,000-crore FMCG segment was one of the fast growing industries in India. According to the AC Nielsen India study, the industry grew 5.3% in value between 2004 and 2005.

What are FMCGs? What are FMCGs? Things like butter, potato chips, toothpastes, razors, household care products, packaged food and beverages, etc. But do we know under which category these things come? They are called FMCGs. FMCG is an acronym for Fast Moving Consumer Goods, which refer to things that we buy from local supermarkets on daily basis, the things that have high turnover and are relatively cheaper.

FMCG Products and Categories FMCG Products and Categories - Personal Care, Oral Care, Hair Care, Skin Care, Personal Wash (soaps); - Cosmetics and toiletries, deodorants, perfumes, feminine hygiene, paper products; - Household care fabric wash including laundry soaps and synthetic detergents; household cleaners, such as dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellents, metal polish and furniture polish

FMCG Products and Categories - Food and health beverages, branded flour, branded sugarcane, bakery products such as bread, biscuits, etc., milk and dairy products, beverages such as tea, coffee, juices, bottled water etc, snack food, chocolates, etc. - Frequently replaced electronic products, such as audio equipments, digital cameras, Laptops, CTVs; other electronic items such as Refrigerator, washing machines, etc. coming under the category of White Goods in FMCG;

FMCG – Evolution 1950’s-80’s – Low Investment in the sector Low purchasing power Govt’s emphasis on small scale sector HLL and other company’s urbane focus Post liberalization Entry of MNCs Focus shifted to getting to rural consumer first Others, like Nestle, remained with the urban population Latest fad to hit the market is the ‘sachet’ bug. Mushrooming of regional brands Nirma enters and changes the focus to ‘Value for Money’ in the 70’s Post liberalization, Jyothi Laboratories, ‘Ghari’ Detergent and ‘Anchor’ toothpaste giving the nation-wide brands a run for their money.

Advantages Large base India - a large consumer goods spender Changing lifestyles Low penetration and low per capita consumption Outsourcing hub Retailing-the new growth area

Analysis of FMCG Sector Strengths: 1. Low operational costs 2. Presence of established distribution networks in both urban and rural areas 3. Presence of well-known brands in FMCG sector Weaknesses: 1. Lower scope of investing in technology and achieving economies of scale, especially in small sectors 2. Low exports levels 3. "Me-too" products, which illegally mimic the labels of the established brands. These products narrow the scope of FMCG products in rural and semi-urban market.

Analysis of FMCG Sector Opportunities: 1. Untapped rural market 2. Rising income levels, i.e. increase in purchasing power of consumers 3. Large domestic market- a population of over one billion. 4. Export potential 5. High consumer goods Threats: 1. Removal of import restrictions resulting in replacing of domestic brands 2. Slowdown in rural demand Tax and regulatory structure

Fast Moving Consumer Goods Supply Abundant supply in metros. Distribution networks are being beefed up to penetrate the rural areas. Demand HLL expects the FMCG market to triple in market size by FY10, which highlights the potential. Barriers to Entry Huge investments in promoting brands, setting up distribution networks and intense competition, but the sector is not capital intensive. Bargaining Power of Suppliers Some of the companies are integrated backwards, which reduces the supplier's clout. Manufacturing is largely outsourced. Bargaining Power of Customers In case of branded products, there is little that the consumer can influence, but intense competition within the FMCG companies results in value for money deals for consumers (e.g. buy one, get one free concept). Competition Competition is faced from both domestic, MNCs and also from cheaper imports, which are increasingly visible in urban markets. Price wars are a common phenomenon.

Scope Of The Sector The Indian FMCG sector with a market size of US$13.1 billion is the fourth largest sector in the economy. A well-established distribution network, intense competition between the organized and unorganized segments characterize the sector. FMCG Sector is expected to grow by over 60% by 2010. That will translate into an annual growth of 10% over a 5-year period. It has been estimated that FMCG sector will rise from around Rs 56,500 crores in 2005 to Rs 92,100 crores in 2010. Hair care, household care, male grooming, female hygiene, and the chocolates and confectionery categories are estimated to be the fastest growing segments, says an HSBC report. Though the sector witnessed a slower growth in 2002-2004, it has been able to make a fine recovery since then. For example, Hindustan Levers Limited (HLL) has shown a healthy growth in the last quarter. An estimated double-digit growth over the next few years shows that the good times are likely to continue.

Growth Prospects With the presence of 12.2% of the world population in the villages of India, the Indian rural FMCG market is something no one can overlook. Increased focus on farm sector will boost rural incomes, hence providing better growth prospects to the FMCG companies. Better infrastructure facilities will improve their supply chain. FMCG sector is also likely to benefit from growing demand in the market. Because of the low per capita consumption for almost all the products in the country, FMCG companies have immense possibilities for growth. And if the companies are able to change the mindset of the consumers, i.e. if they are able to take the consumers to branded products and offer new generation products, they would be able to generate higher growth in the near future. It is expected that the rural income will rise in 2007, boosting purchasing power in the countryside.

Growth Prospects However, the demand in urban areas would be the key growth driver over the long term. Also, increase in the urban population, along with increase in income levels and the availability of new categories, would help the urban areas maintain their position in terms of consumption. At present, urban India accounts for 66% of total FMCG consumption, with rural India accounting for the remaining 34%. However, rural India accounts for more than 40% consumption in major FMCG categories such as personal care, fabric care, and hot beverages. In urban areas, home and personal care category, including skin care, household care and feminine hygiene, will keep growing at relatively attractive rates. Within the foods segment, it is estimated that processed foods, bakery, and dairy are long-term growth categories in both rural and urban areas

Indian Competitiveness and Comparison with the World Markets · Availability of raw materials · Labor cost comparison · Presence across value chain

Indian Consumer Class India has a population of over 1 billion and 4 climatic zones . Several religious and personal beliefs, 15 official languages, different social customs and food habits characterize Indian consumer class. Besides , India is also different in culture if compared with other Asian countries. Therefore, India has high distinctiveness in demand and the companies in India can get lot of market opportunities for various classes of consumers. Consumer goods marketers experience that dealing with India is like dealing with many small markets at the same time. Indian consumer goods market is expected to reach $400 billion by 2010. India has the youngest population amongst the major countries. There are a lot of young people in India in different income categories.

Indian Consumer Class Consumer goods marketers are often faced with a dilemma regarding the choice of appropriate market segment. In India they do not have to face this dilemma largely because rapid urbanization, increase in demand, presence of large number of young population, any number of opportunities are available . The bottom line is that Indian market is changing rapidly and is showing unprecedented consumer business opportunity Indian consumer class can be classified according to the following criteria: 1. Income 2. Socio-Economic status 3. Age demographics 4. Geographical dispersion

Recent Developments in (FMCG) Sector FMCG sector is no doubt registering an up trend in growth. According to CNBC, FMCG sector growth story will continue because of the positive budget. Nevertheless, there are some barriers to the growth of the sector. Indirect taxes constitute no less than 35% of the total cost of consumer products - the highest in Asia. Last year, Finance Minister proposed to introduce an integrated Goods and Service Tax by April 2010.This is an exceptionally good move because the growth of consumption, production, and employment is directly proportionate to reduction in indirect taxes.

Corporate Social Responsibility FMCG companies have now started taking Corporate Social Responsibility seriously. For instance, to encounter domestic violence, Ponds has tied up with the United Nations Development Fund(UNDF) for Women. Surf Excel is funding the education of children. Most brands link themselves with the social causes, thereby linking consumers with the brands and gaining goodwill in the market

Top Ten Players in FMCG Sector 1. Hindustan Unilever Ltd. 2. ITC (Indian Tobacco Company) 3. Nestlé India 4. GCMMF (AMUL) 5. Dabur India 6. Asian Paints (India) 7. Cadbury India 8 Britannia Industries 9. Procter & Gamble Hygiene and Health Care 10. Marico Industries

Secondary Players 1. Colgate-Palmolive (India) Ltd. 2. Godrej Consumers Product Ltd. 3. Nirma Ltd. 4. Tata Tea Ltd. 5. Parle Agro 6. H. J. Heinz

Budget 2007-2008 for FMCG Sector Reduction of duty on edible oil will have a positive impact on Marico. Full exemption of excise duty on biscuits priced at 50 rupees or less per kg is positive for ITC, Britannia, and Parle. Reduction of custom duty on food processing machinery and their parts from 7.5% to 5%. Reduction of excise duty on food mixes from 16% or 8% to nil is positive for ITC. Development of rural infrastructure is in focus, which is beneficial for FMCG companies because it is a big market for FMCGs. Better infrastructure will improve the supply chain. Exemption of free samples and displays from the purview of FBT will be beneficial for FMCG companies because they spend huge amount of money on advertising and brand building. HLL, Dabur, ITC, and Marico will be amongst the most benefited companies.

Forecast 2010 Rural and semi-urban Urban 128 million population thrice the urban Market size growth from 48k to 100k Crores (Growth of 50% at 10%CAGR) Increase penetration from the current less than 1% Problems in the rural sector Low per capita disposable incomes Large number of daily wage earners Acute dependence on vagaries of monsoon Seasonal consumption Poor infrastructure – roads and power supply Urban Market 16.5k to 35k Crores (Growth of 100% at 20%CAGR) Intense competition – severe pressure on margins – Focus on newer products, such as fruit juices

Spending Pattern

Per capita consumption

Fmcg Modern Trade

Looking ahead... The FMCG sector is characterised by a well-established distribution network, intense competition between the organised and unorganised segments and low operational cost. As per the BRIC report, India's per capita disposable income currently stands at US$ 556 per annum, which will rise to US$ 1,150 by 2015. With the rise in the share of the middle class, the FMCG market is all set to treble from US$ 11.6 bn in 2003 to US$ 33.4 bn in 2015. However, poor infrastructure, the affordability of a product or a service to a rural consumer with low disposable income, intense competition would be the key challenges. Nevertheless, with the rapidly growing economy, rising disposable income, changing consumer expenditure pattern and increasing number of middle class families, the FMGC market is set to take a big leap in the coming years.