FMCG SECTOR GROWTH
FMCG SECTOR GROWTH
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.
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 in FY18
and is estimated to reach US$ 103.7 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.
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. The Indian
processed food market is projected to expand to US$ 470 billion by
2025, up from US$ 263 billion in 2019-20.
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 organized retail markets thereby
bolstering consumer spending and encouraging more product launches.
The sector witnessed healthy FDI inflows of US$ 18.03 billion from
April 2000 to December 2020.
In May 2021, Nepal-based CG Corp Global, known for its popular
noodles brand Wai Wai, announced its plan to invest Rs. 200 crore 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, 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.
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 has
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 remodeling
their operations into larger logistics and warehousing.
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 unorganized market in the
FMCG sector falling, the organized 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 demonetization 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.
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