eco project_fmcg sector

8/11/2019 Eco Project_FMCG Sector

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ANALYSIS OF MICROECONOMIC FACTORS AFFECTING THE FMCG SECTOR

Kushal Bohra C007

Prarthana Gulati C018

Atul Kedia C030

Jinal Trivedi C061


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1. Overview of the Sector.................................................................................................................. 2

2. Evolution of Indian FMCG Sector.............................................................................................. 3

2.1 Scope of the Sector................................................................................................................ 4

2.2 Growth Prospects.................................................................................................................. 5

3. Analysis of FMCG Sector in India.............................................................................................. 6

3.1 PEST ANALYSIS FOR FMCG IN INDIA......................................................................... 6

3.2 SWOT ANALYSIS FOR FMCG IN INDIA....................................................................... 7

3.3 PORTERS 5 FORCES FOR FMCG IN INDIA:.............................................................. 7

4. Industry Analysis of FMCG Sector............................................................................................. 8

4.1 Major Government Policies/Changes.................................................................................. 9

4.2 Factors Affecting the Growth.............................................................................................. 9

4.3 Growth Scenarios of FMCG sectors.................................................................................... 94.4 Key drivers of the FMCG Industry in India.................................................................... 11


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1. Overview of the Sector

Products which have a quick turnover, and relatively low cost are known as Fast Moving

Consumer Goods (FMCG). FMCG goods are popularly named as consumer packaged

goods. Items in this category include all consumables (other than groceries/pulses) people

buy at regular intervals. The most common in the list are toilet soaps, detergents, shampoos,

toothpaste, shaving products, shoe polish, packaged foodstuff, and household accessories and

extends to certain electronic goods. These items are meant for daily of frequent consumption

and have a high return.

FMCG products are those that get replaced within a year. These products are purchased by

the customers in small quantity as per the need of individual or family. These items are

purchased repeatedly as these are daily use products. The price or value of the products is not

very high. These products are having short life also. It may include perishable and non

perishable products, durable and non durable goods. Examples of FMCG generally include awide 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.


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2. Evolution of Indian FMCG Sector

In 2005, the INR 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. The Indian FMCG sector is the fourth largest in the economy and has a

market size of US$13.1 billion. Well-established distribution networks, as well as intense

competition between the organized and unorganized segments are the characteristics of this

sector. FMCG in India has a strong and competitive MNC presence across the entire value

chain. The middle class and the rural segments of the Indian population are the most

promising market for FMCG, and give brand makers the opportunity to convert them to

branded products. Most of the product categories like jams, toothpaste, skin care, shampoos

etc. in India, have low per capita consumption as well as low penetration level, but the

potential for growth is huge. The Indian Economy is surging ahead by leaps and bounds,

keeping pace with rapid urbanization, increased literacy levels, and rising per capita income.

The big firms are growing bigger and small-time companies are catching up as well.According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by

MNCs, and the balance by Indian companies. Fifteen companies own these 62 brands, and 27

of these are owned by Hindustan Lever. Pepsi is at number three followed by ThumsUp.

Britannia takes the fifth place, followed by Colgate (6), Nirma (7), Coca-Cola (8) and Parle

(9). These are figures the soft drink and cigarette companies have always shied away from

revealing. Personal care, cigarettes, and soft drinks are the three biggest categories in FMCG.

Between them, they account for 35 of the top 100 brands.

Top 10 Companies in FMCG Sector

1. Hindustan Unilever Ltd.

2. ITC (Indian Tobacco Company)

3. Nestl 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

The personal care category has the largest number of brands i.e. 21, inclusive of Lux,

Lifebuoy, Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in the 21,

aggregating INR 3,799 crore or 54% of the personal care category. Cigarettes account for

17% of the top 100FMCG sales, and just below the personal care category. ITC alone

accounts for 60% volume market share and 70% by value of all filter cigarettes in India. The

foods category in FMCG is gaining popularity with a swing of launches by HLL, ITC,

Godrej, and others. This category has 18 major brands, aggregating INR 4,637 crore. Nestle


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and Amul slug it out in the powders segment. The food category has also seen innovations

like softies in ice creams, chapattis by HLL, ready to eat rice by HLL and pizzas by both

GCMMF and Godrej Pillsbury. This category seems to have faster development than the

stagnating personal care category. Amul, India's largest foods company has a good presence

in the food category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia alsoranks in the top 100FMCG brands, dominates the biscuits category and has launched a series

of products at various prices. In the household care category (like mosquito repellents),

Godrej and Reckitt are two players. Good knight from Godrej is worth above INR 217 crore,

followed by Reckitt's Mortein at INR 149 crore. In the shampoo category, HLL's Clinic and

Sunsilk make it to the top 100, although P&G's Head and Shoulders and Pantene are also

trying hard to be positioned on top. Clinic is nearly double the size of Sunsilk. Dabur is

among the top five FMCG companies in India and is a herbal specialist. With a turnover of

INR 19 billion (approx. US$ 420 million) in 2005-2006, Dabur has brands like Dabur Amla,

Dabur Chyawanprash, Vatika, Hajmola and Real. Asian Paints is enjoying a formidable

presence in the Indian sub-continent, Southeast Asia, Far East, Middle East, South Pacific,

Caribbean, Africa and Europe. Asian Paints is India's largest paint company, with a turnover

of INR22.6billion (around USD 513 million). Forbes Global magazine, USA, ranked Asian

Paints among the 200 Best Small Companies in the World Cadbury India is the market leader

in the chocolate confectionery market with a 70% market share and is ranked number two in

the total food drinks market. Its popular brands include Cadbury's Dairy Milk, 5 Star, Eclairs,

and Gems. The INR 15.6 billion (USD 380 Million) Marico is a leading Indian group in

consumer products and services in the Global Beauty and Wellness space. There is a huge

growth potential for all the FMCG companies as the per capita consumption of almost all

products in the country is amongst the lowest in the world. Again the demand or prospectcould be increased further if these companies can change the consumer's mindset and offer

new generation products. Earlier, consumers were using non-branded apparel, but today,

clothes of different brands are available and the same consumers are willing to pay more.

2.1 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 characterizes the sector. That will translate into an

annual growth of 10% over a 5-year period. 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.

FMCG in numbers:

The Indian FMCG industry represents nearly 2.5% of the countrys GDP.


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The industry has tripled in size in past 10 years and has grown at ~17%CAGR in the

last 5 years driven by rising income levels, increasing urbanisation, strong rural

demand and favourable demographic trends.

The sector accounted for 1.9% of the nations total FDI inflows in April 2000 -

September 2012. Cumulative FDI inflows into India from April 2000 to April 2013 in

the food processing sector stood at `9,000.3 crore, accounting for 0.96% of overall

FDI inflows while the soaps, cosmetics and toiletries, accounting for 0.32% of overall

FDI at `3,115.5 crore.

Rural India accounts for more than 700 mn consumers or 70% of the Indian

population and accounts for 50% of the total FMCG market.

2.2 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 boostrural 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. 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


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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 will keep growing at relatively attractive rates.

3. Analysis of FMCG Sector in India

The analysis of the FMCG sector of India is carried out on the basis of following:

3.1

PEST ANALYSIS FOR FMCG IN INDIA

Pest analysis of FMCG sector in India is carried out on political, economical, social and

technological aspects. It is explained below:

Political:

Tax exemption in sales and excise duty for small scale industries.

Transportation and infrastructure development in rural areas helps in distribution

network.

Restrictions in import policies.

Help for agricultural sector.

Economical:

The GDP rate of Indian economy is increasing every year. It is expected in future it

would be better only in comparison with other countries.

Inflation rate is increasing across the world and India is also no exception. The

Government and Reserve Bank of India both are trying to control the inflation rate

with the help of different measures.

Increase in disposable income has taken place due to higher GDP rate. The per capita

income is increasing so the customers are having more income to spent for various

reasons. The FMCG sector is the 4thlargest sector of Indian economy with market size of more

than INR 60,000 crore. The Indian Territory is very large and number of customers is

also very high.

Social:

The Indian culture, social & life styles are changing drastically. The total population

is nearly 115 crores and population includes rich, poor, middle class, male, female,

located in rural, urban and sub urban areas, different level of education etc.


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Technology:

Technology has been simplified and available in the industry. Where technology is

not available then it is brought from foreign countries to meet FMCG sector

requirements. Foreign players help in high technological development. With research and

development facilities the new technologies are developed alone or with the help of

foreign players.

3.2 SWOT ANALYSIS FOR FMCG IN INDIA

SWOT analysis of this sector is carried as follows:

Strengths:

Well-established distribution network extending to rural areas.

Strong brands in the FMCG sector.

Low cost operations

Weaknesses:

Low export levels.

Small scale sector reservations limit ability to invest in technology and achieve

economies of scale.

Several "me-too products.

Opportunities:

Large domestic market.

Export potential

Increasing income levels will result in faster revenue growth.

Threats:

Imports

Tax and regulatory structure

Slowdown in rural demand

3.3 PORTERS 5 FORCES FOR FMCG IN INDIA:

Supply: Abundant supply through a distribution network of over 8 m stores across

the country. Distribution networks are being beefed up to penetrate the

rural areas.

Demand: Being items of daily consumption, demand is least impacted by economicslowdown.


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Barriers to

entry:

Huge investments in setting up distribution networks and promoting

brands and competition from established companies.

Bargaining power

of suppliers:

Inputs being mostly agri-commodities, the suppliers are numerous and

lack scale to wield bargaining power. Companies like ITC that are

integrated backwards have lower dependence on suppliers.

Bargaining power

of customers:

Customer does not have bargaining power in case of branded products

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 domestic unorganized players and established

MNC's. Price wars are a common phenomenon. Private labels offered by

retailers at a discount to mainframe brands act as competition to

undifferentiated and weak brands.

4. Industry Analysis of FMCG Sector

(i) The FMCG sector in India is expected grow at a compound annual growth rate at 9% to a

size of INR 1, 43,000 crs by 2015 from INR 93000 crs at present.

(ii) The industry is growing double digit growth in last 2 yrs.

(iii) Annual revenues of us $14.74 billion.

(iv) Market growth rateRural -40%, urban -25%


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4.1

Major Government Policies/Changes

In the context of the positives and the negatives, investing in FMCG stocks is a tricky

prospect. Given this, one has to be active with FMCG stocks and should book profits as soon

as the targeted returns are reached. Unlike earlier times, nowadays, one cannot afford to buy

an FMCG stock and forget about it for a long time. It is unlikely that the government's

initiatives will boost the sector overnight. The ongoing price wars mean that company

earnings will continue to be volatile. Hence, in the short term, one should look at individual

companies' prospects rather than the overall sector's prospects. This means that it is better to

leave mutual funds that concentrate on FMCG companies and instead buy shares depending

upon the company. It is not necessary that an MNC will be better than an Indian company.

One should look at a company's profile and analyze its prospects before investing in its

shares. It is not that you will lose out by buying FMCG stocks. But, in buying an FMCG

stock, it will be ideal to cash in during short bursts of activity.

4.2 Factors Affecting the Growth

Over the years, demand for consumer durables has increased with rising income levels,double income with no kids (DINK) families, changing lifestyles, availability of credit,increasing consumer awareness and introduction of new models. Products like airconditioners are no longer perceived as luxury products. The biggest attraction for MNCs isthe growing Indian middle class. This market is characterized with low penetration levels.MNCs hold an edge over their Indian counterparts in terms of superior technology combinedwith a steady flow of capital, while domestic companies compete on the basis of their well-acknowledged brands, an extensive distribution network and an insight in local market

conditions. With companies opting for information technology a reduction in inventory levelsand an improvement in the working capital cycle are likely. This will benefit companies bycontrolling costs and improving margins.

4.3

Growth Scenarios of FMCG sectors


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The trends seen in the FMCG sector over the years are likely to accelerate in the coming

years, primarily due to the following factors:

Vast rural market:

o The rural consumer market is expected to touch USD100 billion by 2025.

o

Growth will also be driven by new segments such as families earning less than`6000 per month and low-income value seekers visiting modern trade outlets

for the first time. These two segments are expected to add around $3billion to

the FMCG sector by 2015, as per Nielsen reports.

Innovative products:

o The Indian consumers have always welcomed innovation in products. Firms

should launch more products and widen their portfolio as they get into new

segments and categories.

Market related trends:

o

The key trends within this segment will be the viability of sub-markets inIndia, growing organized retail and the increasing globalization of FMCG

players.

Environment related trends:

o Changing government policies, growing importance of sustainability, evolving

media platforms and technology will compel FMCG players to adopt business

strategies which keep the interests of communities and the environment in

mind for inclusive development.

Premium products/Premiumization:

o

Research indicates consumers are willing to adopt a new premium categoryeven at a higher price, in the space of convenience, health and wellness.

o With rise in disposable incomes, mid- and high-income consumers in urbanareas have shifted their purchase trend from essential to premium products.

Sourcing base:o FMCG players can leverage India as a strategic sourcing hub for cost-

competitive product development and manufacturing to cater to internationalmarkets.

E-commerce:o According to a study by Assocham, the Indian online retail sector is expected

to grow to Rs 7,000 crore by 2015.o The e-commerce market in 2012 has grown 45-50%. This is an important

trend and can have significant impact on the way consumers buy andorganized retail evolves in the country.

o ITC: shopping.kitchensofindia.como Marico has started sales through Flipkart and Amazono Dabur has started Daburveda.com

Apart from the trend related factors, many external factors like per capita income,population growth, government policies also make a huge impact on this sector.


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4.4

Key drivers of the FMCG Industry in India

Companies should focus on deepening their market penetration in categories whichhave a poor market penetration. The following graph shows the penetration of variouscategories and we can clearly identify the categories which need attention.


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Sources:

1.

http://www.livemint.com/Industry/LyNBizkuOMdmThw6iaoGbN/Five-trends-

that-will-drive-FMCG-growth-in-2013.html

2.

http://www.strategyand.pwc.com/media/file/CII_FMCG-Roadmap-to-2020.pdf

3.

http://www.ffymag.com/admin/issuepdf/FMCG_FFYFeb13.pdf

4.

http://www.afaqs.com/news/story/41627_Now-FMCG-majors-push-their-

products-online

5.

IBEF sector report on FMCG

6.

http://www.strategyand.pwc.com/media/file/CII_FMCG-Roadmap-to-2020.pdf

7.

IBEF reports
http://www.livemint.com/Industry/LyNBizkuOMdmThw6iaoGbN/Five-trends-that-will-drive-FMCG-growth-in-2013.htmlhttp://www.livemint.com/Industry/LyNBizkuOMdmThw6iaoGbN/Five-trends-that-will-drive-FMCG-growth-in-2013.htmlhttp://www.livemint.com/Industry/LyNBizkuOMdmThw6iaoGbN/Five-trends-that-will-drive-FMCG-growth-in-2013.htmlhttp://www.livemint.com/Industry/LyNBizkuOMdmThw6iaoGbN/Five-trends-that-will-drive-FMCG-growth-in-2013.htmlhttp://www.livemint.com/Industry/LyNBizkuOMdmThw6iaoGbN/Five-trends-that-will-drive-FMCG-growth-in-2013.htmlhttp://www.strategyand.pwc.com/media/file/CII_FMCG-Roadmap-to-2020.pdfhttp://www.strategyand.pwc.com/media/file/CII_FMCG-Roadmap-to-2020.pdfhttp://www.ffymag.com/admin/issuepdf/FMCG_FFYFeb13.pdfhttp://www.ffymag.com/admin/issuepdf/FMCG_FFYFeb13.pdfhttp://www.afaqs.com/news/story/41627_Now-FMCG-majors-push-their-products-onlinehttp://www.afaqs.com/news/story/41627_Now-FMCG-majors-push-their-products-onlinehttp://www.afaqs.com/news/story/41627_Now-FMCG-majors-push-their-products-onlinehttp://www.afaqs.com/news/story/41627_Now-FMCG-majors-push-their-products-onlinehttp://www.afaqs.com/news/story/41627_Now-FMCG-majors-push-their-products-onlinehttp://www.strategyand.pwc.com/media/file/CII_FMCG-Roadmap-to-2020.pdfhttp://www.strategyand.pwc.com/media/file/CII_FMCG-Roadmap-to-2020.pdfhttp://www.strategyand.pwc.com/media/file/CII_FMCG-Roadmap-to-2020.pdfhttp://www.afaqs.com/news/story/41627_Now-FMCG-majors-push-their-products-onlinehttp://www.afaqs.com/news/story/41627_Now-FMCG-majors-push-their-products-onlinehttp://www.ffymag.com/admin/issuepdf/FMCG_FFYFeb13.pdfhttp://www.strategyand.pwc.com/media/file/CII_FMCG-Roadmap-to-2020.pdfhttp://www.livemint.com/Industry/LyNBizkuOMdmThw6iaoGbN/Five-trends-that-will-drive-FMCG-growth-in-2013.htmlhttp://www.livemint.com/Industry/LyNBizkuOMdmThw6iaoGbN/Five-trends-that-will-drive-FMCG-growth-in-2013.html

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