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A Study On Fast Moving Consumer Goods (FMCG)

Tushar N. Chole

MGMs Institute of Management, Aurangabad, Maharashtra.

Fast Moving Consumer Goods (FMCG), also known as Consumer Packaged Goods (CPG), are products that are sold quickly at relatively low cost. Though the absolute profit made on FMCG products is relatively small, they generally sell in large quantities, so the cumulative profit on such products can be large. Examples of FMCG generally include a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, teeth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, light bulbs, batteries, paper products and plastic goods. FMCG may also include pharmaceuticals, consumer electronics, packaged food products and drinks, although these are often categorized separately. FMCG have a short shelf life, either as a result of high consumer demand or because the product deteriorates rapidly. Some FMCGssuch as meat, fruits and vegetables, dairy products, and baked goodsare highly perishable. Other goods such as alcohol, toiletries, pre-packaged foods, soft drinks, and cleaning products have high turnover rates. An excellent example is a newspaperevery day's newspaper carries different content, making one useless just one day later, necessitating a new purchase every day. Main characteristics of FMCGs:

From the consumers' perspective: o Frequent purchase o Low involvement (little or no effort to choose the item products with strong brand loyalty are exceptions to this rule) o Low price From the marketers' angle: o High volumes o Low contribution margins o Extensive distribution networks o High stock turnover Scope of FMCG Industry In India-

FMCG Sector in India is one of the four largest sectors in Indian economy. The FMCG (Fast Moving Consumer Goods) companies have faced tough competition among themselves over the years which is continuously increasing. This is due to the increase in per capita income among individuals and also various developments in rural economy. The FMCG sector has changed its strategies and has opted for a more wellplanned marketing of the products to penetrate both the rural and urban markets. To execute these tasks, the FMCG companies are hiring more and more people which has led to an increase in the job prospects in this sector. Thus, FMCG sector is creating massive employment with good career prospects. Marketing, retail, sales, services and supply are the key areas which generates maximum career scopes in FMCG Industry in India.

Prospects in the FMCG Sector in IndiaFMCG sector in the Indian rural market is one of the most booming sectors in Indian economy. The villages of India account for 12.2% of the world's population. The farm sector has been one of the significant sectors which boosted the rural economy resulting in the higher consumption of FMCG products. The consumers in both rural and urban sectors can afford high-priced branded products nowadays with the high disposable income. The FMCG sector in India has grown significantly in the year 2007 and this gave rise to huge prospects in the sector. The rural and urban sectors fared equally well in the processed food items in the year 2007. The rural market separately performed well in the personal care, fabric care, and hot beverages while the urban market did well in home care, personal care, bakery, dairy products, and the like. FMCG Brands in India - Overview The burgeoning middle class Indian population, as well as the rural sector, present a huge potential for this sector. The FMCG sector in India is at present, the fourth largest sector with a total market size in excess of USD 13 billion as of 2012. This sector is expected to grow to a USD 33 billion industry by 2015 and to a whooping USD 100 billion by the year 2025. This sector is characterized by strong MNC presence and a well established distribution network. In India the easy availability of raw materials as well as cheap labour makes it an ideal destination for this sector. There is also intense competition between the organised and unorganised segments and the fight to keep operational costs low. Factors that will drive growth in this sector:

Increasing rate of urbanization, expected to see major growth in coming years. Rise in disposable incomes, resulting in premium brands having faster growth and deeper penetration. Innovative and stronger channels of distribution to the rural segment, leading to deeper penetration into this segment. Increase in rural non-agricultural income and benefits from government welfare programmes. Investment in stock markets of FMCG companies, which are expected to grow constantly.

Some of the challenges this sector is likely to face are:

Increasing rate of inflation, which is likely to lead to higher cost of raw materials. The standardization of packaging norms that is likely to be implemented by the Government by Jan 2013 is expected to increase cost of beverages, cereals, edible oil, detergent, flour, salt, aerated drinks and mineral water. Steadily rising fuel costs, leading to increased distribution costs. The present slow-down in the economy may lower demand of FMCG products, particularly in the premium sector, leading to reduced volumes. The declining value of rupee against other currencies may reduce margins of many companies, as Marico, Godrej Consumer Products, Colgate, Dabur, etc who import raw materials.

FMCG Brands in India - Major Companies 1. Hindustan Unilever Ltd. - Lux, Lifeboy, Brookebond, Kawality Walls, Surf Excel, Pepsodent, Close Up, Vaseline, and many more 2. ITC (Indian Tobacco Company)- W. D. & H. O. Wills, Insignia, India Kings, Classic, Gold Flake, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake 3. Nestl India - Kitkat, Milkmaid, Milky Bar, Maggie, Nescafe, Nestle Slim Milk, Barone, And Nestea 4. GCMMF (AMUL) - Amul Kool, Masti Butter Milk, Kool Cafe, Amul's sugar-free ProBiotic Ice-cream, etc. 5. Dabur India - Hajmola, Real, Vatika, Nature Care, Lal Dantmanjan, Chyawanprash, Pudin Hara, Amla, Etc. 6. Asian Paints (India) 7. Cadbury India - Gems, 5 Star, Perk, Celebrations, Eclairs, And Dairy Milk 8. Britannia Industries - Tiger, good day, 50-50, treat, milk bar, and nutra choice 9. Procter & Gamble Hygiene and Health Care - Vicks Action 500+, Vicks VapoRub, Vicks Cough Drops, Vicks Formula 44 Cough Syrup and Vicks Inhaler 10. Marico Industries - Parachute, Saffola, Mediker, Silk-n-Shine, Revive, Hair & Care, Sweekar, Nihar, Manjal, etc Top 10 FMCG Companies in India - 2012

1) ITC Ltd. - Market Cap (Rs.Cr): 151,078. 2) Hindustan Unilever - Market Cap (Rs.Cr): 67,858. 3) Nestle India - Market Cap (Rs.Cr): 39,819. 4) Dabur India - Market Cap (Rs.Cr): 18,632. 5) Godrej Consumer Products - Market Cap (Rs.Cr): 13,335. 6) Proctor and Gamble India(Includes P&G Health and Hygiene and Gillette India) Market Cap (Rs.Cr): 12,838. 7) Colgate-Palmolive - Combined Market Cap (Rs.Cr): 12,764. 8) Glaxosmithkline Consumer Healthcare - Market Cap (Rs.Cr): 9,842. 9) Marico - Market Cap (Rs.Cr): 9,078. 10) Emami - Market Cap (Rs.Cr): 6,836.

Industry Category and Products Household Care


Personal Wash:The market size of personal wash is estimated to be around Rs. 8,300 Cr. The personal wash can be segregated into three segments: Premium, Economy and Popular. The penetration level of soaps is 92 per cent. It is available in 5 million retail stores, out of which, 75 per cent are in the rural areas. HUL is the leader with market share of ~53 per cent; Godrej occupies second position with market share of 10 per cent. With increase in disposable incomes, growth in rural demand is expected to increase because consumers are moving up towards premium products. However, in the recent past there has not been much change in the volume of premium soaps in proportion to economy soaps, because increase in prices has led some consumers to look for cheaper substitutes. Detergents:The size of the detergent market is estimated to be Rs. 12,000 Cr. Household care segment is characterized by high degree of competition and high level of penetration. With rapid urbanization, emergence of small pack size and sachets, the demand for the household care products is flourishing. The demand for detergents has been growing but the regional and small unorganized players account for a major share of the total volume of the detergent market. In washing powder HUL is the leader with 38 per cent of market share. Other major players are Nirma, Henkel and Proctor & Gamble.

Personal Care Skin Care:The total skin care market is estimated to be around Rs. 3,400 Cr. The skin care market is at a primary stage in India. The penetration level of this segment in India is around 20 per cent. With changing life styles, increase in disposable incomes, greater product choice and availability, people are becoming aware about personal grooming. The major players in this segment are Hindustan Unilever with a market share of 54 per cent, followed by CavinKare with a market share of 12 per cent and Godrej with a market share of 3 per cent. Hair Care:The hair care market in India is estimated at around Rs. 3,800 Cr. The hair care market can be segmented into hair oils, shampoos, hair colorants & conditioners, and hair gels. Marico is the leader in Hair Oil segment with market share of 33 per cent; Dabur occupies second position at 17 per cent. Shampoos:The Indian shampoo market is estimated to be around Rs. 2,700 Cr. It has the penetration level of only 13 per cent in India. Sachet makes up to 40 per cent of the total shampoo sale. It has low penetration level even in metros. Again the market is dominated by HUL with around ~47 per cent market share; P&G occupies second position with market share of around ~23 per cent. Antidandruff segment constitutes around 15 per cent of the total shampoo market. The market is further expected to increase due to increased marketing by players and availability of shampoos in affordable sachets. Oral Care:The oral care market can be segmented into toothpaste - 60 per cent; toothpowder - 23 per cent; toothbrushes - 17 per cent. The total toothpaste market is estimated to be around Rs. 3,500 Cr. The penetration level of toothpowder/toothpaste in urban areas is three times that of rural areas. This segment is dominated by Colgate-Palmolive with market share of ~49 per cent, while HUL occupies second position with market share of ~30 per cent. In toothpowders market, Colgate and Dabur are the major players. The oral care market, es-pecially toothpastes, remains under penetrated in India with penetration level ~50 per cent. Food & Beverages Food Segment :The foods category in FMCG is gaining popularity with a swing of launches by HUL, ITC, Godrej, and others. This category has 18 major brands aggregating Rs. 4,600 Cr. Nestle and Amul slug it out in the powders segment. The food category has also seen innovations like softies in ice creams, ready to eat rice by HUL and pizzas by both GCMMF and Godrej Pillsbury. Tea :-

The major share of tea market is dominated by unorganized players. More than 50 per cent of the market share is capture by unorganized players. Leading branded tea players are HUL and Tata Tea. Coffee :The Indian beverage industry faces over supply in segments like coffee and tea. However, more than 50 per cent of the market share is in unpacked or loose form. The major players in this segment are Nestl, HUL and Tata Tea. Growth Prospect Large Market India has a population of more than 1.150 Billions which is just behind China. According to the estimates, by 2030 India population will be around 1.450 Billion and will surpass China to become the World largest in terms of population. FMCG Industry which is directly related to the population is expected to maintain a robust growth rate. Spending Pattern An increase is spending pattern has been witnessed in Indian FMCG market. There is an upward trend in urban as well as rural market and also an increase in spending in organized retail sector. An increase in disposable income, of household mainly because of in-crease in nuclear family where both the husband and wife are earning, has leads to growth rate in FMCG goods. Changing Profile and Mind Set of Consumer People are becoming conscious about health and hygienic. There is a change in the mind set of the Consumer and now looking at Money for Value rather than Value for Money. We have seen willingness in consumers to move to evolved products/ brands, because of changing lifestyles, rising disposable income etc. Consumers are switching from economy to premium product even we have witnessed a sharp increase in the sales of packaged water and water purifier. Findings according to a recent survey by A. C. Nielsen shows about 71 per cent of Indian take notice of packaged goods labels containing nutritional information compared to two years ago which was only 59 per cent. Advantages To The Sector Governmental Policy Indian Government has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions, reducing excise duties, automatic foreign in-vestment and food laws resulting in an environment that fosters growth. 100 per cent ex-port oriented units can be set up by government approval and use of foreign brand names is now freely

Central & State Initiatives Recently Government has announced a cut of 4 per cent in excise duty to fight with the slowdown of the Economy. This announcement has a positive impact on the industry. But the benefit from the 4 per cent reduction in excise duty is not likely to be uniform across FMCG categories or players. The changes in excise duty do not impact cigarettes (ITC, Godfrey Phillips), biscuits (Britannia Industries, ITC) or readyto-eat foods, as these prod-ucts are either subject to specific duty or are exempt from excise. Even players with manu-facturing facilities located mainly in tax-free zones will also not see material excise duty savings. Only large FMCG-makers may be the key ones to bet and gain on excise cut. Foreign Direct Investment (FDI) Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector except malted food, alcoholic beverages and those reserved for small scale industries (SSI). There is a continuous growth in net FDI Inflow. There is an increase of about 150 per cent in Net Inflow for Vegetable Oils & Vanaspati for the year 2008. Market Opportunities Vast Rural Market Rural India accounts for more than 700 Million consumers, or 70 per cent of the Indian population and accounts for 50 per cent of the total FMCG market. The working rural population is approximately 400 Millions. And an average citizen in rural India has less then half of the purchasing power as compare to his urban counterpart. Still there is an untapped market and most of the FMCG Companies are taking different steps to capture rural market share. The market for FMCG products in rural India is estimated 52 per cent and is projected to touch ~ 60 per cent within a year. Hindustan Unilever Ltd is the largest player in the industry and has the widest market coverage. Export - Leveraging the Cost Advantage Cheap labor and quality product & services have helped India to represent as a cost ad-vantage over other Countries. Even the Government has offered zero import duty on capital goods and raw material for 100% export oriented units. Multi National Companies out-source its product requirements from its Indian company to have a cost advantage. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew apart from being the second largest producer of rice, wheat, fruits & vegetables. It adds a cost advantage as well as easily available raw materials. Sectoral Opportunities Major Key Sectoral opportunities for Indian FMCG Sector are mentioned below:

Dairy Based Products India is the largest milk producer in the world, yet only around 15 per cent of the milk is processed. The organized liquid milk business is in its infancy and also has large long-term growth potential. Even investment opportunities exist in value-added products like desserts, puddings etc. Packaged Food Only about 10-12 per cent of output is processed and consumed in packaged form, thus highlighting the huge potential for expansion of this industry. Oral Care The oral care industry, especially toothpastes, remains under penetrated in India with penetration rates around 50 per cent. With rise in per capita incomes and awareness of oral hygiene, the growth potential is huge. Lower price and smaller packs are also likely to drive potential up trading. Beverages Indian tea market is dominated by unorganized players. More than 50% of the market share is capture by unorganized players highlighting high potential for organized players. SWOT Analysis Strengths: Low operational costs Presence of established distribution networks in both urban and rural areas Presence of well-known brands in FMCG sector Weaknesses: Lower scope of investing in technology and achieving economies of scale, especially in small sectors Low exports levels "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. Opportunities: Untapped rural market Rising income levels, i.e. increase in purchasing power of consumers Large domestic market- a population of over one billion. Export potential High consumer goods spending Threats: Removal of import restrictions resulting in replacing of domestic brands Slowdown in rural demand Tax and regulatory structure

FMCG Market in Maharashtra The development of FMCG Market in Maharashtra was facilitated by the economic viability of the state. It is one of the richest states of India with one of the highest per capita income. Overview FMCG Market in Maharashtra is one of the strongest among the states of India. The most economically important city of India - Mumbai is located in Maharashtra. The city of Mumbai is regarded as the economic powerhouse of India. The state of Maharashtra also has other cities that are important in terms of economic activities like Pune, Nagpur, Aurangabad, Thane, Nashik, Kohlapur etc. Each of these cities of Maharashtra has made substantial contribution towards the growth of the state. The state of Maharashtra is one of the most industrially developed states of India and is home to most of the corporate offices in India. The state has one of the highest numbers of industries in India and it is regarded as one of the richest states in India. There has been a substantial increase in the rate of consumerism in Maharashtra in the recent years and such that the trend is still growing with the increase in income. The cities of Maharashtra have been one of the important driving forces for the development of FMCG markets. FMCG Market in Maharashtra - Major Companies and Brands

Food products and beverage - Nestle, Kellogs, PepsiCo, Coca Cola, Uni Lever, Cadbury India, Parle, Hienz, ITC, MTR, Perfetti, Tata Tea, Parrys Confectionery, Venkey's Chicken, Goodricke, Nilgiris, Mother Dairy,Amul India, Gits Food Products Pvt. Ltd, Kwality Walls, Vadilal Ice cream, Goodricke, SmithKlineBecham, Cleaning and household insecticides - Reckitt Benckiser, Jyothy Laboratories, Godrej Sara Lee Healthcare and Personal care - Johnson & Johnson, Himalaya Health Care, Modi Revlon, Cavin care, Lakme, L'Oreal, Lotus Herbals, Shehnaz Hussain, Habibs, Procter and Gamble, JK Helene, Gillette, Vatika, Colgate Palmolive Electronics - LG, Samsung, Sony, Phillips, Videocon, Electrolux, Whirlpool, Kelvinator, Godrej, IFB, TCL, Haier, Panasonic, Sharp, Motorola, Nokia, Sony Eriksson, Compaq, Lenevo, Hewlett Packard, Wipro, Acer.