Market Survey
By: Dr S. Maheskumar
FMCG Majors Eye Rural India
Rural India is vast with unlimited opportunities. So it’s not surprising that the Indian FMCG
majors are busy putting in place a parallel rural marketing strategy.
T
he fast-moving consum-
er goods (FMCG) sector
is an important con-
tributor to India’s GDP.
It is the fourth largest
sector of the Indian economy. The
FMCG market is estimated to treble
from its current figure in the coming
decade. Penetration levels as well as
per capita consumption of most prod-
uct categories like jams, toothpaste,
skin care and hair wash in India are
low, indicating the untapped market
potential. The growing Indian popu-
lation, particularly the middle class
and the rural segments, present an
opportunity to makers of branded
products to convert consumers to
branded products. The Indian rural
market with its vast size and de-
mand base offers a huge opportunity
for investment. Rural India has a
large consuming class with 41 per
cent of India’s middle-class and 58
per cent of the total dispos-
able income.
FMCG sector in
India
The Indian FMCG sector
has a market size of $13.1
billion. Well-established dis-
tribution networks, as well
as intense competition be-
tween the organised and un-
organised segments are the
characteristics of this sector.
FMCG in India has a strong
and competitive MNC pres-
ence across the entire value The FMCG sector consists of consumer non-durable products
chain. It has been predicted that the
FMCG market will reach $33.4 billion
in 2015 from $11.6 billion in 2003. 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 con-
vert them to branded products. The
Indian economy is surging ahead by
leaps and bounds, keeping pace with
rapid urbanisation, increased literacy
levels and rising per capita income.
The FMCG sector consists of
consumer non-durable products,
which broadly include personal
care, household care and food and
beverages. It is largely classified
into organised and unorganised
segments. The sector is buoyed by
intense competition between these
two segments. Besides competition,
it is marked by a robust distribution
network coupled with increasing in-
flux of MNCs across the entire value
chain. The sector continues to re-
main highly fragmented.
India’s FMCG sector creates em-
ployment for more than three million
people in downstream activities. The
total FMCG market is in excess of Rs
850 billion. It is currently growing at
double-digit rate and is expected to
maintain a high growth rate.
Exports
India is one of the world’s larg-
est producers of a number of FMCG
products but its exports are a very
small proportion of the overall pro-
duction. Total exports of food pro-
cessing industry were $6.9 billion
in 2008-09 and marine products ac-
counted for 40 per cent of the total
exports. Though the Indian compa-
nies are going global, they are focus-
ing more on the overseas markets
like Bangladesh, Pakistan, Nepal,
Middle East and the CIS
countries because of the
similar lifestyle and con-
sumption habits between
these countries and India.
Hindustan Lever Limited
(HLL), Godrej Consumer,
Marico, Dabur and Vicco
Laboratories are amongst
the top exporting compa-
nies.
Investment in the
FMCG sector
The FMCG sector ac-
counts for around 3 per
 Market Survey
Table I Table IV
FMCG Categories and Products Consumer-class
Category Products Household Income
Boom Distribution
Household care Fabric wash (laundry soaps and synthetic detergents), household cleaners
(Figures in percentage)
(dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners,
insecticides and mosquito repellents, metal polish and furniture polish) Group of consumer 2009 2015
Food and Health beverages, soft drinks, staples/cereals, bakery products (biscuits, Very rich 2 5
beverages bread, cakes), snack food, chocolates, ice cream, tea, coffee, soft drinks, Consuming class 26 54
processed fruits, vegetables, dairy products, bottled water, branded flour,
Climbers 41 34
branded rice, branded sugar, juices, etc
Aspirants 18 4
Personal care Oral care, hair care, skin care, personal wash (soaps), cosmetics and toiletries,
Destitute 13 3
deodorants, perfumes, feminine hygiene, paper products
Total 100 100
Source: HLL, NCAER
Table II Investment
Rural and Urban FMCG Potential Profile potential in cant place in the brand-building pro-
rural markets cess
Particulars Urban Rural
5. Extensive distribution net-
Population 2001-02 (million household) 53 135 The Indian ru- works and logistics are key to achiev-
Population 2009-10 (million household) 59 153 ral market with its ing a high level of penetration in
Per cent distribution (2009-10) 28 72 vast size and de- both the urban and rural markets
Market (towns/villages) 3,768 627,000 mand base offers a 6. Factors like low-entry barriers
Universe of outlets (million) 1 13.3 huge opportunity in terms of low capital investment,
for investment. Ru- fiscal incentives from government
Source: Statistical Outline of India, NCAER
ral India has a large and low brand awareness in rural ar-
consuming class with eas have led to mushrooming of the
41 per cent of India’s middle-class unorganised sector
Table III
and 58 per cent of the total dispos- 7. Providing good price points is
Top 10 Companies able income. With population in the the key to success
in FMCG Sector rural areas estimated to have risen Demand for FMCG products is
S.No. Companies to 153 million households by 2009- set to boom by more than 100 per
10 and with higher saturation in the cent by 2015. It will be driven by a
1. Hindustan Unilever Ltd
urban markets, future growth in rise in the share of the middle class
2. ITC (Indian Tobacco Company)
the FMCG sector will come from in- from 67 per cent in 2009 to 88 per
3. Nestlé India creased rural and small town pene- cent in 2015. The boom in various
4. GCMMF (AMUL) tration. Technological advances such consumer categories, further, indi-
5. Dabur India as the Internet and e-commerce will cates a latent demand for various
6. Asian Paints (India) aid in better logistics and distribu- product segments. For example, the
7. Cadbury India tion in these areas. upper end of very rich and a part of
8. Britannia Industries the consuming class indicate a small
9. P&G Hygiene and Health Care Critical operating rules but rapidly growing segment for
branded products. The middle seg-
10. Marico Industries
1. Heavy launch costs for new ment, on the other hand, indicates a
Source: Naukrihub.com
products on launch advertisements, large market for the mass end prod-
free samples and product promo- ucts. The BRICs report indicates
cent of the total FDI inflow and tions that India’s per capita disposable in-
roughly 7.3 per cent of the total sec- 2. Majority of the product classes come, currently at $556 per annum,
toral investment. The food-process- require very low investment in fixed will rise to $1150 by 2015—another
ing sector attracts the highest FDI, assets FMCG demand driver. Spurt in the
while the vegetable oils and vanas- 3. Existence of contract manufac- industrial and services sector growth
pati account for the highest domestic turing is also likely to boost the urban con-
investment in the FMCG sector. 4. Marketing assumes a signifi- sumption demand.
 Market Survey
SWOT Analysis of the FMCG Industry
Strengths Weaknesses
1. Low operating costs 1. Lower scope of investing in technology and achieving economies of
2. Established distribution networks in both urban and rural areas scale, especially in small sectors
3. Presence of well-known brands in the FMCG sector 2. Low exports levels
3. ‘Me-too’ products, which illegally mimic the labels of the estab-
lished brands. These products narrow the scope of FMCG products
in rural and semi-urban markets

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

Rural marketing
Rural marketing has become the
latest marketing mantra of most
FMCG majors. True, rural India is
vast with unlimited opportunities,
waiting to be tapped by FMCGs.
So it’s not surprising that the In-
dian FMCG sector is busy putting
in place a parallel rural marketing
strategy. Among the FMCG majors,
Hindustan Lever, Marico Industries,
Colgate-Palmolive and Britannia In-
dustries are a few of the FMCG ma-
jors who have been gung-ho about
rural marketing.
Seventy per cent of the nation’s
population, i.e., rural India, can
bring in the much-needed volumes
and help FMCG companies to log in
volume-driven growth. That should
be music to FMCGs who have already
hit saturation points in urban India.
Government policy
The Indian government has enact-
ed policies aimed at attaining interna-
tional competitiveness through lifting
of the quantitative restrictions, reduc-
ing excise duties, automatic foreign
investment and food laws, resulting in
an environment that fosters growth.
100 per cent export-oriented units
can be set up by government approval
and use of foreign brand names is now
freely permitted.
Central and state initiatives
Recently, the government has
announced a cut of 4 per cent in ex-
cise duty to fight slowdown of the
economy. This announcement has a
positive impact on the industry. But
the benefit from the 4 per cent re-
duction in excise duty is unlikely to
be uniform across FMCG categories
or players. The changes in excise
duty do not impact cigarettes (ITC,
Godfrey Phillips), biscuits (Britan-
nia Industries, ITC) or ready-to-eat
foods, as these products are either
subject to specific duty or exempt
from excise. Even players with man-
ufacturing 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 gain on excise cut.
Foreign direct investment
Automatic investment approval
(including foreign technology agree-
ments within specified norms), up to
100 per cent foreign equity or 100
per cent for NRI and overseas cor-
porate bodies (OCBs) investment, is
allowed for most of the food process-
ing sector, except for malted food, al-
coholic beverages and those reserved
for small-scale industries.
Blue-print for the future
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. The demand
or prospect could be increased fur-
ther if these companies can change
the consumer’s mindset and offer
new-generation products. Earlier,
Indian consumers were using non-
branded apparel, but today, clothes
of different brands are available and
the same consumers are willing to
pay more for branded clothes. It’s
the quality, promotion and innova-
tion of products that can drive many
sectors. Explosion of the young-age
population in India will trigger a
spurt in confectionary products. In
the long run, the industry is slated
to grow at 8 to 10 per cent annually
to 870,000 metric tonnes by 2011-12.

The author is a lecturer in commerce at
Sengunthar Arts and Science College,
Tiruchengode, Namakkal