Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian economy with Household and Personal Care accounting for 50 per cent 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 40 per cent) 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 with urban India. Semi-urban and rural segments are growing at a rapid pace and FMCG products account for 50 per cent of total rural spending.
The Retail market in India is estimated to reach US$ 1.1 trillion by 2020, with modern trade expected to grow at 20 per cent – 25 per cent per annum, which is likely to boost revenues of FMCG companies. The revenue for FMCG sector is expected to grow at 9-9.5 per cent in FY18 supported by expectations of the total consumption expenditure reaching nearly US$ 3,600 billion by 2020 from US$ 1,469 billion in 2015. Direct selling sector in India is expected to reach Rs 159.3 billion (US$ 2.5 billion) by 2021, if provided with a conducive environment through reforms and regulation.
The government has allowed 100 per cent Foreign Direct Investment (FDI) in food processing and single-brand retail and 51 per cent in multi-brand retail. This would bolster employment and supply chains, and also provide high visibility for FMCG brands in organised retail markets, bolstering consumer spending and encouraging more product launches. The sector witnessed healthy FDI inflows of US$ 12.60 billion, during April 2000 to September 2017. Some of the recent developments in the FMCG sector are as follows:
- The Hershey Co plans to invest US$ 50 million over the next five years in India, its fastest growing core market outside of US.
- As a part of its Rs 25,000 crore (US$ 3.88 billion) investment package, ITC will invest Rs 10,000 crore (US$ 1.55 billion) to expand its food processing segment.
- The bottling arm of Coca-Cola India, Hindustan Coca-Cola Beverages (HCCB) is planning to increase its retail reach by one million new outlets and is targeting a revenue of US$ 2.5 billion by 2020.
- Future Retail will acquire HyperCity, which is owned by Shoppers Stop for Rs 911 crore (US$ 139.7 million) to further consolidate its business and have a better footing in the hypermarket segment.
Some of the major initiatives taken by the government to promote the FMCG sector in India are as follows:
- In the Union Budget, the Government of India has proposed to spend more on the rural side with an aim to double the farmer’s income in five years; as well as the cut in income tax rate targeting mainly the small tax payers, focus on affordable housing and infrastructure development will provide multiple growth drivers for the consumer market industry.
- The Government of India’s decision to allow 100 per cent Foreign Direct Investment (FDI) in online retail of goods and services through the automatic route has provided clarity on the existing businesses of e-commerce companies operating in India.
- With the demand for skilled labour growing among Indian industries, the government plans to train 500 million people by 2022 and is also encouraging private players and entrepreneurs to invest in the venture. Many governments, corporate and educational organisations are working towards providing training and education to create a skilled workforce.
- The Government of India 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.
Rural consumption has increased, led by a combination of increasing incomes 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 at a CAGR of 14.6 per cent, and reach US$ 220 billion by 2025.
On the other hand, with the share of unorganised market in the FMCG sector falling, the organised sector growth is expected to rise with increased level of brand consciousness, also 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 the country’s urban regions. India has a large base of young consumers who form the 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. The Internet has contributed in a big way, facilitating a cheaper and more convenient means to increase a company’s reach. By the year 2025, e-commerce will contribute around 10-15 per cent sales of few categories in the FMCG sector*.