FMCG

Introduction

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.

Investments/ Developments

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 organised retail markets thereby bolstering consumer spending and encouraging more product launches. The sector witnessed healthy FDI inflow of US$ 16.28 billion during April 2000–March 2020.

Some of the recent developments in the FMCG sector are as follows:

  • In September 2020, Orkla, a Norway based consumer goods company acquired 68% stake in eastern Condiment
  • In May 2020, Tata Consumer Products Limited (TCPL) acquired PepsiCo’s stake in NourishCo Beverages Limited.
  • In March 2020, Hindustan Unilever Limited (HUL) signed an agreement with Glenmark Pharmaceuticals Ltd to acquire its intimate hygiene brand VWash.
  • In March 2020, Venture Catalysts made an investment in OM Bhakti, an organised brand in the puja cotton-wicks market during its seed-funding round.
  • In November 2019, ITC Ltd acquired 33.42% stake in Delectable Technologies, which is a vending machine start-up.
  • Nestle plans to invest Rs 700 crore (US$ 100.16 million) to open a new plant in Sanand for Maggi.
  • ITC to invest Rs 700 crore (US$ 100 million) in food park in Madhya Pradesh.
  • Patanjali will spend US$743.72 million in various food parks in Maharashtra, Madhya Pradesh, Assam, Andhra Pradesh and Uttar Pradesh.

Government Initiatives

Some of the major initiatives taken by the Government to promote the FMCG sector in India are as follows:

  • 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 have 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 remodelling their operations into larger logistics and warehousing.

Road Ahead

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 unorganised market in the FMCG sector falling, the organised 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. 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 demonetisation 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.

Note: Conversion rate used in April 2020, Rs 1 = US$ 0.013123

References: Media Reports, Press Information Bureau (PIB), Union Budget 2019–20, Firstpost