FMCG SECTOR

Fast Moving Consumer Goods (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, household accessories and extends to certain electronic goods. These items
are meant for daily of frequent consumption and have a high return.

A major portion of the monthly budget of each household is reserved for FMCG products. The volume of
money circulated in the economy against FMCG products is very high, as the

number of products the consumer use is very high. Competition in the FMCG sector is very high resulting
in high pressure on margins.

FMCG companies maintain intense distribution network. Companies spend a large portion of their
budget on maintaining distribution networks. New entrants who wish to bring their products in the
national level need to invest huge sums of money on promoting brands. Manufacturing can be
outsourced. A recent phenomenon in the sector was entry of multinationals and cheaper imports. Also
the market is more pressurized with presence of local players in rural areas and state brands.

Overview Of FMCG Sector

What are FMCGs?

WE regularly talk about things like butter, potato chips, toothpastes, razors, household care products,
packaged food and beverages, etc. But do we know under which category these things come? They are
called FMCGs. FMCG is an acronym for Fast Moving Consumer Goods, which refer to things that we buy
from local supermarkets on daily basis, the things that have high turnover and are relatively cheaper.

FMCG Products and Categories

- Personal Care, Oral Care, Hair Care, Skin Care, Personal Wash (soaps);

- Cosmetics and toiletries, deodorants, perfumes, feminine hygiene, paper products;

- Household care fabric wash including laundry soaps and synthetic detergents; household cleaners,
such as dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito
repellents, metal polish and furniture polish;

FMCG in 2006

The performance of the industry was inconsistent in terms of sales and growth for over 4 years. The
investors in the sector were not gainers at par with other booming sectors. After two years of sinking
performance of FMCG sector, the year 2005 has witnessed the FMCGs demand growing. Strong growth
was seen across various segments in FY06. With the rise in disposable income and the economy in good
health, the urban consumers continued with their shopping spree.

- Food and health beverages, branded flour, branded sugarcane, bakery products such as bread, biscuits,
etc., milk and dairy products, beverages such as tea, coffee, juices, bottled water etc, snack food,
chocolates, etc.

- Frequently replaced electronic products, such as audio equipments, digital cameras, Laptops, CTVs;
other electronic items such as Refrigerator, washing machines, etc. coming under the category of White
Goods in FMCG;

Sector Outlook

FMCG is the fourth largest sector in the Indian Economy with a total market size of Rs. 60,000 crores.
FMCG sector generates 5% of total factory employment in the country and is creating employment for
three million people, especially in small towns and rural India.

Analysis of FMCG Sector

Strengths:

1. Low operational costs

2. Presence of established distribution networks in both urban and rural areas

3. Presence of well-known brands in FMCG sector

Weaknesses:

1. Lower scope of investing in technology and achieving economies of scale, especially in small sectors

2. Low exports levels

3. "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:

1. Untapped rural market

2. Rising income levels, i.e. increase in purchasing power of consumers

3. Large domestic market- a population of over one billion.

4. Export potential

5. High consumer goods spending

Threats:

1. Removal of import restrictions resulting in replacing of domestic brands

2. Slowdown in rural demand

Tax and regulatory structure

Scope Of FMCG industry in India

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 characterize the sector. FMCG Sector is expected to grow by over
60% by 2010. That will translate into an annual growth of 10% over a 5-year period. It has been
estimated that FMCG sector will rise from around Rs 56,500 crores in 2005 to Rs 92,100 crores
in 2010. 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.

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 boost rural
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 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, household care and feminine hygiene, will keep growing at relatively
attractive rates. Within the foods segment, it is estimated that processed foods, bakery, and
dairy are long-term growth categories in both rural and urban areas.

Indian Competitiveness and Comparison with the World Markets

The following factors make India a competitive player in FMCG sector:

Availability of raw materials

Because of the diverse agro-climatic conditions in India, there is a large raw material base
suitable for food processing industries. India is the largest producer of livestock, milk,
sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and
fruits &vegetables. India also produces caustic soda and soda ash, which are required for the
production of soaps and detergents. The availability of these raw materials gives India the
location advantage.

Labor cost comparison

Low cost labor gives India a competitive advantage. India's labor cost is amongst the lowest in
the world, after China & Indonesia. Low labor costs give the advantage of low cost of
production. Many MNC's have established their plants in India to outsource for domestic and
export markets.

Presence across value chain

Indian companies have their presence across the value chain of FMCG sector, right from the
supply of raw materials to packaged goods in the food-processing sector. This brings India a
more cost competitive advantage. For example, Amul supplies milk as well as dairy products
like cheese, butter, etc.

Top 10 FMCG Companies

FMCG sector is an ever growing sector and is currently in a boom phase. There are many jobs in
FMCG sector at diiferent levels like sales, supply chain, manager, operations, purchasing,
supervisor, administration, general management, product development, HR, Finance and
marketing. FMCG sector is famous for jobs that are not only well paying but also gives the best
perks and bonuses. Freshers are looking for jobs in FMCGsector as these jobs will give them the
best career in the industry.

Companies

1.

Hindustan Unilever Ltd.

2.

ITC (Indian Tobacco Company)

3.

Nestlé 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

Secondary Players

1. Colgate-Palmolive (India) Ltd.

2. Godrej Consumers Product Ltd.

3. Nirma Ltd.

4. Tata Tea Ltd.

5. Parle Agro

6. H. J. Heinz
Indian Consumer Class

India has a population of over 1 billion and 4 climatic zones . Several religious and personal
beliefs, 15 official languages, different social customs and food habits characterize Indian
consumer class. Besides , India is also different in culture if compared with other Asian
countries. Therefore, India has high distinctiveness in demand and the companies in India can
get lot of market opportunities for various classes of consumers. Consumer goods marketers
experience that dealing with India is like dealing with many small markets at the same time.

Indian consumer goods market is expected to reach $400 billion by 2010. India has the
youngest population amongst the major countries. There are a lot of young people in India in
different income categories.

Consumer goods marketers are often faced with a dilemma regarding the choice of appropriate
market segment.

In India they do not have to face this dilemma largely because rapid urbanization, increase in
demand, presence of large number of young population, any number of opportunities are
available . The bottom line is that Indian market is changing rapidly and is showing
unprecedented consumer business opportunity .

As the restrictions on foreign investments were relaxed in 1991, Multi-National Companies

have been entering India since then.

Market Size in $ million Market Share in %

Indian Companies MNCs Indian Companies MNCs

1992
2004

1992

2004

Breakfast cereals

25

100

52

48

Wafers, potato chips

35

100

37

63

Washing Machines

40

570

98
2

51

49

TV

630

3,030

97

49

51

1992 $=30 rupees

2004 $=45 rupees

Source: Center for Monitoring Indian Economy (CMIE)

Indian consumer class can be classified according to the following criteria:

1. Income

2. Socio-Economic status

3. Age demographics

4. Geographical dispersion

Recent Developments in Fast Moving Consumer Goods (FMCG) Sector

FMCG sector is no doubt registering an up trend in growth. According to CNBC, FMCG sector
growth story will continue because of the positive budget. Nevertheless, there are some
barriers to the growth of the sector. Indirect taxes constitute no less than 35% of the total cost
of consumer products - the highest in Asia. Last year, Finance Minister proposed to introduce
an integrated Goods and Service Tax by April 2010.This is an exceptionally good move because
the growth of consumption, production, and employment is directly proportionate to reduction
in indirect taxes.

Budget 2007-2008 for FMCG Sector

Reduction of duty on edible oil will have a positive impact on Marico.

Full exemption of excise duty on biscuits priced at 50 rupees or less per kg is positive for ITC,
Britannia, and Parle.

Reduction of custom duty on food processing machinery and their parts from 7.5% to 5%.

Reduction of excise duty on food mixes from 16% or 8% to nil is positive for ITC.

Development of rural infrastructure is in focus, which is beneficial for FMCG companies because
it is a big market for FMCGs. Better infrastructure will improve the supply chain.

Exemption of free samples and displays from the purview of FBT will be beneficial for FMCG
companies because they spend huge amount of money on advertising and brand building. HLL,
Dabur, ITC, and Marico will be amongst the most benefited companies.

Reliance Retail to Enter the Packaged Tea Market

Emami Set to Invest Rs 220 Crore for Expansion in FMCG Sector

Godrej Targeting FMCG Acquisitions in China, Indonesia, and Brazil

FMCG Sector on a Buying Spree

Corporate Social Responsibility

FMCG companies have now started taking Corporate Social Responsibility seriously. For
instance, to encounter domestic violence, Ponds has tied up with the United Nations
Development Fund(UNDF) for Women. Surf Excel is funding the education of children. Most
brands link themselves with the social causes, thereby linking consumers with the brands and
gaining goodwill in the market.

FMCG Industry

FMCG industry, alternatively called as CPG (Consumer packaged goods) industry primarily deals
with the production, distribution and marketing of consumer packaged goods. The Fast Moving
Consumer Goods (FMCG) are those consumables which are normally consumed by the
consumers at a regular interval. Some of the prime activities of FMCG industry are selling,
marketing, financing, purchasing, etc. The industry also engaged in operations, supply chain,
production and general management.

FMCG industry economy

FMCG industry provides a wide range of consumables and accordingly the amount of money
circulated against FMCG products is also very high. The competition among FMCG
manufacturers is also growing and as a result of this, investment in FMCG industry is also
increasing, specifically in India, where FMCG industry is regarded as the fourth largest sector
with total market size of US$13.1 billion. FMCG Sector in India is estimated to grow 60% by
2010. FMCG industry is regarded as the largest sector in New Zealand which accounts for 5% of
Gross Domestic Product (GDP).

Common FMCG products

Some common FMCG product categories include food and dairy products, glassware, paper
products, pharmaceuticals, consumer electronics, packaged food products, plastic goods,
printing and stationery, household products, photography, drinks etc. and some of the
examples of FMCG products are coffee, tea, dry cells, greeting cards, gifts, detergents, tobacco
and cigarettes, watches, soaps etc.

Market potentiality of FMCG industry

Some of the merits of FMCG industry, which made this industry as a potential one are low
operational cost, strong distribution networks, presence of renowned FMCG companies.
Population growth is another factor which is responsible behind the success of this industry.

Leading FMCG companies

Some of the well known FMCG companies are Sara Lee, Nestlé, Reckitt Benckiser, Unilever,
Procter & Gamble, Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi and Mars etc.

Job opportunities in FMCG industry