FMCG Industry in India

20 May 2024
10 min read
FMCG Industry in India
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Consumer Packaged Goods (CPG), also known as Fast-Moving Consumer Goods (FMCG full form), are highly demanded, readily available, and reasonably priced items.

Introduction to FMCG meaning

FMCG products are referred to as "Fast-Moving" because customers frequently use them, which makes them quickly disappear from the store or supermarket shelves.

Fast-Moving Consumer Goods (FMCG) are in high demand because they typically have a low price and high usability. They use toothpaste, prepared meals, soap, cookies, notepads, and chocolate.

Typically, these items are piled high on the shelves of supermarkets like D-Mart. However, low prices, high demand, and limited durability are some FMCG characteristics that help them move swiftly off the racks.

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Types of FMCG

FMCG products are typically divided into various types depending on the sector they are sold in. These consist of the following:

  • Food and Beverages
  • Personal Care
  • HealthCare Goods
  • Home Care Commodities
  1. Food & Beverages

Due to their short shelf lives and high turnover rates, food and beverage products typically fall under the FMCG category. Listed below are various examples of food and beverage products that are usually categorized as FMCGs-

  • Prepared foods like Pasta, Bread, and Potato Chips.
  • Food that is ready to eat, such as Crisps or Nut Packets.
  • Beverages like Soda Cans, Coffee Cups, and Bottled Water.
  1. Personal Care

Shampoo and Toothpaste are examples of personal care items that fall under the FMCG category because consumers frequently use them, often purchase them at low prices, and they are not long-lasting. Examples of these are lotions, Hair Dye, Lipsticks, Cosmetics, Deodorants, Bath Soap, and other dental care items.

  1. HealthCare Goods

Healthcare products are included in the FMCG category because they are frequently in high demand, poorly made, and widely dispersed. These consist of items like Syringes, Bandages, Plasters, etc.

  1. Home Care Commodities

Household goods also fall under this category since they are frequently standardized, low-durability products widely distributed and sold at typically low unit prices. They include Dusters, Toilet Paper, Bleach, Cleaning Supplies, and Kitchen Towels.

FMCG Industry in India

One of the main drivers of the Indian economy is the Fast-Moving Consumer Goods Sector. The household and personal care segment, which makes up half of the FMCG sector's market share, is the largest in the economy and ranks fourth overall.

FMCG's primary growth drivers are income growth, lifestyle changes, increased awareness, and easier access.

Additionally, the trend toward sustainable products impacts how consumers shop. Although the urban sector made up most of the contribution, semi-urban and rural segments had experienced significant growth over the previous ten years.

Market Share of the FMCG Sector

An extensive summary of India's FMCG market share is provided below-

  • From US$ 110 billion in 2020, the FMCG market in India is projected to grow at a CAGR of 14.9% to US$ 220 billion by the next couple of years.
  • The packaged food market in India is anticipated to grow twofold to US$ 70 billion in the next few years.
  • Urban and Rural Areas are becoming more connected to the internet, increasing the requirement for FMCG India, primarily through e-commerce sites.
  • There is potential for growth due to rising disposable income in rural India and low levels of market penetration.
  • It is anticipated that the e-commerce sector will account for 11% of all FMCG sales.
  • Up to 100% of foreign equity in single-brand retail and 51% in multi-brand retail investments have been approved.
  • With an investment of US$ 1.42 billion, the union government's production-linked incentive (PLI) scheme offers businesses a significant chance to increase exports.
  • Due to the year-round demand for FMCG products, investments in this sector draw investors.

You may also want to know Top FMCG Stocks in India

Investments/Developments in FMCG Industry

The Indian government has permitted 51% of Foreign Direct Investment (FDI) in multi-brand retail and 100% of FDI in food processing. This would inspire more product launches while increasing employment, supply chains, and consumer spending.

From April 2000 - June 2018, the Indian FMCG industry saw a healthy FDI inflow of US$ 13.63 billion. The following are some recent developments in this industry:

  • Patanjali Foods plans to invest millions in several food parks in Maharashtra, Madhya Pradesh, Assam, and Andhra Pradesh.
  • In addition to investing in capacity expansion, Dabur intends to buy businesses in its home country.
  • The RP-Sanjiv Goenka Group established a $1 billion venture capital fund to invest in FMCG start-ups.
  • Future Consumer Ltd. and Fonterra have announced a joint venture to produce various dairy products for consumers and restaurants.
  • A US chocolate manufacturer intends to invest millions of dollars in India, its largest rising core audience outside of the United States, over the next five years.

Primary Forces Behind the Expansion of the FMCG Sector

  • The Growth of E-Commerce

The technological revolution affected both urban and rural areas of India. Due to e-greater commerce's accessibility throughout the nation, whether in rural or urban areas, there has been a discernible shift in demand.

It offers greater consumer convenience because customers can easily choose and buy the products of their choice using apps and websites. Moreover, the home delivery option will deliver the goods to their homes.

  • Value Augmentation

The retail sector in rural India and the rise in rural consumption also drive the FMCG market. As a result, the percentage of its spending in total FMCG is 36%.

The FMCG sector in India expanded thanks to consumer-driven growth and higher product prices, especially for essential goods. In addition, due to numerous government initiatives, including hygiene categories, high agricultural production, reverse migration, and packaged staples, it experienced double-digit growth and reached 10.6%.

The FMCG sector receives support from various industries, including tobacco, food and beverage, household and personal care, and others.

  • The Contribution of Technology

A strong emphasis on agility characterizes the FMCG industry, and technology can give FMCG companies access to this agility. As a result, the FMCG industry is preparing to use technology to enhance operational effectiveness, find new opportunities, and manage complex supply chain requirements.

The FMCG industry heavily relies on market research because it enables it to recognize consumer behaviour and field sales specialists. Enterprises can improve the performance of their sales operations by utilizing business intelligence, the cloud, and sophisticated field service management software.

  • Further Directions

India's rural market is anticipated to grow by over US$ 220 billion in the next few years. This is because India's rural consumption has increased, with rising incomes raising the average person's aspirations.

In addition, the rising proportion of young people in India's population is a significant factor that will fuel the demand for FMCG products.

Largest Obstacles in the FMCG Sector

Below are a few of the most intriguing challenges and trends in the FMCG Sector:

  • Difficulty in Data Management

As the capacity to gather, store, and process data increases exponentially, a data explosion is underway. The FMCG industry already had weekly consumer sales, brand tracking, consumer panels, shopper data from helpful and well-paid retailers, and, depending on which data/analytics organization you speak to, another few hundred metrics. However, 95% unfortunately of the data produced and sold to eager analysts and marketers is useless.

The more intelligent businesses will purchase only the necessary information (managing information costs), identify the proper connections to consumer behaviour, and use that information wisely to create products, regulate trade, and interact with customers.

  • Media Platforms

Nowadays, information travels quickly. A tweet, FB post, or YouTube video can become famous overnight. A company can no longer sell a product in a less developed market that was unsellable in a developed market because of safety concerns because regulations have not kept up.

While consumer information is easily accessible through a Google search, rules will take some time to catch up. There will be no place to hide and rapid information dissemination. Smarter brands will use cutting-edge strategies to effectively use this to reach a global audience while minimizing brand communication costs.

  • Purchasing Groceries Online

Despite having a small base, this is expanding quickly in most developed markets. Although most of the larger brick-and-mortar stores now provide online shopping and delivery, more niche online stores with limited product selections and higher prices will start to appear.

In addition, brands that expand by releasing a new flavour or fragrance every three months will struggle as some of these small-range online retailers develop because managing categories and ranges will become easier but brutal for brand owners. 

  • Appeal to All Age Groups

How would a supermarket's product selection change if everyone who shopped there was over 50? Fresh foods, fish (salmon), whole grain products, high-end sweets, and a long aisle of health supplements are all present. This group will value food quality more highly because they have more money.

For brands, the dilemma will be to appeal to this ageing demographic while still being relevant enough to draw in younger customers.

  • Conservation and Atmosphere

Companies that can show sustainability throughout their entire ecosystem will have higher consumer bonding scores. However, because consumers increasingly view conservation as a given rather than a luxury that only a select few can afford, the capacity to charge a premium to encompass increased costs will remain constrained.

The Tesla of the FMCG industry has yet to be developed using discoveries and technological advancements.

Future Outlook for the FMCG Sector

Over the past twenty years, the FMCG industry in India has undergone a remarkable transformation. By 2025, the FMCG market is expected to reach nearly $220 billion, with a growth rate of 14.7%.

Here are a few elements that will be crucial for the expansion of the FMCG sector –

  • Technological Transformation

Since the COVID-19 pandemic broke out, consumers have adapted to and used technology much more quickly. As a result, 80% of consumers will perceive a seamless transition from analogue to digital in the coming years.

People in rural areas will benefit even more from rising smartphone and internet usage as it makes it simpler to access various e-commerce websites for online shopping.

  • Creation of Brand Communities

Modern consumers quickly access other customers who have purchased the same product. As a result, businesses are developing marketing plans to create brand communities among consumers who share similar social, political, and cultural traits and are interested in their products.

Private and well-known brands in the FMCG sector have benefited from making the interaction a little more personal in the past year, and it is anticipated that they will continue to do so.

  • Acceptance of the D2C Model

Even larger brands have been enticed by the profit margin associated with direct selling to consumers to establish a direct sales channel on various digital marketplaces and even open standalone websites and stores.

Most brands have started delivering their products right to customers' doorsteps to take advantage of the trend of the online marketplace. As a result, consumer demand has increased 88% yearly, according to brands with specific websites for consumer sales. As a result, the D2C business model is well-liked and will become more critical.

  • Doorway for Investments

A sudden influx of capital has entered the sector due to new government regulations regarding investments in FMCG companies in India and accepting foreign-directed investments.

Government incentives and FDI funds have strengthened the FMCG sector, which has also helped FMCG brands gain high visibility across well-established retail markets and build a more reliable supply chain. Additionally, the industry has significantly benefited from efforts to raise disposable income in the hands of ordinary people, particularly those from rural areas.

In the future, it is anticipated that the government will make more attractive investments and developments to encourage the FMCG sector's growth further.

Conclusion

In conclusion, it is well known that India has the largest population of young people in the world and that in today's fast-paced society, they prefer purchasing packaged goods and food over cooking it themselves.

The FMCG sector's most significant sales contributor falls under this category. With these developments, the FMCG sector will continue on its upward trajectory.

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Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Groww Invest Tech Pvt. Ltd. (Formerly known as Nextbillion Technology Pvt. Ltd) Ltd. do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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