FMCG Industry in India

FMCG Industry in India

Overview

FMCG (Fast Moving Consumer Goods) are a particular group of goods, which are sold quickly and at relatively low costs. These goods typically move faster in the value chain from manufacturing, distribution, marketing and consumption by end consumers. FMCG industry is India’s 4th largest and a major contributor to the country’s economy. Some of the FMCG products that dominate the market include toiletries, oral hygiene products, detergents, cosmetics and so on. Raw material availability, lower labour cost and a well connected value chain gives India a competitive advantage for the FMCG industry.

The three major segments of FMCG industry are;

  • Food & Beverages
  • Household & Personal Care
  • Healthcare

FMCG Market Size in India

The FMCG market in India is estimated to grow at a CAGR 15% to reach INR 15.62 trillion by 2025 from INR 7.814 trillion in 2020.

FMCG Industry Market Size

FMCG Industry in India is primarily dominated by the Household & Personal care category contributing to 50% of the total consumer goods retail market.

FMCG Segments Market Share

Competitive Landscape

Indian FMCG space is majorly dominated by unorganised players. However, under the organised market there are various players dominating in different segments of the Industry. HUL is a major player in the organised market manufacturing various products related to food & beverages and household & personal care witnessed a revenue of INR 459.9 billion in 2020-21. Followed by Patanjali, an Indian company that positioned themselves as a manufacturer of natural & ayurvedic products made a revenue of INR 300 billion in 2020-21. The revenue of Nestle India, one of the largest manufacturers of food products stood at INR 132.9 billion in 2020-21. Some other notable players include; Britannia Industries, ITC, Godrej and P&G.

Growth Drivers for Indian FMCG Industry

Favourable Government Initiatives & Policy

  • Indian Government has allowed 100% FDI in single-brand retail and 51% in multi-brand retail.
  • To boost India’s manufacturing capabilities, government identified FMCG sector under PLI (Production Linked Incentive) scheme.
  • The Government of India has introduced a new consumer protection bill to ensure accessible, simple, quick and timely delivery of justice to customers.
  • Goods and Service Tax (GST) introduced by the government has reduced the tax rates for some oral & personal hygiene products from 23%-24% to 18%.

Rural Consumption

India’s 65% of the population lives in the rural areas. Over the years, FMCG consumption in these areas have increased due to the increasing income levels and demand for branded products. According to estimates, rural households contribute around 36%-37% of the total FMCG sales in the country.

Branded Products

The rising wages and changes in lifestyle of consumers has accelerated the trend towards premiumization in the country. Consumers are well-informed about the products and willing to pay more to buy branded items that suit their lifestyle and social status.

Young Population

India has an astonishing youth population when compared to other developing countries. The majority of the workforce in India comprises this young population and this group of people will be a major growth driver especially for the packaged foods category as they barely get time to cook.

Growth of E-Commerce Platforms

E-commerce has completely revolutionized the way consumers buy goods. FMCG companies utilise E-commerce platforms as a way to test their new product innovation and new concept to reach a larger audience. Since e-commerce provides the convenience of ordering products using a mobile device or a computer consumers’ preference towards online shopping is on the rise.

Challenges for Indian FMCG Industry

Regional Players

Regional players play a major role in the FMCG space in India. These companies cater to a specific region of the country. Since they have a well connected supply chain these companies compete directly with other MNCs and well known players.

Supply Chain

FMCG goods usually have a low unit cost with larger volume and thus the industry in India has numerous retailers between the company and the end consumer. A small disruption in the supply chain can cause huge delays of products reaching the consumers.

Lack of Infrastructure

Lack of transport and storage facilities has been one of the major challenges for the FMCG industry in India. Food items especially have a shorter shelf life and thus need to be preserved in the cold storage facility and require a quick delivery system to avoid wastages.

Impact of Covid-19 on Indian FMCG Industry

The Covid 19 pandemic in 2019 has caused massive damage to the world economy. Businesses across India suspended their operation due to the country wide lockdown to control the virus spread. Though grocery retailers, who account for 60% of the total store-based retail saw an overwhelming demand during the initial period of lockdown, they struggled to refill the stocks due to supply chain disruptions. The pandemic created a surge in demand for personal hygiene products such as hand sanitizers, soaps, handwash, wipes, masks, toilet cleaners, disinfectants and the demand is expected to increase in the future. Companies offering food staples and convenience foods also saw a huge increase in sales during the pandemic. Contrastingly FMCG companies operating in non-essential categories such as footwear, cosmetics, apparels have seen a drastic decrease in sales and consumer durables category has seen a sales drop of 30% in 2020 when compared to the previous year.

Future Outlook

The FMCG Industry in India saw tremendous growth in the recent decade with the rising disposable income and economic growth. However, the coronavirus has caused a liquidity crunch for most of the consumer goods companies in India. A paradigm shift in consumer’s buying behaviour can also be noticed during the pandemic which is likely to continue post-pandemic. Most people choose to buy things online in order to avoid in-store visits. With the second wave of the virus hindering economic growth of India, FMCG companies are using automation and analytics to hasten the manufacturing process and move stocks from warehouse to customers’ point of purchase. Industry leaders are expecting rural India to be the future revenue driver backed up by support from the government, reverse migration and low unemployment rate. Though, FMCG industry saw signs of recovery during the 3rd quarter of 2020, the ongoing second wave of the virus may slow down the recovery and we estimate that the industry may fully bounce back by the end of 2021.


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