When we talk about FMCG, the first thought that lingers in our mind are products that are consumed on a daily basis. The steady rise in income and growing youth population are propelling the Indian FMCG sector at an accelerating speed. Apart from this, increasing brand awareness among the consumers has also contributed to the growth of this sector. But what do we understand by the term FMCG? What category of products are we referring to? Let’s brush our minds before getting into further details.
Fast-moving consumer goods (FMCG), also known as consumer packaged goods (CPG) are products which are sold swiftly and generally consumed on a daily basis, as compared to durable goods like kitchen appliances that are bought over a longer period of time. The FMCG industry mainly engages in the production, distribution and marketing operation of consumer packaged goods. This category comprises of the following
- Food and dairy products
- Consumer electronics
- Household products
- Packaged food products
The FMCG sector is a vital contributor to India’s GDP, being the fourth largest sector in the economy it creates employment for more than three million people. Its main elements are household care, personal care and food and beverages. The market is predicted to maintain a steady growth rate as the population, primarily the middle class and rural segment are increasingly consuming branded products. According to a recent study, in 2016, retail e-commerce sales in India generated over USD 16 billion. This figure is expected to increase to over USD 45 billion by 2021.
Let’s have a look at the below-given statistic that shows the revenue of the fast moving consumer goods market (FMCG) in India from 2007 to 2020. In 2015, India’s FMCG market generated revenue of about USD 47.3 billion, with revenue project to reach USD 103.7 billion in 2020.
Indian FMCG market: An Insight
According to a report shared by Indian brand equity foundation, India’s consumer spending is expected to increase to US$ 3.6 trillion by 2020 and India’s contribution to global consumption is expected to more than double to 5.8 percent by 2020. Many players are expanding into new geographies and categories and tier II and III cities are witnessing faster growth in modern trade. In fact, modern retail share is expected to triple its growth from US$60 billion in 2015 to US$ 180 billion in 2020.
- It is observed that with an investment of US$254.50 million, Wipro is diversifying and expanding its product range in energy drinks, detergents, and fabric conditioners.
- On the other hand, Patanjali will spend US$743.72 million in various food parks in Maharashtra, MP, Assam, Andra Pradesh, and UP.
- E-commerce companies like Amazon are strengthening their business in FMCG sector by positioning their platform pantry as front line offering to drive daily product sales.
The Indian advantage
According to the same report, following are the advantages bared by the Indian FMCG market:
- Low penetration levels in rural market offers room for growth of this sector.
- Disposable income in rural India has increased due to the direct cash transfer scheme.
- Export is another growing segment.
- Investment approval of up to 100 percent foreign equity in single brand retail and 51 percent in multi-brand retail.
- Initiatives like Food Security Bill and direct cash transfer subsidies reach about 40 percent of households in India.
- The minimum capitalisation for foreign FMCG companies to invest in India is US$100 million.
Main segments of FMCG
There are three main segments of FMCG as described below:
- Food and beverages – It accounts for 19 percent of the sector and this segment includes health beverages, staples/cereals, bakery products, snacks, chocolates, ice cream, processed food, and vegetables.
- Healthcare – It accounts for 31 percent of the sector and this segment includes OTC products.
- Household and personal care – It accounts for 50 percent of the sector and this segment includes oral care, hair care, skin care, cosmetics, deodorants, perfumes and paper products, fabric wash and household cleaners.
Today, fast moving consumer goods have become an essential part of consumer’s life. Because this sector is recession free and has created huge employment opportunity in India, it has become one of the key pillars of the Indian economy. It is advisable for the FMCG companies to encash opportunities like increasing consumer income, changing consumer lifestyle, aspiring rural consumer and consistent economic growth by utilizing its strengths. The competition from unorganized sector can be addressed by increasing brand awareness and by reducing cost through sharing resources such as distribution network. It can be said that this sector has a bright future based on favourable development happening in demand and supply.