Tier 2 firms rising fast in F&B; to control 40% of FMCG by 2019

Food & Beverages tier II players are rising fast and are expected to control 40 per cent of the FMCG segment by 2019, as cited in a study by rating agency Crisil, says a PTI report.

In the last six years, tier II FMCG players have increased their share in the domestic F&B market to around 30 per cent from the earlier 20 per cent, and grown at nearly twice the pace of tier I players. Based on the study, this bucket (tier 2 companies) will sustain strong growth in the next five years, leading to a further increase in their share to 40 per cent.

At Rs 1.2 trillion, F&B is over 50 per cent of the FMCG market. The report further said that smaller, mostly regional, players have outgrown the FMCG biggies, like  Nestle, ITC and Britannia. It added that this phenomenon has been witnessed only in the F&B segment.

However, even if the positive catalyst will continue for the tier II cities on the business side, the main challenge will be the funding.

According to the report, it is estimated that they will require at least Rs 160-180 billion more for achieving this target. The positive conditions that contributed to Tier-2 players' growth in the past were of structural nature.

Besides, this can also attract several new entrants. Therefore, it is estimated that this bucket is likely to continue growing at least 75-80 per cent faster than tier I going forward, provided the players secure the necessary capital.

The report further pointed out that in the personal care and home care segments tier I players have fared better.

The untapped opportunity in the F&B segment is almost three times that in personal care and manifold that of home care is one of the main reason for the sector outperforming others.