Indian Fmcg Sector Essay Example

to saturation and intense competition in urban India. One approach is to gradually expand the distribution network using a step-by-step plan. Currently, there are 38 lacs villages with 2.5 million and 5 million outlets respectively.

According to FICCI, the FMCG market in urban areas has declined from 50% to 29% over the past five years. In contrast, the market share for semi-urban and rural segments was 19% and 52% respectively in 2006-07. The projected market shares for urban, semi-urban, and rural areas in 2007-08 were expected to be 57%, 21%, and 22%. This data highlights that the growth of the FMCG industry is being driven by rural areas, which have seen a higher increase in consumer households compared to urban markets. Furthermore, the planned development of roads, ports, railways, and airports will contribute towards expanding FMCG penetration in the long term.

According to Assocham, in 2008, approximately 80 million individuals from rural and semi-urban areas have shown interest in FMCG products. Data from IMRB indicates that the number of households using FMCG products in rural India increased from 131 million in 2004 to 140 million in 2007. The majority of FMCG product sales, accounting for over 70%, come from middle-class households, with more than half of them residing in rural regions. The decline observed in the FMCG market between 2001 and 2004 was a consequence of consumers diverting their income towards new spending opportunities such as consumer durables and entertainment. However, now that many consumers have already made those upgrades, they are directing their income towards self-indulgence.The Indian economy and demographics are favorable, with 45% of the population in India being under 20 years old. In 2007,

there was a 9% increase in per capita disposable income, rising from $550 to $600. The GDP is currently growing at a compounded annual growth rate (CAGR) of approximately 8 to 9%. According to NCAER's projection, within the next five years, the affluent and aspirers groups will surpass the strivers group and be dominated by aspirers.
FMCG Category Trends
1.

Within the Indian FMCG industry, there are certain categories that are expected to experience a growth rate of over 20% in 2008-2009. These categories include shaving cream, skin/fairness cream, shampoos, skin care & cosmetics, and tooth powder. Additionally, hair colour, skin care, anti-aging solution, deodorants, and men's products are also expected to see growth. Despite having high levels of market penetration, categories such as washing detergents, soaps, and hair oils have still shown significant volume growth in the face of inflation-driven price increases. This can be attributed, in part, to the expansion of organized retail, which has increased visibility for national brands with strong brand equity.

According to Anand Shah, an FMCG research analyst at Angel Broking, most FMCG companies are responding to the new demand by concentrating on developing a big theme and building a portfolio around it. Nestle, for example, has identified 'health and wellness' as its focus area, while Dabur is positioning itself around ayurvedic (a traditional Indian system of healthcare), natural and herbal products. On the higher price end, companies are leveraging health and wellness trends by focusing on providing 'experiential' and 'higher order' benefits rather than purely functional ones. Additionally, FMCG majors are expanding their health food portfolio to capitalize on the affluent, urban, health-conscious Indian demographic.

Sugar free Chywanprash, organic spices, and multi grain

pastas and biscuits are some examples of health-focused food products in urban India. FMCG majors are taking advantage of this trend and cashing in on the opportunity. Processed juices, especially those marketed as healthy options, are expected to experience strong growth due to the increasing health consciousness of Indian consumers. In 2008, inflation had an impact on consumer behavior, leading them to switch from higher-priced variants to lower-priced variants of the same product. As a response, companies have introduced smaller SKUs to meet this demand.

Henkel has responded to the trend by discontinuing their 500gm washing powder priced at Rs. 46 and replacing it with a smaller 400gm pack priced at INR40. Similarly, Amul recently introduced 25gm packs of butter, which are outperforming their larger 100gm and 500gm counterparts in sales. In the first 10 months of 2007, a total of 251 product launches were recorded, including the introduction of 28 new brands, surpassing the 191 launches seen during the same period in 2006.

Recently, there have been a number of launches in the urban markets for health and beauty products, while snacks and foodstuffs continue to be the leading category.