Jan 2, 2008|
FMCG: The year gone by
India is the world's twelfth largest consumer market. The Rs 700 bn FMCG sector grew by 12% in 2007. Most of the products in the FMCG space, though at different rates, witnessed growth. The sector had a satisfying year led by a booming economy and consumerism.
2007: A roundup...
Higher penetration, per capita consumption, increasing population base, and household income continued to drive the growth. Further, this year the willingness to spend backed by the ability to do so spurted the growth. 21 of the 90 FMCG categories exhibited remarkable growth of around 25%. While food was the fastest growing segment, health and wellness products followed next. The sector got further impetus led by several tax sops, greater focus on infrastructure development as well as a boost to rural income. Exemption of excise duty and custom duty on certain products and machinery aided the companies. However, input costs and crude prices continued to worry.
What were the growth drivers?
Rural markets - Strong growth: Rural regions, where nearly 70% of India's population resides, accounted for 34% of the offtake for FMCG products. The rural market registered a growth rate of 17% in the first ten months of 2007. The reasons for the high growth were:
Penetration : Rural India
Increasing households:The number of households in rural areas using FMCG products has gone up from 136 m in 2004 to 143 m in 2007 implying a CAGR of 1.7%.
Higher income With the economy growing at a strong pace, the income of the people has increased. The changing lifestyle has increased the consumption of FMCG products. Further, a shift is also being witnessed to higher-value products across categories and from unbranded to branded products.
Increasing penetration 2007 also witnessed higher penetration in the rural regions. As seen from the table (published in a financial daily), while the penetration of household care products remained sluggish, personal care products witnessed higher growth.
Source: IMRB International
|Hair oil and dressing
Food and beverages: The Indian food processing industry logged an impressive growth rate of 18% till October 2007. Overall economic growth was favourable for the F&B market, with more products becoming affordable due to rising incomes, changing lifestyles and a rapidly growing population. Cumulative foreign direct investment in the food processing sector has almost trebled in the past two years, going up to Rs 4.4 bn in 2007 from Rs 1.7 bn in 2005. It is also experiencing good growth from the modern trade format. Processed food products, impulse food products and packaged grocery are the segments that have witnessed immense growth from urban Indian modern stores.
New launches: Another feature, which was highlighted this year, was the launches of new products. As per IMRB, 251 new products (223 variants and 28 brands) were launched this year as against 191 (173 variants and 18 brands) in the same period last year. Branded snacks and shampoos witnessed the highest new launches. ITC was the biggest launcher this year. It launched Bingo in the snacks category. The year also marked its entry into the personal care space with the launch of Fiama Di Wills' brand of products. Dabur increased its presence in the beverage segment, while HUL launched its water purifier product.
The consumer base in the rural sector and the growing middle class provide huge potential to the FMCG companies going forward. Increase in rural income would aid growth. Personal care, household care and foods are estimated to grow at high rates. According to a CII-AT Kearney report, the FMCG sector is expected to grow at a compounded annual growth rate of 9% to a size of Rs 1,430 bn by 2010. Since urban regions are already matured, the rural regions would continue to be the key growth driver. In urban areas, introduction of newer, convenience and higher end products would propel growth. However, concerns remain with respect to the increasing competitive environment, input cost pressures and infrastructure bottlenecks. Overall, we remain positive on the growth prospects of the FMCG sector.
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