The evolution of Indian FMCG market - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

The evolution of Indian FMCG market

Feb 22, 2003

India has always been a country with a big chunk of world population, be it the 1950’s or the twenty first century. In that sense, the FMCG market potential has always been very big. However, from the 1950’s to the 80’s investments in the FMCG industry were very limited due to low purchasing power and the government’s favouring of the small-scale sector. Hindustan Lever Limited (HLL) was probably the only MNC company that stuck around and had its manufacturing base in India. At the time, the focus of the organised players like HLL was largely urbane. There too, the consumers had limited choices. However, Nirma’s entry changed the whole Indian FMCG scene. The company focused on the ‘value for money’ plank and made FMCG products like detergents very affordable even to the lower strata of the society. Nirma became a great success story and laid the roadmap for others to follow.

Private consumption expenditure trends
CAGR
(%)
Food, beverages,
tobacco
Personal
care
FY81 11.0% 13.4%
FY91 11.7% 11.9%
FY01 11.9% 14.8%
*CAGR over a decade

MNC’s like HLL, which were sitting pretty till then, woke up to new market realities and noticed the latent rural potential of India. The government’s relaxation of norms also encouraged these companies to go out for economies of scale in order to make FMCG products more affordable. Consequently, today soaps and detergents have almost 90% penetration in India.

Post liberalisation not only saw higher number of domestic choices, but also imported products. The lowering of the trade barriers encouraged MNC’s to come and invest in India to cater to 1bn Indians’ needs. Rising standards of living urban areas coupled with the purchasing power of rural India saw companies introduce everything from a low-end detergent to a high-end sanitary napkin. Their strategy has become two-pronged in the last decade. One, invest in expanding the distribution reach far and wide across India to enable market expansion of FMCG products. Secondly, upgrade existing consumers to value added premium products and increase usage of existing product ranges.

So you could see all companies be it HLL, Godrej Consumer, Marico, Henkel, Reckitt Benckiser and Colgate, trying to outdo each other in getting to the rural consumer first. Each of them has seen a significant expansion in the retail reach in mid-sized towns and villages. Some who could not do it on their own, have piggy backed on other FMCG major’s distribution network (P&G-Marico). Consequently, companies that have taken to rural India like chalk to cheese have seen their sales and profits expanding. For example, currently 50% of all HLL sales come from rural India, and consequently, it is one the biggest beneficiaries of this (see table).

CAGR growth in last 10 years…
  Sales Net profit
Cadbury 16.6% 53.0%
Colgate 9.9% 4.2%
HLL 19.1% 33.5%
Marico 12.3% 25.7%
Nestle 16.4% 25.3%
P&G Hygiene 9.0% 19.9%
Reckitt & Benckiser 13.3% 2.7%

There are others, like Nestle, which have till date catered mostly to urban India but have still seen good growth in the last decade. The company’s focus in the last decade has largely been on value added products for the upper strata of society. However, in the last couple of years, even these companies have looked to reach consumers at the slightly lower end.

One of the biggest changes to hit the FMCG industry was the ‘sachet’ bug. In the last 3 years, detergent companies, shampoo companies, hair oil companies, biscuit companies, chocolate companies and a host of others, have introduced products in smaller package sizes, at lower price points. This is the single big innovation to reach new users and expand market share for value added products in urban India, and for general FMCG products like detergents, soaps and oral care in rural India.

Another interesting phenomenon to have hit the FMCG industry is the mushrooming of regional companies, which are posing a threat to bigger FMCG companies like HLL. For example, the rise of Jyothi Laboratories, which has given sleepless nights to Reckitt Benckiser, the ‘Ghari’ detergent, that has slowly but surely built itself to take on Nirma and HLL in detergents, and finally, the rise of ‘Anchor’ in oral care, which has become synonymous with ‘cat’, which walks away with spoils when two monkeys fight (HLL and Colgate). There are numerous other examples of this.

What does all this mean for the future of FMCG industry in India? Undoubtedly, all this is good for the consumers, who can now choose a variety of products, from a number of companies, at different price points. But for the players who cater to the Indian consumer, the future brings a lot more competition. In this environment, only the innovators will survive. Focus will be the key to profitability (ala HLL). From an investor’s point of view, Indian FMCG companies do offer long-term growth opportunities given the low penetration and usage in most product categories. To choose the best investment opportunities look at the shapers (i.e. innovators) that have been constantly proactive to market needs and have built strong, efficient and intelligent distribution channels. Management vision to growth is the key, as consumers going forward are likely to become even more sophisticated in their demand.

Equitymaster requests your view! Post a comment on "The evolution of Indian FMCG market". Click here!

  

More Views on News

5 Takeaways from HUL's Q4 Results (Views On News)

Apr 27, 2022

In fiscal 2022, HUL achieved a milestone of becoming a Rs 500 bn turnover company.

The Top 4 Tea & Coffee Stocks to Add to Your Watchlist (Views On News)

Apr 25, 2022

The Russia-Ukraine war and Sri Lanka's economic crisis have brought tea exporting companies in focus.

Ruchi Soya FPO: 7 Things to Know (Views On News)

Mar 19, 2022

Ruchi Soya is one of the largest FMCG companies in the Indian edible oil sector. Should you invest in its FPO?

FMCG Index is Giving Bullish Signals. Time to Buy? (Views On News)

May 9, 2022

The ratio chart of FMCG index to the Nifty suggests the FMCG index will outperform.

Nifty FMCG Index - 102 Not Out (Views On News)

Apr 18, 2022

FMCG stocks have underperformed Nifty 50 since pandemic lows, but things appear to be changing on charts.

More Views on News

Most Popular

2022's Best Performing Penny Stocks So Far... (Views On News)

Mar 2, 2022

We are just two months into 2022 and several penny stocks that we track have already surged 5x.

5 Debt Free Penny Stocks with Good Profitability to Watch Out for in 2022 (Views On News)

Mar 16, 2022

Debt free penny stocks are vital when it's a question of portfolio diversification in a volatile market. They can potentially offer good profitability in the long run.

Penny Stocks to Buy and Hold Beyond 2022 (Views On News)

Apr 6, 2022

A step-by-step method to pick the best penny stocks for the long term.

6 Penny Stocks that Could Be Hidden Bluechips. Take a Look... (Views On News)

Apr 13, 2022

These penny stocks can become future multibaggers. Watch out for them.

Adani Power vs Tata Power: Which Power Stock is Better? (Views On News)

Feb 28, 2022

Rising electricity consumption provides a lot of scope for growth. Which company has a better chance at capturing it?

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE FMCG


May 27, 2022 03:30 PM

S&P BSE FMCG 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS