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A Study on FMCG by Tushar N. Chole


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A Study On Fast Moving Consumer Goods (FMCG) by Tushar N. Chole Project copy to help Students in their Study

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A Study on FMCG by Tushar N. Chole

  1. 1. A Study OnFast Moving Consumer Goods (FMCG)Tushar N. CholeMGM’s Institute of Management,Aurangabad, Maharashtra.
  2. 2. Fast Moving Consumer Goods (FMCG), also known as Consumer Packaged Goods(CPG), are products that are sold quickly at relatively low cost. Though the absoluteprofit made on FMCG products is relatively small, they generally sell in largequantities, so the cumulative profit on such products can be large.Examples of FMCG generally include a wide range of frequently purchased consumerproducts such as toiletries, soap, cosmetics, teeth cleaning products, shavingproducts and detergents, as well as other non-durables such as glassware, light bulbs,batteries, paper products and plastic goods. FMCG may also include pharmaceuticals,consumer electronics, packaged food products and drinks, although these are oftencategorized separately.FMCG have a short shelf life, either as a result of high consumer demand or becausethe product deteriorates rapidly. Some FMCGs—such as meat, fruits and vegetables,dairy products, and baked goods—are highly perishable. Other goods such as alcohol,toiletries, pre-packaged foods, soft drinks, and cleaning products have high turnoverrates. An excellent example is a newspaper—every days newspaper carries differentcontent, making one useless just one day later, necessitating a new purchase everyday.Main characteristics of FMCGs:From the consumers perspective:o Frequent purchaseo Low involvement (little or no effort to choose the item – products withstrong brand loyalty are exceptions to this rule)o Low priceFrom the marketers angle:o High volumeso Low contribution marginso Extensive distribution networkso High stock turnoverScope of FMCG Industry In India-FMCG Sector in India is one of the four largest sectors in Indian economy. The FMCG(Fast Moving Consumer Goods) companies have faced tough competition amongthemselves over the years which is continuously increasing. This is due to the increasein per capita income among individuals and also various developments in ruraleconomy. The FMCG sector has changed its strategies and has opted for a more well-planned marketing of the products to penetrate both the rural and urban markets. Toexecute these tasks, the FMCG companies are hiring more and more people which hasled to an increase in the job prospects in this sector. Thus, FMCG sector is creatingmassive employment with good career prospects. Marketing, retail, sales, services andsupply are the key areas which generates maximum career scopes in FMCG Industryin India.
  3. 3. Prospects in the FMCG Sector in India-FMCG sector in the Indian rural market is one of the most booming sectors in Indianeconomy. The villages of India account for 12.2% of the worlds population. The farmsector has been one of the significant sectors which boosted the rural economyresulting in the higher consumption of FMCG products. The consumers in both ruraland urban sectors can afford high-priced branded products nowadays with the highdisposable income.The FMCG sector in India has grown significantly in the year 2007 and this gave riseto huge prospects in the sector. The rural and urban sectors fared equally well in theprocessed food items in the year 2007. The rural market separately performed well inthe personal care, fabric care, and hot beverages while the urban market did well inhome care, personal care, bakery, dairy products, and the like.FMCG Brands in India - OverviewThe burgeoning middle class Indian population, as well as the rural sector, present ahuge potential for this sector. The FMCG sector in India is at present, the fourthlargest sector with a total market size in excess of USD 13 billion as of 2012. Thissector is expected to grow to a USD 33 billion industry by 2015 and to a whoopingUSD 100 billion by the year 2025.This sector is characterized by strong MNC presence and a well establisheddistribution network. In India the easy availability of raw materials as well as cheaplabour makes it an ideal destination for this sector. There is also intense competitionbetween the organised and unorganised segments and the fight to keep operationalcosts low.Factors that will drive growth in this sector:Increasing rate of urbanization, expected to see major growth in coming years.Rise in disposable incomes, resulting in premium brands having faster growthand deeper penetration.Innovative and stronger channels of distribution to the rural segment, leadingto deeper penetration into this segment.Increase in rural non-agricultural income and benefits from government welfareprogrammes.Investment in stock markets of FMCG companies, which are expected to growconstantly.Some of the challenges this sector is likely to face are:
  4. 4. Increasing rate of inflation, which is likely to lead to higher cost of rawmaterials.The standardization of packaging norms that is likely to be implemented by theGovernment by Jan 2013 is expected to increase cost of beverages, cereals,edible oil, detergent, flour, salt, aerated drinks and mineral water.Steadily rising fuel costs, leading to increased distribution costs.The present slow-down in the economy may lower demand of FMCG products,particularly in the premium sector, leading to reduced volumes.The declining value of rupee against other currencies may reduce margins ofmany companies, as Marico, Godrej Consumer Products, Colgate, Dabur, etcwho import raw materials.FMCG Brands in India - Major Companies1. Hindustan Unilever Ltd. - Lux, Lifeboy, Brookebond, Kawality Walls, Surf Excel,Pepsodent, Close Up, Vaseline, and many more2. ITC (Indian Tobacco Company)- W. D. & H. O. Wills, Insignia, India Kings, Classic,Gold Flake, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake3. Nestlé India - Kitkat, Milkmaid, Milky Bar, Maggie, Nescafe, Nestle Slim Milk,Barone, And Nestea4. GCMMF (AMUL) - Amul Kool, Masti Butter Milk, Kool Cafe, Amuls sugar-free Pro-Biotic Ice-cream, etc.5. Dabur India - Hajmola, Real, Vatika, Nature Care, Lal Dantmanjan, Chyawanprash,Pudin Hara, Amla, Etc.6. Asian Paints (India)7. Cadbury India - Gems, 5 Star, Perk, Celebrations, Eclairs, And Dairy Milk8. Britannia Industries - Tiger, good day, 50-50, treat, milk bar, and nutra choice9. Procter & Gamble Hygiene and Health Care - Vicks Action 500+, Vicks VapoRub,Vicks Cough Drops, Vicks Formula 44 Cough Syrup and Vicks Inhaler10. Marico Industries - Parachute, Saffola, Mediker, Silk-n-Shine, Revive, Hair & Care,Sweekar, Nihar, Manjal, etcTop 10 FMCG Companies in India - 2012
  5. 5. 1) ITC Ltd. - Market Cap (Rs.Cr): 151,078.2) Hindustan Unilever - Market Cap (Rs.Cr): 67,858.3) Nestle India - Market Cap (Rs.Cr): 39,819.4) Dabur India - Market Cap (Rs.Cr): 18,632.5) Godrej Consumer Products - Market Cap (Rs.Cr): 13,335.6) Proctor and Gamble India(Includes P&G Health and Hygiene and Gillette India) -Market Cap (Rs.Cr): 12,838.7) Colgate-Palmolive - Combined Market Cap (Rs.Cr): 12,764.8) Glaxosmithkline Consumer Healthcare - Market Cap (Rs.Cr): 9,842.9) Marico - Market Cap (Rs.Cr): 9,078.10) Emami - Market Cap (Rs.Cr): 6,836.Industry Category and ProductsHousehold CarePersonal Wash:-The market size of personal wash is estimated to be around Rs. 8,300 Cr. Thepersonal wash can be segregated into three segments: Premium, Economy andPopular. The penetration level of soaps is 92 per cent. It is available in 5 million retailstores, out of which, 75 per cent are in the rural areas. HUL is the leader with marketshare of ~53 per cent; Godrej occupies second position with market share of 10 percent. With increase in disposable incomes, growth in rural demand is expected toincrease because consumers are moving up towards premium products. However, inthe recent past there has not been much change in the volume of premium soaps inproportion to economy soaps, because increase in prices has led some consumers tolook for cheaper substitutes.Detergents:-The size of the detergent market is estimated to be Rs. 12,000 Cr. Household caresegment is characterized by high degree of competition and high level of penetration.With rapid urbanization, emergence of small pack size and sachets, the demand forthe household care products is flourishing. The demand for detergents has beengrowing but the regional and small unorganized players account for a major share ofthe total volume of the detergent market. In washing powder HUL is the leader with 38per cent of market share. Other major players are Nirma, Henkel and Proctor &Gamble.
  6. 6. Personal CareSkin Care:-The total skin care market is estimated to be around Rs. 3,400 Cr. The skin caremarket is at a primary stage in India. The penetration level of this segment in India isaround 20 per cent. With changing life styles, increase in disposable incomes, greaterproduct choice and availability, people are becoming aware about personal grooming.The major players in this segment are Hindustan Unilever with a market share of 54per cent, followed by CavinKare with a market share of 12 per cent and Godrej with amarket share of 3 per cent.Hair Care:-The hair care market in India is estimated at around Rs. 3,800 Cr. The hair caremarket can be segmented into hair oils, shampoos, hair colorants & conditioners, andhair gels. Marico is the leader in Hair Oil segment with market share of 33 per cent;Dabur occupies second position at 17 per cent.Shampoos:-The Indian shampoo market is estimated to be around Rs. 2,700 Cr. It has thepenetration level of only 13 per cent in India. Sachet makes up to 40 per cent of thetotal shampoo sale. It has low penetration level even in metros. Again the market isdominated by HUL with around ~47 per cent market share; P&G occupies secondposition with market share of around ~23 per cent. Antidandruff segment constitutesaround 15 per cent of the total shampoo market. The market is further expected toincrease due to increased marketing by players and availability of shampoos inaffordable sachets.Oral Care:-The oral care market can be segmented into toothpaste - 60 per cent; toothpowder - 23per cent; toothbrushes - 17 per cent. The total toothpaste market is estimated to bearound Rs. 3,500 Cr. The penetration level of toothpowder/toothpaste in urban areasis three times that of rural areas. This segment is dominated by Colgate-Palmolivewith market share of ~49 per cent, while HUL occupies second position with marketshare of ~30 per cent. In toothpowders market, Colgate and Dabur are the majorplayers. The oral care market, es-pecially toothpastes, remains under penetrated inIndia with penetration level ~50 per cent.Food & BeveragesFood Segment :-The foods category in FMCG is gaining popularity with a swing of launches by HUL,ITC, Godrej, and others. This category has 18 major brands aggregating Rs. 4,600 Cr.Nestle and Amul slug it out in the powders segment. The food category has also seeninnovations like softies in ice creams, ready to eat rice by HUL and pizzas by bothGCMMF and Godrej Pillsbury.Tea :-
  7. 7. The major share of tea market is dominated by unorganized players. More than 50 percent of the market share is capture by unorganized players. Leading branded teaplayers are HUL and Tata Tea.Coffee :-The Indian beverage industry faces over supply in segments like coffee and tea.However, more than 50 per cent of the market share is in unpacked or loose form. Themajor players in this segment are Nestlé, HUL and Tata Tea.Growth ProspectLarge MarketIndia has a population of more than 1.150 Billions which is just behind China.According to the estimates, by 2030 India population will be around 1.450 Billion andwill surpass China to become the World largest in terms of population. FMCG Industrywhich is directly related to the population is expected to maintain a robust growthrate.Spending PatternAn increase is spending pattern has been witnessed in Indian FMCG market. There isan upward trend in urban as well as rural market and also an increase in spending inorganized retail sector. An increase in disposable income, of household mainlybecause of in-crease in nuclear family where both the husband and wife are earning,has leads to growth rate in FMCG goods.Changing Profile and Mind Set of ConsumerPeople are becoming conscious about health and hygienic. There is a change in themind set of the Consumer and now looking at ―Money for Value‖ rather than ―Value forMoney‖. We have seen willingness in consumers to move to evolved products/ brands,because of changing lifestyles, rising disposable income etc. Consumers are switchingfrom economy to premium product even we have witnessed a sharp increase in thesales of packaged water and water purifier.Findings according to a recent survey by A. C. Nielsen shows about 71 per cent ofIndian take notice of packaged goods labels containing nutritional informationcompared to two years ago which was only 59 per cent.Advantages To The SectorGovernmental PolicyIndian Government has enacted policies aimed at attaining internationalcompetitiveness through lifting of the quantitative restrictions, reducing excise duties,automatic foreign in-vestment and food laws resulting in an environment that fostersgrowth. 100 per cent ex-port oriented units can be set up by government approval anduse of foreign brand names is now freely
  8. 8. Central & State InitiativesRecently Government has announced a cut of 4 per cent in excise duty to fight withthe slowdown of the Economy. This announcement has a positive impact on theindustry. But the benefit from the 4 per cent reduction in excise duty is not likely tobe uniform across FMCG categories or players. The changes in excise duty do notimpact cigarettes (ITC, Godfrey Phillips), biscuits (Britannia Industries, ITC) or ready-to-eat foods, as these prod-ucts are either subject to specific duty or are exempt fromexcise. Even players with manu-facturing facilities located mainly in tax-free zones willalso not see material excise duty savings. Only large FMCG-makers may be the keyones to bet and gain on excise cut.Foreign Direct Investment (FDI)Automatic investment approval (including foreign technology agreements withinspecified norms), up to 100 per cent foreign equity or 100 per cent for NRI andOverseas Corporate Bodies (OCBs) investment, is allowed for most of the foodprocessing sector except malted food, alcoholic beverages and those reserved for smallscale industries (SSI). There is a continuous growth in net FDI Inflow. There is anincrease of about 150 per cent in Net Inflow for Vegetable Oils & Vanaspati for theyear 2008.Market OpportunitiesVast Rural MarketRural India accounts for more than 700 Million consumers, or 70 per cent of theIndian population and accounts for 50 per cent of the total FMCG market. Theworking rural population is approximately 400 Millions. And an average citizen inrural India has less then half of the purchasing power as compare to his urbancounterpart. Still there is an untapped market and most of the FMCG Companies aretaking different steps to capture rural market share. The market for FMCG products inrural India is estimated 52 per cent and is projected to touch ~ 60 per cent within ayear. Hindustan Unilever Ltd is the largest player in the industry and has the widestmarket coverage.Export - “Leveraging the Cost Advantage”Cheap labor and quality product & services have helped India to represent as a costad-vantage over other Countries. Even the Government has offered zero import dutyon capital goods and raw material for 100% export oriented units. Multi NationalCompanies out-source its product requirements from its Indian company to have acost advantage.India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashewapart from being the second largest producer of rice, wheat, fruits & vegetables. Itadds a cost advantage as well as easily available raw materials.Sectoral OpportunitiesMajor Key Sectoral opportunities for Indian FMCG Sector are mentionedbelow:
  9. 9. Dairy Based ProductsIndia is the largest milk producer in the world, yet only around 15 per cent of the milkis processed. The organized liquid milk business is in its infancy and also has largelong-term growth potential. Even investment opportunities exist in value-addedproducts like desserts, puddings etc.Packaged FoodOnly about 10-12 per cent of output is processed and consumed in packaged form,thus highlighting the huge potential for expansion of this industry.Oral CareThe oral care industry, especially toothpastes, remains under penetrated in India withpenetration rates around 50 per cent. With rise in per capita incomes and awarenessof oral hygiene, the growth potential is huge. Lower price and smaller packs are alsolikely to drive potential up trading.BeveragesIndian tea market is dominated by unorganized players. More than 50% of the marketshare is capture by unorganized players highlighting high potential for organizedplayers.SWOT AnalysisStrengths:• Low operational costs• Presence of established distribution networks in both urban and rural areas• Presence of well-known brands in FMCG sectorWeaknesses:• Lower scope of investing in technology and achieving economies of scale, especiallyin small sectors• Low exports levels• "Me-too‖ products, which illegally mimic the labels of the established brands. Theseproducts narrow the scope of FMCG products in rural and semi-urban market.Opportunities:• Untapped rural market• Rising income levels, i.e. increase in purchasing power of consumers• Large domestic market- a population of over one billion.• Export potential• High consumer goods spendingThreats:• Removal of import restrictions resulting in replacing of domestic brands• Slowdown in rural demand• Tax and regulatory structure
  10. 10. FMCG Market in MaharashtraThe development of FMCG Market in Maharashtra was facilitated by the economicviability of the state. It is one of the richest states of India with one of the highest percapita income.OverviewFMCG Market in Maharashtra is one of the strongest among the states of India. Themost economically important city of India - Mumbai is located in Maharashtra. Thecity of Mumbai is regarded as the economic powerhouse of India. The state ofMaharashtra also has other cities that are important in terms of economic activitieslike Pune, Nagpur, Aurangabad, Thane, Nashik, Kohlapur etc. Each of these cities ofMaharashtra has made substantial contribution towards the growth of the state. Thestate of Maharashtra is one of the most industrially developed states of India and ishome to most of the corporate offices in India. The state has one of the highestnumbers of industries in India and it is regarded as one of the richest states in India.There has been a substantial increase in the rate of consumerism in Maharashtra inthe recent years and such that the trend is still growing with the increase in income.The cities of Maharashtra have been one of the important driving forces for thedevelopment of FMCG markets.FMCG Market in Maharashtra - Major Companies and BrandsFood products and beverage - Nestle, Kellogs, PepsiCo, Coca Cola, Uni Lever,Cadbury India, Parle, Hienz, ITC, MTR, Perfetti, Tata Tea, Parrys Confectionery,Venkeys Chicken, Goodricke, Nilgiris, Mother Dairy,Amul India, Gits FoodProducts Pvt. Ltd, Kwality Walls, Vadilal Ice cream, Goodricke,SmithKlineBecham,Cleaning and household insecticides - Reckitt Benckiser, JyothyLaboratories, Godrej Sara LeeHealthcare and Personal care - Johnson & Johnson, Himalaya Health Care,Modi Revlon, Cavin care, Lakme, LOreal, Lotus Herbals, Shehnaz Hussain,Habibs, Procter and Gamble, JK Helene, Gillette, Vatika, Colgate PalmoliveElectronics - LG, Samsung, Sony, Phillips, Videocon, Electrolux, Whirlpool,Kelvinator, Godrej, IFB, TCL, Haier, Panasonic, Sharp, Motorola, Nokia, SonyEriksson, Compaq, Lenevo, Hewlett Packard, Wipro, Acer.