First of all, a very good morning to you all, it’s been a few months since I wrote. Excited to read the detailed analysis of FMCG sector?
Without further delay, let’s proceed.
4G, ParleG and FMCG, life is incomplete without these things!
What is FMCG exactly?
FMCG stands for Fast-moving consumer goods also called consumer packaged goods sometimes. It means the goods/products that are sold quickly and are mostly priced (but not always) at a relatively low cost. Examples include non-durable household goods such as packaged foods, beverages, toiletries, candies, cosmetics, over-the-counter drugs, dry goods, and other consumables.
From the P.O.V of the consumer, an FCMG product has these characteristics – Frequent purchases, low effort to choose the item (pre-decided), low prices, short shelf life (means it gets bought quickly), rapid consumption.
From the P.O.V of the company, an FCMG product has these characteristics – High Volumes, Low Margins, Extensive Distribution, and a High Inventory Turnover.
&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;img src=”https://finmedium.com/wp-content/uploads/2020/09/FMCG-Everything-you-need-to-know-about-this-sector.png” alt=”” class=”wp-image-5971″&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt; Src – IBEF
FMCG Sector – History
Between 1950 and 1980, there was a limited investment in the FMCG sector. Local people had lower purchasing power, which meant that people opted for necessity products rather than premium products. The Indian government was inclined towards favoring the local shops and retailers.
The period from the 1950’s to the 1980’s did not see much of a growth in this sector owing to the low purchasing power of Indians and the government pushing for small scale sectors. HUL and Amul were one of the only companies that stuck around and evolved as market players.
&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;img src=”https://finmedium.com/wp-content/uploads/2020/09/1600683749_859_FMCG-Everything-you-need-to-know-about-this-sector.png” alt=”” class=”wp-image-5974″&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;
Between 1980 and 1990, people wanted more variety of products which encouraged FMCG companies to increase the availability of products. FMCG Industry started getting traction and other companies started entering the industry. The media industry in India also boomed during the same time which gave new companies even more incentive to make their business profitable.
Prior to 1991, when globalization and liberalization occurred in India, western apparel and foreign food products were not available to local customers. Common people weren’t very aware of brand recognition. After 1991, the FMCG industry was inspired by international companies which also allowed government intervention to incentivize foreign FMCG companies to operate in India.
The economic reforms of 1991 not only brought a higher number of domestic choices but also imported products. The lowering of trade barriers encouraged MNC’s to come and invest in India. Rising standards of living coupled with the growing purchasing power of rural India saw companies introduce products targeting both rural and urban markets. Companies started investing in distribution networks, products upgrade, as well as new product ranges. As an outcome of increased choices to the consumers and positive euphoria after liberalization, many of the affluent consumers who always had money but limited choices started splurging.
FMCG Sector – Present
Being the second most populated country in the world, there is no doubt that India should be one of the countries with a pioneering and growing FMCG market. Apparently, that is indeed what is happening right now and what is more interesting are the products that have a greater market share.
In the past few years, there are increasing number of initiatives like farm loan waivers, Direct Benefit Transfer (DBT) and development of infrastructure in rural areas. Under the Union budget 2019-2020, the focus has been shifting towards education, agriculture, healthcare, infrastructure, tax rebate and micro, small and medium enterprises (Ministry of Micro, Small and Medium Enterprises).These initiatives are projected to have an impact by increasing the minimum wages of common people, especially in rural areas. Thus, any increment in income will be directly proportional to demand in FMCG products.
Change in lifestyle and traditional culture is also having a positive impact on the FMCG industry. The population in urban areas is diverging towards premium products as opposed to essential goods because of the rise in income of the middle-class people. This has also lead to FMCG companies to rethink strategies as people are willing to pay high prices for premium products.
India’s demographic profile plays a major role in the growth of this sector. Not only is India’s demographic young, but this segment is also characterized by increased urbanization and higher expenditure. Urban development initiatives by the government, as well as the increasing middle class of India, has led to an increase in the number of attractive markets in the country. Ernst & Young’s research on the cities of India highlights the emergence of 30 ‘new wave’ cities such as Jaipur and Surat. Consumption in these cities is growing at a faster rate than that of many of India’s metros. India’s young population is also characterized by a high degree of technological awareness. Growing penetration of smartphones and better internet connectivity in India has led to a burgeoning E-Commerce sector, which has, in turn, helped formalize large sections of the unorganized retail sector.
FMCG – who are the big boys?
In the Indian FMCG landscape, the biggest FMCG players are HUL, Nestle, ITC, Britannia Industries, Marico, Godrej Consumer, Tata Consumer.
Some terms used in FMCG and what they mean (Click on Hyperlink)
How does the FMCG Sector work? Everything you need to know!
You know how they say that everything begins with an Idea? Well, for a FMCG company everything starts with a product!
Src – Marketing Weekly
Rural and Urban – The 2 sides of a coin called FMCG!
Rural consumption has increased, led by a combination of increasing income and higher aspiration levels. There is an increased demand for branded products in rural India.
The rural FMCG market reached US$ 23.63 billion in FY18. The rural FMCG market is expected to grow to US$ 220 billion by 2025.
Accounting for a revenue share of around 55 percent, the urban segment is the largest contributor to the overall revenue generated by the FMCG sector in India.
The rural segment is growing at a rapid pace and accounted for a revenue share of 45 percent in the overall revenues recorded by the FMCG sector in India. FMCG products account for 50 percent of total rural spending.
Rural India is witnessing increased demand for quality goods and services driven by upgraded distribution channels of FMCG companies. Low penetration levels in the rural market offer room for growth
Key Deals in recent times in the FMCG Sector
&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;lt;img src=”https://finmedium.com/wp-content/uploads/2020/09/1600683749_649_FMCG-Everything-you-need-to-know-about-this-sector.png” alt=”” class=”wp-image-6001″ width=”974″ height=”817″&amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;amp;gt;
Src – Exchange Filings, News
Update – September 18, 2020, ITC has updated that it has acquired more stake in Delectable Technologies. The second tranche of shares in start-up Delectable Technologies, amounting to a 20.06 percent stake. One can clearly see the flurry of deals here in the spices segment – one of the reasons can be that spices are largely localized and unorganized and now we are seeing the shift!
Why do FMCG companies have very low margins on their products?
Fast-moving consumer goods have generally very low profit margins. Products and therefore sold in large quantities.
Suppose you have an IT company that executes Rs 10000 Cr of contacts each year and earns a 35% operating profit margin. In FMCG, what happens is the company produces and sells Rs 500 Cr of products with a 5-10% operating profit margin but it does so 40 times. FMCG is all about the churn!
Intermediaries and their earnings in the FMCG Value Chain (Subject to change on the company and the type of products)
Src – Marketing Weekly
What are some ways in FMCG companies influence you to buy their products? Strategies?
Influencing consumers to buy their products? FMCG Companies
That did look like a bad joke, but it is true, FMCG companies influence your spending habits in a lot of ways. Here are some genius tricks!
4 soap cases are offered at the price of 3
Freebies are offered – Some plastic utensil-free with a big pack of an FMCG product
Continous advertising – Product is advertised everywhere – TV, Print, Social Media, so the constant bombardment of ads automatically places the product in your mind and when you see it in real, you would tend to buy it. The best example of this is Amazon and other online sellers – When you search for a product, and when you close the tab and go to other sites, the same product advertisement will be shown on all the webpages for you.
Cheaper pricing for bigger products – which influences consumers to buy bigger quantities and spending more. Picture this, Quaker Oats 1.5 Kg packet on Amazon is for Rs 200 while the 1 Kg packet is for Rs 170.
What are the stages of a FMCG product?
The four stages of a typical fast moving consumer good are:
Introduction into the market: When the product enters the market for the first time. The demand for the product needs to be increased; this is usually done, by giving the customer some samples so that they can try before they purchase the product. This stage helps the company to identify potential issues the product might have, from the consumer’s point of view.
Growth Stage: After the product is introduced into the marker the sales increase, people start to buy the product when required, the public is aware of the features and benefits of the product at this stage.
Maturation stage: Production costs usually reduce at this point as the product would have sold several times during the growth stage. The price of the product usually drops down and the sales peek at this time. During this stage, competitors introduce their own products, which have, are of similar characteristics.
Decline Stage: Sales would have dropped down significantly, the price of the product increases, and consumers tend to buy other products. Getting profits becomes very hard at this stage. The product is then stopped when it reaches this stage.
Various Segments in which Indian FMCG companies operate – Thoughts and much more!
So after reading all the FMCG Annual reports of 2020, their investor presentations and concalls, we have created and bifurcated the FMCG market into the below segments – (Click on a particular segment to read the commentary, thoughts, etc from the company that operates in that)
Salt, Pulses and Spices – Khaana Khazaana
Ready to Eat
Cake, Rusk and Bread
Coffee ( Link 1 and Link 2)
Hygiene & Personal Care
Chocolates / Whites & Wafers
Salted Snacks / Snacks / Namkeen
Note – Galaxy Surfactants which supplies performance surfactants and specialty ingredients to major FMCG players said on its concall also that while some segments such as Personal Hygiene have seen great jumps in volume growths, it goes on to be seen whether the demand is structural and sustainable!
Free Entertainment from FMCG Companies – AD Wars!
Example of Ad wars
This is the best example of Premiumization –
Rs 10 for A Roti
Rs 100 for a flat bread made from the best grains hand tossed and roasted in earthen clay oven!
With the rise in disposable income, mid- and high-income consumers in urban areas have shifted their purchase trend from essential to premium products.
Premium brands are manufacturing smaller packs of premium products. Example: Dove soap is available in 50g packaging.
Nestle is looking to expand its portfolio in premium durables cereals, pet care, coffee, and skin health accessing the potential in India.
ITC Sunfeast Dark Fantasy Choco fills are priced at a big premium but they have
made a serious dent in the Premium cream biscuit segment.
Some Great case studies in the FMCG and consumption Sector (Click on hyperlinks to read more)
Turnaround from Maggi crisis Tasty Bite Eatables –
Turnaround story Asian Paints-
The Brand With Brilliant Audience Connect Through Ads Asian Paints –
Using tech to the fullest Marico – Product Innovation and Market Leadership (
Link 1 and Link 2) ITC –
From cigarettes to FMCG Major Apple –
How it built its brand? ITC –
Making inroads with a great market share in cream-filled premium biscuits Dabur –
How Dabur red became a 1000 Cr+ Brand! HUL (Leadership, Cost Control, Marketing, Values, Product creation – Covered at the end of the article in detail)
(From Soaps to a personal care and Hygiene company) The Cornitos story:
How this man built India’s biggest nachos brand and captured over 60pc of market share Pidilite Industries –
Master of Advertising Durex – Master of Advertising (
Link 1 and Link 2 ) Intel (
Intel Inside: Creating A Brand For An Invisible Product) Rebel Foods –
Cloud Kitchen champions and creating a line of 100 Cr + Brands
4 Consumption companies and how they scaled up – Chings, Baggrys, Veeba Foods, and Kent Purifier Wow! Momo –
From a single stall (Thela) to Pan India presence Rebel Foods –
How to build 100 restaurants in 24 months! Informative videos on the consumer sector
(HUL, Pidilite, Barbeque Nation, VIP Industries, Jyothy Labs, and Reliance Retail) Parle G –
How a mass-produced biscuit got the nation together in the pandemic! Maggi noodles to chyawanprash:
What India has been spending on in pandemic! Healthy Snacks – Too Yumm –
How it found its place in a crowded market? How a raw mango candy (Pulse) made
100 Cr in just 8 months! Nestle India –
Taking a swipe at the Ready to eat (RTE) market
HUL v/s Nirma Patanjali –
How did it grow so fast? Bira 91 –
Story Of Local Crafted Beer Going International Story Of Prataap Snacks –
From A Small Room In Indore To Across India Pizza Hut Turns 62-
Story Of Cheese, Delicious Food & Memories Kumbh Mela – Not just Spirituality, but also about Brands and Marketing!
Link 1, Link 2, and Link 3!
Origins of the 2 Rs shampoo Sachet
Brand – Why does it matter?
A brand is everything, it can make or break everything for a company! Now, when we speak about brands, the conversation is never complete without Apple and Steve Jobs. Steve Jobs created the world’s most valuable and discussed brand (more important given how Apple became a Trillion-Dollar Worth company)
A good brand doesn’t sell products, it sells feelings, experiences and much more than a product!
Sounds BS right? Let me give examples – Disney Sells experience, Paper Boat sells nostalgia and Apple sells aspirations!
Kirana Stores – What are they and why is it the final piece to the FMCG Puzzle?
It can be safe to say that the Kiranas (Local neighborhood stores that are much smaller in size) are the backbone of the FMCG economy. Kirana stores supply items of daily use such as grocery, tobacco, cleaning items, etc. In other words, these play the role of modern convenience stores. However, like the big departmental stores or supermarkets, these Kirana shops don’t offer any discounts on your purchase. These are also easily accessible because the stores are situated in every locality.
The grocery shops or Kirana stores form the main part of the country’s retail industry. Therefore, its growth and development are directly proportional to the Indian economy’s growth.
India’s largest share of consumer’s spending budget undoubtedly goes to the chain of Kirana stores because of the versatility of items that is available at reasonable market prices. Another important point that needs to be mentioned is that Kirana stores pave the way for small businesses. Here is how the government gets revenue that contributes greatly to the economy.
The Kirana Sector has been long been neglected and touted as a boring business, but then suddenly a few years back everyone from startups to fintech wanted to tap Kirana shops. This interest became even bigger after India’s most valuable company Reliance Industries and its iconic Chairman Mukesh Ambani started partnering with Kiranaas for JioMart! Here’s why everyone is taking Kirana seriously now –
If you aggregate all the Kirana stores across India, they account for over 80% of the overall retail industry in India.
Integration of the Kirana stores into the digital ecosystem of Indian retail? Apart from selling their own wares, Kirana stores can also double up as the fulfillment and pick-up outlets for Jio Mart as an additional source of revenue. That is where Kirana stores fit into the scheme of things.
According to Reliance, the big challenge for most of the Kirana outlets is the management of inventory. They either end up investing too much or too little in inventories and this makes their performance sub-optimal. Reliance proposes to use its M-Pos to centrally manage inventory for the millions of Kirana stores across India. This would be a great help in a grocery retail business which is still 90% unorganized.
Facebook estimates that irrespective of the state of the economy, the interface between a customer and the grocery story is inevitable. Facebook wants to use the ubiquitous WhatsApp network owned by them to connect customers and shop owners and then ride the Reliance Network for the fulfillment and the execution of the order.
The Reliance digital network will be used to onboard 30 million Kirana Stores across India and integrate and optimize them through centralized inventory management. Facebook will then leverage the viral power of FB and WhatsApp to help monetize the experience. How this arrangement actually fructifies is something we will know in the months to come.
You know what they say old is Gold!
Amul – the Big Daddy of the FMCG Sector!
E-Commerce – The prodigal son of the FMCG Sector?
E-commerce is not something that is taken lightly by any of the FMCG companies. Just read any annual report and the word is featured a lot of times. But why is that so?
India’s increasing internet penetration and rising digital maturity along with developing infrastructure has helped boost online transactions
The online FMCG market is forecast to reach US$ 45 billion in 2020 from US$ 20 billion in 2017, backed by growth in online users from 90 million in 2017 to 200 million in 2020E.
Around 72 percent of Indian consumers are most likely to shop online locally for premium products.
The Indian online grocery market is estimated to exceed sales of about Rs 22,500 crore (US$ 3.19 billion) in 2020, a significant jump of 76 percent over the previous year.
It is estimated that 40 percent of all FMCG purchases in India will be online by 2020, thereby making it a US$ 5-6 billion business opportunity.
Packaging – Joh Dikhta hain who bikta hain!
Be it a big image or a big text, or color, people should know exactly what it is that you are selling, in a glance and that’s where Packaging comes in!
People trust a brand when they see more of its products on the shelf. If you have a range of products, ensure that there is enough similarity between them, so that one can recollect and find familiarity. It can be a constant color or a big brand name or even a mascot!
When you are just launching a new product, it might be wise to spend a little more time on being different – different in shape, format, form or design. Once you have grabbed eyeballs in the initial stage and garnered a sizeable following, you may switch to a more traditional format that will also help bring your costs down
FMCG – Growth Driver
Favorable demographics. According to CRISIL, as many as 90% of the Indian population will be below the age of 60 by the calendar year 2020 and 64% of them form a part of the working population (in the age bracket of 15 and 59 years). In comparison, the U.S., China, and Brazil are expected to only have 77%, 83%, and 86% of their population below the age of 60.
Urbanization. Urbanization is one of India’s most important economic growth drivers as this leads to substantial investments in infrastructure development, which, in turn, lead to job creation, development of modern consumer services, and increased ability to mobilize savings. The share of the urban population in the total population has been consistently rising over the years and stood at about 30.9% in 2010 and is expected to reach 37.4% by 2025 thereby increasing demand.
Creativity by FMCG Companies!