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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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Pest Analysis

Pest analysis of FMCG sector in India is carried out on political, economic, social and technological aspects. It is explained below:

(i) Political:

• Transportation and infrastructure development in rural areas helps in distribution network. The transport sector is not good enough to keep up with the rising demand of the market and roads which carry most of India's population and goods are of poor quality, similarly most of Railways major corridors have a capacity constrain.

• Restrictions in import policies: In the last decade, India has steadily replaced licensing and discretionary controls over imports with deregulation and simpler import procedures. Most of import items fall within the scope of India's EXIM Policy regulation of Open General License (OGL). This means that they are deemed to be freely import without restrictions and without a license, except to the extent that they are regulated by the provisions of the Policy or any other law.

(ii) Economical:

• The GDP rate of Indian economy is increasing every year. It is expected in future it would be better in comparison with other countries.

Year GDP/Capita

2011 1416.4

2012 1475.0

2013 1550.1

2014 1645.3

2015 1758.8

2016 1862.4

2017 1963.5

(Source: World bank)

• Inflation rate is increasing across the world and India is also no exception. The government and Reserve Bank of India both are trying to control the inflation rate with the help of different measures.

• The FMCG sector in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840 billion in 2017, with modern trade expected to grow at 20 per cent - 25 per cent per annum, which is likely to boost revenues of FMCG companies. Revenues of FMCG sector reached Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and are estimated to reach US$ 103.7 billion in 2020.

 (iii) Social:

• India is changing culturally, socially and in terms of its life styles. The total population is nearly 1.35 billion and includes the rich, poor, middle class, male, female, located in rural, urban and sub urban areas with different levels of education.

• Easy access through the internet, growing knowledge and awareness are the key components that will drive the growth for the FMCG sector in the consumer market.

• With the union budget 2018-19 focusing on agriculture, MSMEs, education, healthcare and infrastructure one can expect to see more disposable income in the hands of the common man specially in the rural areas which will have a positive impact on the FMCG sector

(iv) Technology:

• With processes like Production, Packaging, Distribution and Marketing prevalent in the FMCG sector technology plays a crucial role. If the requirements are not met by the domestic providers, foreign players step in.

• With the recent trend of going online, many organizations have started selling through mobile applications and websites. Not only do they help in creating a brand value for customers by serving them at the right time and at the right place but also provide a highly customized experience to the customer.

• Behind the scenes we have the ERP (Enterprise Resource Planner) software which helps these organizations keep a record of their inventory, sales, managing multiple orders and even accounts in some cases.

Industry Analysis

Growth:

The Indian FMCG sector is the fourth largest sector in the economy with a market size of US $74 Billion and has a strong presence characterized by a well-established distribution network, intense competition between the organized and unorganized segments and low operational cost. Availability of key raw materials, cheaper labor costs and presence across the entire value chain gives India a competitive advantage. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc. in India is low indicating the untapped market Potential. Burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products. Growth is also likely to come from consumer 'upgrading' in the matured product categories.

India's FMCG sector is the fourth largest sector in the economy and creates employment for more than three million people in downstream activities and 14million in total. The sub sectors of FMCG sector are Household Care, Personal Care and Food & Beverages. Based on price, FMCG goods are divided into three segments- low priced, mid-priced/ mass or popular and high-priced/ premium end. The sector is further expected to grow at a Compound Annual Growth Rate (CAGR) of 27.86 per cent to reach US$ 103.7 billion by 2020. FMCG is characterized by a well-established distribution network, low penetration levels, low operating cost, lower per capita consumption and intense competition between the organized and unorganized segments. Unlike other sectors, the FMCG industry did not slow down during recent recession. As it is meeting the every-day demands of consumers, it will continue to grow.

Major players in FMCG sector In India:

Hindustan Unilever Limited (HUL)

Mumbai, India Rs 32000 Crores 16000+ Rs 362600 Crores

Patanjali Ayurveda Limited Delhi, India Rs 12000 Crores 200000+ -

ITC Limited

Kolkata, India Rs 37000 Crores 29000+ Rs 343643 Crores

Nestle Vevey, Switzerland Rs 8000 Crores 328000+ Rs 99399 Crores

Parle Agro

Mumbai, India Rs 5000 Crores 2500+ -

Britannia Industries Limited

Kolkata, India Rs 8000 Crores 2000+ Rs 72200 Crores

Marico Limited

Bandra, India Rs 5000 Crores 1000+ Rs 45703 Crores

Dabur

Delhi, India Rs 6000 Crores 125000+ Rs 70791 Crores

Godrej Group

Mumbai, India Rs 4900 Crores 25000+ Rs 73319 Crores

Amul

Anand, India Rs 28000 Crores 700+ -

Name Head quarters Revenue Employees Market Cap

Revenue of these top 10 companies is 42.91% of total FMCG sector contribution (145900 / 340000)

Structure and Characteristic of FMCG Industry

• Competition:

The market of FMCG is very competitive and manufacturers are coming forward with the latest ideas and techniques to beat the competition and remain on the top. There are top business giants taking lead and several hundred emerging companies trying hard to come forward and stand with leading FMCG producers. The easing of the trade barriers encouraged the MNCs to invest in the Indian market to cater to the needs of the consumers. The living standards rose in the urban sector due to high disposable income along with the rise in the purchasing power of the rural families which increased the sales volume of various manufacturers of the FMCG products in India.

• Branding:

Creating strong brands is important for FMCG companies and they devote considerable money and effort in developing bands. With differentiation on functional attributes being difficult to achieve in this competitive market, branding results in consumer loyalty and sales growth. Leading FMCG firms like HUL, ITC, Nestle, Procter & Gamble and GlaxoSmithKline Healthcare which account for almost 70 per cent of FMCG revenues in the country, spend almost 10per cent of their turnover on advertising and brand promotion. The promotion strategy includes tying up with top actors and other celebrity brand ambassadors, besides going in for high-profile launches at leading retail mall and outlets.

• Distribution Network:

Given the fragmented nature of the Indian retailing industry and the problems of infrastructure, FMCG companies need to develop extensive distribution networks to achieve a high level of penetration in both the urban and rural markets. Once they are able to create a strong distribution network, it gives them significant advantages over their competitors. The supply chain of products in the FMCG market in India is one of the longest supply chains an industry could really have. What has been observed is that even though these FMCG companies are big multinationals and Indian but face a major challenge of making their products available in the market in the right quantities and in the right time. This is simply because these companies don't really have a wide network of sales agents and other force which is required and is ideal for catering their products to the markets. This aspect is taken over by distributors, wholesalers and retailer whose margins on these products actually double the price of these products when a final consumer buys it.

• Contract manufacturing:

As FMCG companies concentrate on brand building, product development and creating distribution networks, they are at the same time outsourcing their production requirements to third party manufacturers.

• Large unorganized sector:

The unorganized sector has a presence in most product categories of the FMCG sector. Small companies from this sector have used their geographical advantages and regional presence to reach out to remote areas where large consumer products have only limited presence. Their low-cost structure also gives them an advantage.

Attractiveness of FMCG sector

Industry has witnessed a FDI which is growing at the rate of 3% (2017-2018) and accounts for 1.5% of the Indian GDP. Food processing is the most popular FMCG category; it attracts over 53 percent of total FDI in the industry. India currently allows 100 per cent FDI in single-brand retail, and 51 per cent FDI in multi-brand retail, which will boost the nascent organized retail market in the country.

 Leading players of consumer products have a strong distribution network in rural India and are looking to capitalize on rising brand consciousness. Technological advances would enable better logistics in these areas such as Internet and E-commerce. India can also be leveraged a strategic sourcing hub for cost-competitive product development and manufacturing to cater to the international markets by the Indian and multinational FMCG companies. The emergence of organized retail has boosted the distribution of FMCG sector. There is a total of 7.8 million retail outlets that sell FMCG in India. The consumer story in India makes fast moving consumer goods (FMCG) space an attractive destination for equity investors as well. Compared to the typical $20-50 million deals that took place in the past few years,2012 witnessed one of the largest deals in FMCG space with the Singapore Government owned Temasek Holdings buying a five per cent stake in Consumer Products Ltd (GCPL) for Rs 685 crore ($135 million).

The Goods and Services Tax (GST) is also beneficial for the FMCG industry as now many of the FMCG products such as Soap, Toothpaste etcetera now come under 18 per cent tax bracket slab against the previous 23-24 per cent rate which was levied earlier. FMCG goods companies have sustained sales momentum in the quarter period ended March 31,2018 at a time when inflationary pressures were high most of the companies reported double-digit top line growth, varying from 19 per cent (Nestle) in 2017 to most other companies reporting double digit growth in 1st quarter of 2018 which makes India an attractive destination

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