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FMCG: Growing fast and furious
As the fourth largest sector in Indian economy, FMCG is distinguished by a good distribution network and a strong competition between organised and unorganised segment. Its growing demand in market will also support it in an effective manner.
THE 86,000 crore FMCG (fast moving consumer goods) sector in India is running full throttle and is expected to have a lot of action in 2010. As the fourth largest sector in the Indian economy, it is distinguished by a good distribution network and a strong competition between organised and unorganised segment. According to Financial Express, the sector will witness a growth of 15 per cent in 2010, compared to last year.

Growth Potential

Most of India’s population still lives in villages and hence, it is one area that can’t be overlooked. As an agricultural economy, which is gaining a lot of focus, rural income is bound to increase. That will definitely provide a better growth prospect for the FMCG companies. The growing demand in the market will also support the sector in an effective manner. Per capita consumption of various products is very low in India and hence it will have varied growth possibility. The new generation customer is brand savvy. However, now the companies need to focus on rural customer to make them more aware of the kind of new products and services that the FMCG basket can offer. The purchasing power of the people also plays an important role. The urban area will continue to dominate the market share of the FMCG products, what with increasing incomes and new categories. Currently urban populace has a 66 per cent share in terms of consumption. The home and personal care category, including skin care, household care and feminine hygiene will keep going stronger. In the food segment- processed foods, bakery and dairy are key growth areas in both rural and urban areas.

Indian and the world markets

India will continue to be a major FMCG player because of reasons like abundance of raw material, labour costs and an effective value chain. The climatic conditions across India is varied which gives it a huge raw material base for food processing industries. It is coming up as major coffee market. For a long time it has been the largest producer of milk, spices cashew and livestock. The production of caustic soda and soda ash also gives it a local advantage, since they are the basic ingredients in soaps and detergents.

Labour cost

It makes good business sense to look for cheaper options to make profits – and that will stand true for any company. Hence, it is definitely one area where India can make a mark with its low cost labour. India happens to have lowest labour cost in the world to be topped only by China and Indonesia. This has led to low cost of production. One of the reasons why many MNCs have established their plants in India.

Another major factor as to why the country is a potential growth area for FMCG is because of its strong presence in the value chain –be it from raw materials to packaged goods.

Present and the future

While the global economic ire consumed everyone in its fire, FMCG happened to be one area that stood tall and strong by overcoming its impact. Although the input costs were high, the sector didn’t witness any price rise in fairness/anti ageing creams, soaps and the likes. The Indian consumer continued to enjoy royalty and hence the sales saw a hike. The issue was balanced by downsising packaging. “The sector has coped well with recent challenges and grew by 15 per cent over the last year,” says industry chamber FICCI.

According to AC Nielson as reported by The Mint, the year 2009, also saw modern retail format stores and aggressive marketing which helped home-grown FMCG firms wrest market share from leader Hindustan Unilever Ltd (HUL). HUL’s share in the estimated Rs 8,000 crore personal care market fell to 44.5 per cent from about half last year, as others like ITC, Godrej and Wipro fought for space in markets like Uttar Pradesh, Bihar and Gujarat with a rural push, says AC Nielsen.

The sector saw rarely any merger and acquisition except for Wipro’s Rs 210 crore acquisition of United Kingdom’s Yardley. The optimism in Indian market was shown when PepsiCo, for the first time held its board meeting here. Its investments are up by another 100 million dollar from 500 million dollar that was announced last year.

Overall, the prospects of the FMCG sector remain good. According to FICCI, it has grown consistently during the last three to four years. The sector is expected to grow at 12 to 15 per cent over the next three to four years.

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