Indian FMCG sector set to grow

09 July 2009

NEW DELHI: The FMCG industry in India will enjoy a compound annual growth rate of between 10% and 12% over the next decade, taking it to a value of at least $74 billion (€53.4bn; £46.3bn) by 2018, the Federation of Indian Chambers of Commerce and Industry and Technopak predict.

According to the two organisations, the Indian FMCG sector either directly or indirectly supports the employment of 38 million people, as well as delivering considerable revenues to the agricultural industry.

It also contributes around 40% of total adspend in the country, amounting to $2bn at present, and its expenditure in this area has previously been forecast to rise further over the next few years.

Based on a "low" estimate, FICCI's study predicts that the national FMCG market will grow in value from $25bn in 2008 to $43bn by 2013.

Changes in taxation regulations and the provision for increased levels of foreign direct investment could increase its net worth to $47bn in 2013, and $95bn in 2018, if these reforms are implemented quickly and effectively.

As counterfeit goods account for around 5% of the market, FICCI's study also "urges the government to enforce trademark and copyright laws" in order to "protect the rights of the consumers and FMCG companies."

Similarly, it argues that "especially during the current downturn, it is critical to know and respond to changing consumer and shopping behaviour."

As such, more "rigorous tools need to be applied" to be employed by brand owners than at present in order to successfully achieve this aim.

This approach would allow manufacturers to meet under-served demand for goods such as "higher end home consumption food products, as consumers eat out less and compensate by eating better at home."

The "modern" retail sector and FMCG companies also need to "work closely together" if they are to drive long-term growth.

ACNielsen recently reported that the category's expansion rate slowed to 16.2% in April and May this year, compared with 19% in the same period in 2008.

Anand Shah, an analyst at Angel Broking, also warned that "while the signs of slower growth are already visible, the decline will be sharper from the second quarter onwards."

"The impressive growth registered by companies in the past few quarters was on account of steep price increases," he continued.

"This advantage has now gone as companies have had to cut prices because of inflation, slowing consumer demand and because of the decline in the economic sentiment over the past two quarters or so."

As evidence of this, Hindustan Unilever has begun to reduce its prices by as much as 20% on certain products, having increased them by a similar amount last year.

Vanmala Nagwekar, a research analyst at India Infoline, added that the local arm of the Anglo-Dutch consumer goods giant is now "going big on promotion of small-sized packs in key categories such as creams and oral care."

It has also "increased commissions to retailers in order to push volumes," according to Nagwekar.

Data sourced from Business Standard/Livemint; additional content by WARC staff