REPORT ON

EMERGING CHALLENGES AND

PROSPECTS OF FMCG PRODUCT
DEVELOPMENT IN INDIA

By
DEBABRATA KARMAKAR
Enrolment Number: 031603018

A Dissertation
Submitted to the Faculty of
Globsyn Business School in Partial Fulfilment of the
Requirements for the
Post Graduate Program in Management

MARCH, 2019

1
CERTIFICATE FROM INTERNAL GUIDE

Date:

The Dean
Globsyn Business School
Kolkata
West Bengal
INDIA

Dear Sir,

Sub: Candidate for Post Graduate Management Course

I have the pleasure of forwarding the following project dissertation.

1. Name of the Candidate: DEBABRATA KARMAKAR

2. Title of Study: EMERGING CHALLENGES AND PROSPECTS OF FMCG PRODUCT
DEVELOPMENT IN INDIA
3. Date of Submission: 10TH March 2019
4. Specialisation Field: Marketing
5. PAGES IN STUDY:(22)

I further certify the following:

1. The candidate has completed the work to my satisfaction

2
2. This is an original work of the candidate and to best of my knowledge has not been published
anywhere else
3. The use of existing works have been duly acknowledged
4. The candidate has spent a minimum of 30 hours while conducting the study

The dissertation may now be evaluated for the purpose of awarding Postgraduate Diploma.

Yours sincerely,
Internal Guide

Prof.DR.Debaprasad Chattopadhyay

ACKNOWLEDGMENTS

The success and final outcome of this project required a lot of guidance and assistance
from many people and I am extremely fortunate to have got this all along for
completion of my project work. Whatever I have done is only due to such guidance
and assistant and I would not forget to thank them. However, it would not have been
possible without the kind support and help of many individuals of the organization

I extend my sincere gratitude to Prof. Dr. DEBAPRASAD CHATTOPADHYAY

(Senior Professor & HOD-HR, Globsyn Business School) for permitting me to
undertake my Dissertation Project and guiding me throughout this project. I am deeply
indebted to my guide Debaprasad sir for not only his valuable and enlightened,
guidance but also for the freedom he rendered me during this project work.

3
 Debabrata Karmakar

TABLE OF CONTENT

CONTENT PAGE NO

EXECUTIVE SUMMARY(ABSTRACT) 5

INTRODUCTION 6

FMCG Sector in India-Current Scenario 7

Out Look for the Consumer Product 10

Sector in Asia
The Challenge - New Product 11
Development (FMCG)
Challenges faced by FMCG sectors for 13
rural marketing
Prospects of FMCG 15

4
Indian FMCG sector report – Relevant 17
and specific statistics
Factors accountable for upcoming 19
paradigms of rural marketing
Conclusion 21

REFERENCES 22

5
 ABSTRACT

This studycontributes inputs for a proper understanding of the Indian consumer mindset towards
FMCG products. It focuses on several fundamental issues pertaining to the emerging challenges
and prospects of marketing FMCG products (new product launch) in India. Upcoming trends in
sales and customer attraction which enhance improvements in new products development (FMCG).
Fundamental issues of the customer and their expectations involve around three basic questions:
1.What more?
2. Wh`at next?
3. What else?
When the marketers want to fulfill the ever-changing customer requirements they have to face
several challenges which are new and unseen in yesteryears.

KEY WORDS: Emerging, Marketing, Strategy, Management pedagogy, FMCG.

RESEARCH OBJECTIVE: This research has been made in order to get an idea about upcoming
challenges and opportunities of the FMCG sector of India. The objectives behind this study are:

 To have basic idea about the current scenario of Indian FMCG sector specially with
respect to Asian region
 To find out existing challenges and challenges that might occur in the near future in this
sector
 To look into the future prospects of the FMCG industry in India

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 Chapter1
1.INTRODUCTION

FMCG companies in our country have always cherished a vast potential market because of the
large population of India. The improved economic situation of both the rural and urban consumers
has helped FMCG companies to further expand their market to the hinterlands of the country. The
Indian FMCG companies enjoy a diverse industrial base and offer a variety of products to
consumers, namely toiletries, personal care products, soaps, grooming products, detergents, oral
hygiene, packaged foods, beverages, , healthcare products, plastic products, bulbs, batteries,
glassware etc. It is the fourth largest sector in India, creating employment for more than 3 million
people in the country with a market size of around Rs 110,000 crore (around $22 billion).Emerging
markets like India are different from developed markets in several ways. These markets are often
distinguished by specific local needs, limited purchasing power and high price sensitivity. Unlike
established companies in developed markets, Indian companies are facing the challenge of
structuring the new product development processes in an environment of limited design skills and
experience. At the same time, they are constrained by limited financial and human resources, a lack
of a market orientation, strong centralized control by business family heads, functional chimneys
without deep functional expertise, and pressures to change on numerous fronts all at once to deal
with the competitive environment(FMCG).

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1.1 Study Background
FMCG Sector in India-Current Scenario:

Fast-moving consumer goods (FMCG) can be defined as packaged goods that are consumed or sold
at regular and small intervals. The prices of the FMCG are low and profits earned are more rely upon
the volume sales of the products. The FMCG market can be broadly categorised as Personal Care,
Household care, Food & Beverages and Others.
The Indian FMCG sector is the fourth largest sector in the economy with a total market size of
USD49 billion in 2016. The sector is projected to grow at a CAGR of 20.6% to reach USD103.7
billion by 2020. The FMCG industry in India, has grown frequently over the last decade,
predominantly on account of increasing income levels and changing lifestyle of Indian consumers.

Indian FMCG Market in Comparison with Global FMCG Market:

Currently India accounts for a share of just 0.68% of the Global FMCG market, this share is
expected to increase significantly over the next 5 years mainly due to the macro-economic conditions
such as improving demographics, rising disposable income, expansion of organised retail in tier &
cities in India,changing consumer preferences etc. Major FMCGmarkets include USA, China,
European Union, Japanetc. Globally, the FMCG sector is expected to growat a CAGR of 4.4%,
which when compared to India isa lot slower. Many foreign FMCG multinationals have established
themselves in India.Globally, the FMCG companies have now shifted their focus on E-commerce
due to the increasing mobile internet penetration. Globally, the share of online sale of FMCG
products accounted for around 5% in2015, which is relatively higher than India whereonline FMCG
sales calculated for a share of just1-2% of the overall FMCG market in 2015. The globaleconomic
hike has been decelerating as severallarge economies face decreasing economic growth,primarily
China and the Eurozone, as well as a fewkey developing markets like Brazil and Russia. Thisoffers
an advantage to India which has a significantlybetter economic condition. According to The
WorldBank, India’s per capita income is expected tocross INR100,000 (USD 1,505.4) in FY 2017
from
INR93,231 (USD 1,403.5) in FY 2016. Technologyadoption, urbanisation and other structural
reformsare the other major game changers resulting in better marketpotential compared to other
markets.
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Fast Moving Consumer Goods (FMCG) can be defined as packaged goods that are consumed or
sold at regular and small intervals. The prices of the FMCG are relatively less and profits earned
through such sales are more volume based. The organized FMCG retailing in India is a new
concept and is fast catching up in urban and semi-urban India.The FMCG Sector in India has
witnessed a range of recent developments. Tax deductions on various items, rise in the penetration
levels and per capita consumption are some of the major developments in FMCG. The FMCG
Sector in India is the fourth largest sector in the Indian economy. Fast moving consumer goods
(FMCG) industry stood at USD 57.4 billion in 2017 vis-à-vis USD 49 billion in 2016, incurring a
sharp growth of over 17% during the year (as per IBEF). Household and personal care continue to
be the leading segment –accounting for 50% of the overall market followed by Healthcare and
Food & beverages segment that account for 31% and 19% respectively.
In 2017, urban area was the largest contributor to the overall revenue generated by the FMCG sector
in India with about 55% share while the rest came from semi-urban and rural areas. The share of rural
areas in the overall revenue contribution has been consistently growing over the past few years.
Historically, growth in private final consumption expenditure (PFCE) relates well with growth in
non-durable goods with a ratio of about 1-1.2 times on an average. Therefore, going forward, with the
nominal GDP expected to be at 12.5%, and private final consumption expenditure expected to be at
~12-13%, CARE Ratings expects the FMCG industry to register a growth of about 14-16% in FY19.
The FMCG Sector in India consists of a strict competition between the organized and unorganized
sectors of consumer durables. India offers an abundance of raw materials, low-priced labor costs,
and also has a presence across the entire value chain.
The major activities of the food-processing sector are permitted 100% foreign equity or 100% NRI
and Overseas Corporate Bodies (OCB) investment to meet the rising demand of the consumers. In
the year 2012 (Table.1), the recent developments in FMCG, it is assumed that the consumption of
the FMCG products will have a satisfactory growth with the rising income level of Indian populace
in both the rural and urban places. The market size of the Indian FMCG Sector is expected to reach
USD 33.4 billion by the year 2015. The Indian government has declared several tax sops for the
FMCG sector in India. It has emphasized on the infrastructural changes in the same. The
consumption of health and personal care products in FMCG sector has increased in the recent past
with rise in disposable income especially among the early stages group in India. A few of the
FMCG productare:

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 Toiletries
Soaps & detergents
Cleaning & disinfecting agents
Cosmetics
Non-durables
Pharmaceuticals

Further, the packaged food products and drinks are also sold under the FMCG, since these
items are consumed or bought at regular intervals. Furthermore, recently the electronic items like
mobile phones, external hard drives, etc., which has less life owing to its technological
development, has also been brought under the umbrella of FMCG sector

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1.2 Study Area:

Fast Moving Consumer Goods companies operating in India Table.1

Companies Electronics Brand in FMCG retail outlets

India operating in India
Britannia ITC LG Food World

Procter & Gamble Heinz Samsung Subiksha

Coca-Cola Reckitt Nokia Landmark

Benckiser
PepsiCo Nestle Motorola Health & Glow

Wilkinson Unilever Sony Shahnaz Husain

Lakme Tata Tea Videocon LG & Samsung

Amul Marico Panasonic

Dabur Phillips

Kissan Canon

Parle

source: business.mapsofindia.com/automobile/top-automobile-companies.

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 1.3 Out Look for the Consumer Product Sector in Asia

India often shows surprising sales strategy successes. For example, Amway, an American direct
sales retailer, has become one of India’s largest consumer goods companies since the government
allowed it to start selling its products door-to-door, However, the markets will get tougher as
consumer tastes evolve rapidly based on rising income levels, more companies enter the fray and
established market leader step up their game, fas an example Nestle has been in India for about a
century. Now it is moving to keep pace with the market. Five years (Table.3) ago it under took”
Project Epicure” under which it made 1,500 visits to Indian homes, rich and poor, to
seehowpeoplecookandeat.
On30July2011,itreporteda20%increaseintotalsalestoRs17.63billion(US$$394-
million)anda9%riseinitsnetprofitforthesecondQuartertoRsbillion (US$ 47.8 - million). It is planning
to invest US$ 450- million to double its capacity. Emerging as future growth markets based on the
rise of the young, urban, increasingly affluency in Indian consumer.

Out Look for the Consumer Product Sector in Asia (Table.3)

Territory 2008 2009 2010 2011 2012 2013 2014 2015

Asia & Australasia 4.3 6.5 5.2 5.9 7.0 5.9 5.8 5.3

China 13.3 18.6 3.2 12.0 12.7 9.7 9.3 7.3

Hong Kong 3.9 7.0 8.7 8.6 6.8 3.7 3.4 3.0

India 10.2 16.6 14.1 11.1 9.9 10.5 9.8 9.8

Japan -0.8 0.6 3.5 -0.6 2.4 1.5 1.4 1.0

Taiwan -0.8 2.0 5.0 5.5 5.4 4.1 4.8 4.7

Source : Economist intelligence unit

Figures for 2011 onwards are forecasts. Prior years are actual or estimates

It is developing products suited for the Indian market and even express product development in
India to both Asian and Eastern European countries.

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 Chapter 2

2. The Challenge - New Product Development (FMCG)

In this age of accelerating commoditization, companies are increasingly playing on the success of
innovative /new products, however companies continue to release new products the same way they
always have.

As far as the economic scenario is concerned India is surely on a roll. The last twenty years have
really proved extremely beneficial for India. The country now stands only after Brazil as far as
GDP ranking is concerned. India has replaced Russia and grabbed the second position in the global
forefront mostly due to the strategic planning and large amount of expenditures on education in
India. India is expected to cross the 8 percent mark and move to 9 percent GDPgrowth rate. India is
the second largest populated country in the world sheltering over one billion people. Although
India has not had a striking 10 percent year over year economic growth as its neighbor China it has
still managed to grow at a nominal rate. India's GDP growth has been slow but careful. According
to trade pundits India will take the third position as far as GDP growth in concerned by 2020
replacing Germany, the UK, and Japan. Only United States and China will be ahead of it. All the
important sectors in India have shown positive signs of growth from the last five years. Let us have
a close look at the sector wise growth rate in India from the period 2010 to 2011. Indian exports
increased by 26.8 per cent (y-o-y) and touched US$ 18.9 billion in November 2010(The period
April 2010 to November 2010 exports in the country grew by 26.7 per cent to US$ 140.3 billion.
On the other hand imports increased to US$ 222 billion.). This rapid growth in the exports from
India urged the Indian Government to conclude that the total shipments in 2010-11 might go up to
US$ 215 billion. FMCG companies have been wary of taking up product prices on account of this
inflation. In the fourth quarter of the 2011-12 financial years, for instance, while volume growth
was 09 to 15 per cent for most FMCG companies, price-led growth was five to 10 per cent only.
The trend was no different for the first three quarters of the 2011-12 year, with price-led growth in
the region of five to 10 per cent, as companies focused on volumes. Analysts say a good rainfall
this year will be critical in keeping this volume-sales momentumgoing.

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Coca-Cola, a leading soft drink company, wishes to invest a huge amount of money ($5 billion) to
improve their manufacturing units and distribution channels in India (which is an increase of $3
billion over its previous commitment in India) as they see a high potential growth in the soft drink
market in the next few years and would like to become the most preferred soft drink in India.

2.10Consumers magnetism for FMCG

They build and maintain good relationships, consistently influence (in a good way) the people
around them, consistently make people feel better about them--they're the kind of people
everyone wants to be around...and wants to be they.

1. Compensate awareness way more than consumertalk.

2. Don’t practice selectivehearing.
3. Position their stuffaway.
4. Provide before they receive--and often consumer neverreceive.
5. Don’t actself-important…
6. Comprehend other people are moreimportant.
7. Stand out the spotlight onothers.
8. Decide consumer words.
9. Don’t discuss the failings ofothers...
10. Voluntarily admit consumerfailings.

Inconveniences of FMCG Products Launch

1. FastGrowth
2. Customer expectations not satisfied.
3. New item exists in productmix.
4. Unknown/new category and consumereducation
5. Revolutionary product with nomarket.

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Some of the major challenges are the following:

2.11 Managing availability in the complex distribution Set Up

The Indian FMCG sector has to work with very complex distribution chanel consisting multiple
layers of numerous small retailers between company and end customer. For example a company like,
Marico has to ensure reach to 1.6 million retailers spread throughout the country. As the number of
SKUs (Stock keeping Units) have been increasing exponentially, just ensuring availability at the last
stage of distribution has become a challenge for companies. Standard solutions applicable in
developed countries are not suitable for a country like India. Working with smaller pack Sizes Unlike
in developed countries ,where companies have been trying to work with large pack sizes (reduction in
transportation ,handling and packaging costs for large pack sizes can be passed on as price cuts to
price sensitive customers),in India the trend is in the opposite direction. To increase market
penetration, Indian companies have realized that they need to reach out to consumers present at the
lower end of the economic pyramid. This consumer base can be tapped in to only by offering small
pack sizes. However smaller pack sizes mean higher packaging and transportation costs for the
companies. Eventually companies will have to find innovative ways of balancing market penetration
and logistics cost

2.12Entry of National Players in the Traditional Fresh Products sector

National companies want to market “fresh” products that have been traditionally handled by local
companies in each region. For example, ITC wants to make inroads in the market for ‘ATTA’ and
Nestle for yoghurt. In these items, the freshness of the product is an important requirement from the
consumer’s point of view. Traditionally national companies have worked with centralized plants,
where they can manage quality and also enjoy big economies of scale. As freshness is one of the most
important criteria from the customer’s point of view, national players will have to work with
decentralized manufacturing plants. Balancing quality, freshness and cost is a major issue for national
players. The following is an important case of AMUL where a local firm has successfully managed
the complex tradeoffs by building superior supply chain.

2.13 AMUL

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Milk is a perishable commodity and poor farmers from rural India had no means of storing excess
milk. The farmers were forced to sell milk through middlemen and had to settle for very low prices.
To improve the returns a cooperative society was set up in each village. As each village level society
would not have enough volume to justify setting up a milk processing plant ,all the village
cooperative societies in a district formed a union ,which in turn collected milk from all the societies
and processed it in a centralized processing plant and liquid milk and milk products were sold to
customers all over India even though Amul came into existence in 1946 ,over the years Amul has
setup a very efficient and effective supply chain in the rural areas of Gujarat and more than 5 lakhs
retailers who make Amul products available across India

2.14 Dealing with complex taxations structures

Because of the complex taxation structure, it is difficult to treat India as one market. Varying local
tax structures across states encourage traders to indulge in the smuggling of goods across states,
leading to the creation of grey markets. Experts are of the view that smuggled goods account for
about 15 percent of the total goods flow. Such activities distort the plans and activities of FMCG
companies. Further because of the tax on the interstate sales, companies can never ship goods to
customers located outside the state. They first have to transfer goods to the state level warehouses on
a consignment basis and then supply the goods to the customers. With the introduction of VAT,
harmonization of taxes across states and the possible removal of tax on inter-state sales, FMCG
companies will see lots of changes in the way they have been managing their supply chains.

2.15 Dealing with Counterfeit Goods:

According to recent study conducted, counterfeits accounted for loss of sale worth more than Rs 300
billion for the FMCG sector every year. P&G found that various counterfeit products of Vicks
Vaporub raked in sales equivalent to 54 percent of the original. To prevent such losses, FMCG
companies in India have to ensure that they apply greater control over their distribution channel and
not just leave it to the market forces.

2.16 Opportunistic Games played by the Distribution Channel:

It is a common notion in distribution that only 50 percent of the promotion actually reaches the final
customer. This is due to the fact that many distributors work unscrupulously. Rather than playing the
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role of the facilitator, they try to grab a significant part of the promotion budget for themselves. One
FMCG company found that it ended up paying significant amounts as rebate to its trade channel
because of illegal printing of coupons by some wholesalers and distributors. Some of these
distributors also indulge in the illegal movement of goods from one market to another during local
promotions. For which companies lose control of the sales of their products (the company may want
to target a specific market but the distributors might divert the goods to different region). Thus,
FMCG companies end up wasting a significant part of their resources on these issues, which do not
really add any value to their consumers.

2.17 Infrastructure

Poor roads and unreliable transport systems have an adverse impact on costs and uncertainties.
availability of infrastructure, like cold chains affects certain product categories significantly .even if
the cold chain is available, power problems add to the uncertainty. For instance in the ice-cream
business, if the ice-cream melts even once because of the non-availability of power, the quality in
general and the taste in particular, of the ice-cream are adversely affected. Most Indian cities face
power problems in summer and ice-cream manufacturers have to live with these problems in their
distribution network. In general FMCG companies have to take these issues into consideration while
planning their supply chains.

2.18 The Dabbawalas of Mumbai case

The Dabbawalas of Mumbai deliver home prepared food to the middle class office workers. on every
working day they collect more than 175,000 lunch boxes (dabbas) from the customer’s house
between 7:00 and 9:00 am and deliver the same to the respective offices by 12:30 pm .the empty
lunch boxes are picked up by 3:30 pm and returned to the homes of their respective customers by
6:00 pm. the dabbawalas have developing the systems that use a very simple but effective coding
system to sort the lunchboxes, on both the forward and the reverse journey’s. The extensive use of
public infrastructure in Mumbai (local trains) helps keep the operation costs low. The use of local
trains and an ingenious coding system allows them to manage their supply chain remarkably well,
which translates in to high quality service, at an affordable cost for the customer

2.19 Emergence of third –Party Logistics provider

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Traditionally most companies have been managing all logistics activities themselves so far the
logistics sector in India has lacked professionalism. The new players are still to learn a lot about
Indian conditions and also are not in a position to offer economies of scale. Hence they will be of
value only to new MNCs and FMCG players who operate in the mid volume high variety segment of
the market. Established FMCG companies like Nestle and HUL are unlikely to use their services as
logistics solution providers as they are not likely to be cost effective. The problem gets compounded
further because most Indian FMCG companies have skewed sales patterns that place huge demands
on service providers in the last week of month. Thus service providers are not in a position to manage
their resources effectively. Over a period of time these 3PL companies will develop an understanding
of the Indian market and also the relevant capabilities necessary to handle these markets. This will
enable them to bring down their costs and to provide cost effective services to even large players like
HUL

2.20 Emergence of Modern Retails

In the west large departmental or discount chains have managed to grab huge market shares and have
clout with FMCG companies. On account of their bargaining power, they are able to demand huge
discounts from FMCG companies. Like developed markets, modern retailers in India have been
trying to extract higher margins from FMCG companies so as to offer better deals to their customers.
Unlike in the west margins in distribution are traditionally quite low in India. Hence in India the
FMCG sector finds it difficult to offer the kind of deep discounts that the modern retailers have been
demanding. On one hand FMCG companies will have to bypass their existing stockists and
distributors, so there is a likelihood of channel conflict. On the other hand they also have to examine
the impact of higher discounts to modern retailing on the overall distribution system. Further modern
retail chains are also likely to introduce private label brands which will pose a considerable threat to
the existing manufacturers

2.21HUL’s Initiative

A significant part of India lives in rural areas not well connected by road. Most FMCG companies
have not been able to penetrate these rural areas. HUL has launched a new initiative called project-
SHAKTHI to increase its penetration in rural areas in a cost effective manner. HUL has partnered
with self-helping groups (SHG) to extend its appearance to rural areas particularly those areas where

18
there are no established HUL distribution networks because of lack of connectivity. A SHAKTHI
dealer is a member of an SHG, who works as a direct –to consumer HUL Distributor selling primarily
to villages in her neighbourhood. HUL also provides sustainable livelihood opportunities to
underprivileged rural woman.

2.3CHALLENGES FACED BY FMCG SECTORS FOR RURAL

MARKETING
The peculiarities of the rural markets and rural consumers pose challenges to the marketers in
reaching them effectively. While making out a case for opportunities that are rapidly developing in
rural markets, one should not underestimate the several daunting problems in planning for growth.
There are a large number of small villages which are not easily accessible because of all weather
roads. Rural consumers are far less homogeneous than urban consumers. The main problems of rural
marketing are discussed below: Transportation problems: Transportation infrastructure is quite poor
in rural India. Nearly 80 percentages of villages in the country are not connected by well-constructed
roads. Marketing activities require transportation facilities. Due to poor transportation facilities,
farmers and marketers find it difficult to reach markets. Warehousing: In the rural areas, there are no
facilities for public as well as private warehousing. Marketers face problem of storage of their goods.
Packaging: It is the first important step of product processing. If the packaging cost is high, it will
increase the total cost of products. It is suggested that the marketers should use cheaper materials in
packaging for the rural markets. Media Problems: Media have lots of problems in rural areas.
Television is a good medium to communicate message to the rural people. But due to non-availability
of power, as well as television sets, majority of the rural population cannot get the benefits of various
media. Seasonal Marketing: The main problem of rural marketing is seasonal demand in rural areas,
because 75% of rural income is also seasonal. For example, the demand for consumer goods will be
high during the peak crop harvesting period, because this is the time at which the rural people have
substantial high cash flow. Rural marketing depends upon the demand of rural people and demand
depends upon income and consumer behavior. Low Per Capita Income: Per capita income is lower in
rural areas compared to those in urban areas. Again, the distribution of rural income is highly skewed,
since the land holding pattern, which is basic asset, itself is skewed. Thus the rural population
presents a highly heterogeneous spread in the villages. Low Level of Literacy Rate: The literacy rate
is low in rural areas compared to urban areas. This again leads to the problem of communication for
promotion purpose. Print medium becomes ineffective and to an extent irrelevant in rural areas since
19
its reach is poor. Distribution: An effective distribution system requires village-level shopkeeper,
Mandal/ Taluka- level wholesaler or preferred dealer, distributor or stockiest at district level and
company-owned depot or consignment distribution at state level. The presence of too many tiers in
the distribution system increases the cost of distribution Career in Rural Market: While rural
marketing offers a challenging career, a rural sales person should require certain qualifications and
specialized talent to deal with rural consumers. Cultural Factors: Culture is a system of shared values,
beliefs and perceptions that influence the behavior of consumers. There are different groups based on
religion, caste, occupation, income, age, education and politics and each group exerts influence on the
behavior of people in villages. There are several difficulties confronting the effort to fully explore
rural markets. The concept of rural markets in India is still in evolving shape, and the sector poses a
variety of challenges. Distribution costs and non-availability of retail outlets are major problems
faced by the marketers. . The unique consumption patterns, tastes, and needs of the rural consumers
should be analyzed at the product planning stage so that they match the needs of the rural people.
Therefore, marketers need to understand the social dynamics and attitude variations within each
village though nationally it follows a consistent pattern

Chapter 3

3. Prospects of FMCG
THE FUTURE OF F.M.C.G.
Fast moving consumer goods will become Rs 400,000-crore industry by 2020. A Booz
&Companystudy finds out the trends that will shape its future. Considering this, the
antiageingskincare categorygrew five times between 2007 and 2008. It‘s today the
fastestgrowingsegment in the skincaremarket. Olay, Procter & Gamble‘s premium anti-
ageingskincare brand, captured 20 per cent of the market within a year of its launch in 2007 andtoday
dominates it with 37 per cent share. Who could have thought of ready acceptancefor anti-ageing
creams and lotions some ten years ago? For that matter, who could havethought Indian consumers
would take oral hygiene so seriously? Mouth-rinsing seems tobe picking up as a habit — mouthwash
penetration is growing at 35 per cent a year.
More so, who could have thought rural consumers would fall for shampoos? Ruralpenetration of
shampoos increased to 46 per cent last year.Consumption patterns have evolved rapidly in the last
20
five to ten years. The consumer istrading up to experience the new or what he hasn‘t. He‘s looking
for products with betterfunctionality, quality, value, and so on. What he ‘needs’ is fast
gettingreplaced withwhat he ‘wants’. A new report by Booz & Company for the Confederation of
IndianIndustry (CII), called F.M.C.G. Roadmap to 2020: The Game Changers, spells out thekey
growth drivers for the Indian fast moving consumer goods (F.M.C.G.) industry inthe past ten years
and identifies the big trends and factors that will impact its future. Ithas been estimated that F.M.C.G.
sector witnessed robust year-on-year growth ofapproximately 11 per cent in the last decade, almost
tripling in size from Rs 47,000 crorein 2000-01 to Rs 130,000 crore now (it accounts for 2.2 per cent
of the country‘s GDP).Growth was even faster in the past five years — almost 17 per cent annually
since 2005.It identifies robust GDP growth, opening up of rural markets, increased income in
ruralareas, growing urbanization along with evolving consumer lifestyles and buyingbehaviours as
the key drivers of this growth. It has been estimated that the F.M.C.G. Industry will grow at least 12
per cent annually to become Rs 400,000 crore in size by2020. Additionally, if some of the factors
play out favourably, say, GDP grows a littlefaster, the government removes bottlenecks such as the
goods and services tax (GST),infrastructure investments pick up, there is more efficient spending on
governmentsubsidy and so on, growth can be significantly higher. It could be as high as 17 per
cent,leading to an overall industry size of Rs 620,000 crore by 2020. Abhishek Malhotra(2010) told
that the Indian GDP per capita is low but many Indian consumer segmentswhich constitute rather
large absolute numbers are either close to or have alreadyreached the tipping point of rapid growth.
The sector is poised for rapid growth over thenext 10 years, and by 2020, the industry is expected to
be larger, more responsible andmore tuned to its customers. Based on research on industry evolutions
in other marketsand discussions with industry experts and practitioners, Booz & Company has
identifiedsome important trends that will change the face of the industry over the next ten years.
Some key ones related to evolution of consumer segments are as follows:
3.10. Accelerating ‘Premiumisation’: The rising income of Indian consumers has accelerated the
[

trend towards‘premiumisation‘ or up-trading. The trend can be observed prominently in the top
twoincome groups — the rich with annual income exceeding Rs 10 lakhs, and the uppermiddle class
with annual income ranging between Rs 5 lakhs and Rs 10 lakhs. The richare willing to spend
onpremium products for their ‘emotional value’ and ‘exclusivefeel‘, and their behaviour is close to
consumers in developed economies. They are well informed about various product options, and want
to buy products which suit their style.The upper middle class wants to emulate the rich and up-trade
towards higher-pricedproducts which offer greater functional benefits and experience compared to
21
products formass consumption. While these two income groups account for only 3 per cent of
thepopulation, it is estimated that by 2020 their numbers will double to 7 per cent of thetotal
population. The rich will grow to approximately 30 million in 2020, which is morethan the total
population of Sweden, Norway and Finland put together. Similarly, theupper middle segment will be
a population of about 70 million in 2020, which is morethan the population of the UK. Over the next
ten years, these groups will constitute largeenough numbers to merit a dedicated strategy by
F.M.C.G. companies. AbhisekMalhotra (2010) added that they have seen companies focused on
selling primarily to themid segments. Often, there is no clear segmentation being offered. Players
would do wellto clearly separate their offerings for the upper and mid segments, and the two should
betreated as separate businesses with a dedicated team and strategy for each.
3.11. Evolving Categories:
Categories are evolving at a brisk pace in the market for the middle and lower-incomesegments. With
their rising economic status, these consumers are shifting from need- towant-based products. For
instance, consumers have moved from toothpowders totoothpastes and are now also demanding
mouthwash within the same categoryAlso, consumers have started demanding customised products,
specifically tailored totheir individual tastes and needs. The complexities within the categories are
increasingsignificantly. Earlier a shampoo used to have two variants — normal and anti-
dandruff.Now, you have anti-dandruff shampoos for short hair, oily hair, curly hair, and so
on.Everything is getting customised. The trend towards mass-customization of products willintensify
with F.M.C.G. players profiling the buyer by age, region, personal attributes,ethnic background and
professional choices. Micro-segmentation will amplify the needfor highly customized market
research so as to capture the specific needs of theconsumer segment targeted, before the actual
product design phase gets underway. Thebeauty products market will grow by 20 per cent per annum
as result of the changingsocio-economic status of consumers, especially women. Middle-class women
are nowmore conscious of their appearance and are willing to spend more on enhancing it.Products
such as colour cosmetics (growing by 46 per cent) and sun care products(growing at 13 per cent)
have latched on to this trend rapidly.

3.12. Value at the Bottom:

It has been defined the bottom-of-the-pyramid or BoP consumers as those who earn lessthan Rs 2
lakhs per annum per household. The group constitutes about 900 to 950million people. While the
middle class segment is largely urban, already well-served andcompetitive, the BoP markets are
22
largely rural, poorly-served and uncompetitive. A lotof the basic needs of BoP consumers are yet
unmet: Financial services, mobile phones &communication, housing, water, electricity and basic
healthcare. And so there isuntapped opportunity. Abhisek Malhotra (2010) added that the aspiration
was alwaysthere, and increasingly money is coming in. The segment is being targeted primarily
withlower-priced products, say, Rs 2 Parle-G. But increasingly it will need products thatdeliver more
value say, Rs 5 product that serves as dinner and also delivers nutrition(vitamins, proteins etc).
Companies like PepsiCo and Tata are working on such products.It is added that the rural BoP
population is estimated to be about 78 per cent of the totalBoP population. The segment is becoming
an important source of consumption bymoving beyond the ‘survival‘mode. As a result of rising
incomes, the growth ofF.M.C.G. market in rural areas at 18 per cent a year has exceeded that of the
urbanmarkets at 12 per cent. While the rural market comprises only 34 per cent of the totalF.M.C.G.
market, given the current growth rates, its contribution is expected to increaseto 45-50 per cent by
2020. It will require tailored products at highly affordable priceswith the potential of large volume
supplies. Products such as fruit juices and sanitarypads which had no demand in the rural markets
earlier have suddenly started establishingtheir presence. While most F.M.C.G. players have
succeeded in establishing sufficientaccess to their products in rural areas, the next wave of growth is
expected to come fromincreasing category penetration, development of customized products and up-
tradingrural consumers towards higher-priced and better products.3.4. Increasing Globalisation:
While many leading MNCs have operated in the country for years given the liberalpolicy
environment, the next 10 years will see increased competition from Tier 2 and 3global players. In
addition, larger Indian companies will continue to seek opportunitiesinternationally and also have an
access to more global brands, products and operatingpractices.

3.13. Decentralization:
Despite the complexity of the Indian market (languages, cultures, distances) the markethas mainly
operated in a homogenous set-up. Increased scale and spending power willresult in more fragmented
and tailored business models (products, branding, operatingstructures).

3.14. Growing Modern Trade:

Modern trade share will continue to increase and is estimated to account for nearly 30%by year 2020.
This channel will complete existing traditional trade (~8 million storeswhich will continue to grow)

23
and offer both a distribution channel through its cash &carry model as well as more avenues to
interact with the consumer.
3.15. Focus on Sustainability:
Global climatic changes, increasing scarcity of many natural resources (e.g. water, oil)and consumer
awareness (e.g. waste) are leading to increased concerns for theenvironment. The pressure on
companies to be environmentally responsible is graduallyincreasing due to involvement of various
stakeholders – from government (throughpolicy) to consumers (through brand choice) and NGOs
(through awareness).
3.16. Technology as a Game Changer:
Increased and relevant functionality coupled with lower costs will enable technologydeployment to
drive significant benefits and allow companies to address the complexbusiness environment. This
will be seen both in terms of efficiencies in the back-endprocesses (e.g. supply chain, sales) as well as
the front-end (e.g. consumer marketing).
3.17. Favourable Government Policy:Many government actions – in discussions as well as planned
–will help in creating amore suitable operating environment. This will be done both on the demand
side byincreased income and education as well as on the supply side by removing bottlenecksand
encouraging investments in infrastructure. The confluence of many of these changedrivers –
consumers, technology, government policy, and channel partners – will have amultiplication impact
and magnify both the amount as well as the pace of change.Winning in this new world will require
enhancing current capabilities and building newones to bridge gaps. In this new world F.M.C.G.
companies will have 6 imperatives froma business strategy perspective:
1. Disaggregating the operating model
2. Winning the talent wars
3. Bringing sustainability into the strategic agenda
4. Re-inventing marketing for ‘i-consumers’ Re-engineering supply chains
6. Partnering with modern trade
Another big trend that has been is the emerging idea of many Indians. It is added thatdespite the
complexities of language, culture and distances, the Indian market has largelybeen seen as a
homogenous market. There‘s one product for the entire country — thesame Maggi noodles for
Karnataka and West Bengal, or the same Diet Coke for Punjaband Assam. Besides, these products
have the same advertisements that run across thecountry. Increasingly, F.M.C.G. players are realizing
that India is not a homogenousmarket and consumer preferences vary significantly. By 2020,
24
Maharashtra‘s GDP willexceed that of Greece, Belgium, and Switzerland, and Uttar Pradesh‘s
economic size willexceed that of Singapore and Denmark. So, having a dedicated firm for
Maharashtra orGujarat can prove to be a realistic and profitable proposition. We will see
companiescoming up with regional products. Hindustan Unilever has teas which are very differentin
one state versus the other. Pepsi has a different product in Andhra Pradesh which isnot sold anywhere
else. Differentiation used to happen at the country level; now you willsee at the state level. F.M.C.G.
players need to grow ‘regional’ in their thinking andmove towards an increasingly decentralized
operating model in India. As consumer preferences differ across regions and states, companies may
follow a regional strategy interms of product ingredients, positioning, marketing campaign, and
channels. Overall,decentralization or regionalization will become an increasingly important theme
forF.M.C.G. players.
F.M.C.G. in India has a strong and competitive MNC presence across the entire valuechain. It has
been predicted that the F.M.C.G. market will reach to US$ 33.4 billion in2015 from US $ billion 11.6
in 2003. The middle class and the rural segments of theIndian population are the most promising
market for F.M.C.G., and give brand makersthe opportunity to convert them to branded products.
Most of the product categories likejams, toothpaste, skin care, shampoos, etc, in India, have low per
capita consumption aswell as low penetration level, but the potential for growth is huge.

3.18Market research -Market research is the key. Without the necessary information, it
becomes difficult to understand the requirements of the customers. It provides critical
information and direction. It identifies market needs and wants, product features, pricing,
decision makers, distribution channels, motivation to buy. They're all critical to the decision
process.

3.19Timing - Are elements of the process coordinated? Is production on the same time schedule as
the promotion? Will the product be ready when you announce it? Set a time frame for the rollout,
and stick to it. Many products need to be timed to critical points in the business cycle. Miss it,and
invite failure. There are marketing tales galore about companies making new product
announcements and then having to re-announce when the product lags behind in manufacturing.
The result is loss of credibility, loss of sales, and another failure.

25
 Revenue of the fast moving consumer goods (FMCG) market in India from 2007 to 2020 (in
billion U.S. dollars)

3.20 Capacity – If the new product or service is successful, do you have the personnel and
manufacturing capacity to cope with the success? Extended lead times for new products can be just
as deadly as bad timing.

3.21 Testing - Test market the new product. Be sure it has the features the customer wants. Be sure
the customer will pay the price being asked. Be sure the distributor and sales organization are
comfortable selling it. You may need to test your advertising and promotion aswell.

3.22Distribution – Who’s / which’s going to sell the product? Can you use the same distribution
channels you currently use? Can you use the same independent representatives or sales force? Is
there sufficient sales potential in the new product to convince a distributor, retailer, or agent to take
on the new line? There are significant up-front selling costs involved in introducing new products.
26
Everyone in the channel wants some assurance that the investment of time and money will be
recovered.

3.23 Training - The sales organization involved in the marketing/selling, inside employees, and
distribution channels will need to be trained about the new product. If the product is sufficiently
complex, face-to-face training needs to be provided. Or perhaps some type of multimedia program
will do the job. If the product is not that complex, literature may work. Again, timing is critical.
Train before the product hits the shelves, not after.

3.24Promotion - The promotional program to support the introduction: advertising, trade shows,
promotional literature, technical literature, samples, incentives, Web site, seminars, public
relations. Time it all with production, inventory, shipments, and training. The new product will
simply sit in the warehouse without the right support materials. Research, timing, and planning can
all help increase the probability of success.

Indian FMCG sector report – Relevant and specific statistics

27
 Leading players of consumer products have a strong distribution network in rural India; they
also stand to gain from the contribution of technological advances like internet and e-
commerce to better logistics. Godrej is focusing on rural market for household insecticides
segment. At present, Godrej accounts for 25% of the household insecticides sales from rural
areas. Rural FMCG market size is expected to touch US$ 220 billion by 2025.
 Low penetration levels in rural market offers room for growth. Disposable income in rural
India has increased due to the direct cash transfer scheme.
 E-commerce segment is forecasted to contribute 11% of the overall FMCG sales by 2030.
 Rising incomes and growing youth population have been key growth drivers of the sector.
Brand consciousness has also aided demand. India's contribution to global consumption is
expected to more than double to 5.8% by 2020.
 The online FMCG market is forecasted to reach US$ 45 billion in 2020 and the number of
online users in India is likely to cross 850 million by 2025.

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3.4Some of the major initiatives taken by the government to promote the FMCG sector in India
are as follows
In the Union Budget 2017-18, the Government of India has proposed to spend more on the rural
side with an aim to double the farmer’s income in five years; as well as the
cut in income tax rate targeting mainly the small tax payers, focus on affordable housing and
infrastructure development will provide multiple growth drivers for the consumer market industry.
The Government of India’s decision to allow 100 per cent Foreign Direct Investment (FDI) in
online retail of goods and services through the automatic route has provided clarity on the existing
businesses of e-commerce companies operating in India.

29
 With the demand for skilled labour growing among Indian industries, the government plans to train
500 million people by 2022 and is also encouraging private players and entrepreneurs to invest in the
venture. Many governments, corporate and educational organisations are working towards providing
training and education to create a skilled workforce.
The Government of India has drafted a new Consumer Protection Bill with special emphasis on
setting up an extensive mechanism to ensure simple, speedy, accessible, affordable and timely
delivery of justice to consumers.
The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of the FMCG
products such as Soap, Toothpaste and Hair oil now come under 18 per cent tax bracket against the
previous 23-24 per cent rate.

Abroad, this sector is referred to as ‘consumer packaged goods’ but this excludes
the ‘loose packing’ commodities sold in India such as edible oil, candy and pulses.
So, for Indian context, we stick with the term ‘FMCG’. While many companies may
claim to be FMCG, the signs of market dominators are those with –

1. Long-term pricing power (ability to increase prices-eg ITC),

2. Brand recall (eg-Pidilite, Asian Paints, Marico),
3. Negative working capital (eg-HUL-due to customer advances),
4. Lower ticket size (this distinguishes them from consumer durables like bikes, laptops,
phones).

The FMCG industry has been the mainstay of Indian capital and talent markets,
producing several multi-bagger stocks like Asian Paints, Unilever India, Marico,
Bajaj Consumer, and also being the CEO factory of India with many CEOs in sunrise
sectors like telecom, healthcare, retail coming from the FMCG industry.

Recent times, however, have seen this allure dim with FMCG stocks downgraded by
equity research analysts on volume growth concerns and disruption fears[i] and
FMCG no longer being the dream employers of recent graduates in India[ii] and
globally as well.

30
However, for a sector which has endured multiple recessions, wars, sanctions and
disruptions, the question is whether these are passing fads or the indication of
something more lasting?

In his article[iii], on how FMCG competitive advantages are becoming obsolete,

Frederic Fernandez of A.T Kearney explains that the key competitive advantages of
FMCG companies in attracting key talent, building and scaling up brands,
manufacturing and distribution of assets, unique R&D and financial firepower to
outspend new entrants, are now easily replicable.

He cites the example of Dollar Shave and how it grabbed #2 position in the North
America Shavers Market. The example closer home, which most Indians are familiar
with, is Patanjali.

 It has leveraged faith and wellness, driven by its iconic face Baba Ramdev, to attract
key talent from top tier FMCG companies, to obtain loyal distributors, leverage the
traditional Indian recipes/methods instead of the long drawn FMCG innovation
process, get visibility via word of mouth advertising, and leverage religious goodwill to
build manufacturing asset base in Uttaranchal with herbal plantations, while remaining
asset light for non-core products which are made in contract factories.
 In 5years, it has grown revenues 10x to ~Rs 5000 crores by 2015-16[iv] and now
plans to double revenues in 2016-17, and again grow revenues 10x to Rs 50,000
crores by 2020-21[v].

Note that unlike e-commerce companies which have grown ‘Gross Merchandise
value’ and net revenues by burning cash, Patanjali has reached till now by
maintaining net profit margins in the 10%-15% range. This shows financial
innovation and prudence. And to put the 50,000 crores revenue target in
perspective, this would far exceed Hindustan Unilever’s present revenue of ~Rs
32,000 crores.

There is no shortage of challengers in emerging markets, and to their credit, Indian

companies and MNCs have warded off better-funded players or acquired them in

31
time. So, why should one lend credence to consultants and analysts who need to
make dramatic forecasts to justify their existence?

A CII-BCG report on ‘Re-imagining FMCG in India’[vi] suggests that companies

should rethink their consumer offer, Route to market, people and talent capabilities
and digital consumer engagement approach, to address the predicted fundamental
shifts towards premiumization, e-commerce, Tier 2/3 area driven growth etc.

However, while the report does a good job of extrapolating present trends to raise
an alarm signal to the audience (which may drive them into BCGs arms for impact
study etc), the business environment is dramatically changing which may drive
these assumptions invalid.

3.5 Trends that Evolved Since April 2016

 Cashless Economy’s Negative Impact on Non-Urban Consumption- So far,

with agricultural income being tax-free and government subsidies now being better
targeted, rural India got a lot of disposable income to spend. And, with it being a
largely cash driven economy, conspicuous consumption by rural India Vide Royal
Enfield, high-end FMCG items, luxury cars, ostentatious marriages, was not really
tracked.
With the demonetization now driving transactions with digital payment trail, it
remains to be seen whether the shift to premium products will get paused. As
consumer’s spending ability is constrained by the digital trail of cash. And yes, aRs
500/kg biscuit or a Rs 1000/kg namkeen is a premium product in my view.

 E-commerce Penetration Aided by GST and Demonetization- Unlike the USA

where Amazon’s growth was funneled by tax arbitrage[vii] by sellers not collecting
tax, the Indian scenario was more compliant in comparison, with online sellers
registering with tax invoices, issuing bills and making payments.

 Offline vendors often would lower prices by doing cash sales, and this slowed the e-
commerce route where COD (Cash on Delivery) was an option but, not unaccounted
sales. With GST now simplifying logistics and making it difficult for tax evasion,

32
 compliant operations in the organized sector such as e-commerce operators, stand to
gain. And the growth of e-commerce platforms shifts power back to the
retailers/customers, as also eventually encourage the growth of store brands like that
of Bigbasket and Amazon.

 Aggregator Driven Model in Food- Food makes up ~42% of FMCG, and

disruptions here often scale elsewhere. Be it sites like BigBasket, niche sites like
snackible.com or pilots of Amazon Grocery, many are trying to disrupt the
traditional FMCG mass focused supply chain with their niche products and
innovative delivery mechanism.

By deepening the relationship with the customers, these intermediaries hope to

eventually become the consumer-facing brand.

 The Death of Traditional Advertising: The success of TVF (the Viral Fever) and
new screens/modes like Netflix, Hotstar, Jio movies, endanger the
blockbuster/events driven advertising which has been the mainstay of FMCG
advertising. Even Nestle relaunched its noodles via Snapdeal, a tribute to the
reach of E-commerce.

 While E-commerce advertising is more targeted, imagine serving an ad custom made

to you. It needs to be more impactful and compelling, else the customer would just skip
it after the mandatory 2-3 seconds, something which is not possible on TV.
 On the plus side, however, digitization of cable TV has helped capture new audiences
digitally with competition of KYC so, this will offset the

 Regulatory Framework: As Nestle found out with the recall of Maggi noodles, the
Indian regulators are late to react but when they respond with the heavy arm of
FSSAI Act, even the mighty MNCs are helpless. In the pre-FSSAI era, Cadbury
managed to do voluntary recalls but, in this case, Nestle was compelled to destroy
stock and even pay cement companies to do so.

While Maggie appears to have now regained its lost market share, the sector will
not forget this lesson in a hurry, and would hopefully remain more compliant.

33
As the USA baseball legend Yogi Berra is reported to have said – ‘It is difficult to
predict the future’. That said, I will stick my neck out to give some views on how
FMCG sectoral trends would evolve in the times to come-

 Return to Indian/Ethnic Styles: Be it Paperboat’s entry into Indian beverages,

Chedda foods making banana/tapioca chips, Balaji Wafers winning the extruded
snacks market, those who have grabbed share from incumbents have been
ethnic-focused players as opposed to say a Mainland China, Kellogs or Dominos
who have seen slower volume growth. So one can expect the prospective new
entrants to have an Indian focus too.
 Focus on Health+Taste: Like some company said ‘Health Bhi taste Bhi’, the
company who discovers the holy grail of making tasty yet healthy food, would
become a multi-bagger.
 Cooperatives continue to Dominate: Amul’s market share in the milk/processed
foods sector has withstood repeated assaults from local and national players. On
a smaller scale, Lijjatpapad is trying to make inroads into papad.
 Farm to Fork SMEs Prosper after APMC Curtailment: Presently, middlemen
mint money from farmers and consumers in the APMCs, while adding negligible
value. The APMC reforms permitting direct sale by farmers to customers would
allow farmer’s income to rise without stoking inflation. This would also reduce raw
material costs of those companies who procure presently from APMCs.
 Food Parks Become the New SEZs/IT Parks: The IT parks captivated
policymakers imagination from 2001-2010, SEZs from 2010-15, and now Food
parks from 2015-2020. This is further aided by affordable solar power, which is an
income source for the farmer and allows for otherwise expensive operations like
drying and cold storage. With the new Food parks policy allowing smaller
entrepreneurs to benefit from the resources open to their bigger brethren, we can
expect a flurry of smaller players in the years to come

Who will benefit from the FMCG growth in the years to come? Will it be a Patanjali,
or will the existing Indian players/MNCs continue to dominate and fight for market
share. Only time will tell. But one thing is for sure, the market would be
unrecognizable from what it is today given the extent of automation, consumer
preferences change and regulatory environment being in flux.
34
What do you think about the Indian FMCG sector and the upcoming trends?
Comment Below. And Share.

Chapter4

4.1 FACTORS ACCOUNTABLE FOR UPCOMING PARADIGMS

OF RURAL MARKETING

Increase in purchasing power and disposable income: Projects from the private companies and the
rural employment initiatives by the governmental like NREGA (National Rural Employment
Guarantee) schemes have given the rural population an opportunity to meet their daily needs. The
loan waver in the agriculture sector and an increasing demand for labor in the urban areas, has given
a boost to the income levels in the rural sectors. Consequent lifestyle upgrade has added a new
spectrum. Accessibility of market: Improvement in the road systems linking the villages has led to a
systematic product distribution system. Earlier, there was a “trickle down “of the stocks observed to
the buyers in the interior villages. These days, companies use delivery cum promotion vans that travel
8-10 haats/markets daily as a part of direct contact with villagers. Competition in the urban market:
The urban markets have got extremely saturated with the presence of all big players. This is very
much evident in the automobile market. Motorcycles and scooters often find more acceptances in
rural market as compared to urban market, since there is more proliferation of brands in the latter
markets. Reduction of risk during recession: It has been observed that the companies which cater to
both urban and rural markets tackle the recession in a better way. The demand for goods in the urban
market often follows a cyclic whereas in the rural market it is steady. The companies are bound to
35
tailor the strategies depending on various factors to appeal to the rural market. For example,
Hindustan Unilever Limited came out with the concept of “Shakti Ammas” (female social
entrepreneurs) which was an innovative way of marketing products. This much needed transition can
be weighed according to the 4 A’s model (Availability, Affordability, Acceptability and Awareness).
Availability deals with making the product reach the consumers. For this purpose a highly integrated
extensive distribution network is necessary and in rural context, the company incurs higher cost
towards the logistics as compared to urban areas. In case of Shakti campaign, the local Shakti
Amma’s are selected based on their popularity which allows faster access to products. Affordability
involves pricing the product in such a manner that the people are attracted and at the same time it
covers all the cost incurred. Acceptability encompasses issues how the product or service could be
made more acceptable to the rural consumers by incorporating attractive features. For example,
Eveready came out with Jeevan-Sathi torches, with features like durable design and long life to make
it more acceptable. Awareness is linked to the issues of promotion of product in rural areas. The
promotion needs to be adapted to the village environment, the local language and means of
communication used. The best places to promote could be the frequently visited local haats and
melas, the local festivals. Agricultural cycles require a major consideration too. As rural households
form 72% of total households and increasing levels of income coupled with more and more
penetration to the rural markets is expected to take rural FMCG from the current Rs. 87,900crore to a
market size of Rs. 1,06,300 crore in 2012, which is a CAGR of 10%. Moreover, the global
information and measurement company Nielson has revealed that around 80% of FMCG categories
are growing faster in rural India as against urban India. There is a huge growth potential for all the
FMCG companies as the per capita consumption of almost all products in the country is amongst the
lowest in the world.

A new report by Booz & Company for the Confederation of Indian Industry (CII),
called FMCG Roadmap to 2020: The Game Changers, spells out the key growth drivers for the
Indian fast moving consumer goods (FMCG) industry in the past ten years and identifies the big
trends and factors that will impact its future.

The report estimates the FMCG sector witnessed robust year-on-year growth of approximately 11 per
cent in the last decade, almost tripling in size from Rs 47,000 crore in 2000-01 to Rs 130,000 crore
now (it accounts for 2.2 per cent of the country’s GDP). Growth was even faster in the past five years
36
— almost 17 per cent annually since 2005. It identifies robust GDP growth, opening up of rural
markets, increased income in rural areas, growing urbanisation along with evolving consumer
lifestyles and buying behaviours as the key drivers of this growth.

The report further estimates that the FMCG industry will grow at least 12 per cent annually to
become Rs 400,000 crore in size by 2020. Additionally, if some of the factors play out favourably,
say, GDP grows a little faster, the government removes bottlenecks such as the goods and services
tax (GST), infrastructure investments pick up, there is more efficient spending on government
subsidy and so on, growth can be significantly higher. It could be as high as 17 per cent, leading to an
overall industry size of Rs 620,000 crore by 2020.

Says Booz & Company Partner Abhishek Malhotra: “The Indian GDP per capita is low but many
Indian consumer segments which constitute rather large absolute numbers are either close to or have
already reached the tipping point of rapid growth. The sector is poised for rapid growth over the next
10 years, and by 2020, the industry is expected to be larger, more responsible and more tuned to its
customers.”

Based on research on industry evolutions in other markets and discussions with industry experts and
practitioners, Booz & Company has identified some important trends that will change the face of the
industry over the next ten years. Some key ones related to evolution of consumer segments are as
follows:

4.12 Accelerating ‘premiumisation’

The rising income of Indian consumers has accelerated the trend towards ‘premiumisation’ or up-
trading. The trend can be observed prominently in the top two income groups — the rich with annual
income exceeding Rs 10 lakh, and the upper middle class with annual income ranging between Rs 5
lakh and Rs 10 lakh. The reports says, the rich are willing to spend on premium products for their
‘emotional value’ and ‘exclusive feel’, and their behaviour is close to consumers in developed
economies. They are well-informed about various product options, and want to buy products which
suit their style. The upper middle class wants to emulate the rich and up-trade towards higher-priced
products which offer greater functional benefits and experience compared to products for mass
consumption.

37
While these two income groups account for only 3 per cent of the population, the report estimates that
by 2020 their numbers will double to 7 per cent of the total population. The rich will grow to
approximately 30 million in 2020, which is more than the total population of Sweden, Norway and
Finland put together. Similarly, the upper middle segment will be a population of about 70 million in
2020, which is more than the population of the UK.

Over the next ten years, these groups will constitute large enough numbers to merit a dedicated
strategy by FMCG companies. “We have seen companies focused on selling primarily to the mid
segments. Often, there is no clear segmentation being offered. Players will do well to clearly separate
their offerings for the upper and mid segments,” says Malhotra and adds that the two should be
treated as separate businesses with a dedicated team and strategy for each.

4.13 Evolving categories:

Categories are evolving at a brisk pace in the market for the middle and lower-income segments.
With their rising economic status, these consumers are shifting from need- to want-based products.
For instance, consumers have moved from toothpowders to toothpastes and are now also demanding
mouthwash within the same category.

Also, the report notes, consumers have started demanding customised products, specifically tailored
to their individual tastes and needs. “The complexities within the categories are increasing
significantly. Earlier a shampoo used to have two variants — normal and anti-dandruff. Now, you
have anti-dandruff shampoos for short hair, oily hair, curly hair, and so on. Everything is getting
customised,” says Malhotra.

The trend towards mass-customisation of products will intensify with FMCG players profiling the
buyer by age, region, personal attributes, ethnic background and professional choices. Micro-
segmentation will amplify the need for highly customised market research so as to capture the
specific needs of the consumer segment targeted, before the actual product design phase gets
underway.

The beauty products market will grow by 20 per cent per annum as result of the changing socio-
economic status of consumers, especially women. Middle-class women are now more conscious of
their appearance and are willing to spend more on enhancing it. Products such as colour cosmetics

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(growing by 46 per cent) and sun care products (growing at 13 per cent) have latched on to this trend
rapidly.

4.14 Value at the bottom

Booz defines the bottom-of-the-pyramid or BoP consumers as those who earn less than Rs 2 lakh per
annum per household. The group constitutes about 900 to 950 million people. While the middle class
segment is largely urban, already well-served and competitive, the BoP markets are largely rural,
poorly-served and uncompetitive. A lot of the basic needs of BoP consumers are yet unmet: Financial
services, mobile phones & communication, housing, water, electricity and basic healthcare. And so
there is untapped opportunity.

Malhotra says, “The aspiration was always there, and increasingly money is coming in. The segment
is being targeted primarily with lower-priced products, say, aRs 2 Parle-G. But increasingly it will
need products that deliver more value — say, aRs 5 product that serves as dinner and also delivers
nutrition (vitamins, proteins etc).” Companies like PepsiCo and Tata are working on such products.

The report says the rural BoP population is estimated to be about 78 per cent of the total BoP
population. The segment is becoming an important source of consumption by moving beyond the
‘survival’ mode. As a result of rising incomes, the growth of FMCG market in rural areas at 18 per
cent a year has exceeded that of the urban markets at 12 per cent. While the rural market comprises
only 34 per cent of the total FMCG market, given the current growth rates, its contribution is
expected to increase to 45-50 per cent by 2020. It will require tailored products at highly affordable
prices with the potential of large volume supplies.

Products such as fruit juices and sanitary pads which had no demand in the rural markets earlier have
suddenly started establishing their presence. While most FMCG players have succeeded in
establishing sufficient access to their products in rural areas, the next wave of growth is expected to
come from increasing category penetration, development of customised products and up-trading rural
consumers towards higher-priced and better products.

Another big trend that has been the highlight of the study is the emerging idea of many India’s. The
report says that despite the complexities of language, culture and distances, the Indian market has
largely been seen as a homogenous market. There’s one product for the entire country — the same

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Maggi noodles for Karnataka and West Bengal, or the same Diet Coke for Punjab and Assam.
Besides, these products have the same advertisements that run across the country.

Increasingly, FMCG players are realising that India is not a homogenous market and consumer
preferences vary significantly. By 2020, Maharashtra’s GDP will exceed that of Greece, Belgium,
and Switzerland, and Uttar Pradesh’s economic size will exceed that of Singapore and Denmark. So,
having a dedicated firm for Maharashtra or Gujarat can prove to be a realistic and profitable
proposition.

“We will see companies coming up with regional products. Hindustan Unilever has teas which are
very different in one state versus the other. Pepsi has a different product in Andhra Pradesh which is
not sold anywhere else. Differentiation used to happen at the country level; now you will see at the
state level,” says Malhotra.

FMCG players need to grow ‘regional’ in their thinking and move towards an increasingly
decentralised operating model in India. As consumer preferences differ across regions and states,
companies may follow a regional strategy in terms of product ingredients, positioning, marketing
campaign, and channels. Overall, decentralisation or regionalisation will become an increasingly
important theme for FMCG players.

Chapter 5

5.10Conclusion

The emerging trends in new product launch (FMCG), has seen a wide range of innovations in
India, even though we have drawbacks. This article highlights the different types of problems
faced, the possible solutions and how GDP affects the growth of this industry. A clear
understanding of the various processes involved, will enable the industry to cash-in on the
prevailing trends in changing consumer moods and interests. It is worthwhile to note that it is
possible for FMCG Industries to bring about changes in their strategies in creating consumer

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preferences by suitably modifying interest pattern and preferences from their primitive mind set to
modern ways of living. It is highly appreciable to note that the recent trend in FMCG

Industries and markets shifting their focus from urban to rural settings make new strategies,
promotional polices and new pedagogy capturing this new launcher market segment in India.

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