INTRODUCTION The Indian FMCG industry at INR 1300 billion (in FY2010) accounts for 2.

2 per cent of the GDP of the country. Given the inherently essential nature of the products, the sector is more or less immune to recessionary pressures. The last decade has seen the sector grow by 11 per cent annually. Robust GDP growth, opening up of rural markets, increased income in rural areas, growing urbanization along with evolving consumer lifestyles and buying behaviors have all been drivers of this growth. Over the next decade, all the above drivers are expected to continue to impact the industry favorably. Based on discussions with industry experts as well as Booz & Company analysis, we believe that the FMCG industry will grow at a base rate of at least 12 per cent annually to become an INR 4000 billion industry by 2020. Additionally, if some of the factors play out favourably within an environment of enabling policy and easing of supply constraints, 17 per cent growth may be expected over the next decade, leading to an overall industry size of INR 6200 billion by 2020. FMCG consumption is becoming more and more broad-based, and has reached an inexion point where the growth can be expected to take off, following the traditional S-shaped curve witnessed across many markets. While on an average, the growth of the industry will be strong, it will not be uniform. Variations are likely across product categories, companies and locations. 1. The FMCG Industry: Growth in the Last Decade The fast moving consumer goods (FMCG) industry, which accounts for 2.2 per cent of Indias GDP, is expected to attain a size of INR 1300 billion by FY2010. Over the last few years the industry has witnessed a high rate of growth boosted by favourable macroeconomic conditions, increased rural incomes, a rising consumption-culture in India and a proliferation of consumer awareness campaigns. The sector witnessed a robust year-on-year growth of approximately 11 per cent in the last decade, almost tripling from INR 470 billion in FY2001 to the current size. The last ve years have augured well for the industry with an annual growth rate of approximately 17 per cent since FY2005. Even in the meltdown years of FY2008 and FY2009, the FMCG industry witnessed sustained growth rates of 14 per cent and 11 per cent, respectively, demonstrating that unlike other sectors, this sector was relatively recession-proof. 2. Growth across FMCG Categories The FMCG industry in India has grown rapidly and the growth rates across different product categories are good indicators of how the Indian consumer has evolved. Within the category of food products, which accounts for nearly 45 percent of the industry size, staple products like edible oils have grown at single digits given a high degree of penetration as well as established usage patterns. Fruit juices on the other hand have reported exponential growth, moving from near-zero levels in FY2000 to INR 9 billion at present. Similar trends are visible in the personal products category with skin-care creams outpacing the growth of more mundane product lines

such as toothpaste. Increased incomes, changing social habits and growing awareness of healthier and packaged beverages have contributed to these patterns. 3. Growth across FMCG Players Three well-identied sets of players operate within a highly developed and intensely competitive landscape of the Indian FMCG market 1. Foreign players who are present through their subsidiaries such as Unilever, P&G, Nestle and PepsiCo. 2. Strong Indian players with established national presence such as Marico, Dabur and Godrej Consumer Products. 3. Regional or small domestic players, such as Ajanta, Anchor, CavinKare etc., who are present in a few regions of the country. Most of the foreign players such as such as HUL, P&G etc., have either established their presence or are actively looking towards entering India through organic and/or inorganic routes. Kraft Foods for example, has entered India by buying Cadbury; and Danone, the French dairy major is re-establishing its presence in the food processing market through its tie-up with Yakult Honsha, a Japanese probiotics major. There are also numerous Indian players who have established themselves in niche segments by developing differentiated products and positions and have thus become industry leaders. Dabur and Marico are entities which have established their brand of health supplements (Chyawanprash) and coconut hair oils (Parachute) through products intrinsically linked to the traditional Indian psyche. These categories are therefore difficult to break into. Little wonder then that foreign MNCs have largely stayed away from these product segments. Apart from these, there are regional and small-scale FMCG players such as small tea producers and organic food producers, who mainly compete by offering low-priced products with similar looks or packaging compared to the bigger brands, to the right consumers typically based in rural areas or in small towns. These players with lower corporate overheads and clear focus on specic consumer requirements have a competitive edge over larger FMCG players. The last decade saw a golden run for the Indian players who grew at a CAGR of 12 per cent in 2001-05 and 19 per cent in 2006-10. This compares handsomely with reported gures of 2 per cent and 16 per cent in the respective periods for the foreign MNCs. While this has widened choices for consumers, markets are, on the downside, more fragmented. Players are offering multiple products within common categories resulting in brand erosion and decline in dominance.

Current Situation The two fastest-growing categories in the FMCG sector are food and personal and beauty care products. Food is growing at a brisk 43 per cent, followed by personal care at 22 per cent. Categories such as home care and baby care record growths in single digits. Packaged food like biscuits, sauce, dairy products, jam, bread, wheat flour, chocolates and confectionaries and juices and drinks form part of the food basket. The rise of nuclear and double-income families has seen a major change in consumer preferences, with the result that the packaged food business is one of the fastest growing. Interestingly, growing competition between the leading players has seen the consumer gain substantially because of the launch of new categories of products, new flavours, better packaging and more quantity for less money. Personal care and beauty products too have Modern retail format is also helping transform the FMCG sector and move away from the kirana store to organised retailing providing huge opportunities for the FMCG sector. Analysts believe that the increased preference for beauty products especially in urban areas is another factor for the recent upturn in the FMCG sector. The $4.5 billion personal care industry in India is growing at a healthy 10-12 per cent per annum due to the interplay of economic, demographic and sociological factors. Many players are also focussing on the beauty, hygiene and personal care and wellness segments. Also, 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. 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 (growing by 46 per cent) and sun care products (growing at 13 per cent) have latched on to this trend rapidly.

Indian FMCG Sector Trends The fourth largest sector in the Indian economy is all set for 16% growth during 2008-09, from a base of Rs. 85470 crores, as predicted by FICCI. Going forward, as anticipated by CRISIL, FMCG sector will touch around Rs. 140000 crores by 2015 (33.4B$). Following are some of the major trends observed in the Indian FMCG sector. 1. Disposable Income: There is increase in disposable income, observed in both rural and urban consumers, which is giving opportunity to many rural consumers to shift from traditional unorganized unbranded products to branded FMCG products and urban fraternity to splurge on value added and lifestyle products. The increasing salaries, along with rising trend of perks in the corporate sector at regular intervals, have increased peoples spending power. As per some research, there is a high correlation between Disposable per capita and HPC per capita. 2. Organized Retail: The emergence of organized retail have lead to more variety with ease in browsing, opportunity to compare with different products in a category, one stop destination (entertainment, food and shopping) etc, which is playing an important role in bringing boom in the Indian FMCG market. Currently the modern trade is capturing 5% of the total retail space, which will increase to 10% and 25% in 2010 and 2025 respectively. Also, as the credit card and organized retail trend picks up, people wont think much while buying and buy more. 3. Distribution Depth - Rural Penetration: There are 5500 towns and 6.38 Lakh villages with 2.5Mln and 5Mln outlets respectively. Due to saturation and cut throat competition in urban India, many FMCG companies are devising strategies for targeting rural consumers in a big way. Many FMCG companies are focusing on increasing their distribution network to penetrate with a step by step plan. This is the reason that FMCG urban market size has dropped from 50% to 29% in last 5 years. The FMCG market size for semi-urban and rural segment was 19% and 52% respectively for the year 2006-07. As per FICCI, the FMCG market size for urban, semi-urban and rural for year 2007-08 was 57%, 21% and 22%, which clearly shows that rural market is the growth engine for FMCG growth. Though the urban markets are growing too, the incremental addition in consumers households is much more in rural space as compared to urban markets. The planned development of roads, ports, railways and airports, will increase FMCG penetration in the long term. 180 million rural and semi-urban peoples attention has already been diverted towards FMCG products, according to latest estimates released by industry chamber, Assocham in 2008. The estimated number of households using FMCG products in rural India has grown from 131 million in 2004 to 140 million in 2007, according to market research company IMRB. Over 70% sale of FMCG products is made to middle class households and over 50% of middle class is in rural India. 4. Buying Pattern Shift: The crisis of declining FMCG markets during 2001-04 was driven by new avenues of expenditure for growing consumer income such as consumer durables,

entertainment, mobiles, motorbikes etc. Now, as many consumers have already upgraded, their income is being directed towards pampering themselves. 5. Favorable Indian Economy & Demographics: 45% people in India are under 20 years of age. Per capita disposable income has increased from $550 to $600 in 2007 (9% increase). GDP is growing at a CAGR between 8 to 9%.In the next five years, affluent and aspirers as a total will supersede strivers and will be dominated by aspirers, as per NCAER.

6.Underpenetrated Growth Categories: Within the Indian FMCG industry, there are few categories that will grow more than 20% during 2008-2009, like shaving cream, skin/fairness cream, shampoos, skin care & cosmetics, tooth powder. Some other growth categories will be hair colour, skin care, anti-aging solution, deodorants and mens products. Most of these categories are under penetrated and there is a huge scope for growth.

7. Penetrated Growth Categories: Even mainstream categories with high penetration levels such as washing detergents, soaps and hair oils have shown strong underlying volume growth, despite sharp inflation led price increases in FY08. This is partly related to the growth in organised retail (3-5% of turnover for most FMCG players) that gives more visibility to national brands with strong brand equity.

8. Theme Based Categories: Anand Shah, an FMCG research analyst at Angel Broking, says most FMCG companies are responding to the new demand by concentrating on developing a big theme and building a portfolio around it. Nestle, for example, has identified 'health and wellness' as its focus area, while Dabur is positioning itself around ayurvedic (a traditional Indian system of healthcare), natural and herbal products. At the higher price end, companies are leveraging health and wellness trends by focusing on providing 'experiential' and 'higher order' benefits rather than purely functional ones.

9. Health Food Categories: FMCG majors are widening their health food portfolio to cash in on the rich, urban, health conscious Indian. Sugar free Chywanprash, organic spices and multi grain pastas and biscuits are few examples. Urban India is high on health and FMCG majors are cashing in on the opportunity. Processed foods particularly juices that are based on the health platform would see stronger growth. Also, with the Indian consumer becoming increasingly health conscious, the demand for juices has witnessed rapid growth.

10. Impact of inflation: The expenditure of FMCG in the consumer's wallet is coming down year on year. This is leading to low sensitivity with price increases. Almost a decade back people

used to downtrade from expensive brands to value for money ones. But now the trend is changing. Consumers are not switching to cheaper substitutes. Rather companies have come with lower quantity SKUs and made consumers switch from higher to lower SKUs and not from premium to popular brands (like Dove to Lux International). Just to give an example, Henkel instead of increasing the price of their Henkel detergent from Rs. 46 to Rs. 50, they have launched a new SKU of 400gms for Rs. 40. During the time of inflation, people shift to sachets of their brands. Sales numbers of FMCG companies are quite robust. FMCG spend now comprises a smaller share of consumers wallet 11. Low Per Capita Consumption: Currently we are nowhere near to other developing countries in terms of per capita consumption. Be it Laundry, Skin Care, Shampoos or deodorants. Marketers have put in efforts to increase the consumption frequency or quantum of consumption per occasion. Colgate started the "twice a day" campaign few years back. Recently Good Night came up with Double power pack. Per Re1 increase in per capita consumption of a category will lead to growth of more than 100 crores (with a popular base of more than 1 Billion) 12. Evolved Product Forms: 20 years back consumers had limited choices to pick from. The days of Tortoise Mosquito repellent coils are gone. This is the age of aerosols with value added functionality. Following are some examples, where we have seen a change in the product forms. Here is the list: Dish Wash: Powder to Bar to Liquid Shaving: Creams to Foams/ Gels Repellents: Coils to Aerosols/ Body Creams/ Gels Air Freshners: Sprays to Electric Toilet Cleaner: Acid to Harpic to In-Cistern 13. 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. 14. 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.

Major Companies in the FMCG sector

Hindustan Unilever Limited

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of over 75 years in India and touches the lives of two out of three Indians. HUL works to create a better future every day and helps people feel good, look good and get more out of life with brands and services that are good for them and good for others. With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the Company is a part of the everyday life of millions of consumers across India. Its portfolio includesleading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Ponds, Vaseline, Lakm, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Walls and Pureit. The Company has over 16,000 employees and has an annual turnover of around Rs.19, 400 crores (financial year 2010 - 2011). HUL is a subsidiary of Unilever, one of the worlds leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe with annual sales of about 44 billion in 2011. Unilever has about 52% shareholding in HUL

Indian Tobacco Company

ITC is one of India's foremost private sector companies with a market capitalisation of over US $ 33 billion and a turnover of US $ 7 billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld and among India's Most Valuable Companies by Business Today. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel,

Personal Care, Stationery, Safety Matches and other FMCG products. ITC has various brands like Classic, Gold Flake, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol and Flake, Silk Cut and Duke (Cigarettes& Cigars),Kitchen of India, Aashirvaad , Sunfeast, Mint-o, Candyman, Bingo(Food), Wills Lifestyle, John Players(Lifestyle Retailing),'Essenza Di Wills, Fiama Di Wills, VivelUltraPro, Vivel and Superia(Personal Care), Colour Crew, Classmate, Paperkraft(Education & Stationery),iKno, Mangaldeep, Stylites, Aim and Aim Mega(Safety Matches), MangaldeepAgarbattis(Agarbattis).

Nestle The journey of Nestle India began in the year 1912 in the name of the Nestle Anglo-Swiss Condensed Milk Export Company Limited and they are dealing with selling and importing finished products in Indian market. The company is one among the top wealth creators of India. The company is manufacturing Indian Consumer products with international standards. Nestl India is a subsidiary of Nestl S.A. of Switzerland. With seven factories and a large number of co-packers, Nestl India is a vibrant Company that provides consumers in India with products of global standards and is committed to long-term sustainable growth and shareholder satisfaction. Nestl India has a wide portfolio for Milk Products and Nutrition which constitutes for the maximum share (43%) of the total sales of the organisation. Nestl has a very clear Charter of ethics and responsible behaviour in selling infant nutrition products .NESCAF CLASSIC has the unmistakable taste of 100% pure coffee and is made from carefully selected coffee beans picked from the finest plantations, blended and roasted to perfection. 100% coffee..100% pleasure..Some of the products are Nescafe CLASSIC, Nescafe SUNRISE PREMIUM, Nescafe SUNRISE SPECIAL, NescafeCAPPICCINO etc. Nestle is also into ready prepared dishes and cooked aids. Some of the products in this category are Maggie 2Minutes noodles, Maggie Cuppa mania, Maggie healthy soup, Maggie Sauces , Maggie pichkoo, Maggie Bhuna Masala, Maggie coconut milk Powder etc. Nestle is also into the business of manufacturing Chocolates and Confectionery, and the products categorised under this blanket are Kit-Kat, Munch, Milkybar, MilkybarEclairs, Polo etc.

Dabur

Dabur India Limited is the fourth largest FMCG Company in India with Revenues of US$910 Million (Rs 4110 Crore) & Market Capitalisation of US$4 Billion (Rs 20,000 Crore). Building on a legacy of quality and experience of over 125 years, Dabur operates in key consumer products categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care & Foods. Dabur India is also a world leader in Ayurveda with a portfolio of over 250 Herbal/ Ayurvedic products. Dabur's FMCG portfolio today includes five flagship brands with distinct brand identities -- Dabur as the master brand for natural healthcare products, Vatika for premium personal care, Hajmola for digestives, Real for fruit juices and beverages and Fem for fairness bleaches and skin care products. Dabur's Health Care range brings for you a wide selection of Ayurvedic andnatural products that offer complete care for varying individual needs. Our products are derived from the time-tested heritage of Ayurveda, and backed by the most modern scientific test & trials that ensure unfailing quality and safety in anything you pick. Some of those are

Amul

Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF), is India's largest food product marketing organisation with annual turnover (2010-11) US$ 2.2 billion. Its daily milk procurement is approx 12 million lit (peak period) per day from 15,712 village milk cooperative societies, 17 member unions covering 24 districts, and 3 million milk producer members. It is the Apex organisation of the Dairy Cooperatives of Gujarat, popularly known as 'AMUL', which aims to provide remunerative returns to the farmers and also serve the interest of consumers by providing quality products which are good value for money. Its success has not only been emulated in India but serves as a model for rest of the World. It is exclusive marketing

organisation of 'Amul' and 'Sagar' branded products. It operates through 47 Sales Offices and has a dealer network of 5000 dealers and 10 lakh retailers, one of the largest such networks in India. Its product range comprises milk, milk powder, health beverages, ghee, butter, cheese, Pizza cheese, Ice-cream, Paneer, chocolates, and traditional Indian sweets, etc.

Asian Paints

Asian Paints is Indias largest paint company and Asias third largest paint company, with a turnover of Rs 77.06 billion. The group has an enviable reputation in the corporate world for professionalism, fast track growth, and building shareholder equity. Asian Paints operates in 17 countries and has 23 paint manufacturing facilities in the world servicing consumers in over 65 countries. Besides Asian Paints, the group operates around the world through its subsidiaries Berger International Limited, Apco Coatings, SCIB Paints and Taubmans. In Decorative paints, Asian Paints is present in all the four segments v.i.z Interior Wall Finishes, Exterior Wall Finishes, Enamels and Wood Finishes. It also introduced many innovative concepts in the Indian paint industry like Colour Worlds (Dealer Tinting Systems), Home Solutions (painting solutions Service), Kids World (painting solutions for kids room), Colour Next (Prediction of Colour Trends through in-depth research) and Royale Play Special Effect Paints, just to name a few.

Cadbury

Cadbury India Ltd. is a part of the Kraft Foods Group. Cadbury India operates in five categories - Chocolate confectionery, Beverages, Biscuits, Gum and Candy. In the Chocolate Confectionery business, Cadbury has maintained its undisputed leadership over the years. In India. Cadbury began its operations in 1948 by importing chocolates. After 60 years of existence, it today has five company-owned manufacturing facilities at Thane, Induri (Pune) and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New Delhi, Mumbai, Kolkota and Chennai). The corporate office is in Mumbai. Cadbury enjoys a value market share of over 70% - the highest Cadbury brand share in the world! Our billion-dollar brand Cadbury Dairy Milk is considered the "gold standard" for chocolates in India. The pure taste of CDM defines the chocolate taste for the Indian consumer.

Since 1965 Cadbury has also pioneered the development of cocoa cultivation in India. For over two decades, we have worked with the Kerala Agriculture University to undertake cocoa research and released clones, hybrids that improve the cocoa yield. Our Cocoa team visits farmers and advise them on the cultivation aspects from planting to harvesting. We also conduct farmers meetings & seminars to educate them on Cocoa cultivation aspects. Our efforts have increased cocoa productivity and touched the lives of thousands of farmers. Hardly surprising then that the Cocoa tree is called the Cadbury tree! Cadbury is into various brands- Chocolates, Beverages, Candy, Biscuits and Gums. Cadbury Dairy Milk emerged as the No. 1 most trusted brand in Mumbai for the 2005 edition of Brand Equity's Most Trusted Brands survey. During the 1st World War, Cadbury Dairy Milk supported the war effort. Over 2,000 male employees joined the armed forces and Cadbury sent books, warm clothes and chocolates to the front.

Procter & Gamble

P&G Home Products Limited is one of India's fastest growing Fast Moving Consumer Goods Companies that has in its portfolio P&G's global brands such as Ariel and Tide in the Fabric Care segment, and in the Hair Care segment: Head & Shoulders - world's largest selling antidandruff shampoo; Pantene - world's No. 1 beauty shampoo; and Rejoice - Asia's No. 1 shampoo. P&G Home Products Limited is a 100% subsidiary of The Procter & Gamble Company, USA, that in India, has carved a reputation for delivering superior quality, value-added products to meet the needs of consumers.

Colgate Palmolive (India) With Rs.11,000 crores as the market capitalisation & Rs.500 crores revenues with a net profit margin of 11% in December 2010, Colgate Palmolive Ltd. is a truly global company serving hundreds of millions of consumers worldwide. Started as a small soap & candle company, the company is now 200 years old. Colgate is well known for its Oral care products like toothpastes & toothbrushes. Lately introduced Colgate sensitive toothpaste takes care of the sensitive teeth.

It has also diversified its business into personal care & home care, professional care trusted by dentists across the country.

Godrej Consumer Products Rs.350 crores 18%.is a leader among Indias Fast Moving Consumer Goods (FMCG) companies, with leading Household and Personal Care Products. The major brands are Good knight, Cinthol, Godrej No. 1, Expert, Hit, Jet, Fairglow, Ezee, Protekt and Snuggy are household names across the country. With Rs. 11,000 crores as the market capitalisation, the company is largest marketers of toilet soaps in the country and are also leaders in hair colours and household insecticides. The Good knight brand has been placed continues to be the most trusted household care brand in the country in Brand Equitys Most Trusted Brands Survey 2010. The company has an emerging presence in markets outside India. With the acquisition of Keyline Brands in the UK, Rapidol and Kinky Group, South Africa and Godrej Global Mideast FZE, Godrej owns international brands and trademarks in Europe, Australia, Canada, Africa and the Middle East. Godrej has also recently acquired Tura, a leading medicated brand in West Africa, Megasari Group, a leading household care company in Indonesia and Issue Group and Argencos, two leading hair colorant companies in Argentina.

Marico

Marico is a leading Indian Group in Consumer Products & Services in the Global Beauty and Wellness space. Maricos Products and Services in Hair care, Skin Care and Healthy Foods generated a turnover of about Rs. 26.6 billion during 2009-10. The company has a market capitalisation of Rs.8,000crores. Marico markets well-known brands such as Parachute, Saffola, Sweekar, Hair & Care, Nihar, Shanti, Mediker, Revive, Manjal, Kaya, Aromatic, Fiancee, HairCode, Caivil, Code 10 and Black Chic. Maricos brands and their extensions occupy leadership positions with significant market shares in most categories- Coconut Oil, Hair Oils, Post wash hair care, Anti-lice Treatment, Premium Refined Edible Oils, niche Fabric Care etc. Marico is also present in the Skin Care Solutions segment through Kaya Skin Clinics in India, Middle East and Bangladesh.

United Spirits Limited United Spirits Limited (USL) is the largest spirits company in the world by volume, selling 114 million cases for the fiscal ending March 21, 2011. Besides Whyte & Mackay and Bouvet Ladubay being 100% subsidiaries of USL, the company has 21 millionaire brands (selling more than a million cases a year) in its portfolio and enjoys a strong 59% market share for its first line brands in India. United Spirits' brands have won the most prestigious awards for flavors, ranging from Mondial to International Wine and Spirit Competition (IWSC) to International Taste & Quality Institute (ITQI); more than 115 awards & certificates.

Market Share The companies mentioned, are the leaders in their respective sectors. The personal care category has the largest number of brands, i.e., 21, inclusive of Lux, Lifebuoy, Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in the 21, aggregating Rs. 3,799 crore or 54% of the personal care category. Cigarettes account for 17% of the top 100 FMCG sales, and just below the personal care category. ITC alone accounts for 60% volume market share and 70% by value of all filter cigarettes in India. The foods category in FMCG is gaining popularity with a swing of launches by HLL, ITC, Godrej, and others. This category has 18 major brands, aggregating Rs. 4,637 crore. Nestle and Amul slug it out in the powders segment. The food category has also seen innovations like softies in ice creams, chapattis by HLL, ready to eat rice by HLL and pizzas by both GCMMF and Godrej Pillsbury. This category seems to have faster development than the stagnating personal care category. Amul, India's largest foods company has a good presence in the food category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia also ranks in the top 100 FMCG brands, dominates the biscuits category and has launched a series of products at various prices. In the household care category (like mosquito repellents), Godrej and Reckitt are two players. Goodknight from Godrej, is worth above Rs 217 crore, followed by Reckitt's Mortein at Rs 149 crore. In the shampoo category, HLL's Clinic and Sunsilk make it to the top 100, although P&G's Head and Shoulders and Pantene are also trying hard to be positioned on top. Clinic is nearly double the size of Sunsilk. Dabur is among the top five FMCG companies in India and is a herbal specialist. With a turnover of Rs. 19 billion (approx. US$ 420 million) in 2005-2006, Dabur has brands like Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola and Real. Asian Paints is enjoying a formidable presence in the Indian sub-continent, Southeast Asia, Far East, Middle East, South Pacific, Caribbean, Africa and Europe. Asian Paints is India's largest paint company, with a turnover of Rs.22.6 billion (around USD 513 million). Forbes Global magazine, USA, ranked Asian Paints among the 200 Best Small Companies in the World Cadbury India is the market leader in the chocolate confectionery market with a 70% market share and is ranked number two in the total food drinks market. Its popular brands include Cadbury's Dairy Milk, 5 Star, Eclairs, and Gems. The Rs.15.6 billion (USD 380 Million) Marico is a leading Indian group in consumer products and services in the Global Beauty and Wellness space.

Growth Drivers, Challenges and Opportunities for FMCG Sector

Growth Drivers: The current economic trend, exhibiting modest demand and supply is likely to have a mediumterm impact on the demand for FMCG products but promises revival and higher growth in the long term based on the following fundamentals: 1. Expanding purchase basket resulting in higher penetration of products 2. Increased consumption with higher disposable household family income 3. More consumers entering the market place (Rural and urban base of pyramid) For these developments to catalyse faster there are two sides of the equation that need to come together demand and supply along with other systemic factors. Each of the driver mentioned above are detailed in the following section.

Demand Side Drivers: 1. Growth Prospect (Large Market) India has a population of more than 1.150 Billions which is just behind China. According to the estimates, by 2030 India population will be around 1.450 Billion and will surpass China to become the World largest in terms of population. FMCG Industry which is directly related to the population is expected to maintain a robust growth rate.

2. Increasing Consumer Income Increase in incomes is largely an outcome of economic growth across sectors. Over the past few years, India has seen increased economic growth, with a continuing and substantial impact on consumer disposable incomes enabling good growth for the FMCG sector, among others. 3. Changing profile and mindset of Consumer People are becoming conscious about health and hygienic. There is a change in the mind set of the Consumer and now looking at Money for Value rather than Value for Money. We have seen willingness in consumers to move to evolved products/ brands, because of changing lifestyles, rising disposable income etc. Consumers are switching from economy to premium product even we have witnessed a sharp increase in the sales of packaged water and water purifier. Findings according to a recent survey by A. C. Nielsen shows about 71 percent of Indian take notice of packaged goods labels containing nutritional information compared to two years ago which was only 59 per cent. 4. Rising Urbanisation India has 70% of its population living in rural areas. With rising urbanization, more people will have exposure to modern products and brands and thus shift to branded and packaged goods and products.

By 2015, an additional 75 million consumers will have moved into cities, not only buying FMCG products for themselves but also serving as a conduit for information and goods to their families still in rural India.

Supply Side Drivers: 1. Growth in Retail Sector From US$ 410 billion in 2010 (Rs. 2,000,000 crores), Indian retail is expected to grow to US$ 535 billion by 2013 (Rs. 2,600,000 crores) and US$ 755 billion by 2018 .

2. Low Labour cost India has by far the lowest labor cost compared to many emerging countries giving it an edge for establishing manufacturing base for both Domestic and International FMCG brands. Average labor cost in India is ~US$ 90/month compared to US$190/month in China, US$ 210/month in Thailand and even higher US$1,300/month in Taiwan.

Systematic Drivers for Sectoral Growth: 1. Favorable changes in Government Policies

The Indian government has been trying to foster the growth of various categories of FMCG by way of making policy changes. Some of the policy changes include: Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity for most of the food processing sector Five-year tax holiday for new food processing units in fruits and vegetable processing Customs duties reduced on plant and equipment, raw materials and intermediates, especially for export production Capital goods freely importable, including second hand ones De-reservation of most FMCG categories from SSI Many states have also begun competing with each other to offer incentives to different sectors including FMCG, in the form of tax holidays, fiscal incentives, land at concessional rates and subsidies to encourage economic development.

2. Infrastructure Development The government has invested a considerable amount in the Golden quadrilateral project to connect the four corners of the country, of which over 96% has been completed. 50% of existing highways are being improved and expanded. An outlay of Rs. 59,000 crores was earmarked for road development projects in the 10th Plan, between the aforementioned projects as well as projects to develop the National highways (Primary system), the state highways (secondary system), major district roads and rural roads. The railways are also increasing capacity through increasing tracks, improving existing tracks and adding more freight compartments to enable better carrying of goods and products.

Challenges for FMCG Sector 1. Tax Structure: i. Complicated Tax Structure - In India, problems are exacerbated by the complicated tax structure. There is a VAT which is to be levied at state level, there are other state taxes such as octroi and entry taxes and then centre levies excise duties and service tax. As a result, no product cost is exactly the same from one state to the next . ii. High Indirect Tax - Indirect Tax levels are quite high, especially in light of the fact that the sector provides goods meant for daily consumption. China, for instance, levies a tax of 10%19 on average, whereas in India, the average is around 30%. iii. Lack of uniformity - Despite VAT states do not implement rates and procedures uniformly. Each state still continues to approach taxation differently, and thus moving goods from one state to another is like moving them from one country into another. The taxation rate policies on many FMCG goods differ from state to state and centre to state. Centre has classified many FMCG products under Merit (VAT exempt) list, such as processed foods, tooth powder, sanitary napkins but states levy on the same products high rate of 12.5%20. iv. High Octroi & Entry Tax - There are Octroi and Entry Tax at city and state entry points in a few states, which leads to an increase in pricing and affords opportunities for arbitrage. For instance, Mumbai has octroi of 4-6% on goods produced outside of Mumbai. Thus, a bottle of mineral water produced by Coke or Pepsi which have their plants in Thane, which is considered outside the city limits of Mumbai, have to pay this extra charge, while Parle, which has a bottling plant within the city limits does not. So Bisleri is sold in Mumbai for Rs. 12, while Kinley or Aquafina cost Rs. 13, just because of the factory location. This opens up possible arbitrage opportunities, apart from causing a genuine grievance to the consumer. v. Changing Tax Policies - Tax policies keep changing which makes it difficult to plan for the long term. For instance, tax havens were created in J&K some years ago and many companies opened facilities there. However, recently part of the exemption was withdrawn by the government, thus leading to a sudden hike in costs.

2. Infrastructure Bottlenecks: i. Agricultural Infrastructure - Agriculture infrastructure in India is particularly weak. Firstly, irrigation and modern farming methods are not widespread and thus agriculture in India is at the mercy of nature. Thus, it makes for grossly varying amounts of harvest of critically needed inputs into FMCG manufacture, from one season to the next and one year to the next. ii. Power Costs - Power costs in India are very high and they contribute substantially to cost of goods sold. They are 3-4 times the optimal costs.

iii. Transportation Infrastructure - To compound this problem is the poor transportation and roadways infrastructure many of the villages are extremely poorly connected with means of transportation either road, rail or sea so the amount of time it takes for the harvest to be transported to the FMCG manufacturers is unpredictable, and results in substantial spoilage of the goods. For example, it costs nearly 12 days to transport goods from Baddi in Himachal Pradesh to South India, a distance of 3000 km. The lack of a cold chain adds to this problem, because it means a tremendous amount of farm output actually rots or gets spoiled in transit. Nearly 8% 10% of dairy produce is lost to pilferage. iv. Cost of Infrastructure - It takes almost Rs. 7- 8 crores to lay 1km. of road. Along with this problems in land acquisition due to fragmented land holding further delay development of road and rail infrastructure increasing the cost associated

3. Counterfeit and Pass-offs: Counterfeit products are another issue for the FMCG sector. Taking advantage of the lack of literacy and consumer knowledge, several small manufacturers churn out spurious products which they label akin to the big brands, Lifeboy or Lax soap or Fivestare chocolate bars, Vicky balm, for instance. These spurious pass off products affect large, high quality brands which have actually invested money in research and development to create their products and build brand equity. These account for almost 10% - 15% of the total sector revenue and pose serious challenge to its growth and also impact governments tax revenue significantly. But the only recourse available to FMCG manufacturers against counterfeit and pass off products is to file an FIR. There are no Bureau of Industrial Standards norms laid out for each product category which could help prevent the mushrooming of counterfeit products. And an FIR results only in local action, if at all, while the source of the counterfeit products continues to remain in existence.

4. Emergence of Private Labels: Apart from the pressure on margins, the biggest fear of FMCG players when facing MR is the introduction of private labels or own brands. The fear is justified because world over, private labels have served to lower the consumers price points, particularly at the mass level. Moreover, there are inevitable conflicts of interest when a retail chain has its own label whose packaging looks like category leaders and stocks brands of other manufacturers, in terms of display space, promotions etc. A Technopak analysis undertaken across product categories revealed that private labels could constitute as much as one fourth of all sales in the FMCG category by 2011. While the exact year could shift marginally, there is no denying the fact that private label FMCG goods will be here and will constitute a formidable threat to add to the already fierce competition in the FMCG category. Brands which currently appeal to price conscious value shoppers will be facing the highest risk with advent of store brands.

5. Regulatory Constraints: i. State borders cause a lot of delays and it is common for 2-3 days of finished goods inventory out of 20 -30 days total stuck on various state borders due to a requirement for multiplicity of permits and licenses. ii. The Indian labour laws were drafted in the 1940s and take no note of modern manufacturing methods and strategies. They need to be changed on a more dynamic basis to reflect present realities. iii. There is lack of uniformity in definitions, and these do not follow international norms either. Currently, drugs and cosmetics come under the same set of laws when in fact they need to be treated differently. Weights and Measures used under FDA do not conform to those under the Weights and Measures Act followed in India. Some products come under the OTC category internationally but come under Schedule H drugs in India, requiring doctors prescription and require to be distributed only in drug licensed stores iv. Acquiring manufacturing licenses is a long and painful process, beset with red tape and corruption. It takes 10-12 months to get multiple licenses and to set up a manufacturing unit. v. Reservation of jobs for employees creates many problems. For instance, Himachal Pradesh has a reservation of 70% of jobs for people domiciled in Himachal Pradesh. Since they are few in number, attrition happens for as little as Rs. 50 pm, and it becomes a problem to maintain the requisite labour force. vi. Export procedures are cumbersome and lengthy. There is no single-party interface so multiple departments and officers have to be followed up with to get the requisite licenses. A transport permit has to be sourced for each consignment rather than assigning a blanket permit for a period of time. vii. Subsidies are announced by the government but to avail of them is both confusing and time consuming. a. Firstly, the amount of subsidy is restricted to Rs. 50 lakhs, regardless of the total quantum of investment required by a project. Thus, if large projects and small get the same incentives, Large projects may not find takers. b. Secondly, the release of the said monies is not time-bound and gets done in an ad-hoc Basis.

6. Prices of Inputs: i. Commodity prices fluctuate, which make it difficult to finalise raw material prices, affecting the final price of the product. The petroleum price fluctuation also impacts the cost of supply of materials. As a result, the entire supply chain dynamics need to be constantly planned afresh with the changing prices.

ii. Indian consumers are more price-sensitive and value conscious, making it difficult for FMCG firms to pass on the increased costs, leading to depressed margins.