Factors that are Driving the Growth of FMCG Industry

By: Vishal Pratap Singh | Tuesday, 17 August 2021

Indian FMCG industry recorded a 37 percent value based growth in April-June 2021; it was the time when the quarter was hit by the second wave of the pandemic. E-commerce grew in the double digit in the April-June quarter and traditional trade channels like grocers and chemists remained buoyant in the quarter, according to FMCG snapshot released by data analytics firm, Nielsen.

The Goods and Services Tax (GST) has proved to be beneficial for the FMCG Industry. It can be said as things of daily use like hair oil, soaps, toothpaste etc. now fall under the 18 percent tax bracket. Earlier, there was a tax of 24 percent over these products. After the introduction of GST, experts are expecting the transformation of logistics in the FMCG sector into a modern and efficient model as all major corporations are remodelling their operations into larger logistics and warehousing.

“GST and demonetization has played a major role in driving the growth of FMCG in the urban as well as rural areas. This will improve the economic growth in a well structured manner in the long term and will improve the performance of companies within the sector,” says Sanjiv Mehta, CEO Hindustan Unilever. Also, the products are sold quickly at relatively low cost. FMCG is the fourth largest sector in the Indian economy with Food & Beverages, Household and Personal Care accounting for 83 percent of FMCG sales in India.

Also, the Indian Government has drafted a new Consumer Protection Bill and emphasized on setting up an extensive mechanism to ensure accessible, speedy, simple, on-time and affordable delivery to consumers. Because of higher minimum support price (MSP), disbursements through the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) programme and waiving loan to farmers by the government, the purchasing power of rural masses have been increased which ultimately boosts the FMCG consumption in India.

Investment and Development

The Government of India has allowed 100 percent Foreign Direct Investment (FDI) in food processing and single brand retail and 51 percent in multi brand retail.

This has strengthened the employment in the country, supply chain, consumer spending and encouraged the launches of more products. The sector has witnessed a good FDI inflow of US$ 18.03 billion from April 2000 to December 2020. In January this year, Del Monte has launched a special 1 litre pouch pack of olive oil in India and its price has been kept at Rs. 250 (US$ 3.42), hence making olive oil affordable to consumers.

The e-Commerce Boom

The revolution of technology not just took place in urban India but rural India as well. There has been a noticeable shift in the demand of e-commerce due to its wider reach across the country, be it rural or urban areas. It has the greater consumer convenience as with the help of apps and websites, consumers can easily select and purchase the products of their choice and products will be delivered to their homes with the home delivery option.

Value expansion

The retail market in rural India and rise in rural consumption is also responsible for driving the FMCG market. Its contribution is 36 percent in the overall FMCG spending. The processed food market of India is projected to reach US$ 470 billion by the year 2025, from the US$ 263 billion in 2020-21. The Indian FMCG industry grew with the support of consumption led growth and value expansion from higher product prices, particularly for staples.

It witnessed growth in double digits and reached 10.6 percent due to various government initiatives such as hygiene categories, high agricultural production, reverse migration and packaged staples. There is a contribution of different categories in FMCG sector such as Household & Personal Care, tobacco, Food & Beverages and others.

Role of Technology

Agility is the pervasive sentiment in the FMCG sector and technology can provide this agility to the FMCG companies. With the help of technology, FMCG sector is further planning to improve operational efficiency, identify new opportunities and manage multifaceted supply chain requirements. FMCG relies heavily on the market research as it helps the sector to identify consumer behaviour and field sales professionals. With the use of advanced field service management software, enterprises leverage the power of cloud, business intelligence and data analysis to increase the performance of the sales operation.

The Way Forward

The rural market of India is expected to reach up to US$ 220 billion by 2025 from US$ 23.6 billion in 2018. The rural consumption of India has increased which has led to combination of increasing incomes and higher aspiration level of masses. Another important factor that will drive the demand of FMCG in India is the growing percentage of young population in the country.

It is a well known fact that India has the largest number of youth in the world and in today’s fast paced lifestyle, they prefer going with packaged food and products rather than preparing it on their own. This category contributes the largest amount of sales to the FMCG sector. With these developments, the FMCG sector looks all set to keep traversing the path of growth.