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ManagementNewsManagement

ThefutureofFMCG
StrategistTeamNovember29,2010LastUpdatedat00:03IST
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CavinKareplansRs500crexpansionintofoodssegment
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FastmovingconsumergoodswillbecomeaRs400,000croreindustryby2020.ABooz&Companystudy
findsoutthetrendsthatwillshapeitsfuture
Considerthis.Theantiageingskincarecategorygrewfivetimesbetween2007and2008.Itstodaythefastest
growingsegmentintheskincaremarket.Olay,Procter&Gamblespremiumantiageingskincarebrand,
captured20percentofthemarketwithinayearofitslaunchin2007andtodaydominatesitwith37percent
share.Whocouldhavethoughtofreadyacceptanceforantiageingcreamsandlotionssometenyearsago?For
thatmatter,whocouldhavethoughtIndianconsumerswouldtakeoralhygienesoseriously?Mouthrinsing
seemstobepickingupasahabitmouthwashpenetrationisgrowingat35percentayear.Moreso,who
couldhavethoughtruralconsumerswouldfallforshampoos?Ruralpenetrationofshampoosincreasedto46
percentlastyear,wayupfrom16percentin2001.
Consumptionpatternshaveevolvedrapidlyinthelastfivetotenyears.TheconsumerisTRADING upto
experiencetheneworwhathehasnt.Heslookingforproductswithbetterfunctionality,quality,value,andso
on.Whatheneedsisfastgettingreplacedwithwhathewants.AnewreportbyBooz&Companyforthe
ConfederationofIndianIndustry(CII),calledFMCGRoadmapto2020:TheGameChangers,spellsoutthekey
growthdriversfortheIndianfastmovingconsumergoods(FMCG)industryinthepasttenyearsandidentifies
thebigtrendsandfactorsthatwillimpactitsfuture.
ThereportestimatestheFMCGsectorwitnessedrobustyearonyeargrowthofapproximately11percentin
thelastdecade,almosttriplinginsizefromRs47,000crorein200001toRs130,000crorenow(itaccountsfor
2.2percentofthecountrysGDP).Growthwasevenfasterinthepastfiveyearsalmost17percentannually
since2005.ItidentifiesrobustGDPgrowth,openingupofruralmarkets,increasedincomeinruralareas,
growingurbanisationalongwithevolvingconsumerlifestylesandbuyingbehavioursasthekeydriversofthis
growth.
ThereportfurtherestimatesthattheFMCGindustrywillgrowatleast12percentannuallytobecomeRs
400,000croreinsizeby2020.Additionally,ifsomeofthefactorsplayoutfavourably,say,GDPgrowsalittle
http://www.businessstandard.com/article/management/thefutureoffmcg110112900006_1.html

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faster,thegovernmentremovesbottleneckssuchasthegoodsandservicestax(GST),infrastructure
INVESTMENTS pickup,thereismoreefficientspendingongovernmentsubsidyandsoon,growthcanbe
significantlyhigher.Itcouldbeashighas17percent,leadingtoanoverallindustrysizeofRs620,000croreby
2020.
SaysBooz&CompanyPartnerAbhishekMalhotra:TheIndianGDPpercapitaislowbutmanyIndian
consumersegmentswhichconstituteratherlargeabsolutenumbersareeitherclosetoorhavealreadyreached
thetippingpointofrapidgrowth.Thesectorispoisedforrapidgrowthoverthenext10years,andby2020,the
industryisexpectedtobelarger,moreresponsibleandmoretunedtoitscustomers.
Basedonresearchonindustryevolutionsinothermarketsanddiscussionswithindustryexpertsand
practitioners,Booz&Companyhasidentifiedsomeimportanttrendsthatwillchangethefaceoftheindustry
overthenexttenyears.Somekeyonesrelatedtoevolutionofconsumersegmentsareasfollows:
Acceleratingpremiumisation
TherisingincomeofIndianconsumershasacceleratedthetrendtowardspremiumisationoruptrading.The
trendcanbeobservedprominentlyinthetoptwoincomegroupstherichwithannualincomeexceedingRs
10lakh,andtheuppermiddleclasswithannualincomerangingbetweenRs5lakhandRs10lakh.Thereports
says,thericharewillingtospendonpremiumproductsfortheiremotionalvalueandexclusivefeel,and
theirbehaviourisclosetoconsumersindevelopedeconomies.Theyarewellinformedaboutvariousproduct
options,andwanttobuyproductswhichsuittheirstyle.Theuppermiddleclasswantstoemulatetherichand
uptradetowardshigherpricedproductswhichoffergreaterfunctionalbenefitsandexperiencecomparedto
productsformassconsumption.
Whilethesetwoincomegroupsaccountforonly3percentofthepopulation,thereportestimatesthatby2020
theirnumberswilldoubleto7percentofthetotalpopulation.Therichwillgrowtoapproximately30million
in2020,whichismorethanthetotalpopulationofSweden,NorwayandFinlandputtogether.Similarly,the
uppermiddlesegmentwillbeapopulationofabout70millionin2020,whichismorethanthepopulationof
theUK.
Home
Overthenexttenyears,thesegroupswillconstitutelargeenoughnumberstomeritadedicatedstrategyby
Markets
FMCGcompanies.Wehaveseencompaniesfocusedonsellingprimarilytothemidsegments.Often,thereis
Companies
noclearsegmentationbeingoffered.Playerswilldowelltoclearlyseparatetheirofferingsfortheupperand
Opinion
midsegments,saysMalhotraandaddsthatthetwoshouldbetreatedasseparatebusinesseswithadedicated
Budget
teamandstrategyforeach.
Politics
Technology
Evolvingcategories
Specials
Categoriesareevolvingatabriskpaceinthemarketforthemiddleandlowerincomesegments.Withtheir
PF
risingeconomicstatus,theseconsumersareshiftingfromneedtowantbasedproducts.Forinstance,
Portfolio
consumershavemovedfromtoothpowderstotoothpastesandarenowalsodemandingmouthwashwithinthe
MyPage
samecategory.(Clickfortable'CLIMBINGUPFAST')
BSHeadlines
Also,thereportnotes,consumershavestarteddemandingcustomisedproducts,specificallytailoredtotheir
NewsNow
individualtastesandneeds.Thecomplexitieswithinthecategoriesareincreasingsignificantly.Earliera
Economy
shampoousedtohavetwovariantsnormalandantidandruff.Now,youhaveantidandruffshampoosfor
Finance
shorthair,oilyhair,curlyhair,andsoon.Everythingisgettingcustomised,saysMalhotra.
CurrentAffairs
International
ThetrendtowardsmasscustomisationofproductswillintensifywithFMCGplayersprofilingthebuyerbyage,
Management
region,personalattributes,ethnicbackgroundandprofessionalchoices.Microsegmentationwillamplifythe
TheStrategist
needforhighlycustomisedmarketresearchsoastocapturethespecificneedsoftheconsumersegment
Weekend
targeted,beforetheactualproductdesignphasegetsunderway.
BS@40
DataStories
Thebeautyproductsmarketwillgrowby20percentperannumasresultofthechangingsocioeconomicstatus
ofconsumers,especiallywomen.Middleclasswomenarenowmoreconsciousoftheirappearanceandare
http://www.businessstandard.com/article/management/thefutureoffmcg110112900006_1.html

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willingtospendmoreonenhancingit.Productssuchascolourcosmetics(growingby46percent)andsuncare
products(growingat13percent)havelatchedontothistrendrapidly.
Valueatthebottom
BoozdefinesthebottomofthepyramidorBoPconsumersasthosewhoearnlessthanRs2lakhperannumper
household.Thegroupconstitutesabout900to950millionpeople.Whilethemiddleclasssegmentislargely
urban,alreadywellservedandcompetitive,theBoPmarketsarelargelyrural,poorlyservedand
uncompetitive.AlotofthebasicneedsofBoPconsumersareyetunmet:Financialservices,mobilephones&
communication,housing,water,electricityandbasichealthcare.Andsothereisuntappedopportunity.
Malhotrasays,Theaspirationwasalwaysthere,andincreasinglymoneyiscomingin.Thesegmentisbeing
targetedprimarilywithlowerpricedproducts,say,aRs2ParleG.Butincreasinglyitwillneedproductsthat
delivermorevaluesay,aRs5productthatservesasdinnerandalsodeliversnutrition(vitamins,proteins
etc).CompanieslikePepsiCoandTataareworkingonsuchproducts.
ThereportsaystheruralBoPpopulationisestimatedtobeabout78percentofthetotalBoPpopulation.The
segmentisbecominganimportantsourceofconsumptionbymovingbeyondthesurvivalmode.Asaresultof
risingincomes,thegrowthofFMCGmarketinruralareasat18percentayearhasexceededthatoftheurban
marketsat12percent.Whiletheruralmarketcomprisesonly34percentofthetotalFMCGmarket,giventhe
currentgrowthrates,itscontributionisexpectedtoincreaseto4550percentby2020.Itwillrequiretailored
productsathighlyaffordablepriceswiththepotentialoflargevolumesupplies.
Productssuchasfruitjuicesandsanitarypadswhichhadnodemandintheruralmarketsearlierhavesuddenly
startedestablishingtheirpresence.WhilemostFMCGplayershavesucceededinestablishingsufficientaccess
totheirproductsinruralareas,thenextwaveofgrowthisexpectedtocomefromincreasingcategory
penetration,developmentofcustomisedproductsanduptradingruralconsumerstowardshigherpricedand
betterproducts.
AnotherbigtrendthathasbeenthehighlightofthestudyistheemergingideaofmanyIndias.Thereportsays
thatdespitethecomplexitiesoflanguage,cultureanddistances,theIndianmarkethaslargelybeenseenasa
homogenousmarket.TheresoneproductfortheentirecountrythesameMagginoodlesforKarnatakaand
WestBengal,orthesameDietCokeforPunjabandAssam.Besides,theseproductshavethesame
advertisementsthatrunacrossthecountry.
Increasingly,FMCGplayersarerealisingthatIndiaisnotahomogenousmarketandconsumerpreferencesvary
significantly.By2020,MaharashtrasGDPwillexceedthatofGreece,Belgium,andSwitzerland,andUttar
PradeshseconomicsizewillexceedthatofSingaporeandDenmark.So,havingadedicatedfirmfor
MaharashtraorGujaratcanprovetobearealisticandprofitableproposition.
Wewillseecompaniescomingupwithregionalproducts.HindustanUnileverhasteaswhicharevery
differentinonestateversustheother.PepsihasadifferentproductinAndhraPradeshwhichisnotsold
anywhereelse.Differentiationusedtohappenatthecountrylevelnowyouwillseeatthestatelevel,says
Malhotra.
FMCGplayersneedtogrowregionalintheirthinkingandmovetowardsanincreasinglydecentralised
operatingmodelinIndia.Asconsumerpreferencesdifferacrossregionsandstates,companiesmayfollowa
regionalstrategyintermsofproductingredients,positioning,marketingcampaign,andchannels.Overall,
decentralisationorregionalisationwillbecomeanincreasinglyimportantthemeforFMCGplayers.
Readmoreon:
Fmcg
|
Cii
|
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Gst
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FmcgSector
|
Procter&Gamble
|
AbhishekMalhotra
|
Booz&CompanyStudy
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