FMCG - An outline with Indian perspective

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FMCGTeam 6ASECTOR OVERVIEW FMCGFast-Moving Consumer Goods (FMCG) are products that are sold quickly and at relatively low cost

Examples include non-durable goods such as soft drinks, toiletries, Over-the-counter drugs, toys, processed foods and many other consumables

The Indian FMCG sector is the fourth largest sector in the economy

The Indian FMCG industry represents nearly 2.5% of the countrys GDP.

Indian FMCG sector market size in 2013 was $44.9 billion

Food products and personal care together make up two-third of the sectors revenues.

Rural India accounts for more than 700 mn consumers or 70% of the Indian population and accounts for 50% of the total FMCG market

Availability of key raw materials, cheaper labour costs and presence across the entire value chain gives India a competitive advantage.

The industry has tripled in size in past 10 years and has grown at ~17%CAGR in the last 5 years

Top FMCG companies by market capitalizationITC LTD.- 256,769 cr HUL - 127,144 crNestle India - 49,768 crGodrej Consumer Products Ltd - 28,107 crDabur India - 27,261 crGlaxoSmithKline Consumer Healthcare - 23,43 crColgate Pamolive- 18,329crMarico Ltd. - 13,137 crEmami- 10,788 crProcter & Gamble-9,555 cr Major brandsMAJOR BRANDS

INDUSTRY ANALYSIS

Household care products

The fabric wash market size is estimated to be ~USD 1 billion, household cleaners to be USD 239 million

The demand for detergents has been growing at an annual growth rate of 10 to 11% during the past five years

Household Care category recorded robust volume and value growth during the year through focused innovation in the portfolio

Personal care products

The personal care products market in India is estimated to be worth ~USD 4 bn p.a.

Personal hygiene products like hair care, skin care, colour cosmetics and fragrances are the key segments of the personal care market.

The largest segment of personal hygiene products, largely dominated by bar soaps, has grown at ~5% p.a. over the last five years.

The second largest segment, hair care products has seen a much higher growth of ~9-10% p.a. during the same period.

3. Food and beverage

Food processing industry is one of the largest industries in India

The total value of Indian food processing industry is expected to touch USD 194 billion by 2015

The ready-to-drink tea and coffee market is expected to touch 2,200 crore in next four years

The total soft drink (carbonated beverages and juices) market is estimated at ~USD 1 billion

Market break-up of FMCG industry

Source:http://www.ibef.org/industry/fmcgShares in the consumer durables market in India

Source:http://www.ibef.org/industry/fmcgSWOT ANALYSIS OF FMCGSWOT analysis of this sector is carried as follows:

i) Strengths: Well-established distribution network extending to rural areas. Strong brands in the FMCG sector. Low cost operations

ii) Weaknesses: Low export levels. Small scale sector reservations limit ability to invest in technology and achieve economies of scale. Several "me-too products.

iii) Opportunities: Large domestic market. Export potential Increasing income levels will result in faster revenue growth.

iv) Threats: Imports Tax and regulatory structure Slowdown in rural demand

SWOT ANALYSIS

Porters five force Analysis of Indian FMCG Industry

1.Barriers to Entry and exit:

The Indian FMCG Industry is characterized with modest entry and exit barriers.

Integrated business model and increasing capital requirement in the industry restrict new entrants.

2.Threat of substitutes:

Multiple brands positioned with narrow product differentiation.

Hence, threat of substitute is high in the industry.

3.Buyer bargaining power:

Low switching cost and aggressive marketing strategies under intense competition within the FMCG companies, induce Customers to switch between products

4.Supplier bargaining power:

Prices are generally governed by international commodity markets

Due to the long term relationships with suppliers, FMCG companies negotiate better rates during times of high input cost inflation

5.Industry Competition:

Competitiveness among the Indian FMCG players is high

With more MNCs entering the country, the industry is highly fragmented.

Company analysisTop 3 FMCG companiesITC- Market Capitalization 256,769 crores

2. HUL- Market Capitalization 127,144 crores

3. Nestle India-Market Capitalization 49,768 croresImperial Tobbaco Comapany

Reason for high growth

Diversified portfolio

Strong distribution channel

Strong cash flow

Hindustan Unilever Limited

Reason for high growth

Large distribution network

Higher level of brand experience

Nestle India

Reason for high growth

Strong brands

Strong support from parent company

Continuous introduction of new products

Mergers & Acquisitions Gillette, P&GA deal worth $57 bn where P&G acquired Gillette in 2005.Created one of the world's largest FMCG players.The combined entity's annual revenue crossed $60 bn with market share of more than $200 bn.P&G's market share rose to 71.1% in 2009 from 15.5% in 2005.After the deal was announced Gillette's share rose 13% while P&G's sank by 2%.

22Mergers & Acquisitions Cadbury, Kraft FoodsAmerican firm Kraft foods bought Cadbury for about $19.6bn in January 2010.Kraft was trying to restructure itself in 2 companies, in the field of groceries and snack business. Cadbury was needed for the snack business model.Acquisition of Cadbury gave Kraft direct access to emerging markets of India and Latin America where Cadbury had strong presence.Cadbury shares went up by 3.6% while Kraft's dipped by 1.1%.

23Mergers & Acquisitions Coca Cola, Parle AgroCoca-Cola acquired Limca, Thums Up, Gold Spot, Citra and Maaza from the Parle group in 1993 for $40mn.Coca-Cola had just returned to the Indian market after leaving in 1977 and needed a product to establish itself.At the time of sale Parle brands had 60% market share.Coca-Cola used Thums Up to compete with Pepsi.Gold Spot was eventually replaced by Fanta, Citra by Sprite.

24Mergers & AcquisitionsTata Tea, TetleyThe first ever leveraged buy-out and the largest cross border acquisition by an Indian company.Tata Tea, a $114 million company that sold commodity tea, acquired the global brand Tetley for $450 million in 2000.The acquisition made Tata Tea the second biggest tea company in the world with expected combined turnover worth Rs. 2800-2900 crore.The deal gave Tata Tea access to the global Tea market in Europe, Americas and Australia.

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Mergers & AcquisitionsReckitt Benckiser, Paras PharmaceuticalsIn Dec 2010, R&B acquired Paras for Rs. 3260 crore, about 8 times its sales of Rs. 401.4 crore.The deal was meant to give R&B a stronger presence in the Over the Counter market.Size of the deal was a surprise to many as this much amount is common in Pharma but not FMCG.Its brands Moov, DCold and Krack -- have been category breakers. For Reckitt, this was the best way to grow.

26Mergers & AcquisitionWipro, LD WaxsonAll-cash deal worth about $144 million (about Rs 790 crore), the company.Wipro to increase foothold in China, Malaysia, Hong Kong, Singapore, Taiwan and ThailandLD Waxson has strong facial skincare products.

27Road AheadLarge population of India

High growth is expected from rural areas

Growth also to be continued in urban areas

Earning of people is also increasing

Road AheadChannels like modern trade are expected to double its share

FMCG industry set to grow to $100 bn industry by 2018

With a CAGR of 15%

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