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NAME: DHARA .INDUKUMAR .SHAH

STANDARD: T.Y.BFM

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ROLL NO.: 29

SUBJECT: PROJECT 1

PROJECT TITLE: FAST MOVING CONSUMERGOODS

COLLEGE: K.J.SOMAIYA SCIENCE AND

COMMERCE

GUIDED BY:

INDEX* INTRODUCTION* FAST MOVING CONSUMER GOODS (FMCG)* HISTORY OF FMCG COMPANIES IN INDIA* CURENT SITUATION* ANALYSIS OF FMCG SECTORS* STRUCTURAL ANALYSIS OF FMCG INDUSTRY

* FORECASTING OF FMCG COMPANIES* STRATEGY OF FMCG COMPANIES

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* TOP 10 FMCG COMPANIES IN INDIA* SOLUTION OF FMCG COMPANIES

INTRODUCTION

FMCG stands for Fast Moving Consumer Goods,supplied in the retail marketing as per the dailydemand of a consumer. These daily needs have tobe fulfilled to satisfy their hunger. There for a hardworking team of sales, marketing and distribution

have to be their on the field, just to satisfy the needof the consumer on right time & place. Still theconsumer check the quality and date of packagingof the product. In the market like India, consumersare more conscious before purchasing a fmcgproduct. So its even more necessary to deliver thefresh product in the market. Because the consumerhave the alternative option to move to an another

branded product available in the same market. Nowthe competition has been rising on the top of thehead on each brand. A small mistake in the marketcould lead to heavy loss of the brand image.

Fast Moving Consumer Goods (FMCG) goods arepopularly named as consumer packaged goods.Items in this category include all consumables(other than groceries/pulses) people buy at regular

intervals. The most common in the list are toilet

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soaps, detergents, shampoos, toothpaste, shavingproducts, shoe polish, packaged foodstuff, andhousehold accessories and extends to certainelectronic goods. These items are meant for daily offrequent consumption and have a high return.

The Indian FMCG sector with a market size ofUS$14.8 billion is the fourth largest sector in theeconomy. The FMCG market is set to double fromUSD 14.7 billion in 2008-09 to USD 30 billion in2012. FMCG sector will witness more than 60 percent growth in rural and semi-urban India by 2010.Indian consumer goods market is expected to reach$400 billion by 2010.Hair care, household care, malegrooming, female hygiene, and the chocolates andconfectionery categories are estimated to be thefastest growing segments. At present, urban Indiaaccounts for 66% of total FMCG consumption, withrural India accounting for the remaining 34%.However, rural India accounts for more than 40%consumption in major FMCG categories such aspersonal care, fabric care, and hot beverages. Inurban areas, home and personal care category,including skin care, household care and femininehygiene, will keep growing at relatively attractiverates. Within the foods segment, it is estimated thatprocessed foods, bakery, and dairy are long-termgrowth categories in both rural and urban areas.The growing incline of rural and semi-urban folks forFMCG products will be mainly responsible for thegrowth in this sector, as manufacturers will have todeepen their concentration for higher salesvolumes.

Major Players in this sector include Hindustan

Unilever Ltd., ITC (Indian Tobacco Company), NestlIndia, GCMMF (AMUL), Dabur India, Asian Paints

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(India), Cadbury India, Britannia Industries, Procter& Gamble Hygiene and Health Care, MaricoIndustries, Nirma,Coca-Cola, Pepsi and others. Asper the analysis by ASSOCHAM, CompaniesHindustan Unilever Ltd , Dabur India originates halfof their sales from rural India. While ColgatePalmolive India and Marico constitutes nearly 37%respectively, however Nestle India Ltd and GSKConsumer drive 25 per cent of sales from rural India.

A rapid urbanization, increase in demands,presence of large number of young population, alarge number of opportunities is available in theFMCG sector. The Finance Minister has proposed tointroduce an integrated Goods and Service Tax byApril 2010.This is an exceptionally good movebecause the growth of consumption, production,and employment is directly proportionate toreduction in indirect taxes which constitute no lessthan 35% of the total cost of consumer products -the highest in Asia.. The bottom line is that Indianmarket is changing rapidly and is showingunprecedented consumer business opportunity.

Fast Moving Consumer Goods(FMCG) FMCG areproducts that have a quick shelf turnover, atrelatively low cost and don't require a lot ofthought, time and financial investment to purchase.The margin of profit on every individual FMCGproduct is less. However the huge number of goodssold is what makes the difference. Hence profit inFMCG goods always translates to number of goodssold.

Fast Moving is in opposition to consumer

durables such as kitchen appliances that aregenerally replaced less than once a year. The

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category may include pharmaceuticals, consumerelectronics and packaged food products and drinks,although these are often categorized separately.

The FMCG sector represents consumer goodsrequired for daily or frequent use. The mainsegments of this sector are personal care (oral care,hair care, soaps, cosmetics, toiletries), householdcare (fabric wash and household cleaners), brandedand packaged food, beverages (health beverages,soft drinks, staples, cereals, dairy products,chocolates, bakery products) and tobacco.

Unlike the perception that the FMCG sector is aproducer of luxury items targeted at the elite, inreality, the sector meets the every day needs of themasses. The lower-middle income group accountsfor over 60% of the sector's sales. Rural marketsaccount for 56% of the total domestic FMCGdemand.

Many of the global FMCG majors have been presentin the country for many decades. But in the last tenyears, many of the smaller rung Indian FMCGcompanies have gained in scale. As a result, theunorganized and regional players have witnessederosion in market share.

Market share movements indicate that companiessuch as Marico Ltd and Nestle India Ltd, withdomination in their key categories, have improvedtheir market shares and outperformed peers in theFMCG sector. This has been also aided by the lack ofcompetition in the respective categories. Singleproduct leaders such as Colgate Palmolive India Ltd

and Britannia Industries Ltd have also witnessedstrength in their respective categories, aided by

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innovations and strong distribution. Strong playersin the economy segment like Godrej ConsumerProducts Ltd in soaps and Dabur in toothpasteshave also posted market share improvement, withrevived growth in semi-urban and rural markets.

HISTORY OF FMCG IN INDIA

In India, companies like ITC, HLL, Colgate,Cadbury and Nestle have been a dominant force inthe FMCG sector well supported by relatively lesscompetition and high entry barriers (import dutywas high). These companies were, therefore, able tocharge a premium for their products. In this context,

the margins were also on the higher side. With thegradual opening up of the economy over the lastdecade, FMCG companies have been forced to fightfor a market share. In the process, margins havebeen compromised, more so in the last six years(FMCG sector witnessed decline in demand).

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ANALYSIS OF FMCG SECTORSwot Analysis

1.Strengths: Low operational costs Presence of established distribution networks in

both urban and rural areas Presence of well-known brands in FMCG sector

2.Weaknesses: Lower scope of investing in technology andachieving economies of scale, especially in smallsectors Low exports levels

"Me-too? products, which illegally mimic the labelsof the established brands. These products narrowthe scope of FMCG products in rural and semi-urbanmarket.

3.Opportunities: Untapped rural market Rising income levels, i.e. increase in purchasing

power of consumers Large domestic market- a population of over onebillion. Export potential High consumer goods spending

4.Threats: Removal of import restrictions resulting in

replacing of domestic brands Slowdown in rural demand

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Tax and regulatory structure

ADVANTAGES TO THE SECTOR

* Governmental Policy

Indian Government has enacted policies aimed atattaining international competitiveness throughlifting of the quantitative restrictions, reducingexcise duties, automatic foreign in-vestment andfood laws resulting in an environment that fostersgrowth. 100 per cent ex-port oriented units can be

set up by government approval and use of foreignbrand names is now freely permitted.

* Central & State Initiatives

Recently Government has announced a cut of 4 percent in excise duty to fight with the slowdown of theEconomy. This announcement has a positive impact

on the industry. But the benefit from the 4 per centreduction in excise duty is not likely to be uniformacross FMCG categories or players. The changes inexcise duty do not impact cigarettes (ITC, GodfreyPhillips), biscuits (Britannia Industries, ITC) orready-to-eat foods, as these products are eithersubject to specific duty or are exempt from excise.Even players with manufacturing facilities located

mainly in tax-free zones will also not see materialexcise duty savings. Only large FMCG-makers maybe the key ones to bet and gain on excise cut.

* Foreign Direct Investment (FDI)

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Automatic investment approval (including foreigntechnology agreements within specified norms), upto 100 per cent foreign equity or 100 per cent forNRI and Overseas Corporate Bodies(OCBs)investment, is allowed for most of the foodprocessing sector except malted food, alcoholicbeverages and those reserved for small scaleindustries (SSI). There is a continuous growth in netFDI Inflow. There is an increase of about 150 percent in Net Inflow for Vegetable Oils & Vanaspati forthe year 2008.

GROWTH PROSPECT

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LARGE MARKET

India has a population of more than 1.150 Billionswhich is just behind China. According to theestimates, by 2030 India population will be around1.450 Billion and will surpass China to become theWorld largest in terms of population. FMCG Industrywhich is directly related to the population isexpected to maintain a robust growth rate.

Source: UN Population Division: Medium variantIndia is second largest Country in terms ofPopulation growth and increase in population has adirect relation to FMCG Products.

SPENDING PATTERN

An increase is spending pattern has been witnessedin Indian FMCG market. There is an upward trend in

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urban as well as rural market and also an increase inspending in organized retail sector. An increase indisposable income, of household mainly because ofin-crease in nuclear family where both the husbandand wife are earning, has leads to growth rate inFMCG goods.

CHANGING PROFILE AND MINDSET OF PEOPLE

People are becoming conscious about health andhygienic. There is a change in the mind set of the

Consumer and now looking at Money for Valuerather than Value for Money. We have seenwillingness in consumers to move to evolvedproducts/ brands, because of changing lifestyles,rising disposable income etc. Consumers areswitching from economy to premium product evenwe have witnessed a sharp increase in the sales ofpackaged water and water purifier. Findings

according to a recent survey by A. C. Nielsen showsabout 71 per cent of Indian take notice of packagedgoods? labels containing nutritional informationcompared to two years ago which was only 59 percent.

Survey by A. C. Nielsen shows about 71 per cent ofIndian take notice of packaged goods' labels

containing nutritional information compared to twoyears ago which was only 59 per cent.

INDUSTRY CATEGORY AND PRODUCTS

1. HOUSEHOLD CARE

Personal Wash:

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The market size of personal wash is estimated to bearound Rs. 8,300 Cr. The personal wash can besegregated into three segments: Premium, Economyand Popular. The penetration level of soaps is ~92per cent. It is available in 5 million retail stores, outof which, 75 per cent are in the rural areas. HUL isthe leader with market share of ~53 per cent;Godrej occupies second position with market shareof ~10 per cent. With increase in disposableincomes, growth in rural demand is expected toincrease because consumers are moving up towardspremium products. However, in the recent pastthere has not been much change in the volume ofpremium soaps in proportion to economy soaps,because increase in prices has led some consumersto look for cheaper substitutes.Limited is the biggest producer of Personal washand detergents. The segment is expected to growby double digit.

Detergents:The size of the detergent market is estimated to be

Rs. 12,000 Cr. Household care segment ischaracterized by high degree of competition andhigh level of penetration. With rapid urbanization,emergence of small pack size and sachets, the

demand for the household care products isflourishing. The demand for detergents has beengrowing but the regional and small unorganizedplayers account for a major share of the totalvolume of the detergent market. In washing powderHUL is the leader with ~38 per cent of market share.Other major players are Nirma, Henkel and Proctor& Gamble.

2. PERSONAL CARE

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Skin Care:The total skin care market is estimated to be aroundRs. 3,400 Cr. The skin care market is at a primarystage in India. The penetration level of this segmentin India is around 20 per cent. With changing lifestyles, increase in disposable incomes, greaterproduct choice and availability, people are becomingaware about personal grooming. The major playersin this segment are Hindustan Unilever with amarket share of ~54 per cent, fol-lowed by

CavinKare with a market share of ~12 per cent andGodrej with a market share of ~3 per cent. The SkinCare segment is expected to register a growth rateof mare that 16 percent.

Hair Care:-The hair care market in India is estimated at aroundRs. 3,800 Cr. The hair care market can be

segmented into hair oils, shampoos, hair colorants &conditioners, and hair gels. Marico is the leader inHair Oil segment with market share of ~ 33 percent; Dabur occu-pies second position at ~17 percent.

Shampoos:-The Indian shampoo market is estimated to be

around Rs. 2,700 Cr. It has the penetration level ofonly 13 per cent in India. Sachet makes up to 40 percent of the total shampoo sale. It has lowpenetration level even in metros. Again the marketis dominated by HUL with around ~47 per centmarket share; P&G occupies second position withmarket share of around ~23 per cent. Antidandruffsegment constitutes around 15 per cent of the total

shampoo market. The market is further expected to

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increase due to increased marketing by players andavailability of shampoos in affordable sachets.

Oral Care:-The oral care market can be segmented intotoothpaste - 60 per cent; toothpowder - 23 per cent;toothbrushes - 17 per cent. The total toothpastemarket is estimated to be around Rs. 3,500 Cr. Thepenetration level of toothpowder/toothpaste inurban areas is three times that of rural areas. Thissegment is dominated by Colgate-Palmolive with

market share of ~49 per cent, while HUL occupiessecond position with market share of ~30 per cent.In toothpowders market, Colgate and Dabur are themajor players. The oral care market, especiallytoothpastes, remains under penetrated in India withpenetration level ~50 per cent.

3. FOOD AND BEVERAGES

Food Segment :-The foods category in FMCG is gaining popularitywith a swing of launches by HUL, ITC, Godrej, andothers. This category has 18 major brandsaggregating Rs. 4,600 Cr. Nestle and Amul slug itout in the powders segment. The food category hasalso seen innovations like softies in ice creams,

ready to eat rice by HUL and pizzas by both GCMMFand Godrej Pillsbury.

Tea :-The major share of tea market is dominated byunorganized players. More than 50 per cent of themarket share is capture by unorganized players.

Leading branded tea players are HUL and Tata Tea.

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export of tea is expected to be more that 210million kg for the year 2008 against about 179million kg last year.

Coffee :-The Indian beverage industry faces over supply insegments like coffee and tea. However, more than50 per cent of the market share is in unpacked orloose form. The major players in this segment areNestl, HUL and Tata Tea.

COMPANY PROSPECTS

HINDUSTAN UNILEVER LIMITED

Unilever is lowering its expenditure on packagingacross its portfolio of food brands as part of a widercost-cutting drive. HUL has pared down the colourpalette used for print-ing across many products. Thesystem has been used to reduce printed packaging

costs for Unilevers products. It is also eco-friendlybecause it reduces waste in the printing process.

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HUL is taking different steps to reduce the cost andincrease the margin.

Hindustan Unilevers product - Pureit (a waterpurifier) has received the UNESCO Water DigestWater Award 2008-2009 in the category of bestdomestic non-electric water puri-fier. Pureitreceived the award for outstanding contribution inthe field of water in India. The product is availableacross 21 Indian states and has reached more than 1million homes in India giving them access tomicrobiologically safe drinking water. Pureitsperformance has been tested by leadinginternational & national medical, scien-tific & publichealth institutions and meets the germ-kill criteriaof the Environmental Pro-tection Agency, thedrinking water regulatory agency in the USA.

ProductsA) HOME AND PERSONAL CARE:1) Personal wash : Lux , Breeze, Lifebuoy, Dove,Liril, Pears, Hamam2) Laundry: Surf Excel, Rin, Wheel3) Skin Care:Fair and lovely,Ponds, Aviance4) Hair care: Sunsilk naturals,Clinic5) Oral care: Pepsodent , Close up6) Deodorants: Axe, Rexona7) Colour Cosmetics: Lakme

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8) Ayurvedic Personal and health care: Ayush

B) FOODS

1) Tea: Brooke Bond, Lipton2) Coffee: Brooke Bond Bru3) Foods: Knor, Annapurna4) Ice cream: Kissan Kwalitywalls

C) WATER PURIFIER Pureit

PROCTER AND GAMBLE HYGIENE &HEALTH CARE LIMITED (P&G)

The Company has 21 product categories out ofwhich only 8 product have presence in India. Thecompany is planning to launch the rest 13 product inIndia. The company expects to see a growth in othercategories.

The company has an aggressive plan to set up 20new factories across the World out of which 19 isexpected to come in emerging markets and most ofthem would be seen in Brazil, Russia, India, andChina (BRIC) nations.

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Whisper which is one of the companys powerbrands has recorded 50 per cent market share inurban India.

Products:

cover girl duracell charger lams

nutrition

pantene pringles cascade powder

mr.clean scrubber dawn detergent

http://dawn-dish.ca/en_CA/baking_soda_alternative.do?utm_source=eds-ca&utm_medium=crm&utm_campaign=Sep10Newsletterhttp://www.mrclean.ca/en_CA/magic-eraser-bath-scrubber.do?utm_source=eds-ca&utm_medium=crm&utm_campaign=Sep10Newsletterhttp://www.mrclean.ca/en_CA/antibacterial-liquid-cleaner-with-febreze.do?utm_source=eds-ca&utm_medium=crm&utm_campaign=Sep10Newsletterhttp://www.cascadeclean.com/en_CA/home.do?utm_source=eds-ca&utm_medium=crm&utm_campaign=Sep10Newsletterhttp://www.pringles.ca/en_ca/Pages/Multigrain.aspx?utm_source=eds-ca-ca&utm_medium=crm&utm_campaign=multigrainhttp://www.pantene.com/en-CA/new-customized-pantene/Pages/hair-products.aspx?utm_source=eds-ca&utm_medium=crm&utm_campaign=Sep10Newsletterhttp://www.iams.ca/en-ca/dog-food/pages/premiumprotectionDog.aspx?utm_source=eds-ca&utm_medium=crm&utm_campaign=Sep10Newsletterhttp://www.duracell.ca/mygrid?utm_source=eds-ca&utm_medium=crm&utm_campaign=Sep10Newsletterhttp://opt/scribd/conversion/tmp/scratch6688/

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cresent toothpaste

GODREJ CONSUMER PRODUCTS LIMITED(GODREJ)

The Board of Directors of Godrej ConsumerProducts Limited (GCPL) has approved theacquisition of 50 per cent stake of its joint venturepartner SCA Hygiene Products stake in Godrej SCAHygiene Limited. After the transaction, the JointVenture which owns the Snuggy brand of babydiapers will become a 100 per cent subsidiary of

GCPL.

Godrej Consumer Products Limited has acquired100 per cent stake in the Kinky Group Limited,South Africa. Kinky is among one of the largestbrand into hair segment with product portfolio.

products

http://www.3dwhite.com/en-CA?utm_source=eds-ca&utm_medium=crm&utm_campaign=Sep10Newsletter

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DABUR INDIA LIMITED (DABUR)

Dabur has entered into the malted food drinkmarket with the launch of a new health drink DaburChyawan Junior. According to the company, theyexpect to capture a market share of 10 per cent ofthe Rs. 1,900 Crores malted food drink market overthe next two years.

Dabur has acquired 72.15 per cent of Fem CarePharma Ltd (FCPL), a leading player in the womens

skin care products market, for Rs 203.7 Crores in anall-cash deal. The Company is expected to createsynergy by this deal.

Dabur got approval from Government of HimachalPradesh to set up another medicine manufacturingunit. The project has an expected investment of Rs.130 Crores.

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ProductsVatika hair oilVatika shampooAmla hair oilAmla liteBinaca toothpowderDabur albela aamchulbuli imliDabur HoneyCandyDabur santraDaburchawanprashDabur pudin haraGlucose d DaburGulabariJasmine oilLal dant manjanKewra waterSharbat e azamBinaca top brush

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COLGATE PALMOLIVE (INDIA) LIMITED Colgate Palmolive (India) Ltd, which is currentlyholding 75 per cent of the share capital of SS OralHygiene Products Private Ltd, Hyderabad, hasacquired the remaining 25 per cent share capitalfrom the local shareholders at an aggregate price ofRs 77.70 lakh. Consequently, SS Oral Hygiene

Products has become a wholly owned subsidiary ofthe company.

Products

Ajax all purpose cleaner

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Ajax ammonium all purpose cleaner Ajax cutting board destainer Ajax expert neutral multi surface

Ajax pine forest all purposecleaner Fabuloso all purpose cleaner

Palmolive dishwashing liquid Palmolive automatic dishwashing gel Palmolive triple action machine

dishwasher

Soft soap Liquid soft soap Soft soap lotion Colgate fluoride toothpaste

Colgate toothbrush

NESTLE INDIA LIMITED

Nestle is planning to invest Rs 6 billion in India in2009 for expansion of its business in thecountry.The company which has allotted aninvestment of Rs 3 billion in the Indian market in2008, would be doubling the investment in 2009 aspart of its business strategy. Nestle International is

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reinvesting and expanding in India and Nestle Indiawill have all the financial resources to expand andgrow from the parent company.

Nestle India reported a good increase in itsstandalone net profit for the second quarter. Duringthe quarter, the profit of the company rose 26.54%to Rs.1,210.90 million from Rs.956.90 million in thesame quarter, last year. The company postedearnings of Rs.12.56 a share during the quarter,registering 26.61% growth over prior year period.Net sales for the quarter rose 23.45% toRs.10,356.30 million, while total income for thequarter rose 23.78% to Rs.10,423.40 million, whencompared with the prior year period.

Products

Cerelac vegetableMaggi hot & sweetMaggi ketchupMaggi noodlesMiloNescafe coffeSoup tomatoNescafe freppy

Chilli garlic sauceNestle kitkat

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Nestle power barUncle tobys bodywiseUncle tobys crunchy

SECTORAL OPPORTUNITIES

Major Key Sectoral opportunities for Indian FMCGSector are mentioned below:

Dairy Based ProductsIndia is the largest milk producer in the world, yetonly around 15 per cent of the milk is processed.The organized liquid milk business is in its infancyand also has large long-term growth potential. Eveninvestment opportunities exist in value-addedproducts like desserts, puddings etc.

Packaged FoodOnly about 10-12 per cent of output is processedand consumed in packaged form, thus highlightingthe huge potential for expansion of this industry.

Oral Care

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The oral care industry, especially toothpastes,remains under penetrated in India with penetrationrates around 50 per cent. With rise in per capitaincomes and awareness of oral hygiene, the growthpotential is huge. Lower price and smaller packs arealso likely to drive potential up trading.

BeveragesIndian tea market is dominated by unorganizedplayers. More than 50% of the market share iscapture by unorganized players highlighting highpotential for organized players.

MARKET OPPORTUNITIES

Vast Rural Market

Rural India accounts for more than 700 Millionconsumers, or 70 per cent of the Indian populationand accounts for 50 per cent of the total FMCG

market. The working rural population isapproximately 400 Millions. And an average citizenin rural India has less then half of the purchasingpower as compare to his urban counterpart. Stillthere is an untapped market and most of the FMCGCompanies are taking different steps to capturerural market share. The market for FMCG productsin rural India is estimated 52 per cent and is

projected to touch 60 per cent within a year.Hindustan Unilever Ltd is the largest player in theindustry and has the widest market coverage.Export - Leveraging the Cost Advantage Cheaplabor and quality product & services have helpedIndia to represent as a cost ad-vantage over otherCountries. Even the Government has offered zeroimport duty on capital goods and raw material for

100% export oriented units. Multi NationalCompanies out-source its product requirements

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from its Indian company to have a cost advantage.India is the largest producer of livestock, milk,sugarcane, coconut, spices and cashew apart frombeing the second largest producer of rice, wheat,fruits & vegetables. It adds a cost advantage as wellas easily available raw materials.

BUDGET MEASURES TO PROMOTE

FMCG SECTOR

2% education cess corporation tax, excise dutiesand custom duties Concessional rate of 5% customduty on tea and coffee plantation machinery BudgetImpact The education cess will add marginally to thetax burden of all FMCG companies The dividenddistribution tax on debt funds is likely to adverselyeffect the other income components of companieslike Britannia, Nestle and HLL The measure toabolish excise duty on dairy machinery is a positivefor companies like Nestle Concessional rate for teaand coffee plantation machinery is a positive forTata Tea, HLL, Tata Coffee and other suchcompanies Duty reduction in food grade hexane willhave a marginally positive impact on companies likeMarico and HLL Area specific excise exemptions forNorth East, J&K, Himachal Pradesh will continue toencourage FMCG companies to relocate to theseareas.

BUDGET OVER THE YEARS

Budget 2001-02:

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From 35-55% to 75% for crude edible oil From 45-65% to 85% for refined edible oil From 35% to 70% for copra, coconut, tea andcoffee From 25% to 55% for crude palm oil Development allowance of tea industry raised to40% from 20% All food preparations based on fruits andvegetables (pickles, sauces, ketchup, juices, jamsetc.) made completely exempt from excise duty Excise on cosmetics and toiletries halved to 16%

Budget 2002-03:

Increased focus on agricultural reforms with anaim to integrate the countrywide food market Deregulation of the milk processing capacity Excise duty structure largely untouched. Only fortea, the duty was reduced from Rs.2 per Kg to Re.1 Customs duty on tea and coffee doubled to 100% Duty on imported pulses upped to 80% Import duty on wine and liquor slashed from 210%to 180%

Budget 2003-04:

Excise on biscuits reduced to 8% from 16%. Exciseon soft drinks and sugar boiled confectionery alsoreduced All states to switch to VAT in FY04 (deadline nowhas been extended till end FY05) Loans to agriculture and to small-scale sector willnow be available at maximum 2 % above primelending rate (PLR) Development plans for roads, ports, railways andairports

Customs duty on alcoholic beverages reduced

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India is rated as the fifth mostattractive emerging retail market. It has beenranked second in a Global Retail Development Indexof 30 developing countries drawn up by A T Kearney.A.T. Kearney has estimated India's total retailmarket at $202.6 billion, is expected to grow at acompounded 30 per cent over the next five years.The share of modern retail is likely to grow from itscurrent 2 per cent to 15-20 percent over the nextdecade, analysts feel.

The Indian FMCG sector is the fourth largestsector in the economy with a total market size inexcess of US$ 13.1 billion. The FMCG market is setto treble from US$ 11.6 billion in 2003 to US$ 33.4billion in 2015. Penetration level as well as percapita consumption in most product categories likejams, toothpaste, skin care, hair wash etc in India islow indicating the untapped market potential.Burgeoning Indian population, particularly themiddle class and the rural segments, presents anopportunity to makers of branded products toconvert consumers to branded products. India is oneof the worlds largest producers for a number ofFMCG products but its FMCG exports are languishingat around Rs.1,000 crore only. There is significantpotential for increasing exports but there arecertain factors inhibiting this. Small-scale sectorreservations limit ability to invest in technology andquality up gradation to achieve economies of scale.Moreover, lower volume of higher value addedproducts reduce scope for export to developingcountries. The FMCG sector has traditionally grownat a very fast rate and has generally out performedthe rest of the industry. Over the last one year,

however the rate of growth has slowed down andthe sector has recorded sales growth of just five per

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cent in the last four quarters. The outlook in theshort term does not appear to be very positive forthe sector. Rural demand is on the decline and theCentre for Monitoring Indian Economy (CMIE) hasalready down scaled its projection for agriculturegrowth in the current fiscal. Poor monsoon in somestates, too, is unlikely to help matters. Moreover,the general slowdown in the economy is also likelyto have an adverse impact on disposable incomeand purchasing power as a whole. The growth ofimports constitutes another problem area and whileso far imports in this sector have been confined tothe premium segment, FMCG companies estimatethey have already cornered a four to six per centmarket share. The high burden of local taxes isanother reason attributed for the slowdown in theindustry. At the same time, the long term outlookfor revenue growth is positive. Give the largemarket and the requirement for continuousrepurchase of these products, FMCG companiesshould continue to do well in the long run.Moreover, most of the companies are concentratingon cost reduction and supply chain management.This should yield positive results for them.

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CURRENT SCENARIO

The growth potential for FMCG companies lookspromising over the long-term horizon, as the per-capita consumption of almost all products in thecountry is amongst the lowest in the world. As per

the Consumer Survey by KSA- Technopak, of thetotal consumption expenditure, almost 40% and 8%was accounted by groceries and personal careproducts respectively. Rapid urbanization, increasedliteracy and rising per capita income are the keygrowth drivers for the sector. Around 45% of thepopulation in India is below 20 years of age and theproportion of the young population is expected toincrease in the next five years. Aspiration levels inthis age group have been fuelled by greater mediaexposure, unleashing a latent demand with moremoney and a new mindset. In this backdrop,industry estimates suggest that the industry couldtriple in value by 2015 (by some estimates, theindustry could double in size by 2010).

In our view, testing times for the FMCGsector are over and driving rural penetration will bethe key going forward. Due to infrastructureconstraints (this influences the cost-effectiveness ofthe supply chain), companies were unable to growfaster. Although companies like HLL and ITC havededicated initiatives targeted at the rural market,these are still at a relatively nascent stage. Thebottlenecks of the conventional distribution systemare likely to be removed once organized retailing

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gains in scale. Currently, organized retailingaccounts for just 3% of total retail sales and is likelyto touch 10% over the next 3-5 years. In our view,organized retailing results in discounted prices,forced-buying by offering many choices and alsoopens up new avenues for growth for the FMCGsector.

FUTURE OUTLOOK

Indian FMCG sector is fourth largest sector in theeconomy. Over a period of time with growth in GDP,

change in lifestyle and with established distributionsystem across the country this sector is alsogrowing with new market horizons and also seizesustained growth in coming years. Indian FMCGmarket experienced 16% growth in FY 07-08 andexpected to grow by roughly 20% in FY 08-09.

In the Industry all the major players are growingconsistently. The companies are having almost

negligible debt proportion in their balance-sheet. Itmakes very safe and strong case for anyone toinvest. Among heavyweights HUL has strongpresence in the Indian FMCG market so one can holdthe stock or buy at decline. ITC is still having majorpart of revenues from cigarette business. Its FMCGbusiness is still in the investment phase.

Colgate is the market leader in the oral care

segment with consistently holding significantmarket share in the segment. Dabur is diversifyingin to many segments with increasingly addingpresence in global market as well. Marico is also theleader in hair care market and aggressivelyincreasing its presence in overseas marketorganically and inorganically. P&G is increasingpenetration in Indian markets especially in health

care and feminine hygiene. We believe these stocks

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can outperform in bearish market scenario. Hence,one should add these stocks in his portfolio, whichcan give good returns in long term.

REFRENCES

WWW.GOOGLE.COMWWW.SCRIBD.COMWWW.ALTAVISTA.COM

WWW.GHALLABHANSALI.COMWWW.SLIDESHARE.NETWWW.MARKETRESEARCH.COMWWW.INDIAINFOLINE.COMWWW.REDIFF.COM

http://www.google.com/http://www.scribd.com/http://www.altavista.com/http://www.ghallabhansali.com/http://www.slideshare.net/http://www.marketresearch.com/http://www.indiainfoline.com/http://www.rediff.com/http://www.google.com/http://www.scribd.com/http://www.altavista.com/http://www.ghallabhansali.com/http://www.slideshare.net/http://www.marketresearch.com/http://www.indiainfoline.com/http://www.rediff.com/

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STRUCTURAL ANALYSIS OF FMCG SECTORSTRUCTURAL ANALYSIS OF FMCG SECTOR

Typically, a consumer buys these goods at leastonce a month. The sector covers a wide gamut ofproducts such as detergents, toilet soaps,toothpaste, shampoos, creams, powders, foodproducts, confectioneries, beverages, andcigarettes.

Typical characteristics of FMCG products are: -

1. The products often cater to 3 very distinct butusually wanted for aspects such as necessity,comfort, luxury. They meet the demands of theentire cross section of population. Price and incomeelasticity of demand varies across products andconsumers.

2. Individual items are of small value although allFMCG products put together account for asignificant part of the consumer's budget.

3. The consumer spends little time on the purchasedecision. He seldom ever looks at the technicalspecifications. Brand loyalties or recommendationsof reliable retailer/ dealer drive purchase decisions.

4. Limited inventory of these products (many of whichare perishable) are kept by consumer and prefers topurchase them frequently, as and when required.

5. Brand switching is often induced by heavyadvertisement, recommendation of the retailer orword of mouth.

DESIGN AND MANUFACTURINGDESIGN AND MANUFACTURING

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1. Low Capital Intensity - Most product categories inFMCG requirerelatively minor investment in plan and machineryand other fixed assets. Also, the business has lowworking capital intensity as bulk of sales frommanufacturing take place on a cash basis .

2. Technology - Basic technology for manufacturingis easily available. Also, technology for mostproducts has been fairly stable. Modifications andimprovements rarely change the basic process.

3. Third-party Manufacturing - Manufacturing ofproducts by third party vendors is quite common.Benefits associated with third party manufacturinginclude(1) flexibility in production and inventory planning;(2) flexibility in controlling labor costs; and(3) logistics - sometimes its essential to get certain

products manufactured near the market.

MARKETING AND DISTRIBUTION

Marketing function is sacrosanct in case of FMCGcompanies. Major features of the marketing functioninclude the following: -

1. High Initial Launch Cost - New products require alarge front-ended investment in productdevelopment, market research, test marketing andlaunch. Creating awareness and develop franchisefor a new brand requires enormous initialexpenditure on launch advertisements, free samplesand product promotions. Launch costs are as high as

50-100% of revenue in the first year. For established

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brands, advertisement expenditure varies from 5-12% depending on the categories.2. Limited Mass Media Options - The challengeassociated with the launch and/or brand-buildinginitiatives is that few no mass media options. TVreaches 67% of urban consumers and 35% of ruralconsumers. Alternatives like wall paintings,theatres, video vehicles, special packaging andconsumer promotions become an expensive butrequired activity associated with a successful FMCG.

3. Huge Distribution Network - India is home to sixmillion retail outlets, including 2 million in 5,160towns and four million in 627,000 villages. Supermarkets virtually do not exist in India. This makeslogistics particularly for new players extremelydifficult .

FORCOSTING OF FMCG COMPANIES

Markets all over the world have been on a roll in2003 and the Indian bourses are no exception

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having gained almost 60% in 2003. During thisperiod, while there are sectors that haveoutperformed this benchmark index, there are alsosectors that have under performed. FMCG registeredgains of just 33% on the BSE FMCG Index last year.At the macro level, Indian economy is poised toremained buoyant and grow at more than 7%. Theeconomic growth would impact large proportions ofthe population thus leading to more money in thehands of the consumer. Changes in demographiccomposition of the population and thus the market

would also continue to impact the FMCG industry.Recent survey conducted by a leading businessweekly, approximately 47 per cent of India's 1 +billion people were under the age of 20, andteenagers among them numbered about 160 million.Together, they wielded INR 14000 Cr worth ofdiscretionary income, and their families spent anadditional INR 18500 Cr on them every year. By

2015, Indians under 20 are estimated to make up55% of the population - and wield proportionatelyhigher spending power. Means, companies that areable to influence and excite such consumers wouldbe those that win in the market place. The IndianFMCG market has been divided for a long timebetween the organized sector and the unorganizedsector. While the latter has been crowded by a large

number of local players, competing on margins, theformer has varied between a two-player-scenario toa multi-player one.Unlike the U.S. market for fast moving consumergoods (FMCG), which isdominated by a handful of global players, India'sRs.460 billion FMCG market remains highlyfragmented with roughly half the market going to

unbranded, unpackaged home made products. This

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presents a tremendous opportunity for makers ofbranded products. However successfully launchingand growing market share around a brandedproduct in India presents tremendous challenges.Take distribution as an example. India is home to sixmillion retail outlets and super markets virtually donot exist. This makes logistics particularly for newplayers extremely difficult .other challenges ofsimilar magnitude exist across the fmcg supplychain .the fact is that fmcg is structurallyunattractive industry in which to participate. Even

So, the opportunities keeps fmcg makers trying.

POWER BRANDS, THE NEW FMCG MANTRA

Three men, one voice. Indian fast moving consumergoods companies like HLL, Godrej ConsumerProducts Limited and Marico Industries are

completely sold on the concept of "power brands".

But in their rush to put their best brands forward,arethese big companies in danger of overlooking thepotential offered by some of the also-ran brands?

It's been almost five years since these three FMCG

giants opted to manage their brand portfolios on thebasis of the power brand strategy. How have theyfared? And what does the future hold?

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