The fast-moving consumer goods (FMCG) industry, also known as the consumer packaged goods (CPG) industry is mainly responsible for producing, distributing, and marketing consumer goods. It is the fourth largest sector in the Indian economy.
The retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840 billion in 2017, with modern trade expected to grow at 20-25% per annum, which is likely to boost the revenue of FMCG companies. The stats were retrieved from the Indian Brand Equity Foundation ().
Share of FMCG market:
- Food and beverages – above 50%
- Personal care – 20%
- Tobacco 15%
- Household 10%
FMCG companies reach their customers through retail stores, department stores, malls, and franchisee outlets. Among the biggest names in the retail business are Shoppers Stop, Reliance Retail, ITC-LRBD, Westside, Pantaloons Retail, Big Bazaar, and Aditya Birla Retail. Some favorite brands loved by millions of people in India are – Colgate, Parle, Wheel, Clinic Plus, Fair and Lovely, Lifebuoy, Tata Salt, Lux, Rin, Britannia, Kwality Walls, and Nestlé.
The daily goods consumers are getting anxious about their lifestyle, growing more sensitive to price and becoming more self-aware. This is a good thing. The never-ending search for an utopian world is pushing the economy towards hope. Consumers have started to pester the government regarding the regulation of consumer rights and policies.
In effect, certain schemes have been adopted by the Indian government. Some of the initiatives are – consumer awareness programs, industry awareness programs, educational utilization of standards programs, world standards day, public grievances public relations.
Combining these programs with BIS and hallmarks sets up India for a brighter future in terms of competitiveness and reliance on Indian goods.
Bureau of Indian Standards (BIS) is the National Standard Body of India. Its core function is to provide standardization and conformity assessment that makes sure the products are safe, reliable, and of high quality. BIS has its protection scheme known as Foreign Manufacturers Certification Scheme (FMCS) that allows foreign producers to earn certification for marking their products with the BIS mark. It is earned only after ensuring the requisite standards decided by BIS in all fairness.
Growing awareness, easier access, and changing lifestyles have been the key growth drivers for the sector. The report published on ibef.org also gives a detailed account of the cash flow of the consumer goods industry. Revenue of the FMCG sector reached Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and is estimated to reach US$ 103.7 billion in 2020.
The FMCG market is expected to grow at 9–10% in 2020. Rural consumption is estimated to be around 26% of the overall FMCG spending. The urban sector showed a growth rate of 8%, whereas, the rural sector witnessed a growth of 5% in the quarter ended September 2019. The other drivers of the FMCG market are changing lifestyles, advertising, and foreign investment. The government is joining hands by reducing customs duty and relaxing the licensing rules and allowing 100 percent foreign direct investment. This shows an upward positive trend.
However, the sector also faces some challenges. The FMCG companies have to tackle problems of relaxation of import restrictions and thereby greater availability of foreign brands which cause more saturation in the market. It might result in customers shifting to these brands in place of domestic ones.
How is the U.S – China trade war benefitting CPG exports in India?
The ongoing trade war between China and the US has adversely affected their economies. The US leaders accused China of indulging in unfair trade practices. A report from Statista shows that the Chinese exports to the US fell more than 8%. As the war intensifies, many economists suggest that India could benefit from the fallout of the US-China trade war. But how?
The answer is tariffs and customs duty. The US government has imposed tariffs and heavy taxes on Chinese imports. If India starts dealing in goods on which those tariffs are imposed, it could make significant profits through its exports post-pandemic. It is a common fear amongst economists and scholars that India might be facing its worst recession. In times of recession, the purchasing power is decreased and interest rates are cut. Therefore, the exchange rates depreciate making exports cheaper.
Especially in the wake of covid-19, it becomes crucial to pool in resources towards exports to sustain the economy. One such industry whose exports prove to be beneficial is consumer goods. India is currently the 3rd largest market for the consumer goods industry. Other winners in the industry are the U.S and China. With the outbreak of the trade war, the market could reposition to favor India.
We see the market shifting forms i.e from physical to digital. The suppliers and sellers should use the online platform to build brand loyalty and provide information to their potential customers.
CPG is manufactured for the use by individuals. Unlike cars or air conditioners, their lifetime value is exhaustible within 3 years or less. This means they are replenishing goods whose demand will remain constant. One of the challenges is to strategize ways to reduce the input cost to provide the best value to the end consumer. As for now, one thing is clear – for the Indian consumer goods industry to grow, the resources need to be deployed towards exports, and flexible trade rules must be put into practice.
In recent years, India has redefined its position within Asia and has emerged as a significant player. Indian has fought through the recession before and its rebound has been stronger each time. Non-durable goods as an industry remains a promising sector. While the individual seller might suffer a loss due to a lack of customer loyalty, the industry as a whole will continue to prosper.