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Annice Hunter
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2 Contents Advantage India Market overview and trends Growth drivers Success stories: Major players Opportunities Useful information 2

3 Advantage India 2011 Market size: USD30 billion Growing demand Rising incomes and a growing young population have been the key growth drivers for the sector Brand consciousness have also aided demand Rural demand is set to rise with rising incomes and greater awareness of brands Increasing investments Industry witnessed healthy FDI inflows as the sector accounted for 1.9 per cent of the country s total FDI inflows over April September 2012 Many players are pursuing inorganic growth by acquiring regional players Advantage India Attractive opportunities Low penetration levels in rural market offers room for growth There is a growing market for premium products Exports is another growth segment Policy support Investment approval of up to 100 per cent foreign equity in single brand retail and 51 per cent in multi-brand retail Introduction of Goods and Service Tax (GST) as a single unified tax system likely from April 2018E Market size: USD74 billion Notes: Emami, Market size estimates from Technopak 2018E - estimated figure for 2018 ADVANTAGE INDIA 3

4 Contents Advantage India Market overview and trends Growth drivers Success stories: Major players Opportunities Useful information 4

5 The FMCG market has four main segment FMCG Household care Personal care Food & Beverages Health care Fabric wash, Household cleaners Oral care, hair care, skin care, cosmetics/deodorants, perfumes, feminine hygiene and paper products Health beverages, staples/cereals, bakery products, snacks, chocolates, ice cream, tea/coffee/soft drinks, processed fruits and vegetables, dairy products, and branded flour OTC products and ethicals Source: HUL Notes: OTC is over the counter products; ethicals are a range of pharma products MARKET OVERVIEW AND TRENDS 5

Evolution of FMCG in India FMCG is the fourth largest sector in the Indian economy Indian FMCG industry (USD billion) 9.0 34.8 (2011) Gross block of FMCG industry (USD billion) 0.6 2010-11 2.

6 Evolution of FMCG in India FMCG is the fourth largest sector in the Indian economy Indian FMCG industry (USD billion) (2011) Gross block of FMCG industry (USD billion) (2010) Market size of chocolates (USD million) < (2011) Market size of personal care (USD billion) <3 8.6 (2011) HUL s share in FMCG market (%) >50% 2000 <30% (2011) Source: IDFC, Business Today, Aranca Research Notes: Gross block of FMCG is the total value of all the assets in the sector MARKET OVERVIEW AND TRENDS 6

7 Strong growth in the Indian FMCG sector The FMCG sector in India generated revenues worth USD34.8 billion in 2011, a 15.2 per cent rise compared to the previous year The strong growth in 2011 should come as no surprise given the impressive performance of the sector over the years Over , the sector s revenues posted a CAGR of 17.3 per cent Trends in FMCG revenues over the years (USD billion) CAGR 17.3 % Source: Dabur, AC Nielsen, Aranca Research MARKET OVERVIEW AND TRENDS 7

8 Food products and personal care together make up two-thirds of the sector s revenues Food products is the leading segment, accounting for 43.0 per cent of the overall market Market break-up by revenues (2009) Personal care (22.0 per cent) and fabric care (12.0 per cent) are the other leading segments 4% 4% 2% 5% Food products Personal care 8% 12% 43% Fabric care Hair care Households OTC products 22% Baby care Others Source: Dabur, Aranca Research MARKET OVERVIEW AND TRENDS 8

9 The urban market accounts for a major chunk of revenues The urban segment is the largest contributor to the sector, accounting for over two-thirds of total revenue Urban-rural revenue break-up (2011) Semi-urban and rural segments are growing at a rapid pace; they currently account for 33.5 per cent of revenues 33.5% Urban FMCG products account for 53.0 per cent of total rural spending Rural 66.5% Source: Dabur, AC Nielsen, Aranca Research MARKET OVERVIEW AND TRENDS 9

10 The rural segment is fast catching up The urban FMCG market in India has been growing at a fairly steady and healthy rate over the years; encouragingly, the growth in rural markets has been more fast-paced During FY11, more than 80 per cent of FMCG products posted faster growth in rural markets as compared to urban ones Notable high growth sectors include salty snacks, refined edible oil, healthcare products, iodised salt, etc 70% 60% 50% 40% 30% 20% 10% 0% Growth in urban and rural FMCG markets (FY11) 42% 24% 28% 27% 16% 19% 21% 11% 14% 11% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Urban Rural UR Growth % Source: AC Nielson, Aranca Research Notes: UR - Urban Rural MARKET OVERVIEW AND TRENDS 10

11 Penetration levels vary; grocers remain the main sales channel (1/2) Hair oils, toothpastes and shampoos have significantly high penetration in both urban and rural markets Instant noodles, floor cleaners and hair dyes are picking up in the rural areas due to increased awareness Penetration levels of few top selling FMCG (2011) Floor cleaner 26% 4% Hair dye 5% 2% Instant noodles 19% 3% Mosquito repellent 18% Skin cream 32% 18% 59% Hairoil 67% 80% Shampoo 37% 57% Toothpaste 42% 77% 0% 20% 40% 60% 80% Urban Rural Source: Dabur, AC Nielsen, Aranca Research MARKET OVERVIEW AND TRENDS 11

12 Penetration levels vary; grocers remain the main sales channel (2/2) A total of 7.8 million retail outlets sell FMCG in India Sales channel breakdown (2010) Grocers are the dominant retail format, accounting for 59.0 per cent 3% 6% 8% 6% 5% 59% Grocers General stores Chemists Paan plus Food stores 13% Modern trade Others Source: AC Nielson, Aranca Research MARKET OVERVIEW AND TRENDS 12

13 Market share of companies in a few FMCG categories Market Leader Others Hair Oil 42% 15% 8% 5% Shampoo 46% 24% 10% 6% Oral care 50% 23% 13% Skin care 59% 7% 7% 6% Fruit juice 52% 35% Source: Industry estimates MARKET OVERVIEW AND TRENDS 13

14 Notable trends in FMCG (1/2) Consolidation Indian FMCG companies are consolidating their existing business portfolios Product innovation Several companies have started innovating or customising their existing product portfolios for new consumer segments Brand consciousness Consumers are becoming more brand conscious and prefer lifestyle and premium range products given their increasing disposable income Expanding horizons A number of companies are exploring the business potential of overseas markets and several regional markets Backward integration Focus on rural market Expanding distribution networks Backward integration is becoming the preferred strategy for increasing profit margins Companies are now focusing on the rural market segment which is growing at a rapid pace and contributes about 33 per cent to the total FMCG market Companies are now focused on improving their distribution networks to expand their reach in rural India Source: Aranca Research MARKET OVERVIEW AND TRENDS 14

15 Notable trends in FMCG (2/2) Third-party manufacturing This approach has helped FMCG companies focus on front-end marketing Reservation of several items for SSI as well as additional tax incentives have made third party manufacturing a popular route for many big players Rising importance of smaller-sized packs Increased hiring from tier II/III cities Focus on enhancing presence in Africa Reducing carbon footprint and eco-friendly products Companies are increasingly introducing smaller stock keeping units at reduced prices. This helps them to sustain margins, maintain volumes from priceconscious customers and expand their consumer base Small towns are emerging as significant hiring zones. FMCG companies are hiring field staff from areas such as Kalpa (Himachal Pradesh), Mangaliya (Madhya Pradesh), Kota (Rajasthan), and Shirdi (Maharashtra) to sell diverse products FMCG companies entering Africa as it helps to be close to consumption markets within Africa Such foreign investments are encouraged by local governments, as they offer incentives to enter the markets FMCG players in India are increasingly focussing on reducing their carbon footprint by creating eco-friendly products. They generate the required energy from renewable sources and earn CER credits for the same Source: AC Nielson, Aranca Research Notes: CER - Certified Emission Reductions; SSI - Small Scale Industry MARKET OVERVIEW AND TRENDS 15

16 Contents Advantage India Market overview and trends Growth drivers Success stories: Major players Opportunities Useful information 16

17 Growth drivers of the FMCG sector in India Rise of rural consumers Increasing per capita income of urban and rural population Growing popularity of organised retail Government s pro-industry policies FDI support Source: Aranca Research Notes: FDI - Foreign Direct Investment GROWTH DRIVERS 17

18 F F 2014F 2015F 2016F 2017F FMCG Higher incomes have aided growth in both urban and rural markets Per-capita income in the country expanded at a CAGR of 12.5 per cent over India s per capita income at current prices (USD) 3,000 30% Strong income growth is set to continue in future as well; IMF forecasts point to a CAGR of 8.8 per cent over to USD2,428.5 An important consequence of rising incomes is growing appetite for premium products, primarily in the urban segment 2,500 2,000 1,500 1, % 20% 15% 10% 5% 0% 0-5% Per capita income,usd Annual growth rate Source: IMF, Aranca Research Notes: F - Forecasted, CAGR - Compound Annual Growth Rate GROWTH DRIVERS 18

19 Government initiatives for rural development The Indian government has been supporting the rural population with higher MSPs, loan waivers, and disbursements through the NREGA programme These measures have helped in reducing poverty in rural India and have thus propped up rural purchasing power Total funds released by government for NREGA (USD billion) Notes: MSP - Minimum support price, NREGA - National Rural Employment Guarantee Act FY09 FY10 FY11 FY12 Source: NREGA, Aranca Research GROWTH DRIVERS 19

20 Increasing awareness and easier access is driving growth of modern retail Growing awareness, easier access, and changing lifestyles has meant growing consumer spending in modern retail stores Spending at modern retail stores in India shot up by 31 per cent in 2011 compared to the previous year Modern retail spending is expected to shoot up to USD5 billion in 2015 from USD1.8 billion in 2011 Contribution of private label in modern trade (2011) Jams and jelly Packaged ghee Toilet cleansers Bread Phenyls Packaged atta Glass cleansers Tissue paper Floor cleanser Packaged rice 13% 13% 15% 17% 17% 22% 23% 23% 27% 37% 0% 10% 20% 30% 40% Source: AC Nielson, Aranca Research GROWTH DRIVERS 20

21 FDI inflows have also gone up over the years The sector has been witnessing healthy FDI inflows over the years; in fact, during FY01-13*, FMCG accounted for 1.9 per cent of total inflows Retail trading Cumulative FDI inflows * (USD million) 42.7 Within FMCG, food processing was the largest recipient; it s share was 46.8 per cent Tea,Coffee Vegetable oil * April Sep 2012 Soap, cosmetics Paper, pulp Food processing ,000 1,500 2,000 Source: DIPP, Aranca Research GROWTH DRIVERS 21

22 Policy and regulatory framework Goods and service tax (GST) Excise duty Relaxation of license rules Statutory Minimum Price GST for the purpose of integrating multiple indirect taxes under a unified tax system is likely to be implemented in The rate of GST on services is likely to be 16 per cent and on goods is proposed to be 20 per cent The current excise duty is 12 per cent However, for consumers, it is expected that there will be more money to spend on FMCG products as income tax exemptions limits have been hiked to INR200,000 Industrial license is not required for almost all food and agro-processing industries, barring certain items such as beer, potable alcohol and wines, cane sugar, and hydrogenated animal fats and oils as well as items reserved for exclusive manufacture in the small-scale sector In October 2009, the government amended the Sugarcane Control Order, 1966, and replaced the Statutory Minimum Price (SMP) of sugarcane with Fair and Remunerative Price (FRP) and the State-Advised Price (SAP) FDI in organised retail The government recently approved 51 per cent FDI in multi-brand retail, which will boost the nascent organised retail market in the country It also allowed 100 per cent FDI in the cash and carry segment and in singlebrand retail Source: Aranca Research GROWTH DRIVERS 22

23 New Goods and Service Tax (GST) would simplify tax structure Supply chain structure Introduction of GST as a unified tax regime will lead to a re-evaluation of procurement and distribution arrangements Removal of excise duty on products would result in cash flow improvements Pricing and profitability Elimination of tax cascading is expected to lower input costs and improve profitability Application of tax at all points of supply chain is likely to require adjustments to profit margins, especially for distributors and retailers Cash flow Tax refunds on goods purchased for resale implies a significant reduction in the inventory cost of distribution Distributors are also expected to experience cash flow from collection of GST in their sales, before remitting it to the government at the end of the tax-filing period Goods and Service Tax (GST) System changes and transition management Changes need to be made to accounting and IT systems in order to record transactions in line with GST requirements Appropriate measures need to be taken to ensure smooth transition to the GST regime - through employee training, compliance under GST, customer education and inventory credit tracking Source: Aranca Research GROWTH DRIVERS 23

24 Key M&A deals in the industry (1/2) Target name (segment) Acquirer name (segment) Merger/Acquisition United Spirits Diageo Plc. Acquisition Hobi Kozmetik, Turkey Dabur Acquisition L.D. Waxson, Singapore Wipro Consumer Acquisition Halite Personal Care India Private Limited (Personal Care ) Marico Ltd (Food and Personal Care) Acquisition Paras Pharma (Personal Care) Marico Ltd (Food and Personal Care) Acquisition Namaste group (Personal Care) Dabur (Food) Acquisition Cosmetica Nacional (Cosmetics) Godrej Consumer Products Ltd Acquisition CC Health Care Products Pvt Ltd (Cosmetics) Colgate-Palmolive India Ltd ( Cosmetics and Toiletries) Acquisition Eastern Condiments Pvt Ltd (Food - Misc/Diversified) McCormick & Co Inc (Food-Misc/Diversified) Acquisition Vietnam Spice Unit (Food and beverages) Bafna Enterprises (Food and Beverages) Acquisition Noble Hygiene Pvt Ltd (Household and Personal Products) Bennett Coleman & Co Ltd (Publishing) Acquisition Hobi Kozmetik, Turkey (Personal Care Products) Dabur India (Personal Care) Acquisition Source: Company websites, Bloomberg, Aranca Research GROWTH DRIVERS 24

25 Key M&A deals in the industry (2/2) Target name (segment) Acquirer name (segment) Merger/Acquisition Argencos, Argentina (Hair Care Products) Godrej Consumer Products Ltd (Home and Personal Care) Acquisition Lotte India Corp Ltd (Food) Lotte Confectionery Co Ltd, South Korea (Food) Acquisition Megasari, Indonesia (Soap and cleaning products ) GCPL (Home and personal care) Acquisition Issue Group, Argentina (Hair products) GCPL (Home and personal care) Acquisition Tura, Nigeria (Soap and cleaning products ) GCPL (Home and personal care) Acquisition Tern Distilleries Pvt Ltd (beverages - wine/spirits) United Spirits Ltd (beverages) Acquisition Vale Do Ivai SA Acucar E Alcool (sugar and ethanol) Shree Renuka Sugars Ltd (food) Acquisition Greenol Laboratories Pvt Ltd (tea) Asian Tea & Exports Ltd (food - tea) Acquisition Olyana Holding LLC (tea) UK-based Borelli Tea Holdings Ltd, a wholly-owned unit of Mcleod Russel India Ltd Acquisition Garden Namkeens Pvt Ltd (food - misc.) Cavinkare Pvt Ltd (food) Acquisition Bacardi Martini India Ltd s 26 per cent shares from Gemini Distillery Private Ltd (beverages) Godrej Hygiene Care Pvt Ltd (home care) Bacardi Martini BV, Netherlands (beverages) Godrej Consumer Products Ltd (home care) Acquisition Merger Britannia New Zealand Foods Pvt Ltd (joint venture partner Fonterra Cooperative Group Ltd) (food) Britannia Industries Ltd (food) Acquisition Source: Bloomberg, Aranca Research GROWTH DRIVERS 25

26 Contents Advantage India Market overview and trends Growth drivers Success stories: Major players Opportunities Useful information 26

27 Emami - one of the fastest growing FMCG companies (1/2) Salient features Net sales (USD million) Niche category player and innovator Key brands are strong market leaders in their respective categories CAGR 21.2 % Portfolio includes Zandu, one of the strongest Ayurvedic brands Over 80 per cent of business comes from wellness categories The company's revenues has expanded at a CAGR of 21.2 per cent over the last five years FY07 FY08 FY09 FY10 FY11 FY12 H1FY13 Source: Company reports, Aranca Research SUCCESS STORIES: MAJOR PLAYERS 27

28 Emami - one of the fastest growing FMCG companies (2/2) Awards and recognitions Among Asia's 'Best Under A Billion' 2010 list of companies compiled by Forbes magazine Emami s Zandu Balm, Navratna and Boroplus were ranked among the top 20 brands in the country by Brand Equity Survey of Economic Times, 2012 Ranked 125 th among BT (Business Today) Most Valuable Companies of India in private Sector Ranked 272 nd among Fortune 500 India s largest corporations on profitability Rural reach Differentiated value for money products Product innovation Celebrity promotion Strategy to drive revenue Brand extension Leveraging existing distribution network New geographies Source: Company reports, Aranca Research SUCCESS STORIES: MAJOR PLAYERS 28

29 Dabur - riding on strong brand equity in India (1/2) Salient features Sales (USD million) Among top four FMCG companies in India 10 brands with sales worth over USD20 million each CAGR 20.4 % ,100.6 Wide distribution network covering 2.8 million retailers across the country world-class manufacturing plants catering to needs of diverse markets Over 30 per cent of revenues generated from international markets FY07 FY08 FY09 FY10 FY11 FY12 H1FY13 Source: Company reports, Aranca Research SUCCESS STORIES: MAJOR PLAYERS 29

30 Dabur - riding on strong brand equity in India (2/2) Awards and recognitions in Ranked 53 rd amongst the world s top 100 beauty companies in WWD Beauty Inc. s top Expand Ranked 33 in India s 100 most valuable brands, 2012 by 4Ps Business and Marketing magazine Ranked 184 in Fortune India 500 list Ranked 78 in Super (Business India) Ranked 45 among Most Trusted Brands in India (Brand Trust Report, India Study, 2011) Strategy Dabur Uveda range of Ayurvedic skin care products listed amongst the '30 New Beauty Finds' by India Today Woman During FY12, Dabur ranked as the second-most Social Brand of India Innovate Acquire Source: Company reports, Aranca Research SUCCESS STORIES: MAJOR PLAYERS 30

31 Contents Advantage India Market overview and trends Growth drivers Success stories: Major players Opportunities Useful information 31

32 Growth opportunities in the Indian FMCG industry Rural market Leading players of consumer products have a strong distribution network in rural India; they also stand to gain from the contribution of technological advances such as internet and e-commerce to better logistics Rural FMCG market size is expected to touch USD100 billion by 2025 Innovative products Indian consumers are highly adaptable to new and innovative products. For instance there has been an easy acceptance of men s fairness creams, flavoured yoghurt, and cuppa mania noodles Premium products With rise disposable incomes mid- and high-income consumers in urban areas have shifted their purchase trend from essential to premium products In response, firms have started enhancing their premium products portfolio Sourcing base Indian and multinational FMCG players can leverage India as a strategic sourcing hub for cost-competitive product development and manufacturing to cater to international markets Penetration Low penetration levels offer room for growth across consumption categories Majors players are focusing on rural markets to increase their penetration in those areas Source: Assorted articles and reports, AC Nielson, Aranca Research OPPORTUNITIES 32

33 Contents Advantage India Market overview and trends Growth drivers Success stories: Major players Opportunities Useful information 33

34 Industry Associations (1/3) Indian Dairy Association Secretary (Establishment) Indian Dairy Association, Sector - IV, New Delhi Phone: , , ; Fax: ida@nde.vsnl.net.in Website: All India Bread Manufacturers Association PHD House, 4/2, Siri Institutional Area, August Kranti Marg, New Delhi Phone: ; Fax: aibma@rediffmail.com; mallika@phdcci.in Website: All India Food Preservers Association 206, Aurobindo Place Market Complex Hauz Khas, New Delhi Phone: , ; Fax: Website: USEFUL INFORMATION 34

35 Industry Associations (2/3) Federation of Biscuit Manufacturers of India PHD House, 4/2, Siri Institutional Area, August Kranti Marg, New Delhi Phone: ; Fax: fbmi@rediffmail.com; mallika@phdcci.in Website: Indian Soap & Toiletries Manufacturers Association Raheja Centre, 6 th Floor, Room No 614, Backbay Reclamation, Mumbai Phone: ; Fax: istma@bom3.vsnl.net.in Indian Soft Drinks Manufacturers' Association 702, Ansal Bhawan, 16 KG Marg, New Delhi Phone: ; Fax: USEFUL INFORMATION 35

36 Industry Associations (3/3) The Solvent Extractors' Association of India 142, Jolly Maker Chambers, No 2, 14 th Floor, 225, Nariman Point, Mumbai Tel: , ; Fax: solvent@mtnl.net.in Website: Vanaspati Manufacturers Association of India 903, Akashdeep Building, 26 - A, Barakhamba Road, New Delhi Phone: ; Fax: USEFUL INFORMATION 36

37 Glossary FDI: Foreign Direct Investment MSP: Minimum Selling Price NREGA: National Rural Employment Guarantee Act FY: Indian financial year (April to March) So FY09 implies April 2008 to March 2009 SEZ: Special Economic Zone MoU: Memorandum of Understanding USD: US Dollar Conversion rate used: USD 1= INR 48 Wherever applicable, numbers have been rounded off to the nearest whole number USEFUL INFORMATION 37

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38 Disclaimer India Brand Equity Foundation (IBEF) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of Aranca and IBEF s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation. DISCLAIMER 38

Overall FMCG market expected to increase at a CAGR of 14.7 per cent to USD110.4 billion during

Favourable demographics and rise in income level to boost FMCG market 150 100 50 0 CAGR: 14.7% 110 37 2012 2020 2012 2020 Overall FMCG market expected to increase at a CAGR of 14.7 per cent to USD110.4