At a time when festive sales are ruling the minds of both consumers as well as sellers, according to a research done by ASSOCHAM-TechSci, the fast-moving consumer goods (FMCG) market in India will double from the current USD49 billion to USD104 by 2020, growing at an impressive compounded annual growth rate of 20.6 per cent.
The steady economic growth, increasing share of organised retail and improving awareness about health and ethnic products being launched by the likes of Patanjali has created a sense of optimism, according to the report. “It is certainly good news for giving a much-needed consumption boost to the economy," said ASSOCHAM Secretary General, DS Rawat.
The report further read, “Currently, India accounts for a share of just 0.68 per cent of the global FMCG market, this share is expected to increase significantly over the next five years mainly due to the macroeconomic factors such as improving demographics, rising disposable income, expansion of organised retail in tier II and tier III cities in India, changing consumer preferences etc, according to the study titled Indian FMCG Market 2020.”
FMCG companies around the world have now shifted their focus to e-commerce due to the increasing mobile internet penetration and the sector is expected to grow at a CAGR of 4.4 per cent, which when compared to India, is a lot slower. Globally, the share of online sales of FMCG products accounted for around 5 per cent in 2015, which is relatively higher than India where online FMCG sales accounted for a share of just 1-2 per cent of the overall FMCG market in 2015.
The ASSOCHAM report said, “Indian FMCG sector had a market size of USD43.08 billion in 2015. Well-established distribution networks, as well as intense competition between the organised and unorganised segments are the characteristics of this sector. The FMCG market in India is anticipated to grow at a significantly high CAGR during the forecast period and is expected to cross USD100 billion mark by 2020. FMCG in India has a strong distribution presence across the entire value chain.”
The FMCG sector is an important contributor to India’s GDP growth. It is the fourth largest sector in Indian economy and provides employment to around 3 million people accounting for approximately 5 per cent of the total factory employment in India. The sector is characterised by strong presence of leading multinational companies, competition between organised and unorganised players, well established distribution network, and low operational cost.
The growth in the country’s FMCG sector is being fuelled by improving scenario in both the demand as well as supply side. The major demand side drivers include growing affluence and appetite for consumption of the Indian consumer, growing youth population, rise in per capita expenditure, and increasing brand consciousness.
On the other hand, easier import of materials and technology, reduced barriers to entry of foreign players, and new product development, rapid real estate infrastructure development and improvement in supply chain efficiency are the major supply side drivers for the sector.
The growth of the FMCG sector has been driven in both the rural and urban segments. Rural consumption growth has outpaced urban consumption with the increase in percentage in monthly per capita expenditure in rural markets surpassing its urban counterparts over the past five years. Several government measures such as GST Bill, Food Security Bill and FDI in retail sector are also expected to have a significant positive impact on the country’s FMCG sector in the coming years.