Data released by the National Sample Survey suggest that Mr M.S. Banga, former Chairman of Hindustan Lever, may have underestimated the size of the FMCG market when he put the current figure at a mere Rs 40,000 crore during his recent speech at the company's annual general meeting in Mumbai.
Correspondingly, his expectation that the market will grow to Rs 100,000 crore over the next 10 years, during which `per capita income is likely to touch China's current levels', may be much too modest.
According to the NSS figures on consumption expenditure for the calendar year 2003, a total of Rs 89,161 crore was spent by households on the following four categories of non-food expenditure: personal care and effects (Rs 1,959 crore), toilet articles (Rs 21,603 crore), sundry articles (Rs 17,274 crore) and miscellaneous consumer goods (Rs 48,325 crore). The first two of these categories are too well-defined to allow much scope for misinterpretation. As for the last two, though their content is not precisely specified, we do know that they exclude items of food, clothing, footwear, durables, pan, tobacco and intoxicants, medical expenses, educational expenses, entertainment and consumer services. It is therefore possible that the bulk of expenditure in the last two categories, too, comprises spend on FMCGs.
Of the total spend of Rs 89,000 crore, more than Rs 53,000 crore was attributable to rural areas, where the proportion of non-food to total consumption expenditure has risen steadily, year after year, from 36.2 per cent in 1987-88 to 40.6 per cent in 1999-00 to 46 per cent in 2003.
To the extent that value growth for FMCG majors as a group, rather than HLL alone, did indeed taper off after the 90s, this may have been partly the result of the price cuts witnessed in the last few years in an effort to preserve market share, vis-a-vis other FMCG majors, and partly because of `downgrades to lower priced substitutes from higher quality brands.' The latter could be a major headache over the next 10 years.
FMCG growth in a growing market critically depends on rapidly increasing the size of the consumer base. Increasing spend per consumer takes second place. First, because the latter is essentially phase II strategy, to be implemented after you have got yourself a firm foothold, and second because there is a finite limit to which it can be exploited in respect of any given consuming household. It should be relatively easy for FMCG majors to verify the accuracy of NSS data by aggregating their sales in the `personal care and effects' category, where there is probably little competition from smaller players.
The total spend on this category according to NSS data, at about Rs 2,000 crore, breaks up into Rs 1,233 crore (rural) and Rs 726 crore (urban). The rural/urban break-up would provide an additional point of reference for validating the figures reported by NSS.