FMCG Industry in India

FMCG stands for ‘Fast Moving Consumer Goods.’ These products are sold quickly at relatively low cost and are usually repurchased frequently. Most FMCG products are non-durable goods and have a short shelf life. They can be categorised into multiple segments such as food and beverages, toiletries, over-the-counter drugs, and other consumables.

The FMCG industry in India is a significant sector with a total market value of US$ 230.14 billion (in 2023). Let’s understand everything related to this fast-growing sector.

What is the FMCG industry in India?

The FMCG industry in India is a thriving sector that encompasses a wide range of consumer goods, including food and beverages, personal care products, household items, and more. It is one of the largest industries in the country, driven by a growing population, rising disposable incomes, and changing consumer preferences. The Indian FMCG market is characterized by a diverse mix of multinational and domestic players, with intense competition and a focus on innovation and product development.

Types of FMCG

The term ‘FMCG’ covers a wide range of products that:

• Serve the daily needs of consumers
  and
• Are purchased frequently

Let us look at some common types of FMCG products:

1. Food and beverages

• They are included in FMCG as most items have a short shelf life and high turnover rates
• Some common examples include:
  • Packaged snacks
  • Breakfast cereals
  • Canned goods
  • Dairy products

2. Personal care products

• These are items used for personal hygiene and grooming
• These products are categorised under FMCG as they are not long-lasting and often have a lower purchase price
• Some examples are:
  • Soap and shampoo
  • Toothpaste
  • Deodorant
  • Cosmetics

3. Household care products

• This category includes cleaning agents like:
  • Detergents
  • Dishwashing liquids
  • Surface cleaners
  • Other household cleaning products.

4. Healthcare and OTC (Over-the-counter) products

• The FMCG products also include over-the-counter medicines and healthcare items like:
  • Vitamins
  • Pain relievers
  • Cough and cold remedies
  • Bandages
  • Other medical supplies

5. Stationery and office supplies

• Products like pens, pencils, notebooks, and other office supplies are also considered FMCG.
• That's because they are non-durable and sold at a low per-unit cost.

Do you wish to expand your market knowledge? Also, read what is a joint stock company and its major features and types.

FMCG industry in India

In India, the FMCG industry is the fourth largest sector in terms of its contribution to the economy. It must be noted that household and personal care products account for 50% of the sales in the industry, followed by healthcare, which accounts for 32% of the sales.

Some primary drivers of this rapid FMCG growth are:

• Rise in income levels
• Changes in lifestyle
• Better awareness about different available FMCG products
• Easy access to the FMCG markets

Furthermore, India’s rural segment has also fueled FMCG growth. Currently, it contributes roughly 45% of the total revenue share of the FMCG industry. Also, stronger brand recognition and heightened consumer awareness have been instrumental in driving the growth of the FMCG industry in India.

Market share of the FMCG sector

The FMCG industry in India is expected to grow at a compound annual growth rate (CAGR) of 27.9% from 2024 to 2030. As per popular studies, it is expected to reach nearly US$ 1288.52 billion by 2030. Let’s explore some more interesting details:

• The packaged food segment is expected to double in size and reach US$ 70 billion in the coming years.
• The increasing connectivity of both urban and rural areas to the Internet is boosting the demand for FMCG products in India.
• Recently, the central government has launched a production-linked incentive (PLI) scheme, with an investment of US$ 1.42 billion. This initiative aims to:
  • Boost domestic manufacturing
    and
  • Enhance India's export competitiveness in the FMCG sector
• The rising disposable income in rural India and relatively low levels of market penetration present a significant growth opportunity for FMCG companies.
• E-commerce platforms are expected to account for around 11% of all FMCG sales
• The FMCG sector will attract more foreign players due to the approval of up to:
  • 100% foreign equity in single-brand retail
    and
  • 51% in multi-brand retail investments
    

Investments/developments in the FMCG industry

The FMCG industry in India has undergone significant investments and developments in recent years. Let's study some major ones:

• Patanjali Foods has invested about Rs. 5,000 crores to fund several food parks in Maharashtra, Madhya Pradesh, Andhra Pradesh, and Assam.
• RP-Sanjiv Goenka Group has established a venture fund of $1 million, which is earmarked for investing in FMCG startups.
• Future Group and Fonterra have created a joint venture focusing on producing several dairy products for consumers and restaurants.
• Also, a prominent US chocolate manufacturer has decided to invest millions of dollars in India.
  

Primary forces behind the expansion of the FMCG sector

The FMCG industry in India is a major contributor to the Indian economy and creates employment for around 3 million people. It has expanded at an excellent CAGR of 27.9% and was valued at US$ 230.14 billion in 2023. Let’s look at some primary forces which led to this growth:

1. Rising income levels

• As disposable income levels increase, consumers have more money to spend on FMCG products.
• This holds for the Indian economy and has substantially driven growth in the sector.

2. Urbanisation

• The process of urbanisation has led to a higher demand for FMCG products, especially in urban areas where consumers have greater purchasing power.
• This shift towards urban living has fueled the growth of the FMCG sector.

3. E-commerce and digital adoption

• The widespread adoption of e-commerce and digital platforms has eased access to FMCG products.
• This has led to a rapid surge in online shopping, which significantly contributed to the expansion of the FMCG sector.

4. Government initiatives

• Government policies and initiatives have allowed 100% Foreign Direct Investment (FDI) in Single Brand Retail Trading (SBRT).
• This move attracted foreign investments and played a crucial role in the growth of the FMCG industry in India.

5. Rural market growth

• The rural market in India is experiencing significant growth due to factors such as:
  • Increased disposable income
    and
  • Rising per capita expenditure
• This growth presents a vast untapped market for FMCG companies that further drives the expansion of the sector.
• As per a recent study conducted by IBEF, rural India contributes around 45% of the total revenue generated by the FMCG sector.
• It’s not much behind the urban sector, which contributed 55%, and is slowly closing the gap.

Largest obstacles in the FMCG sector

Despite being rapidly growing and enjoying a huge customer base, the FMCG industry in India faces several significant challenges. Let’s study them:

• Hard to manage the vast data
  With advancements in technology, there's been an exponential increase in the market data. This abundance of data has led to a situation where a large portion is deemed useless. Ultimately, it creates challenges related to extracting valuable information.

To resolve this problem, companies must focus on:

• Purchasing only the necessary information
  and
• Identifying relevant connections to consumer behaviour

Next, companies can use the collected/purchased information strategically to create relevant products and serve their customer’s needs.

• Difficulties in controlling brand image

Information now spreads quickly through various media platforms, especially social media. This makes it challenging for companies to control their brand image and manage crises effectively.

As a solution, brands must see these platforms as tools for reaching a wide audience in minutes. Accordingly, they can use smart strategies, which promote their businesses and minimise communication costs.

• Surge in online shopping for groceries

Online grocery shopping is expanding rapidly in most developed markets. This expansion has led to the emergence of niche online stores with:

• Limited product selections
  and
• Higher prices

Thus, brands that rely only on frequent product releases or variations face significant challenges. That’s because online retailers are organising their product categories more efficiently by carefully selecting which products to offer. This limits the control of brand owners over the specific products featured on these platforms.

Future outlook for the FMCG sector

Based on historical analysis and numerous studies, we can safely assume that the future outlook for the FMCG industry in India is promising. Let’s look at some key factors driving this growth:

1. Growth rate

• The FMCG industry is projected to grow at a strong Compound Annual Growth Rate (CAGR) of 14.9% from 2020 to 2025.
• It is even expected to reach a substantial market size of USD 220 billion by 2025.
• These stats indicate a high demand for FMCG products in the Indian market.

2. E-commerce and digital adoption

• The continued rise of e-commerce and digital platforms is expected to boost online sales.
• Some popular projections indicate that nearly 11% of FMCG sales will be conducted online by 2030.
• This shift shows:
  • Changing consumer preferences
    and
  • Increasing convenience of online shopping

3. Increased brand awareness

• Higher brand recognition and consumer awareness, particularly in segments like household and personal care, are expected to drive growth in the FMCG sector.
• Strong branding and marketing strategies will help companies capitalise on consumer preferences and loyalty.

4. Technological advancements

• It is expected that the FMCG industry will substantially improve its operational efficiency by using technology
• This will help the companies operating in the sector to:
  • Identify new opportunities
    and
  • Manage complex supply chain requirements
• Also, they can streamline their processes and improve competitiveness in the market.

5. More foreign capital

• The central government has launched several initiatives to stimulate growth in the FMCG sector.
• Some popular examples are:
  • Production-linked incentive (PLI) schemes
    and
  • Relaxed foreign direct investment (FDI) regulations
• These policies create a favourable environment for investment and encourage both domestic and foreign players to invest.

6. Increased consumer spending

• As per popular estimates, consumer spending in India is projected to rise significantly and reach approximately USD 8.85 trillion by 2025.
• Some primary reasons behind this increase are:
  • Rising disposable income
    and
  • Evolving consumer behaviours
• Both indicate a strong demand for FMCG products in the foreseeable future.
  

Conclusion

The FMCG industry in India holds immense promise for growth and development. With a projected CAGR of 14.9% and a market size expected to reach USD 220 billion by 2025, the sector demonstrates a strong demand for everyday consumer goods.

This growth is stimulated by several factors such as rising income levels, urbanisation, and the increasing adoption of e-commerce platforms. Additionally, initiatives by the government to attract foreign investment and stimulate domestic manufacturing further brighten the sector's prospects.

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