FMCG AUGUST 2012 - IBEF · Source: HUL Notes: OTC is over the counter products; ethicals are a...

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FMCG

For updated information, please visit www.ibef.org

AUGUST

2012

2 2

Contents

Advantage India

Market overview and trends

Growth drivers

Success stories: Major players

Opportunities

Useful information


FMCG AUGUST

2012

3 3

FMCG

For updated information, please visit www.ibef.org ADVANTAGE INDIA

Advantage India

Advantage India

• 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

• Low penetration levels in rural market offers room for growth

• There is a growing market for premium products

• Exports is another growth segment

• Industry witnessed heavy FDI inflows as the sector accounted for 1.8 per cent of the country’s total FDI inflows over April 2000-Feburary 2012

• Many players are pursuing inorganic growth by acquiring regional players

• Automatic investment approval of up to 100 per cent foreign equity in single brand retail is allowed

• Introduction of Goods and Service Tax (GST) as a single unified tax system from August 2012

Market size: USD74 billion

2018E

Market size: USD30 billion

2011

Notes: Emami, Market size estimates from Technopak 2018E – estimated figure for 2018

Growing demand Attractive opportunities

Increasing investments Policy support

AUGUST

2012

4 4

Contents

Advantage India


Growth drivers


Opportunities

Useful information


FMCG AUGUST

2012

5 5 For updated information, please visit www.ibef.org MARKET OVERVIEW AND TRENDS

The FMCG market has four main segment

Source: HUL Notes: OTC is over the counter products; ethicals are a range of pharma products

FMCG

Household care Personal care Food & Beverages

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

Health care

OTC products and ethicals

FMCG AUGUST

2012


Source: IDFC, Business Today, Aranca Research Notes: Gross block of FMCG is the total value of all the assets in the sector

Evolution of FMCG in India

→ FMCG is the fourth largest sector in the Indian economy

Indian FMCG industry (USD billion)

Gross block of FMCG industry (USD billion)

Market size of chocolates (USD million)

Market size of personal care (USD billion)

HUL’s share in FMCG market (%) >50%

<3

<100

0.6

9.0

<30%

8.6

625

2.3

34.8

2000

2010-11

(2011)

(2010)

(2011)

(2011)

(2011)

FMCG AUGUST

2012

7 7 For updated information, please visit www.ibef.org

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 2006-11, the sector’s revenues posted a CAGR of 17.3 per cent

Trends in FMCG revenues over the years (USD billion)

Source: Dabur, AC Nielsen, Aranca Research

MARKET OVERVIEW AND TRENDS

15.7 17.8

21.3

24.2

30.2

34.8

0

5

10

15

20

25

30

35

40

2006 2007 2008 2009 2010 2011

CAGR 17.3 %

FMCG AUGUST

2012


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

→ Personal care (22.0 per cent) and fabric care (12.0 per cent) are the other leading segments

Market break-up by revenues (2009)

Source: Dabur, Aranca Research


43%

22%

12%

8%

4%

4% 2% 5%

FoodproductsPersonalcareFabric care

Hair care

Households

OTCproducts

FMCG AUGUST

2012


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

→ Semi-urban and rural segments are growing at a rapid pace; they currently account for 33.5 per cent of revenues

→ FMCG products account for 53.0 per cent of total rural spending

Urban-rural revenue break-up (2011)



66.5%

33.5%

Urban

Rural

FMCG AUGUST

2012


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

Growth in urban and rural FMCG markets (FY11)

Source: AC Nielson, Aranca Research Notes: UR-Urban Rural


24%

28%

42%

27%

11% 11%

14% 16% 19% 21%

0%5%10%15%20%25%30%35%40%45%

0%

10%

20%

30%

40%

50%

60%

70%

Urban Rural UR Growth %

FMCG AUGUST

2012


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 (2010)



42%

37%

67%

18%

18%

3%

2%

4%

77%

57% 80%

32%

59%

19%

5%

26%

0% 20% 40% 60% 80%

Toothpaste

Shampoo

Hairoil

Skin cream

Mosquito repellent

Instant noodles

Hair dye

Floor cleaner

Urban Rural

FMCG AUGUST

2012


Penetration levels vary; grocers remain the main sales channel … (2/2)

→ A total of 7.8 million retail outlets sell FMCG in India

→ Grocers are the dominant retail format, accounting for 59.0 per cent

Sales channel breakdown (2010)

Source: AC Nielson, Aranca Research


59%

13%

8%

6%

3% 6% 5%

Grocers

General stores

Chemists

Paan plus

Food stores

Modern trade

Others

FMCG AUGUST

2012


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

FMCG AUGUST

2012


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 • Backward integration is becoming the preferred strategy for increasing profit margins

Focus on rural market • 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

Expanding distribution networks

• Companies are now focused on improving their distribution networks to expand their reach in rural India

Source: Aranca Research

FMCG AUGUST

2012


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

• Companies are increasingly introducing smaller stock keeping units at reduced prices. This helps them to sustain margins, maintain volumes from price-conscious customers and expand their consumer base

Increased hiring from tier II/III cities

• 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

Focus on enhancing presence in Africa

• 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

Reducing carbon footprint and eco-friendly products

• 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

FMCG AUGUST

2012

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Contents

Advantage India


Growth drivers


Opportunities

Useful information


FMCG AUGUST

2012

17 17 For updated information, please visit www.ibef.org GROWTH DRIVERS

Growth drivers of the FMCG sector in India

Rise of rural consumers

Growing popularity of

organised retail

FDI support

Increasing per capita income of urban and rural

population

Government’s pro-industry

policies

Source: Aranca Research Notes: FDI-Foreign Direct Investment

FMCG AUGUST

2012


Higher incomes have aided growth in both urban and rural markets

→ Per-capita income in the country rose at a CAGR of 11.5 per cent over 2001-11

→ Strong income growth is set to continue in future as

well; IMF forecasts point to a CAGR of 8.2 per cent over 2011-17 to USD2,225.9

→ An important consequence of rising incomes is

growing appetite for premium products, primarily in the urban segment

India’s per capita income at current prices (USD)

Source: IMF, Aranca Research Notes: CAGR-Compound Annual Growth Rate

GROWTH DRIVERS

-5%

0%

5%

10%

15%

20%

25%

30%

0

500

1000

1500

2000

2500

2001 2003 2005 2007 2009 2011E 2013F 2015F 2017F

Per capita income, USD, LHS Annual growth rate, RHS

FMCG AUGUST

2012


→ 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)

Source: NREGA, Aranca Research

GROWTH DRIVERS

Notes: MSP is Minimum support price, NREGA is National Rural Employment Guarantee Act

6.2

7.0 7.3

6.1

0.0

2.0

4.0

6.0

8.0

FY09 FY10 FY11 FY12

Government initiatives for rural development

FMCG AUGUST

2012


→ 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)

Source: AC Nielson, Aranca Research

Increasing awareness and easier access is driving growth of modern retail

GROWTH DRIVERS

37%

27%

23%

23%

22%

17%

17%

15%

13%

13%

0% 10% 20% 30% 40%

Packaged rice

Floor cleanser

Tissue paper

Glass cleansers

Packaged atta

Phenyls

Bread

Toilet cleansers

Packaged ghee

Jams and jelly

FMCG AUGUST

2012


→ The sector has been witnessing strong FDI inflows over the years; in fact, during FY01-12*, FMCG accounted for 1.8 per cent of total inflows

→ Within FMCG, food processing was the largest recipient; it’s share was 44.9 per cent

Cumulative FDI inflows * (USD million)

Source: DIPP, Aranca Research

FDI inflows have also gone up over the years

GROWTH DRIVERS

* April 2000 – Feb 2012

1381.0

860.4

414.7

276.6

100.3

44.5

0 500 1000 1500

Food processing

Paper, pulp

Soap, cosmetics

Vegetable oil

Tea,Coffee

Retail trading

FMCG AUGUST

2012


Policy and regulatory framework

GROWTH DRIVERS

Goods and service tax (GST)

• Introduction of GST for the purpose of integrating multiple indirect taxes under a unified tax system from August 2012

• The rate of GST on services is likely to be 16 per cent and on goods is proposed to be 20 per cent

Excise duty

• 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

Relaxation of license rules

• 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

Statutory Minimum Price • 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

• India currently allows 100 per cent FDI in cash & carry segment as well as single-brand retail

• India is also expected to allow 51 per cent FDI in multi-brand retail, which will boost the nascent organised retail market in the country


FMCG AUGUST

2012

23 23 For updated information, please visit www.ibef.org GROWTH DRIVERS

New Goods and Service Tax (GST) would simplify tax structure


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

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

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

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

FMCG AUGUST

2012


Key M&A deals in the industry … (1/2)

GROWTH DRIVERS

Source: Bloomberg, Aranca Research Source: Company websites, Bloomberg, Aranca Research

Target name (segment) Acquirer name (segment) Merger/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

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

FMCG AUGUST

2012


Key M&A deals in the industry … (2/2)

GROWTH DRIVERS

Target name (segment) Acquirer name (segment) Merger/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)

Bacardi Martini BV, Netherlands (beverages) Acquisition

Godrej Hygiene Care Pvt Ltd (home care) Godrej Consumer Products Ltd

(home care) Merger

Britannia New Zealand Foods Pvt Ltd (joint venture partner Fonterra Cooperative Group Ltd) (food)

Britannia Industries Ltd (food) Acquisition

Source: Bloomberg, Aranca Research

FMCG AUGUST

2012

26 26

Contents

Advantage India


Growth drivers


Opportunities

Useful information


FMCG AUGUST

2012


Emami – one of the fastest growing FMCG companies … (1/2)

SUCCESS STORIES: MAJOR PLAYERS

Salient features

• Niche category player and innovator

• Key brands are strong market leaders in their respective categories

• Portfolio includes Zandu, one of the strongest Ayurvedic brands

• Over 80 per cent of business comes from wellness categories

• The company's revenues has grown at a CAGR of 21.2 per cent over the last five years

Net sales (USD million)

Source: Company reports, Aranca Research

115.9 130.7

170.3

230.7

284.0 302.8

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

FY07 FY08 FY09 FY10 FY11 FY12

CAGR 21.2 %

FMCG AUGUST

2012


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

• Ranked 125th among BT (Business Today) Most Valuable Companies of India in private Sector

• Ranked 272nd among Fortune 500 India’s largest corporations on profitability

Strategy to

drive revenue

Celebrity promotion

New geographies

Brand extension

Rural reach

Product innovation

Leveraging existing

distribution network

Differentiated ‘value for money’ products


FMCG AUGUST

2012


Dabur – riding on strong brand equity in India … (1/2)


Sales (USD million) Salient features

• Among top four FMCG companies in India

• 10 brands with sales worth over USD20 million each

• Wide distribution network covering 2.8 million retailers across the country

• 17 world-class manufacturing plants catering to needs of diverse markets

• Over 30 per cent of revenues generated from international markets


433.4 499.2

596.7 711.8

856.2

1,100.6

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

FY07 FY08 FY09 FY10 FY11 FY12

CAGR 20.4 %

FMCG AUGUST

2012

30 30 For updated information, please visit www.ibef.org SUCCESS STORIES: MAJOR PLAYERS

Awards and recognitions in 2011-12

• Ranked 184 in Fortune India 500 list

• Ranked 78 in Super-100 (Business India)

• Ranked 45 among Most Trusted Brands in India (Brand Trust Report, India Study, 2011)

• 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’

Strategy

Expand

Acquire Innovate

Dabur – riding on strong brand equity in India … (2/2)


FMCG AUGUST

2012

31 31

Contents

Advantage India


Growth drivers


Opportunities

Useful information


FMCG AUGUST

2012

32 32 For updated information, please visit www.ibef.org OPPORTUNITIES

Growth opportunities in the Indian FMCG industry

Source: Assorted articles and reports; AC Nielson ,Aranca Research

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

FMCG AUGUST

2012

33 33

Contents

Advantage India


Growth drivers


Opportunities

Useful information


FMCG AUGUST

2012

34 34 For updated information, please visit www.ibef.org USEFUL INFORMATION

Industry Associations … (1/3)

Indian Dairy Association Secretary (Establishment) Indian Dairy Association, Sector-IV, New Delhi –110022 Phone: 91-11-26170781, 26165355, 26179780; Fax: 91-11-26174719 E-mail: [email protected] Website: www.indairyasso.org All India Bread Manufacturers’ Association PHD House, 4/2, Siri Institutional Area, August Kranti Marg, New Delhi –110016 Phone: 91-11-26515137; Fax: 91-11-26855450 E-mail: [email protected]; [email protected] Website: www.aibma.com All India Food Preservers’ Association 206, Aurobindo Place Market Complex Hauz Khas, New Delhi –110016 Phone: 91-11-26510860, 26518848; Fax: 91-11-26510860 Website: www.aifpa.net

FMCG AUGUST

2012



Federation of Biscuit Manufacturers of India PHD House, 4/2, Siri Institutional Area, August Kranti Marg, New Delhi –110016 Phone: 91-11-26515137; Fax: 91-11-26855450 E-mail: [email protected]; [email protected] Website: www.biscuitfederation.com Indian Soap & Toiletries Manufacturers’ Association Raheja Centre, 6th Floor, Room No 614, Backbay Reclamation, Mumbai – 400021 Phone: 91-22-2824115; Fax: 91-22-22853649 E-mail: [email protected] Indian Soft Drinks Manufacturers' Association 702, Ansal Bhawan, 16 KG Marg, New Delhi – 110001 Phone: 91-11-46470200; Fax: 91-11-23327747

FMCG AUGUST

2012



The Solvent Extractors' Association of India 142, Jolly Maker Chambers, No 2, 14th Floor, 225, Nariman Point, Mumbai – 400021 Tel : 91-22-22021475, 22822979; Fax: 91-22-22021692 E-mail: [email protected] Website: www.seaofindia.com Vanaspati Manufacturers’ Association of India 903, Akashdeep Building, 26-A, Barakhamba Road, New Delhi –110001 Phone: 91-11-23312640; Fax: 91-11-23315698

FMCG AUGUST

2012


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

FMCG AUGUST

2012

38

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

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Disclaimer

For updated information, please visit www.ibef.org DISCLAIMER

FMCG AUGUST

2012

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