The Associated Chambers of Commerce and Industry of India · 6.2 Health & Wellness Industry ......

The Associated Chambers of Commerce and Industry of IndiaASSOCHAM Corporate Office: 5, Sardar Patel Marg, Chanakyapuri, New Delhi-110 021

Tel: 011-46550555 (Hunting Line) • Fax: 011-23017008, 23017009 Email: [email protected] • Website: www.assocham.org

Fmcg Sector growth & Logistic Innovation

One more feather in the Make in India initiative

October 2017

This report has been prepared by ASSOCHAM in association with MRSS India

From the President’s desk

The Indian FMCG sector is the fourth largest sector in the economy and is estimated to grow US$ 100 billion by 2020. The change in lifestyle and increasing income levels has led to a fast growing FMCG industry in the country over the past few years. This pace is expected to upscale over the next decade with all the global companies eyeing to leverage on the opportunity the market has to offer. This is coupled with Government of India’s pragmatic policies and regulatory frameworks such as relaxation of license rules and approval of 51 per cent Foreign Direct Investment (FDI) in multi-brand and 100 per cent in single-brand retail are some of the major growth drivers for the FMCG market. It is estimated, by 2020, India is set to become the youngest country in the world with around 64 per cent of the population in the working age group.

The population in the urban sector has taken a shift from essential to premium products as there is a rise in their disposable income and an increase in mid-high class income groups. This has brought a challenge to the FMCG companies to also start focusing on making premium products especially in the segment of personal care. Rural India is set to be the major business driver for the FMCG giants as the growth in this particular area is on an all-time high and still has a lot to offer. Companies are not only trying to cater this segment by just tapping in but also, creating specific products with different packaging targeted specially for the rural areas. Effective supply chain management is surely plays a big role here especially keeping rural market in focus.

In this backdrop, the timing for organizing ASSOCHAM’s FMCG Summit could not have been more appropriate. I am hopeful that the ideas and suggestions emanating from this Summit will go a long way in helping India’s FMCG sector grow further and contribute to the overall growth of the economy.

Sandeep JajodiaPresidentASSOCHAM

ForewordFMCG market in India is expected to grow at a CAGR of 21 per cent and is expected to reach US$ 103.7 billion by 2020 from US$ 49 billion in 2016. The rural FMCG market in India is expected to grow at a CAGR of 14.6 per cent, and reach US$ 220 billion by 2025 from US$ 29.4 billion in 2016.

The reasons for this exponential growth on account of growing disposable income, booming youth population, rise in number of smaller towns with urban development, emergence of new channels like e-commerce, proliferation of the internet connectivity, demand driven by digital media and increasing brand consciousness among consumers. There are customers sitting in far and wide corners of India waiting to be serviced. So, making their products available to them is next big challenge before large FMCG companies.

Supply chains of FMCG around the world have rapidly moved beyond the role of an enabling function. A well-designed, agile, responsive, and efficient supply chain is a clear competitive advantage for business today. Amid a resurgent Indian growth story, the expectations held of India’s supply chain ecosystems are no different. If anything, they are tougher than elsewhere. And the ecosystem is reacting to these expectations by adapting and innovating to deliver this competitive advantage to businesses across industries. This same ecosystem also continues to face roadblocks that are unique to India. Identification of high growth categories for focus, most optimal type of transport needed to ensure efficient last mile delivery.

The knowledge paper titled “FMCG Sector Growth & Logistic Innovation: One more feather in the Make in India initiative” describes about different innovative initiatives taken up by major FMCG giants in terms of supply chain management to strengthen last mile linkage to gain their market share specially integrating huge un-tapped rural market and introduction of GST in Indian trade. It is our privilege to release this paper at ASSOCHAM’s “National Summit & Awards FMCG 2017: Branding. Supply Chain. Regulations. Consumer Protection” on October 10, 2017 at Hotel Le Meridien, New Delhi.

We recognize the efforts and contribution of Dr Om S Tyagi, Ms Purnima Dhingra and Mr Nitesh Sinha in organizing this summit. We believe the outcomes of this summit as well as our knowledge paper will serve as an important reference document for the various stakeholders of FMCG Sector.

D S Rawatsecretary GeneralASSOCHAM

MESSAGE from MRSS India

It gives me great pleasure to note that ASSOCHAM is organizing 3rd National Summit & Awards - FMCG 2017. It is a privilege for MRSS India to engage in this symposium as a knowledge Partner.

We are in exciting times. India is undergoing a significant transformation with regard to its consumer attitude & behavior. Being a younger nation, our people are aspirational and are embracing more progressive and faster-paced lifestyle with ever increased usage of packaged / branded products.

The younger, burgeoning upper and middle class, today has more purchasing power and looks forward to utilizing more of FMCG products for greater convenience.

The FMCG category is expected to witness accelerated growth in the next few years to come, with more adoption by semi-urban and rural markets, greater connectivity and availability of efficient logistics solutions to bring branded / packaged FMCG products to its customers.

As a Knowledge Partner, MRSS India is committed to provide support in driving a higher level of consumer and market understanding to all stakeholders. This will pave the way for a healthier level of flow of investment into the sector, both from Indian and overseas strategic intent into this sector.

I am confident that this Symposium will dwell upon all critical factors impacting the industry today. I wish the Symposium a resounding success in providing detailed way forward for a synergistic role of FMCG companies partnering with Logistics business with positive government policies.

Raj SharmaChairman mrss india

Contents

1 Executive Summary ............................................................................................................... 1

2 Introduction ........................................................................................................................ 4

3 FMCG Scenario in India ......................................................................................................... 7 3.1 Market Size and Segments ..................................................................................................7 3.2 Growth Drivers ....................................................................................................................7 3.2.1 Growth in modern retail - .......................................................................................8 3.2.2 Accessibility- ...........................................................................................................8 3.2.3 Rural market – ........................................................................................................8

4 Emerging New Age Indian Consumer ..................................................................................... 9 4.1 Background ..........................................................................................................................9 4.2 The Factors Shaping This Growing Market ..........................................................................9 4.2.1 Rising Affluence ......................................................................................................9 4.2.2 Growth of emerging cities ......................................................................................9 4.2.3 Rise of nuclear households ...................................................................................10 4.2.4 Growth in E-Commerce Market ............................................................................10 4.3 Driving Factors ...................................................................................................................10 4.3.1 Niche Player: Key Path for E-Growth.....................................................................11 4.3.2 Government Support ............................................................................................11 4.3.3 Transformation of Food & Grocery Market ...........................................................11 4.4 Challenges for the e-Commerce sector in India15 .............................................................11

5 Indian Rural Market ............................................................................................................ 12 5.1 Market size ........................................................................................................................12 5.2 Government Initiatives ......................................................................................................13 5.3 Road Ahead .......................................................................................................................13

6 Golden Boys of FMCG .......................................................................................................... 14 6.1 Background:.......................................................................................................................14 6.2 Health & Wellness Industry ...............................................................................................14 6.2.1 Growing Fitness Industry ......................................................................................15 6.3 Cosmetics Industry .............................................................................................................15 6.3.1 Growth in the cosmetics industry in India .............................................................16 6.3.2 Growth Drivers ......................................................................................................16 6.3.3 Popularity among teenagers ................................................................................17 6.3.4 Popularity among Indian Men ..............................................................................17

6.3.5 Rise in demand for natural and herbal products ..................................................17 6.3.6 Major Factors behind the purchase of Personal Care products ............................17 6.3.7 Entry of foreign brands into natural products ......................................................17 6.3.8 Demand for herbal products in overseas market ..................................................18 6.4 Food & Beverage Industry .................................................................................................18 6.5 Beverages Industry ............................................................................................................19 6.5.1 Regional Share in Market Segments .....................................................................20 6.5.2 Market Size & Growth ...........................................................................................20 6.6 Alcohol Industry .................................................................................................................20 6.6.1 Structure of Alcohol Industry in India ...................................................................20 6.6.2 Factors influencing the growth of alcohol industry in India26: .............................21

7 Supply Chain ...................................................................................................................... 22 7.1 Background ........................................................................................................................22 7.2 Current Challenges in Supply chain ...................................................................................22 7.3 Types of Distribution models in Supply chain ....................................................................22 7.4 Types of Distribution channel: ...........................................................................................23 7.5 Infrastructure.....................................................................................................................23

8 Innovations in Warehousing ................................................................................................ 25 8.1 Current Scenario of Warehouses in India ..........................................................................25 8.2 Significant growth drivers29 ..............................................................................................25 8.3 The key warehousing segments in India ............................................................................25 Significant growth drivers: ..........................................................................................................26 8.3.1 Agri-warehousing .................................................................................................26 8.3.2 Cold stores ............................................................................................................26 8.4 Challenges in Warehousing ...............................................................................................27 8.5 Innovations in Warehousing ..............................................................................................28 8.5.1 Lean Techniques in Warehousing ..........................................................................28 8.5.2 Lean Solutions27 ...................................................................................................29 8.5.3 Tangible Improvements27 ....................................................................................29 8.6 Retail Cold Chains- Challenges & Opportunities30 ............................................................30 8.6.1 Gaps in Warehousing/ Challenges - Gaps in Cold Chains .....................................30 8.6.2 Government Initiatives .........................................................................................31 8.6.3 Possible Solutions..................................................................................................31 8.7 Top Modern Logistic/ Warehousing Technologies .............................................................31 8.7.1 EDI communication in Warehousing31 .................................................................31 8.7.2 Other logistics technologies32 ..............................................................................33 8.8 Technology Benefits F&B Industry .....................................................................................34

9 Branding ............................................................................................................................. 35 9.1 Branding is an integral part of the business building process. ..........................................35 9.1.1 The success of an FMCG depends greatly on its marketing strategy. ...................35 9.2 Case Study: Patanjali .........................................................................................................37 9.2.1 Focus areas of Patanjali Ayurveda ........................................................................37 9.2.2 Distribution Network ............................................................................................38 9.2.3 Growing Preference of Ayurvedic Products ...........................................................38

10 FMCG Strategic Synergy ....................................................................................................... 40 10.1 Background ........................................................................................................................40 10.2 Synergy of FMCG & Retail Industry ....................................................................................40 10.2.1 Government Initiatives for Retail and Ecommerce Industry ..................................41 10.3 Synergy between FMCG, Retail and Logistics ....................................................................42 10.4 Synergy between FMCG, Retail and E-Commerce .............................................................42 10.5 Goods and Service Tax (GST) - Possible Impact on Indian FMCG, Retail, Logistics .............42

11 References .......................................................................................................................... 44

FMCG Sector Growth & Logistic Innovation – One more feather in the Make in India initiative 1

1. ExecutiveSummary

indian Economy is currently witnessing is a synergy of explosive growth in retail market driven by FMCG, coupled with consumer’s rapid adoption of e-commerce. Fast moving consumer goods (FMCG)

sector is an important contributor to the India’s GDP growth. Currently, FMCG industry is the fourth largest sector in the Indian economy and provides employment to around 3 million people. Over the years, India FMCG sector has been growing at a healthy pace on account of growing disposable income, booming youth population and increasing brand consciousness among consumers’.

Indian consumers have adopted new technologies and thus fundamentally modified the structure of demand. This demand is shaped by factors such as, noticeable shift in demographics with rising income middle class, rise in number of smaller towns entering consumption bandwagon, emergence of new channels like e-commerce, proliferation of the internet connectivity, demand driven by digital media. Given this to be state of things to be in future, decoding these consumption patterns would be critical for companies to re-imagine themselves and build new capabilities to win in this new world.

There is high attention on the affluent and elite households in India, but the major focus has been in metros, state capitals and larger towns. There is a strong and growing market in the next tier of towns with population of less than 1 million, these towns number more than 600 spread in the width and breath of India. It is estimated that these 600 towns will add another 30% of elite / affluent households and is a sitting market set to be grabbed.

Retail market in India is estimated to reach US$1.1 trillion by 2020 from US$ 672 billion in 20162, with modern trade expected to grow at 20 per cent per annum, which is likely to boost revenues of FMCG companies. FMCG market in India is expected to grow at a CAGR of 21 per cent and is expected to reach US$ 103.7 billion by 2020 from US$ 49 billion in 2016.

The rural FMCG market in India is expected to grow at a CAGR of 14.6 per cent, and reach US$ 220 billion by 2025 from US$ 29.4 billion in 2016. E-commerce and digital connectivity is not limited to the urban localities, with rural population using these services with high penetration of smart phones, credit cards/ debit cards and online banking services. There are customers sitting in far and wide corners of India waiting to be serviced. Making their products available to them is next big challenge before large FMCG companies.

Supply chain management as defined by Keith Oliver of Booz Allen Hamilton describes the overall process of planning, implementing and controlling all aspects of the supply chain with an express fundamental driving force to satisfy customers’ needs in a quick and efficient manner.

FMCG Sector Growth & Logistic Innovation – One more feather in the Make in India initiative2

For FMCG products success is characterized by virtue of its availability at the point of consumption (end users), where supply chain plays a vital role as volume of products, movements of goods are far higher and complex than in comparison with other type of products. Thus resulting in a wide and complex distribution channels and having direct bearing on the financial aspects of the FMCG products.

Supply chain challenges in FMCG products7:

• To ensure permanent on-shelf product availability

• To optimize costs and enhance efficiencies

• Identify, anticipate and organize for peak periods

• To be flexible to accommodate environment and social concerns.

Large FMCG companies have focused primarily and made significant improvements to manufacturing, service and maintenance operations through lean techniques - for example eliminating waste, removing inflexibilities, introducing modular and variability in their systems reducing costs, improving efficiencies and building shareholders value. However, there is not much focus on similar stringent strategies for warehouse operations and transportations. The need of the hour to enhance availability and improve cost efficiencies is in the logistics and transportation sector.

Identification of specific gaps with Company owned warehouse with respect to people, process, performance management, layouts, interactions, tracking technologies and ownership.

With rapid growth of outsourcing in the warehousing and logistic sector, elements of third party interactions primarily for variable demand and customized needs of customers (FMCG companies) are the most important cogs in smooth operations. Learning’s from best in class process adopted to provide glimpse into level of customization and optimization of standardization are call of the hour.

Health and wellness the new golden boy of FMCG3: Health and wellness is a mega trend shaping consumer preferences and shopping habits and FMCG brands are listening. Leading global and Indian food and beverage brands have embraced this trend and are focused on creating new markets demands.

Identification of high growth categories for focus, most optimal type of transport needed to ensure efficient last mile delivery, development of spoke – hub models, multi modal models, growth of warehouses, multi-location manufacturing facilities, quality and packaging options, government policies for large infrastructure developments.

Supply chains around the world have rapidly moved beyond the role of an enabling function. A well-designed, agile, responsive, and efficient supply chain is a clear competitive advantage for business today. Amid a resurgent Indian growth story, the expectations held of India’s supply chain ecosystems are no different. If anything, they are tougher than elsewhere. And the ecosystem is reacting to these


expectations by adapting and innovating to deliver this competitive advantage to businesses across industries. This same ecosystem also continues to face roadblocks that are unique to India.

After the govt. issued 100% FDI in retail, the step has given a green flag to many global retailers to pull up their socks and get ready to invest in the Indian market as it proves to be a huge opportunity for them. Local players like D-mart and Big bazar are also upping the ante as they get ready to face competition from the foreign players. Also, talking about e-retail or e-commerce players like Flipkart and Amazon, who have been generating massive sales through their disruptive business models are all part of the same game.

While the retail industry in India is set to rise, we need to understand how it’s going to impact the FMCG sector in the country. When the e-commerce giants had started business, the FMCG products were not a part of the portfolio of products they had to offer. Now, we have had Flipkart’s BigBillionDay sale and Amazon’s great Indian sale bringing a storm in the Indian market with their massive discounts offerings to attract the Indian consumers sitting at home buying things at just a click of a button.

The FMCG companies are banking on these opportunities, Retail industry being one of the main sources of pushing the products into the market with different discounts running through different retail chains. After the implementation of GST, retailers are expecting the FMCG companies to cut down on the prices of their products as the new regime brings new GST rates that could impact the consumers when buying a product. The retailers believe if the companies don’t revise their prices, they’ll lose around 2-3% margins as per the new rule, the retailers have to display the new GST rates for each item. In order to achieve better market growth, the retailers and the FMCG companies will have to work in Synergy.


2. Introduction

in the Indian economy, fast moving consumer goods (FMCG) is the 4th largest sector. FMCG

mainly comprises of three main segments– food and beverages which accounts for 19 per cent of the sector, healthcare which accounts for 31 per cent and household and personal care which accounts for the remaining 50 per cent10.

The FMCG sector has leap frogged in the past two decades from US$ 9 billion in FY00 to US$49 billion in FY 2016-17. This sector is expected to reach US$ 103.7 billion by 2020 with a 20.6% CAGR growth. Of which nearly 40% that is approximately US $40 billion will be driven digitally by 2020, as reported by latest report from Google India and Boston Consulting Group (BCG). This online retail growth is on the backbone of more than 650 million Internet users by 2020. Most interestingly a large proportion of new internet users will be contributed by non-metros due to increased smart phone mobile penetration11.

This mass reach will have a big impact for FMCG companies and influence categories such as health and wellness, cosmetics, packaged foods and beverages.

Over the past few years, semi-urban and rural markets are growing at a rapid pace with higher penetration of media, mobiles and internet. It is expected that FMCG markets in these areas will grow at a CAGR of 14.6 per cent from US$ 29 billion in 2016 to US$ 100 billion by 2020.

Over the years the FMCG distribution business has steady shifted from dis-organized working style to an organized manner. This has led to availability of many supply chain solutions, fewer damages, and creation of more value to partners in the supply chain as well as provides valuable necessary data to partner brands for better forecasting their respective productions.

The distribution business is banking of the fact that as per IBEF data, modern retail is expected to reach $180 billion in 2020 from $60 billion just couple of years ago. The modern retail is expected to grow twice as fast as traditional retail. Currently, companies in India outsource an estimate of 55% of their


logistics requirements. Where transport alone accounts for 60% of spends on logistics, followed by warehousing and storage. According to one estimate, the size of Indian warehousing industry at present is estimated at over US$8.5 billion.

With the boom of e-commerce sector and expansionary policies of FMCG companies the geographic service footprint of logistics firms will expand exponentially. The logistics industries is moving from just a service provider to provider of end – to – end supply chain solutions to their customers.

Growing awareness, easier access, and changing lifestyles are the key growth drivers for the consumer market. The Government of India’s policies and regulatory frameworks such as relaxation of license rules and approval of 51 per cent Foreign Direct Investment (FDI) in multi-brand and 100 per cent in single-brand retail are some of the major growth drivers for the FMCG market.

This report attempts to highlight the current scenario of FMCG sector in India, it analyzes the impact of growth in modern retail, accessibility, opening up of rural markets as growth drivers for FMCG in India. These trends are stable trends and will effectively improve the acceptance, availability and profitability of the FMCG players.

One clear trend that is emerging and is expected to grow is the e-commerce segment especially in India, where it is expected to grow more than 1.5 times the anticipated global rate. This report to touches upon the growth drivers for adoption of e-commerce as well as its impact on all the stakeholders namely FMCG companies, financial institutions as well as logistics business.

This report touches upon the emerging new age Indian consumer, the one that uses digital technology to search for, identify and purchase FMCG products. This opens up a new distribution model for FMCG companies where the logistic business replaces the brick and mortar retail set up. We look at the impact of e-commerce on FMCG sector its demands and challenges on the logistic business as well as new challenges of stocking, supplying and reverse logistics.

This report also touches upon the growth of FMCG geographically, primarily in the semi-urban and rural markets. We look at the government initiatives and the positive impact of those initiatives to open up these markets.

The key segments that are in the forefront as drivers of FMCG sector are due to increased awareness and adoption of health, wellness and self-feel good factors by Indian consumers. We find sectors such


as health and wellness, cosmetics, packaged food and beverages are clear in the forefront growing adoption of branded and packaged products by consumers in the nook and corners of the country. We call them the golden boys of FMCG; this report highlights their growth drivers and the future potential of these key categories.

The report touches upon the current challenges in supply chain, different types of models present as well as innovations in warehousing with focus on agri-warehousing and cold chains. Among innovations this report also highlights the advanced inventory tracking technologies and its benefits to the FMCG segment especially F&B industry.

This report also looks at the synergy of FMCG companies, Logistic business, e-commerce, infrastructure, retail sector and government in its impact on growing Indian economy.


3. FMCGScenarioinIndia

3.1 Market Size and Segments

The Indian FMCG sector is the fourth largest sector in the economy. The market can be classified as food & beverages accounting to 19 per cent of the sector, healthcare with 31 per cent and household & personal care, being the highest, accounting to 50 per cent. FMCG sector has generated revenues worth US$ 49 billion in 2016 and is estimated to grow at a 9-9.5 per cent in the financial year 2017-2018. The change in lifestyle and increasing income levels has led to a fast growing FMCG industry in the country over the past few years. This pace is expected to upscale in the coming 5-10 years with all the global companies eyeing to leverage on the opportunity the market has to offer4.

Urban trends: The population in the urban sector has taken a shift from essential to premium products as there is a rise in their disposable income and an increase in mid-high class income groups. This has brought a challenge to the FMCG companies to also start focusing on making premium products especially in case of Personal care products.

Rural – the future: Rural is set to be the major business driver for the FMCG giants as the growth in this particular area is on an all-time high and still has a lot to offer. There was a 16 per cent rise, as against 12 per cent rise in urban areas. Companies are not only trying to cater this segment by just tapping in but also, creating specific products with different packaging targeted specially for the rural areas. They have realized the importance of rural areas and what it has to offer in terms of customer base and revenue generation.

3.2 Growth Drivers

Amongst all the growing economies of the world, India has been the center of attraction for many for many reasons. The changes in government policies, developments in infrastructure for example new Metro rail projects and Japan’s bullet train technology being some of the examples coming into the


picture. By 2020, India is set to become the youngest country in the world with around 64 per cent of the population in the working age group. This is something that many economists believe would give the country an edge over other economies and would help bask in an extra 2 per cent to the GDP growth rate.

Some of the growth drivers for the sector can be identified as:

3.2.1 Growth in modern retail -

The growing consumer preferences for branded products have led to a shift from unorganized to the organized FMCG sector. The increased level of brand consciousness will give an advantage to the e-retailers and the FMCG giants to get as close to the end consumer as possible.

3.2.2 Accessibility-

Online grocery stores and retailers such as Big basket, Flipkart and Amazon are helping the FMCG products to be easily available at a click of a button with different discount offers and festive sales.

3.2.3 Rural market –

For years marketers have been trying to focus on the huge scope of opportunity the Indian rural market has to offer. With FMCG giants like ITC and HUL running their e-chaupal and project Shakti initiatives focusing on the rural market to generate revenues, it is a no brainer that the market is set to overtake the urban consumption levels and will be the most attractive as it accounts for 40 per cent of the total FMCG market as of May 2017 and would grow massively in the coming years. With the increasing income levels and increased demand for branded products, the rural market is still an untapped reality.


4. EmergingNewAgeIndianConsumer

4.1 Background

The e-commerce segment in India is growing and is likely to touch USD 33 billion this fiscal. As informed by the Parliament in July 2017, In the 2016-17 fiscal, the online market had grown by 19 per cent.12 india is likely to be the third-largest consumer market by 2025 as the expenditure growth rate of 12% is more than double the anticipated global rate of 5%13.

4.2 The Factors Shaping This Growing Market

India’s fast-growing consumer market: rising affluence, the country’s ongoing and unique pattern of urbanization, and fundamental shifts in family structures13.

4.2.1 Rising Affluence

The rising annual gross household income has been transforming India to the most potential consumer market. The two top consumer categories – elite and affluent will be accounting for 40% of consumption and the combination will become the largest segment by 2025. The affluent urbanites will be responsible for one-third of total spending whereas the share of the strugglers and the next billion will reduce by 13% in 2025.

4.2.2 Growth of emerging cities

The increase in cities in Tier 2 to 4 will result in potential growth in consumer market. The growth of 7% would also increase the population in spending range of the cities.


4.2.3 Rise of nuclear households

The probability of more number of consumers also increases, as the family structure is predicted to be inclined towards ‘Nuclear Families’. It is a common belief that the decision making system of nuclear families are more favorable to spending as per requirements and preferences.

4.2.4 Growth in E-Commerce Market

E-commerce has been one of the fastest rising trading platform over the past few years. India is most promising market and platform for potential e-commerce growth. Big names like Amazon and Alibaba have already acquired strong market shares in India.

o India’s E-commerce market is number one in growth.

o The Growth is only expected to continue.

o Salaries are increasing, allowing for more spending.

o Internet use is growing in India.

As posted in Economic Times14, India is still very small E-Commerce market compare to world’s e-commerce spending. However, India has been growing drastically lately in terms of their internet use. From 2010 to 2016 the percentage of internet users has gone up from 7.5% to 34%. This is at a way faster rate than China or the U.S.A who have grown 17% and 14% respectively over that same time period

Indian ecommerce market is predicted to rise by tremendous speed and the compound annual growth rate will be more than double compare to other countries by 2021.

4.3 Driving FactorsThree of the main driving factors to supplement this rise would be the inculcation of niche players, role of Government and the transformed face of food and grocery.14, 15


4.3.1 Niche Player: Key Path for E-Growth

The recent growth in usage of online platform has led to increased investment in e-commerce firms and opened a market to new players to set up their base. Consumers attracted to personalization and unique product offerings. The new economy is being driven not only by the consumers who are purchasing products and services according to their preferences, but also by entrepreneurs fulfilling their passions and gaining financial success.

4.3.2 Government Support

The recent announcement of GST helps e-retail competitors streamline their supply chain and simplify their tax structure, while rationalizing seamless integration of goods and services across the country. The incorporation of GST ensures absolute clarity in regards to application of direct taxes on transactions undertaken by online businesses. The Government has provided a stable environment for E-Commerce platforms to harness growth and development.

4.3.3 Transformation of Food & Grocery Market

More consumers are opting for convenience and the adaptation of a digitally charged ecosystem, big and small players are slowly infiltrating the market with their food and grocery-based offerings. The ultimate shift from traditional market of neighborhood kiranas to snap online purchases has given competitive pricing and the convenience of shopping from the comfort of one’s own home.

4.4 Challenges for the e-Commerce sector in India15

The remarkable rise of the e-Commerce sector has also facing challenges:

• Absence of e-Commerce laws

• Low entry barriers leading to reduced competitive advantages

• Rapidly changing business models

• Urban phenomenon

• Shortage of manpower

• Customer loyalty

However, e-Commerce is set to continue on its growth path on the back of the stabilization of the ecosystem with the support from the Government of India.


5. IndianRuralMarket

the Fast Moving Consumer Goods (FMCG) sector in rural and semi- urban India is estimated to cross US$ 100 billion by 2025. The rural FMCG market is anticipated to expand at a CAGR of 17.41 per cent

to US$ 100 billion during 2009–25. Rural FMCG market accounts for 40 per cent of the overall FMCG market in India, in revenue terms.Amongst the leading retailers, Dabur generates over 40-45 per cent of its domestic revenue from rural sales. HUL rural revenue accounts for 45 per cent of its overall sales while other companies earn 30-35 per cent of their revenues from rural areas16.

According to the rural market analysis, there has been a constant rise in rural FMCG market. However, a prominent growth is predicted by 2025. The rise would triple in net 10 years than the market share in last year.

5.1 Market size

India’s per capita GDP in rural regions has grown at a Compound Annual Growth Rate (CAGR) of 6.2 per cent since 2000. The Fast Moving Consumer Goods (FMCG) sector in rural and semi-urban India is expected to cross US$ 20 billion mark by 2018 and reach US$ 100 billion by 2025.

According to the latest data by Kantar World panel, the volume of FMCG products sold in rural market has increased by 6% which is 2% faster than 2016. There is a significant growth in rural areas by 7% in the food and beverages category16.


5.2 Government Initiatives

The Government of India has planned various initiatives to provide and improve the infrastructure in rural areas6. The key highlighters are as below.

o The Government of India is looking to install Wi-Fi hotspots at more than 1,000 gram panchayats across India, under its ambitious project called Digital Village, in order to provide internet connectivity for mass use, as well as to enable delivery of services like health and education in far-flung areas.

o In the Union Budget 2017-18, the Government of India mentioned that it is on course to achieve 100 per cent village electrification by May 1, 2018.

o The pace of roads construction under Pradhan Mantri Gram Sadak Yojana (PMGSY) has been accelerated to 133 kms per day as against an average of 73 kms per day during the years 2011-14.

The above and similar more initiatives can have a multiplier effect in increasing movements of goods, services and thereby improve earnings potential of rural areas subsequently improving consumption.

5.3 Road Ahead• The rural region consumers are also expected to embrace online purchases over time and drive

consumption digitally as per the trend with urban India15,16, 17.

• The rural regions are witnessing increasing penetration of computers and smartphones as they were already well covered by basic telecommunication services.

• The companies are taking advantage of these developments and online portals are being viewed as key to enter and establish themselves in the rural market.

• The Internet has become a cost-effective means for a company looking to overcome geographical barriers and broaden its reach.


6. GoldenBoysofFMCG

6.1 Background:

the key segments that are in the forefront as drivers of FMCG growth in this country are due to increased awareness and adoption of health, wellness and self-feel good factors by Indian consumers.

We find sectors such as health and wellness, cosmetics, packaged food and beverages are clear in the forefront growing adoption of branded and packaged products by consumers in the nook and corners of the country.

6.2 Health & Wellness Industry

The wellness industry in India has developed swiftly from its emergent unstructured beginning in the early 1990s to a comprehensive ecosystem today. This ecosystem comprises consumers, suppliers, adjacent industries, facilitators and the Government.

According to a latest report the Indian wellness industry was estimated at close to Rs85,000 crore in financial year 2014-15 and is expected to grow at a compounded annual growth rate (CAGR) of nearly 12% for the next 5 years. The industry can achieve about Rs1.5 trillion by FY20.

India’s population today is relatively young (due to the high birth rates) with about 47% of the population expected to enter the elderly phase down the line. The report Value Added Service – Wellness and Preventive Healthcare stated that wellness will be a key growth driver of health insurance in India.

While the wellness and preventive health care sector as a whole is expected to nearly double by 2020, some sub-segments will outperform others. The market share of Fitness and rejuvenation would prominently rise while beauty care and nutritional care would retain their share. As the time evolved, the concept of ‘Wellness’ has taken up a multi-dimensional description, encompassing the individual’s aspiration for one’s own well-being, exclusivity and collective welfare18.

As per the report the Indian wellness market has a substantial scope for penetration mainly in zones like nutrition, rejuvenation and fitness. The Indian wellness industry is an enormous business prospect waiting to be harnessed.


“The market size of Indian wellness industry has seen a significant evolution from being restricted to fitness and feminine beauty to a more all-encompassing subject of physical, mental and emotional wellness,” said the report, which was released here during the ‘9th Annual Health Insurance Conference’

During FY15, the Indian wellness industry was estimated at Rs 85,000 crore. Bolstered by increasing awareness, push from the insurance industry and government, it is expected to grow at a CAGR of 12% for the next 5 years.

6.2.1 Growing Fitness Industry

The health and fitness sector in India is poised at an inflection point, with high market division, astonishing market potential and end-to-end overall growth. An article by CEO & founder of one of the leading health and fitness center of India states in Business world that the fitness industry in India is chiefly driven towards health, well-being, good looks and confidence2. Resistance training, aerobics, Zumba, aerial yoga, Pilates, MMA, kickboxing are the other segments where the Indians are mainly attracted nowadays19.

In India, fitness centers are expanding at extremely high pace as inactive lifestyles lowers immunity amongst today’s youth. The total retail market for fitness as a category is valued at Rs. 4,579 Cr (US$ 0.76 bn), growing at 16-18 per cent and is estimated to cross Rs. 7,000 crore (US$ 1.18 bn) in this year. The modern retail is estimated at 28 per cent of this total market and is expected to grow by 22-27 per cent.

6.3 Cosmetics Industry

It is a common belief that along with the growing popularity of yoga, the win by Indian beauties on the international platform contributed to the popularity and sale of cosmetics in India. The Indian cosmetics industry had a strong growth trajectory after the Miss World pageant that was held in India in 1996 and was sponsored by Godrej.

Many international brands entered the country after the policy of economic liberalization. Simultaneously, the Indian cosmetics market expanded. In 1999, the Indian cosmetics market grew 8% over 1998. It grew by 8.7% in current value terms in 2001, with value sales amounting to Rs.126 billion. Total value since 1995 was 54% in current terms, equating to 25% in constant terms. The increase in the middle class population with disposable incomes and increasing health and fashion consciousness can be considered to be the major factors behind the increasing demand of cosmetic products that are mostly herbal and came with an assurance of high quality20.


6.3.1 Growth in the cosmetics industry in India

According to industry experts, published by India Retailing in March 2017, the market size of India’s beauty, cosmetics and grooming market will touch 20 billion dollars by 2025 from the current level of 6.5 billion dollars. The rising awareness of personal care products, growing disposable incomes, changes in consumption patterns and lifestyles and improved purchasing power of women, promises exciting times for the personal care industry. These trends are anticipated to boost the personal care market in India and raise the consumption of personal care products and services, thereby offering extensive opportunities for domestic and international players21.

A report by KPMG wellness sector (2014) states that India’s beauty market will reach Rs.80,370 crore by 2017-18. It was Rs.41,224 crore in 2012-13. The report also indicates that the workforce requirement will grow to 12.1 million in 2022 from that of 3.4 million in 2013. It is estimated that the total Indian cosmetics market is of USD950 million, which indicates a growth of 15-20% per annum20.

6.3.2 Growth Drivers

Source: MRSS India Secondary Research


6.3.3 Popularity among teenagers

The consumption pattern of cosmetics among teenagers went up substantially between 2005 and 2015 because of increasing awareness and due to the desire to look good.

Over 68% of young adults feel that using grooming products boost their confidence20.

About 62% of young consumers in big cities prefer to buy online beauty and grooming products 45% of consumers tend to buy cosmetics and apparels from any shop of their convenience rather than a single shop.

6.3.4 Popularity among Indian Men

The Indian man’s grooming market witnessing a growth of more than 42% in the last five years.

The growth is faster than the growth rate of the total personal care and beauty industry in India.

6.3.5 Rise in demand for natural and herbal products

Indian consumers tend to purchase natural and herbal cosmetic products.

The herbal cosmetics industry is expected to grow at a rate of 12% in India.

Indian market has herbal cosmetic brands like Forest Essentials, Biotique, Himalaya Herbals, Blossom Kochhar, VLCC, Dabur, Lotus, Jovees, Kama Ayurveda, Patanjali, Just Herbs, and many more.

6.3.6 Major Factors behind the purchase of Personal Care products As per the recent research by Euromonitor, the major factors behind the preference for personal

care products include the words such as ‘natural’, ‘organic’, ‘botanical’, ‘free from’ some harsh chemical, and even ‘religious compliance’.

Over half of Indian consumers reported ‘natural or organic’ features influencing hair and skin care purchase decisions.

According to 71% consumers they would prefer ‘natural’ face cream or lotion over other similar products.

38% said they would buy hair products containing ‘botanical’ ingredients. Even ‘religious compliance’ has swayed 17% consumers.

6.3.7 Entry of foreign brands into natural products

French cosmetics brand L’Oreal has come out with Ayurvedic shampoo, conditioner, oil, and cream under its Garnier Ultra Blends brand

Hindustan Unilever re-launched Ayush and acquired hair oil brand Indulekha

emami bought out kesh king hair oil

Patanjali Ayurved, in a short span, has become a household name. Patanjali has a vast collection of shampoos, soaps, and beauty products.


6.3.8 Demand for herbal products in overseas market

The overseas markets have great demand for Indian herbal and natural cosmetic products.

CHEMEXCIL22 (Basic chemicals, Cosmetics and Dyes Export Promotion Council) claims that India is acknowledged to be the second largest exporter of herbal cosmetics to the world market after China.

Among all the Indian cosmetic industry, the best-selling and the most popular items are color cosmetics, of which nail varnish, lipsticks and lip glosses. Indian products have gained the demand due to their experience in extraction of the best from natural dyestuff, flowers, roots, oils, etc.

India exports natural and herbal cosmetic products to countries like the UAE, the USA, the Netherlands, Saudi Arabia, Germany, Japan, Malaysia, Nepal, Sri Lanka, UK, China, Indonesia, France, Russia, and Italy. According to CHEMEXCIL, the exports of cosmetics, toiletries and essential oils during 2015-16 was around USD1007.20 million. The import during the same period was USD703.58 million22.

6.4 Food & Beverage Industry

According to the Market Overview of Food & Beverages industry the changing demographics, increase in income, urbanization and growth in organized retail are the driving forces of India’s F&B sector. The combined F&B service market is worth INR 204,438 crore, growing at compound annual growth rate (CAGR) of 23-24% and is expected to touch INR 380,000 crore this year23.

Food and Beverages Service Industry Composition

Quick Service Restaurants (QSR) and casual dining are the two most popular formats that form 45% and 32% of the overall market respectively.

The food and beverage market was estimated at US$30.12 billion in 2015 and is expected to reach US$142 billion by 2020, with a compounded annual growth rate (CAGR) of 36.34%. The sector is dominated mainly by traditional operators. The brands and restaurant chains of both Indian origin and multinationals have not optimally penetrated the market so far. The food and beverage sector has evolved over the past decade, giving rise to exciting new concepts in food and beverage offerings and new and innovative service elements


Quick Service Restaurants (QSR) and casual dining are the two most popular formats that form 45% and 32% of the overall market respectively.

The food and beverage market was estimated at US$30.12 billion in 2015 and is expected to reach US$142 billion by 2020, with a compounded annual growth rate (CAGR) of 36.34%. The sector is dominated mainly by traditional operators. the brands and restaurant chains of both Indian origin and multinationals have not optimally penetrated the market so far. The food and beverage sector has evolved over the past decade, giving rise to exciting new concepts in food and beverage offerings and new and innovative service elements

The food and beverages service market is dominated by unorganized segment and although it will decline significantly over the next 4-5 years, and it is likely to remain more than 60% of the market. Quick Service Restaurants (QSR) and casual dining are the two most popular formats that form 45% and 32% of the overall market respectively. The maximum growth being witnessed is still in the standalone restaurant space where local taste along with uniqueness of concept is the key deciding factor24.

6.5 Beverages Industry

The beverages category contributes about 9%to the total Food market in India23. The rise of various brands in all segments has given an extraordinary push to the category over the last few years. The beverages are now available in almost all flavors, colors, ingredients, health and nutritional values.

Source: Technopak Analysis, MRSS India secondary Research


6.5.1 Regional Share in Market Segmentso The eastern and southern regions occupy 73 percent of the total market. o The west and the south have a higher average monthly per capita consumption figures for beverages

than the average figure of all-India consumption. o In spite of holding the largest market share (including north-east), the eastern region has the lowest

per capita consumption.

6.5.2 Market Size & Growth

According to research conducted by IMAGES Group – the publisher of Progressive Grocer India – for The India Food Report 2016, the market for beverages in India is close to Rs 195,000 crore and is growing at 20–23 per cent. This growth rate will take the category at three-and-a-half times of its present size by 202023.

All constituting segments are observing a growth at a strong range of 20–25 per cent, which is the highest among all food groups. This growth shows the fact that the beverage market is getting more segmented and niche than ever before.

6.6 Alcohol IndustryIndia is the third largest global spirits market by volume in the world, just behind China and Russia. In some states, certain alcoholic beverages like wine and beer can be sold in supermarkets that further increase the availability. The Indian alcohol industry is a high-risk industry, on account of the high taxes and innumerable regulations governing it. The Indian liquor industry comprises the Indian Made Foreign Liquor (IMFL), country liquor, foreign Liquor Bottled in Origin (BIO), illicit alcohol, beer and wine segments25.

The consumers of spirits and imported alcoholic brand are increasing rapidly. Hence, Alcohol is playing an increasingly important role in India’s emerging economy. India is the dominant producer of alcohol (65%) in South East Asia region and contributes to about 7% of total alcohol beverage imports into the region. Alcohol use in India has registered a steady growth rate of 10 to 15% each year during the past decade with greater expansion seen in southern parts of India26.

6.6.1 Structure of Alcohol Industry in India

Type of Industry Market Share PricingGeographical Consumptions

Target Audience

IMFL 36%Affordable and Competitive

mostly south india Above 35

Country Liquor 48%Cheap Prices- That is the driving factor

All over/ large scale in tribal belt

Above 35


Beer 13% Expensive Urban Cities, AP 18-40 Years

Illicit Liquor NAExtremely Cheap/ No duty levy

Small towns and villages

NA

Imported Liquor(BIO+Wine)

3% Luxury Metropolitan CitiesWomen/ 35 and above

Source: PHFI26

6.6.2 Factors influencing the growth of alcohol industry in India26:

Urbanization: People are introduced to a wider variety of alcoholic products as more and more people are moving towards bigger cities.

Favorable demographics: The industry target audience and potential customers fall into age group of 15-45 years. India has 60% population which can be part of this target audience. About 485 million Indians are currently of drinking age and another 150 million will be added to this group in the next five years.

Changing social norms: Alcohol consumption has been more acceptable in society over the years. There has been change in norms, attitude towards drinking in family environments, at social gatherings.

Rise in disposable income: More and more Indians are now moving towards the upper/middle-income group.

Increased alcohol accessibility and availability: There has been an increase in the variety of alcohol brands and types and all of them are easily available in government-licensed outlets, government shops (monopolies), private licensed retail chains (permitted since the past couple of years), restaurants and bars.


7. SupplyChain

7.1 Background

Logistics is considered to be the back bone of an economy. Efficient and cost effective flow of goods is something that other commercial sectors

depend on. Indian logistics industry is evolving at a good pace. New technology, infrastructure is something that defines the industry and these are the factors that help reduce their overall costs and provide effective services.

The boom in retail, emergence of e-commerce has led to the growth and innovations in the logistics industry which is continuously transforming to meet the needs of the new age consumers. The global logistics sector is set to reach over USD 2 billion by 2019. However, inadequate logistic infrastructure has had an effect of creating bottlenecks in the growth of an economy.

7.2 Current Challenges in Supply chain

The most important challenge which needs to be addressed in terms of control over supply chain is infrastructure. For smooth flow of logistics, emphasis needs to be given on establishing good road and rail networks, modern cargo facilities at airports and creating big logistic parks.

India has a long way to go in terms of matching up to the global standards when it comes to the overall supply chain structure.

Absence of proper refrigerated storages and containers, poor facilities and management are the reason for high level of loss, damage and deterioration of stock mainly in the perishable sector.

Lack of training, IT standard, equipment and poor systems integration has been one of the key reasons for the under development of the overall supply chain industry in the country.

The country relies heavily on road transport and has failed to integrate the supply chain with other modes of transport such as railways and waterways.

7.3 Types of Distribution models in Supply chain

To reach far and wide, you need to have a strong distribution network. One cannot market a product and then not deliver to the end consumer. This leads to loss of money on creating those marketing opportunities and also, the loss to the brand when the customer has demanded to purchase but cannot find it in the market. There are different types of distribution models that a company can use.


Building a good strategy is the key. The three points that need to be addressed are:

• How to get the product from the Manufacturing point to the end customer

• How to control costs and save time while executing the distribution strategy

• How to build a competitive advantage through distribution

7.4 Types of Distribution channel:• Indirect Distribution – it is when a product reaches the end consumer through a number of channels

in between. E.g. a product goes from manufacturer to C&F then to the distributor, then to the retailer and finally to the end consumer.

• Direct Distribution – When a company directly sends the product to the end consumer or when the channels involved are less. E.g. Amazon and Flipkart selling products through their platform is a form of direct selling.

• Intensive Distribution – In this distribution type, a company tries to cover as much of the market as it can. Typically, when a company has a mass marketing product. E.g. FMCG and consumer durable products.

• Selective Distribution – A company like Body Shop uses the selective distribution technique by having limited outlets in a particular area.

7.5 Infrastructure

Infrastructure sector is a key driver for the Indian economy. India has the second largest road network in the world, spanning a total of 4.87 million kilometers (kms). Roads in India transport over 60 per cent of all goods and 85 per cent of total passenger traffic. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. The government has decided a target


of Rs 25 trillion (US$ 376.53 billion) to be invested in infrastructure over a period of three years, which will include Rs 8 trillion (US$ 120.49 billion) for developing 27 industrial clusters and an additional Rs 5 trillion (US$ 75.30 billion) for road, railway and port connectivity projects. This would improve the overall logistics involved for the FMCG companies and will open new cost efficient methods of transportation which will be a big boost to the economy. Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development.


8. InnovationsinWarehousing

8.1 Current Scenario of Warehouses in India

the historical core responsibility of Warehousing has been the storage of goods. The scope and major responsibilities of warehouse operations include delivering high level inventory management, swift

receiving & shipping dock management, precise and flexible customized pick & pack services, and state of the art storing and safekeeping solutions for all the goods.

Inventory management is a critical component of a company’s financial performance. Warehouse operations are becoming the key factor to cope with demand variations due to the development of an increasingly integrated global economy market with production facilities scattered around the globe. Warehousing has become a dynamic wheel within supply chains because it holds so much potential for improving lead time and cost reductions27.

The size of Indian Warehousing Industry- Approximately INR 560 billion (excluding inventory carrying costs, which amount to another ~INR 4,340 billion).

The industry is growing at over 10% annually28.

8.2 Significant growth drivers29

• Growth in manufacturing activities

• Rise in domestic consumption,

• Increased international trade

• Development of planned retail industry

• Growth in private and foreign investments in infrastructure

• Easing of government protocols

8.3 The key warehousing segments in India

Industry/Retail Warehousing29

o Market size is ~INR310 billion in FY13 and it has been growing at a CAGR of 10%–12% over the last few years.

o Demand for industrial warehousing space is estimated to have grown at a CAGR of 6%.


Significant growth drivers:

• Increased GDP and changed demographics

• Demand growth for high-end services and infrastructure

• Rising external trade

• Growing share of organized retail

• GST implementation

8.3.1 Agri-warehousing

o Accounts for ~15% of the warehousing market in India

o Increase in scope by 10%–12% over the last 3 years.

o Agri warehousing capacity in India is 110–120 million metric ton (MT), and it has been growing at a CAGR of 8%–10% over the last 5 years.

Significant growth drivers:

• Growing annual agriculture production

• Increased involvement of private sector

• Rising agri warehousing infrastructure

• Subsidy systems

• Tax incentives

• Standardized warehousing operations as per the Warehousing (Development & Regulation) Act.


8.3.2 Cold storeso Accounts for ~16% of the total warehousing market in Indiao Expected growth in scope by ~15% per annum on a sustained basis over the next 5 years, o The organized market growing at a faster pace of ~20%.

Significant growth drivers:• Increase in organized retail• Rising GDP• Improving per capita consumption• Healthy growth of niche categories such as chemicals, pharmaceuticals, etc.• Government incentives• Growing population

8.4 Challenges in Warehousing

The warehouse managers are facing major challenges to enhance the productivity, efficiency and accuracy, while sustaining the customer satisfaction. Eventually this means, optimized goods rotation, less stationery capital and effective use of all available resources27.

Gaps in warehousing processes signify great savings potentials. It should and can be recognized and minimized using the right Lean tools. The right Lean Solutions can improve product quality, decrease lead-time and working capital.

Gaps often identified in a warehouse environment:

Source: MRSS India


• Transportation / Conveyance: Storing fast moving inventory in the back of the warehouse adds unnecessary transport cost and lower productivity.

• Inventory: The order preparation can be impacted by imprecise information of existing inventory in the warehouse management system. This eventually results in unavailability of stocks for sales or shipping. Thus accumulates the frozen assets in the company.

• Movement: Unnecessary movement of people, such as walking, reaching or stretching, due to inefficient layouts, lack of ergonomic workstations, manual picking that involves more than just one ‘touch’ per item to prepare the order and make it ready to be shipped or picking trails not optimized.

• Waiting: Wasteful processes create delays for resources like people, systems and material. Poor replenishment planning results in increasing waiting time for picking lanes replenishment, material or shipping approvals, data or correct materials and services.

• Overproduction / Over processing: Product storage and deliveries before the requirement. Storing palletizing goods which shortly will be un-palletized.

• Defects: Activities and actions that originate rework, returns or adjustments, such as late reception of customer instructions which arrives post order preparation and outcomes in billing mistakes, inventory discrepancies, or materials missing, damaged, defective, wrong or mislabeled.

• Space: The indiscipline use of space, such as low or extreme fill-up rates of trailers, containers or cartons, ineffective use of warehouse space, poor alignment of racking systems not aligned to the kind of product and expected flow.

8.5 Innovations in Warehousing

The core responsibility of warehousing has been the storage of goods. However, the high level inventory management, rapid shipping & receiving dock management, flexible and precise pick & Pack services and state of the art storage and security solutions for all the goods are delivered by evolved scope and core responsibilities of warehouse operations.

The warehouse operations are becoming the key factor to cope with due to the development of a progressively integrated global economy market with production amenities dispersed around globe1.It is predicted that over 85% of all businesses will be digital within the next five years. Therefore, the warehouse operators and logistics firms need to react swiftly by applying the up to date technical inventions. This will ensure that the supply chains will be operating at maximum effectiveness and these companies will be thoroughly future proofed, which will deliver finest results for customers and businesses2.

8.5.1 Lean Techniques in Warehousing

“Lean” is a systematic method to identify and exclude waste (non-value-added activities) in every area of


operations including client relations, production flow, maintenance, quality, and management, through constant improvement of existing processes. “Lean” can be defined the best approach for finding effectiveness and profit in an organizations.

One can select the precise technique or process from ‘Lean’ toolbox which is full of tools and techniques. The selected tools can be used to improve what needs improving. Lean is a production philosophy that underlines the minimization of the amount of all resources used, coupled with continuous improvement and customer satisfaction4.

8.5.2 Lean Solutions27

Designing and implementing Lean warehouse operations can have a great impact on the total supply chain output. By approaching the waste focus areas mentioned above with Lean solutions, some of the opportunities that come up to reduce lead times in warehousing include:

• Handling time reduction in order picking, put away, palletizing and shipping.

• Reliability of information to coordinate the rest of the supply chain.

• Reduction in truck and containers loading and unloading times.

• Reduction in time spent checking and looking for inventory.

• Increased flexibility to adapt to changing market conditions and customer specifications.

8.5.3 Tangible Improvements27

8.5.3.1 Lead Time

• Warehouse Lean project reduces the actual processing time of picking and packing by 50%, thereby decreasing the total lead time by 25%

• Optimizing the warehouse layout reduced storing times by more than 25% and picking times by 30%

• Lean warehouse to dispatch workshop improved dock scheduling and loading plans which improved filling rates of transports and a reduction in truck loading hours needed, reducing the lead time between 10% to 30% varying on the different SKU categories.

8.5.3.2 Quality

• The standardization of the picking process reduces picking mistakes by more than 90% and its interfaces with the order generation and invoicing processes

• Lean ERP systems impacted a decrease of picking and shipping mistakes by ~40%

8.5.3.3 Costs

• Optimizing cartons filling rate decreased the buying needs by 46% and lead to a reduction of 18% in transportation costs while reducing environmental impact


• Inventory accuracy improvements due to optimization and linking of ordering, data entry and inventory management processes resulted in a reduction of 20% of inventory required to support a growth strategy.

8.6 Retail Cold Chains- Challenges & Opportunities30

The cold chain market is estimated to be valued at USD 167.24 billion in 2016 and is projected to reach a value of USD 234.49 billion by 2020. The cold chain market has grown steadily in the last few years and this trend is projected to continue until 2020.

Supply Chain Management’s important part for the storage and transportation of temperature sensitive goods is Cold Chain. Cold chain is used to increase the shelf life of food product. There are many positive changes in Indian cold chain market. However the high operating cost is the major roadblocks for the sector’s growth.

India is world’s largest producer for milk and second largest producer of fruits vegetables. However, about 20-50 percent of the total production, (valued at $440 billion) ends up wasting. Moreover, the quality of the product also degrades due to the poor arrangement of cold storages.

8.6.1 Gaps in Warehousing/ Challenges - Gaps in Cold Chains

• India has about 6300 cold storage facility with the capacity of 30.11 million metric tons, which are only able to store about 11 percent of the country’s total perishable produce. About 60 percent of this capacity is spread across states of UP, West Bengal, Gujarat and Punjab. However, the situation is severe in southern part of India due to unavailability of cold storage units. Moreover, the climate is hot and far more humid.

• The major concerns that the cold storage sector faces are shortage of adequate infrastructure, lack of trained personnel and outdated technology.

• Inconsistent power supply and poor electricity is the biggest obstacle in the development of cold storage industry.


8.6.2 Government Initiatives

Government of India has taken initiatives like forming National Center for Cold Chain Development (NCCD), allowing 100 percent FDI in cold chain infrastructure and investing $ 15 billion in cold storage infrastructure. The industry is still highly fragmented. Hence, it will still take some time to get the expected outcomes of these initiatives. The organized players can make up only 10 percent of the industry with overall 3500 companies working in this space.

8.6.3 Possible Solutions• Setting up cold chain involves high cost and higher infrastructure cost for operations. Given the

expected growth in grocery retail to $ 847.9 billion by 2020 from $ 500 billion in 2012, there are some changes expected by the industry as a whole to ensure the three significant areas of handling food collection, storage and transportation be more cost effective for retailers.

• Technology interventions like GPS and sensors which can be monitored centrally to track the temperature and position of truck to ensure better control on product quality.

• While retail cold chain as a sector is currently struggling to be more efficient, there is a lot of headroom for improvement with the help of operational and technology level changes which can be brought into the overall system.

8.7 Top Modern Logistic/ Warehousing Technologies

8.7.1 EDI communication in Warehousing31

EDI (Electronic Data Interchange) technology allows sharing of documents between two computer systems. There are many benefits of EDI when integrated into a successful warehouse management system (WMS). The standard format, and compatibility, of EDI documents allows for greater efficiency, visibility and collaboration between all parties for smoother operations.

Source: MRSS India


• Drones

Drones are pieces of technology. They are handy for a wide variety of applications and are set to make appearances in warehouses globally as firms seek to further increase levels of automation. Drones help to reach at the roof and scan the barcodes of the inventories stacked at tricky heights.

• Radio Frequency Identification (RFID)

RFID technology uses radio waves to feed information between tags attached to stock and readers that pick up the signal. The benefits of RFID include greater stock visibility and transparency, which offers ease of inventory as well as a reduction in theft. By attaching a reader to a drone, inventory can be catalogued at a much faster pace. Floor space can also be saved as the RFID tech, plus the maneuverability of the drone, allows stock to be stacked as a high as possible.

• Cloud Storage

Cloud storage has revolutionized many industries and logistics is no different. By implementing self-updating and hosted computer systems, cloud storage offers many benefits to warehousing include cutting down on maintenance, infrastructure and labor costs that come from the installation and upgrading of warehouse management systems.

• Robots in Warehousing

Automation is a key in the logistics and supply chain sectors. Often, the greater the automation in processes, the more efficient they become. Robots are playing a big part in improving levels of automation in warehousing.

• By switching the man-to-goods process to goods-to-man, machines like these are just an example of how robotics can be used to revolutionize logistics.


8.7.2 Other logistics technologies32

8.7.2.1 Advanced Inventory Tracking Technologies

The recent technology is the evolving ability to embed sensors on parts, packages and equipment to track them throughout their journey and know exactly where they are, no matter where they are; in manufacturing, in transit or in the warehouse. Recent advances in inventory tracking technologies are making a huge impact in the supply chain aspects such as speed, accuracy, and cost reduction.

8.7.2.2 Advanced Inventory Management Systems

Today’s advanced inventory management technologies directly integrate just about every aspect our complex physical inventory world into computer-based systems that make them manageable. One of the largest expenses for many organizations is the cost of inventory. These companies know how important it is to keep a close eye on inventory levels.

However, as the supply chain has grown more and more complex, technologies that accurately monitor, optimize and replenish inventory have become essential. The inventory systems of today are highly sophisticated. They bring simplicity to inventory optimization and tracking, help manage procurement,

Source: MRSS India


receiving and returns, assist with demand forecasting and planning, call attention to spoilage and obsolescence and provide insightful analytics at every step. And they provide centralized intelligence and control for organizations with multiple distribution centers.

8.7.2.3 Collaborative Logistics

Collaborative solutions help organizations manage inventory peaks, position product closer to consumers and ultimately reduce storage and shipping costs. Marketplaces offer both a technology solution for quickly securing on-demand services and a network of collaborative businesses who have services or space (in the cases of trucking and warehouses) to offer on-demand, at a fair rate, with simple terms.

8.7.2.4 Supply Chain Design and Modeling Tools

Placing distribution centers in just the right locations can reduce indirect shipping paths, zones and ultimately reduce the costs of two-day shipping. Supply chain modeling allows you to find the right supply chain design for your business by experiment with different scenarios that weigh additional distribution centers against shipping costs.

8.8 Technology Benefits F&B Industry

Food safety regulations, tracking and tracing, and improved visibility and performance in logistics are all important to the food supply chain. At the same time, costs for radio frequency identification (RFID) devices and barcode technology are dropping. Together, these factors are coalescing to generate an increase in RFID and barcode technology adoption in food and beverage (F&B) companies.

With RFID and barcoding, F&B companies now can track and record movements of goods, see their present locations, and even check their temperatures and humidity while they are en route. The ability to monitor food shipments in real time reduces risk of spoilage or waste. It also improves inventory and logistics management33.


9. Branding

9.1 Branding is an integral part of the business building process.

Large corporations spend hundredsof millionsof dollars building their brands. Brands have become the most valuable asset within any enterprise, the knowledge, the art, the science, and the work

of each person in each work day, making them the ultimate symbol of much that is good and true and beautiful within our global economy. In time, Brands began to penetrate beyond the corporate world.

The impact of branding in the business building process of FMCG companies in India was also witnessed two decades back34.

9.1.1 The success of an FMCG depends greatly on its marketing strategy.

An FMCG marketer pursues a wide combination of strategies. For instance, when prices are competitive, the company would use an extensive distribution network, design suitable advertising and sales promotion schemes from time to time.

Some of the major strategies adopted by FMCG companies for making their brands outstanding compared to competitions are as follows: (i) Multi-brand Strategy (ii) Product Flanking (iii) Brand Extensions (iv) Building Product Lines (v) New Product Development (vi) Product Life Cycle Strategy (vii) Taking advantages of wide distribution network2.

Following are some strategies adopted by FMCG companies for making their brands outstanding compared to competitors:

9.1.1.1 (i) Multi-brand Strategy:

A company often nurtures a number of brands in the same category. There are various motives for doing this. The main rationale behind this strategy is to capture as much of the market share as possible by trying to cover as many segments as possible, as it is not possible for one brand to cater to the entire market. Hindustan Lever have introduced many brands like “Dove” in premium segment, “Lifebuoy” for economy segment and “Lux”, “Liril” and “Rexona” in the intervening segment, meaning thereby, the company has not left any segment untouched.

9.1.1.2 (ii) Product Flanking:

Product flanking refers to the introduction of different combinations of products at different prices, to cover as many market segments as possible. It is basically offering the same product in different sizes and price combinations to tap diverse market opportunities. Shampoos in small sachets, Pan masala in


small pouches and premium detergents (Tide, Aeriel etc.) in small pouches are examples of this strategy.

9.1.1.3 (iii) Brand Extensions:

Hindustan Lever’s Lifebuoy soap’s brand extensions are Lifebuoy Plus, Lifebuoy liquid and Lifebuoy Gold, since these brands have been positioned at different segments. Similarly, Amul butter, Amul ghee, Amul cheese and Amul chocolates are various brand extensions of regular Amul Brand. Companies make brand extensions in the hope that the extensions will be able to ride on the equity of the successful brands.

9.1.1.4 (iv) Building Product Lines:

Hindustan Lever has added product lines one after another starting from Lifebuoy, Lux, Liril, Dove etc. Similarly, Britannia Industries have related biscuits as differed product lines. Companies add related new product lines to give consumers at the products they would like to buy.

9.1.1.5 (v) New Product Development:

Proctor and Gamble is shown as the number one company in the world reputed for new products development. Companies that fail to develop new products would expose themselves to great risk and might face stagnation in future.

The existing products are vulnerable to changing consumer needs and tastes, new technologies, shortened product life cycles and increased domestic and foreign competition. A company can develop new products either through R&D in-house or by acquiring other company or both.

9.1.1.6 (vi) Product Life Cycle Strategy:

An FMCG has short life cycle whereas an industrial product has long PLC. According to PLC, companies plan to develop new products after abandoning the old product which has experienced the decline stage of PLC curve. For example, existing models in products like automobiles, motor cycles, TV sets and watches etc. in India have experienced good demand whenever new option have been offered.

9.1.1.7 (vii) Taking advantages of wide distribution network:

A very simple way of increasing an FMCG company’s market share is by developing a strong distributions network, preferably in terms of more locations. An extensive distribution system can be developed over time, or the company may acquire another company which has an extensive distribution network. Coca-Cola and PepsiCo’s wide distribution network systems have made them market leaders35.


9.2 Case Study: Patanjali

A critical analysis on the company brings out few competencies which are transforming this unbelievable target into reality36.

9.2.1 Focus areas of Patanjali Ayurveda

Patanjali Ayurveda has focused on one key aspect, to understand the need for healthy and ayurvedic products and offer them to the customers. The company draws its inspiration from the Yoga guru Baba Ramdev and its CEO Acharya Balakrishna, both has strived to amalgamate ancient Ayurveda with modern science and technology which resulted in remarkable products.

The company’s key standing is to provide best products at the affordable range and accordingly positions its products at 20-30% cheaper than the regular FMCG companies.

Some of the key steps the company has taken to increase its reach have worked on its distribution strategies.

o The company also entered into tie up with the biggest retailer, Future group in 2015 in order to increase its presence and take natural products more closely to the consumers. This strategic tie up will give access to 35 crore Future group customers along with presence in 240 cities across India.

o The tie up is expected to bring Rs 40 crore per month business in the initial period which is expected to scale up to 80 crore per month after 12 months

o As per the Dunnhumby, a UK based research company, Patanjali has bagged a share of 7-12% in the categories of detergents, toothpastes, shampoos and soaps at Big Bazar stores

o Products of Patanjali were purchased by 21% of Future customers in January 2016 as compared to 2% in October 2015


o Patanjali & Future group are also planning to strengthen their alliance by entering into a manufacturing partnership in future

o Direct selling to Future group is expected to reduce the operating expenses which would further bring down the price of products

o Franchise partnerships with Reliance retail, Hypercity and Star Bazaar

o Increase in the Swadeshi Kendra outlets to 4000 in 2015

9.2.2 Distribution Network

Patanjali, is a good case study as the company right from the beginning has broken conventional paths, when entering and expanding in the FMCG space. The company has established a robust distribution network which works in a three level processes.

9.2.3 Growing Preference of Ayurvedic Products

The core of Patanjali is the ever growing strong customer preference towards Ayurvedic products. This is evident from the robust growth figures reported by Patanjali and other Indian FMCG companies operating in the herbal market space. While sales of Patanjali have jumped 64% in FY16, Dabur and Himalaya also reported a double digit growth which was otherwise confined to 6-7% growth according to a leading market research agency report. The growth in market share of Patanjali in Big Bazar stores emphasizes the same.


Few quick facts which reinforce the data are as follows

Category Ayurvedic Non-Ayurvedic

Face washes 50% from 36% 16% from 21%

Shampoo 194% 6% from 21%

o Share of ayurvedic brands in face washes increased to 50% from 36% earlier while the non- Ayurvedic companies have reported a drop from 21% to 16%.

o Sales in shampoo segment have more than doubled to 194%while a decline of 6% from 21%was reported by non-Ayurvedic products.

o Categories like Chyawanprash, alma and aloe Vera juices saw a growth of 52%

o Emami is planning to launch natural healthcare products and are already in the phase of test marketing a few products

o Himalaya brand is chalking out plans to enter into men grooming segment, which as per the study is Rs 5000 crore market

o Top FMCGs companies like Hindustan Unilever Limited facing recent drop in profits vs expectations. They reported slowest growth figures in the recent times.

o While Colgate sales grew at slowest pace in the last 44 quarters, Ian Cook, global CEO of Colgate-Palmolive first time acknowledged that the competition in the herbal product range and also announced their plans to foray into the herbal space.


10. FMCGStrategicSynergy

10.1 Background

identification of high growth categories for focus, most optimal type of transport needed to ensure efficient last mile delivery, development of spoke – hub models, multi modal models, growth of

warehouses, multi-location manufacturing facilities, quality and packaging options, government policies for large infrastructure developments.

Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian economy with Household and Personal Care accounting for 50 per cent of FMCG sales in India. Growing awareness, easier access and changing lifestyles have been the key growth drivers for the sector. The rising industry is a resultant of the synergies of FMCG sector with Government, Retail Industry, E-Commerce Industry, Logistics and Infrastructure.

10.2 Synergy of FMCG & Retail Industry

The Indian retail trading has received Foreign Direct Investment (FDI) equity inflows totaling US$ 935.74 million during April 2000–December 2016, according to the Department of Industrial Policies and Promotion (DIPP)4.

Source: MRSS India Secondary Research India


Many companies have invested in Indian retail industry in the past few months as the consumer goods in different sectors like consumer electronics and home appliances are in rising need.

• Amazon India plans to double its storage capacity in India by adding 14 new warehouses by June 2017, aimed at maintaining rapid growth in sales and catering to the remote parts of India.

• Wal-Mart, global retail giant, plans to open 50 new cash-and-carry stores in India over the next three to four years and locate half of the stores in Uttar Pradesh and Uttarakhand while creating over 40,000 jobs in the two states.

• Global e-commerce giant, Amazon is planning to enter the Indian food retailing sector by investing US$ 515 million in the next five years, as per Mr. Harsimrat Kaur Badal, Minister of Food Processing Industries, and Government of India.

• Future Consumer Ltd has formed a joint venture (JV) with UK’s largest wholesaler, Booker Group, with an investment of Rs 50 crore (US$ 7.5 million), to set up 60-70 cash-and-carry stores in India in the next 3-4 years.

• Adidas India Private Limited, outlined plans of opening around 30-40 big flagship stores across Delhi, Mumbai and Bengaluru, by 2020.

• Mad Over Donuts (MoD), outlined plans of expanding its operations in India by opening nine new MOD stores in Hyderabad and Chennai by March 2017.

• Parle Agro Pvt. Ltd is launching Frooti Fizz, a succession of the original Mango Frooti, which will be retailed across 1.2 million outlets in the country as it targets increasing its annual revenue from Rs 2800 crore (US$ 0.42 billion) to Rs 5000 crore (US$ 0.75 billion) by 2018.

10.2.1 Government Initiatives for Retail and Ecommerce Industry

The Government of India has taken various initiatives to improve the retail industry in India.

• The Government of India may change the Foreign Direct Investment (FDI) rules in food processing, in a bid to permit e-commerce companies and foreign retailers to sell Made in India consumer products.


• Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in online retail of goods and services through the automatic route, thereby providing clarity on the existing businesses of e-commerce companies operating in India.

10.3 Synergy between FMCG, Retail and Logistics

Director, Strategic Projects, Operations Asia, FM Logistic gave his opinions about Indian market in recent telephonic interview. FM Logistic of France has drawn up aggressive warehousing plans for India as part of its Ambition 2022 global vision statement. The company acquired a majority stake in Pune-based Spear Logistics earlier this year and will leverage the partnership to take the growth story forward.

According to Mr. Descarpentries this is a crucial time to enter in Indian market. The decision was made after careful study of past 3 years37.

He further predicts that the sectors like fast moving consumer goods and retail will become key ingredients of the script where the company has earmarked €50 million to be spent over the next four years in India. Mr. Descarpentries plans to be among the top three logistics players for warehousing and also want to continue developing the core business of automotive, engineering and telecom while building FMCG and retail.

10.4 Synergy between FMCG, Retail and E-Commerce

As retail, FMCG, e-commerce and the food industry in India are witnessing remarkable growth and attracting foreign investments; each sector is rolling out new initiatives and coming in terms with contemporary trends. With notable handouts towards the national Gross Domestic Product (GDP), attracting meaningful foreign investments and technologies, and generating employment opportunities, the retail, Fast Moving Consumer Goods (FMCG), and e-commerce sectors, have been significant contributors in the growth story of Indian economy.

The consumer market forms an integral part of the Indian retail industry with its present estimated size being more than INR 45 trillion and the retail sector projected to touch 700 billion dollar by 202038.

It is further expected to witness a Compound Annual Growth Rate (CAGR) of over 10 pc during 2016-21 to reach INR 85 trillion by 2021.

10.5 Goods and Service Tax (GST) - Possible Impact on Indian FMCG, Retail, Logistics

New-age warehousing and logistics in India would be assisted by the Goods and Services Tax (GST), which also aims to transform the South Asian nation into an integrated market for the first time since Independence39.

Small and often ill-equipped storage space in the country would now give way to neatly stacked, air conditioned warehouses, with higher levels of automation, as India ushers in the biggest tax reforms


since 1947. And driving the change in India’s supply chain landscape are the consumer goods companies, such as Hindustan Unilever, Glaxo Smithkine, and Johnson & Johnson.

These companies are now putting out tenders for consolidating their supply chain operations into bigger warehouses. The new facilities will now cover about 450,000-500,000 square feet of space, almost five times the biggest warehouses in India right now. Logistics majors such as DHL, Allcargo and Mahindra Logistics are leasing bigger logistics spaces, while real estate developers such as Everstone Group’s IndoSpace are investing billions in building bigger storage facilities.

The historic tax overhaul announced by the Narendra Modi government seeks to replace at least seven indirect tax heads including countervailing duty, special additional duty of customs, excise duty, service tax, central sales tax, value added tax, octroi and state cesses with one tax on goods and services.

Mr. Pirojshaw Sarkari, CEO of Mahindra Logistics stated ET in a recent interview that all warehousing was based on tax laws and a company needed to have a warehouse in nearly every state. Otherwise it would have to pay central sales tax and state sales tax. Post GST, with a uniform tax structure, large-format modern warehousing is coming up in a big way and they are closer to consumption center39.

Beverage giant Coca-Cola is also looking at depot consolidation and setting up mother depots in three to four states. “Since IGST is creditable, depot consolidation will happen. More and more of inter-state or IGST billing will happen. We are also looking at that possibility and get the best solution for the business,” said R Sridhar, vice-president-taxation, Coca-Cola India. The evaluation exercise is being carried out.

In each state, the company has one or two small warehouses, which may be phased out if they do not fit into the business after the GST implementation, he added. Besides, the company is also training its vendors and distributors on what to expect from the GST40.

****


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ASSOCHAMTHE KNOWLEDGE ARCHITECT OF CORPORATE INDIA

EvOLUTION OF vALUE CREATORASSOCHAM initiated its endeavour of value creation for Indian industry in 1920. Having in its fold more than 400 Chambers and Trade Associations, and serving more than 4,50,000 members from all over India. It has witnessed upswings as well as upheavals of Indian Economy, and contributed significantly by playing a catalytic role in shaping up the Trade, Commerce and Industrial environment of the country.

Today, ASSOCHAM has emerged as the fountainhead of Knowledge for Indian industry, which is all set to redefine the dynamics of growth and development in the technology driven cyber age of ‘Knowledge Based Economy’.

ASSOCHAM is seen as a forceful, proactive, forward looking institution equipping itself to meet the aspirations of corporate India in the new world of business. ASSOCHAM is working towards creating a conducive environment of India business to compete globally.

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