FMCG Sector In India: Key Factors That Helped It Grow Over Years

FMCG emerged as the fourth largest sector in the Indian economy and has been expanding at a healthy rate over the years because of increasing disposable income, a rising youth population and better brand awareness among consumers. It is growing rapidly as more people have begun to move up the economic ladder and the benefits of economic progress became accessible to the public.

"Household and personal care products account for 50% of the sales in the industry, healthcare accounts for 31-32% and food and beverage accounts for the remaining 18-19%. FMCG sales in the country grew 7-9% by revenues in 2022-23. The urban segment, with a revenue share of 65%, emerged as the largest contributor to the overall revenue generated by the FMCG sector in India. However, in the last few years, the FMCG market has grown at a faster pace in rural India compared to urban India. Total revenue of FMCG market is expected to grow at a CAGR of 27.9% through 2021-27, reaching nearly USD 615.87 billion," according to Gaurav Goel, Entrepreneur, SEBI registered Investment Advisor.

The FMCG sector in India is poised for sustained growth, with forecasts indicating a 7 to 9% expansion in 2024. Supported by better monsoon, rural consumer volume growth is expected at 6-7% in fiscal 2025. Higher minimum support prices, and increased government spending on rural infrastructure will also add to rural growth. Urban consumer volume growth is projected to remain steady at 7-8 per cent, driven by rising disposable incomes and a focus on premium products, added Gaurav Goel.

Evolution of Indian FMCG sector has been interesting. First 3 decades post-independence saw limited investment in this sector by the private sector. The disposable income of ordinary India was low. Use of modern technology and new initiatives remained limited. Government was focused towards favouring the local mom and pop shops for distribution. Between 1980 and 2000, people wanted more variety of products which encouraged FMCG companies to increase the availability of products. Private sector started entering the sector to capitalize on the opportunities. Liberalization in 1991 altered the equation in a big way.

Indians became more brand conscious and aspirational. This also prompted government to provide incentives to international FMCG giants to enter India. There was no looking back thereafter. In the beginning of this century departmental stores, grocery stores, and supermarkets made their presence across the urban centres across the country. The last decade has seen yet another revolution with e-commerce gaining exponential share against the conventional brick and mortar counterparts. Technology initiatives like UPI, couple with ease of purchase from the comforts of the home and significant price discount ushered a never seen growth in Indian markets. This trend continues even today unabated.

The largest company in this sector is ITC with approximately 12% markets share. HUL is a close second with 10% share. Nestle, Britannia, Dabur, Godrej, Colgate, Glaxo, P&G and Marico are other significant players with less than 5% market share.

According to Akash Agrawal, Co-Founder of Zoff Foods, "The FMCG sector has come a long way, forming a formidable force contributing to the country's GDP. Boasting a wide array of products, from food and beverages to household and personal care products, the industry is the fourth largest sector in the country. According to a report by IBEF, the sector is responsible for employing more than 3 million people across the country."

Various factors, such as increasing disposable income, expanding the youth population, and increasing brand awareness, are the major reasons for the desired impetus in the sector. Moreover, the sector undergoing digital transformation further bolsters the prospects of the FMCG industry. It has significantly changed the shopping experience for consumers, bringing about a paradigm shift in the way they purchase and interact with brands. Disrupting the traditional retail model, online shopping has opened the gateway for e-commerce, offering directly to the consumer. Given this change in purchasing patterns, online shopping is estimated to contribute 40% of all FMCG consumption in India, ultimately increasing the e-commerce share by 11%. Therefore, the sector has evolved from basic necessity to offering consumers a diverse range of products over the years, added Akash Agrawal.

India is currently growing at a rapid pace. Real GDP growth of 7-8% is creating unparallel opportunities and FMCG industry is ready to capitalize on it. Industry is rapidly consolidating and organized market is slowing increasing its market share. The e-commerce space is the fastest growing as it appeals to the tech friendly younger population of India. This trend is likely to grow faster as time progresses.