Indian Fmcg Industry Overview

The FMCG sector seems to have finally joined India Inc's growth party by posting surprising double-digit growth in sales in the past couple of years. With annual revenues of Rs 72,000 crore, it is the one of the largest sectors in the Indian economy. The industry's future prospects look bright, considering rising household incomes and the spread of modern retail. However, the per capita income level in India is still very low compared to the developed world. Besides, the penetration level of many products is also relatively low and several categories remain fairly unbranded. All these factors provide a huge untapped potential for the industry.
In contrast to other manufacturing sectors, FMCG is relatively less capital-intensive, but demands immense skills and expenditure on branding and distribution. Most companies in the sector create value through product differentiation, package innovation, differential pricing and highlighting the functional aspect of foods. While inflation restricts the industry's growth, many companies in the sector thrive under inflationary pressures. Most companies pass on the cost inflation to consumers, via a judicious blend of price hikes, packaged size reduction and change in product mix. Few consumers react by down-trading to lowerpriced products, but most hang on to their preferred brands if price hikes are moderate.
The top five FMCG companies constitute nearly 70% of the total revenues generated by this sector. Multinational FMCG companies like Hindustan Unilever, ITC, Nestle, Procter & Gamble and GlaxoSmithKline Consumer Healthcare traditionally comprise the first category of FMCG companies. They tend to spend nearly 10% of their revenues on an average on advertising and promoting their products, which is the highest ad spend figure in the industry. Justifying their high product pricing, these companies largely tend to capture value by addressing a felt need.
Another category is non-traditional FMCG companies, which is