Industry Analysis (Porters Five Forces)

Threat
Threat of
of
New
New
Entrants
Entrants
(Medium)
(Medium)

Bargainin
Bargainin
g
Power
g Power
of
of
Customer
Customer
s
s
(High)
(High)

Competiti
ve Rivalry
(High)

Bargainin
Bargainin
g Power
Power
g
of
of
Suppliers
Suppliers
(Low)
(Low)

Substitut
Substitut
e
e
Products
Products
(High)
(High)

External Environment Analysis

PEST Analysis of FMCG Industry in India

Political
100 per cent FDI is allowed in food processing and single- brand retail and 51 per cent in
multi-brand retail.
Relaxation for Licence Rule: Industrial license is not required for almost all food and agroprocessing industries, barring certain items such as beer, potable alcohol and wines, cane
sugar, and hydrogenated animal fats and oils as well as items reserved for exclusive
manufacture in the small-scale sector
Initiatives like Food Security Bill and Direct cash Transfer subsidies reach about 40 percent
of Households in India

Economical
GDP Growth: Growth of the industry is consistent with the Indian economy
Inflation: Inflationary pressures alter the purchasing power of money. This has a direct impact
on consumer spending and business investment
Consumer Income: Increase in incomes is largely an outcome of economic growth across
sectors. Over the past few years, India has seen increased economic growth, with a continuing
and substantial impact on consumer disposable incomes enabling good growth for the FMCG
sector.
Modernisation of Indias agricultural sector will create more efficient food supply chains
thereby reducing grocery prices.

Social
Change in consumer Profile: Rapid urbanization, increased literacy and rising per capita
income, have all caused rapid growth and change in demand patterns, leading to an explosion
of new opportunities. Around 45 per cent of the population in India is below 20 years of age
and the young population is set to rise further.
Change in Lifestyle: Consumers in India are moving slowly beyond basic neccessities.

Rural focus: As market is getting saturated, companies are focusing on rural area for
penetration, by providing consumers with bite-sized or single-use packs.

Technology
Adoption of ERP, Supply Chain Optimization tools and Business Intelligence Tools will help
FMCG companies to integrate business processes across the enterprise, suppliers and
customers. With the level of competition and sluggish growth most FMCG corporates are
looking at IT to reduce costs in the supply chain, and flatten the bottom line
Marketing and advertising through mobile and social media platforms

Legal
Food Security Bill: FSB would reduce prices of food grains for Below Poverty Line (BPL)
households, allowing them to spend resources on other goods and services, including FMCG
products

Current Trends

2014 saw a shift in consumers demand towards health and wellness packaged foods, which
recorded current value growth of 16%. This trend was prevalent across all types of packaged
food, including dairy, oils and fats, ready meals, snacks, etc., with consumers looking for
healthier options low in fat and calories and, in some cases, such as breakfast foods, high in
fibre.
With a growing number of consumers lacking the time to cook from scratch at home,
manufacturers realised the need to launch products which provide consumers with the
convenience of eating at home and are tasty, require less preparation time and are healthy.
Packaged foods such as noodles, pasta and breakfast cereals helped to fill this gap to a large
extent.
In 2014, packaged foods sales continued to be dominated by urban consumers, who accounted
for some 74% of total retail value sales. The fact that most men and women have full time jobs
in cities and also the rise in the number of consumers living alone, helped to boost sales.
However, in rural India, cooking is still one of the household chores and thus results in less
demand for packaged food in rural India. Some 26% of total packaged foods sales were
recorded in rural India in 2014 and can be attributed to the fact that disposable incomes in

rural India remain low. With 39% of total sales in 2014, bakery products are the largest
packaged food area in rural regions.
Another interesting trend in the sector is Premiumisation of packaged foods within areas such
as biscuits, bread and ice cream, with a growing number of consumers prepared to pay extra
for higher quality. Premiumisation was strongly visible in impulse and indulgence products in
2013 and continued in 2014 as well.
Also, if we compare trends in different regions of India, East and north east India remained the
lowest contributors to total packaged food sales in 2015, accounting for just 17% of value
sales. This can be attributed to the fact that this region of the country has the least number of
cities and is mostly rural. Nutrition/staples is the highest contributor to packaged food sales in
this region, with consumers continuing to prefer to eat at home and cook meals with a
minimum of packaged foods. Nutrition/staples accounted for 62% of total packaged food
value sales in 2014 in this region.
In North India total packaged food sales in 2014 accounted for 16%. It remains a big market
for packaged foods as a fair proportion of population in this region have higher disposable
incomes. This region also has a strong presence of national players such as Britannia
Industries Ltd, Gujarat Cooperative Milk Marketing Federation Ltd, Hindustan Unilever Ltd
and others.
In the southern part of India, the consumer base of this region has much higher disposable
incomes compared to other regions. Moreover, the literacy rate of consumers is also much
higher in south India which helps to fuel sales of healthy packaged foods in the region.
Interestingly, the majority of packaged food manufacturers run regionalised promotional and
marketing campaigns to increase their local customer bases in highly fragmented packaged
food. For instance, in 2014, HUL launched its premium ice cream brand Magnum with dual
national brand ambassadors with Kareena Kapoor (North, West and East India) and Trisha
(South India). Also, the advertising Go-to-market strategy was followed by Heinz India Pvt
Ltd for its flagship convalescence brand Complan as well.
In the western India, consumers generally being from higher income groups prefer having
quick healthy meals and thus ready meals, frozen processed foods and shelf stable food have
the strongest consumer bases in this region. With Maharashtra and Gujarat being in this
region, there is a strong presence of all the national brands and manufacturers push their retail
presence through modern, traditional and non-store grocery retailing channels.