New Delhi: Indian FMCG industry is expected to grow at a base rate of at least 12% annually to become a Rs 4,000 Billion industry in 2020, according to a new report by Booz & Company. The Report titled “FMCG Roadmap to 2020 – The Game Changers” was released at the CII FMCG Forum 2010 in New Delhi today. The Report noted that the positive growth drivers mainly pertain to the robust GDP growth, opening up and increased income in the rural areas of the country, increased urbanization and evolving consumer lifestyle and buying behaviour.

The report further revealed that if some of the positive factors – driven mainly by improved and supportive government policy to remove supply constraints – play out favourably, the industry could even see a 17% growth over the next decade, leading to an overall industry size of Rs 6,200 Billion by 2020. The last decade has already seen the sector grow at 12% annually as result of which the sector has tripled in size.

Releasing the report, Abhishek Malhotra, Partner, Booz & Company said, “While on an aggregate basis the industry will continue to show strong growth, we will see huge variations at multiple levels – product category (e.g. processed foods growing faster than basic staples), companies and geographies

Many Indian customer segments are reaching the tipping point at which consumption becomes broad based and takes off following the traditional “S shaped” curve seen across many markets.” The sector is poised for rapid growth over the next 10 years and by the year 2020, FMCG industry is expected to be larger, more responsible and more tuned to its customers,” he further added.

The Report identifies 9 key mega trends across consumers, markets and environment that will have a significant impact in shaping how the industry will look like in year 2020.

1.Increasing Premiumization: Continued income growth coupled with increased willingness to spend will see consumers’ up-trading, creating demand for higher priced and increased functionality (real or perceived) products. The size of this segment will be large

2.Evolving Categories: Many consumers will move up the ladder and will shift from basic “need” to “want” based products. In addition evolving behaviour and emphasis on beauty, health & wellness will see increased requirements for customized and more relevant product offerings.

3.Value at BoP: Significant majority of the population in the country, especially in the rural markets, will become a consumption source by moving beyond the “survival” mode. This segment will require tailored product at highly affordable prices which will come with the potential of very large volumes

4.Increasing Globalisation: While many leading MNCs have operated in the country for years given the liberal policy environment, the next 10 years will see increased competition from Tier 2 and 3 global players. In addition, larger Indian companies will continue to seek opportunities internationally and also have an access to more global brands, products and operating practices

5.Decentralization: Despite the complexity of the Indian market (languages, cultures, distances) the market has mainly operated in a homogenous set-up. Increased scale and spending power will result in more fragmented and tailored business models (products, branding, operating structures)

6.Growing Modern Trade: Modern trade share will continue to increase and is estimated to account for nearly 30% by year 2020. This channel will complete existing traditional trade (~8 million stores which will continue to grow) and offer both a distribution channel through its cash & carry model as well as more avenues to interact with the consumer

7.Focus on Sustainability: Global climatic changes, increasing scarcity of many natural resources (e.g. water, oil) and consumer awareness (e.g. waste) are leading to increased concerns for the environment. The pressure on companies to be environmentally responsible is gradually increasing due to involvement of various stakeholders – from government (through policy) to consumers (through brand choice) and NGOs (through awareness).

8.Technology as a Game Changer: Increased and relevant functionality coupled with lower costs will enable technology deployment to drive significant benefits and allow companies to address the complex business environment. This will be seen both in terms of efficiencies in the back-end processes (e.g. supply chain, sales) as well as the front-end (e.g. consumer marketing)

9.Favourable Government Policy: Many government actions – in discussions as well as planned – will help in creating a more suitable operating environment. This will be done both on the demand side by increased income and education as well as on the supply side by removing bottlenecks and encouraging investments in infrastructure.

The confluence of many of these change drivers – consumers, technology, government policy, and channel partners – will have a multiplication impact and magnify both the amount as well as the pace of change. Winning in this new world will require enhancing current capabilities and building new ones to bridge gaps. In this new world FMCG companies will have 6 imperatives from a business strategy perspective:

1. Disaggregating the operating model
2. Winning the talent wars
3. Bringing sustainability into the strategic agenda
4. Re-inventing marketing for ‘i-consumers’
5. Re-engineering supply chains
6. Partnering with modern trade

The report urges the need for other stakeholders – government, retailers, NGOs and investors –to play a key role and evolve in a similar fashion to support the growth of the industry while continuing to deliver on their core business and social mandates.