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BW Businessworld

Indian FMCG Sector: The Lull Won’t Last For Long

After India gained independence, few FMCG products were sold in the market or seen in the Indian middle-class households

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In the summer of 1888, visitors to the Kolkata harbour noticed crates full of Sunlight soap bars, embossed with the words “Made in England by Lever Brothers”. With it, began an era of marketing branded fast moving consumer goods (FMCG).  

In 1931, UK-based Unilever set up its first Indian subsidiary Hindustan Vanaspati Manufacturing Company, followed by Lever Brothers India (1933) and United Traders (1935). The three companies later merged to form Hindustan Unilever (HUL) in November 1956; it offered 10 per cent of its equity to the Indian public, being the first among the foreign subsidiaries to do so. Now this is the story of India’s first FMCG company that made deep in-roads in the Indian market. Other FMCG companies that formed during the British era are Dabur India (1885), Imperial Tobacco Company (1910), and Britannia (1892) among others.

After India gained independence, few FMCG products were sold in the market or seen in the Indian middle-class households. Till 70s, the FMCG makers only catered to the upper segment of the society, as the purchasing power was low in the rural areas. With a few FMCG companies in the running, the investment in the sector remained low. The other reason was that the government’s emphasis was more on the small-scale sector.

Rural Focus

In the early 1970s, when Ahmedabad-based Nirma washing powder was introduced in the low-income market, it’s success in the detergent market made multinationals like HUL re-think their non-existent rural strategy.

At the time, the focus of the organised players was largely the urban market. However, Nirma’s entry changed the whole Indian FMCG scene. It sold detergent at Rs 3.50 per kg, whereas HUL’s Surf was priced Rs 15 per kg. MNCs like HUL soon woke up to new market realities and noticed the latent rural potential of India.

Another, such revelation came in the shampoo market, when in 1983 C. K. Ranganathan started selling shampoos in a sachet for Rs 2. His focus on rural and small-town consumers who used soaps to wash hair, worked wonders.

Post Liberalisation

The economic reforms of 1991 not only brought higher number of domestic choices but also imported products. The lowering of trade barriers encouraged MNC’s to come and invest in India. Rising standards of living coupled with growing purchasing power of rural India saw companies introduce products targeting both rural and urban markets. Companies started investing in distribution networks, products upgrade, as well as new product ranges.

As an outcome of increased choices to the consumers and positive euphoria after liberalisation, many of the affluent consumers who always had money but limited choices, started splurging.

Present & Future

The industry, which is going through a slowdown for the past three years, has a potential to grow by more than 15 per cent over the next two to three years, if players in the sector focus on improving brand penetration, a recent study revealed. “India is at the cusp of the FMCG S-curve and there is significant room to grow over the next five to 10 years,” said a report by Confederation of Indian Industries and Bain & Company.

The report noted that the industry has seen the growth rate accelerating in 2016 over the previous two years, with 18 of the 22 categories recording an uptick, driven by rural markets. Last year, the FMCG industry grew at 9 per cent till October and rural growth was 1.7 times the urban.