The Indian fast moving consumer goods (FMCG) industry has the potential to grow by more than 15 per cent over the next two to three years, a report said on Wednesday.
According to a joint report by the Confederation of Indian Industry (CII) and Bain & Company, the country is at the cusp of the “FMCG S-curve”, and there is significant room to grow over the next five to 10 years by putting emphasis on improvement in brand penetration by the companies.
“A nominal GDP (Gross Domestic Product) growth rate of roughly 12 per cent over the next three years could signal an FMCG growth rate ranging from a low of nine per cent to a high of 17 per cent, depending on player action,” the report said.
The report asserted that a well-thought-out plan that will focus on brand penetration consistently over the long term will be imperative for the Indian FMCG industry to reignite growth.
“However, over the last three years, the industry has hit a slowdown. Its growth rate versus the GDP growth rate has fallen to 0.8, from an historical ratio of 1.2,” the report pointed out.
“This slowdown is perplexing. It cannot be fully explained either by external factors, such as changes in consumer spending power — which have only marginally decelerated in growth — or any significant shifts to non-FMCG categories, including the rise of e-commerce.”
The report noted that during the slowdown period, the FMCG companies scaled back growth-oriented investments, and shifted focus to sustaining profits — all at the cost of the top line.
The report titled ‘Winning with the Indian Consumer’ studied the shopping habits of nearly 81,000 Indian households, and looked at detailed records of 22 consumer goods categories and roughly 220 brands, across food and beverage, home and personal care.
“Most recent data shows that there have been some green shoots, with FMCG growth accelerating in 2016 vis-a-vis the prior two years,” it said.
The study explained that the growth was volume-led and was driven by overall growth in the rural market.
“Also, the growth was broad-based, with 18 out of 22 categories recording volume growth. Across these 22 categories, volume growth was driven by underlying penetration gains.”
The report was released at the National FMCG Summit 2017 organised by the CII.