India’s FMCG market is expected to reach $220 billion by 2025, growing at a CAGR of 14.9%. The industry is characterized by fierce competition, changing consumer preferences, and a mix of domestic and international players, making it dynamic and full of growth opportunities.
Trends to watch in the FMCG industry include the continued growth of online retail, disruption by smaller and more sustainable brands, the influence of word-of-mouth in purchasing decisions, the rise of home delivery, and a shift towards sustainable supply chains in response to consumer concerns about environmental impact.
The Fast Moving Consumer Goods (FMCG) sector in India is one of the country’s largest and fastest-growing sectors that span a wide range of products including packaged food, beverages, personal care products, and household goods.
The FMCG industry in India mainly consists of:
- Household & Personal Care
- Healthcare
- Food & Beverages
High competition, ever-shifting consumer preferences, and a mix of international and domestic players make it a dynamic and fast-growing industry with boundless potential for growth and innovation. Being India’s fourth-largest sector, key factors such as rising disposable income, rising youth population, and a rising brand awareness among consumers has led to its immense growth and prominence of this industry over the years.
Factors that led to the rise of the FMCG Industry:
- Rising Disposable Income
- Rising Brand Awareness
- Rising youth Population
Market size & growth drivers
The FMCG market is expected to increase at a CAGR of 14.9% to reach $220 billion by 2025, from $110 billion in 2020.
The key growth drivers for the industry are:
Growth of the health and wellness segment: People becoming more watchful of what they buy due to the growing awareness regarding health, nutrition, and well-being Organic, superfood-based, nutritious, natural products are in high demand due to rise in the health and wellness segment
Rural Growth: Disposable income in rural India has increased because of the direct cash transfer scheme. Rural India accounts for more than 40% consumption in major FMCG categories.
Personal Care Boom: During and post the pandemic, the personal care segment saw an uptick in sales. Google searches for face masks and hand wash swelled up during the outbreak but the increased demand for these products is here to stay.
Rise of online user base: India’s growing online user base and deep smart phone penetration will make online and digital marketing the Front-runners in converting passive consumers into active ones.
State wise income and spending
In terms of the state wise income and spending, Punjab and Kerala stood at the top end of the hierarchy with monthly expenditures exceeding INR11,000. Sates like West Bengal, Uttar Pradesh, Odisha, Madhya Pradesh, Jharkhand, Chhattisgarh, and Andhra Pradesh fared poorly with the monthly expenditure being lower than INR 6000.
Segments in FMCG sector
Let’s take a deeper look at each segment in the FMCG industry:
Household & personal care industry in India
The Household Care segment in India is projected to reach US $1.3 Billion in 2023 with a CAGR (2023-2027) of 21.64%. In general, Indian consumers are attached to a particular brand but are not exclusive. They seek, above all, the added value from the purchase, more than its reputation. Companies wishing to reach as many consumers as possible must make significant efforts to showcase that added and differentiated value.
The table below shows the breakdown of household consumption expenditure in India.
Healthcare industry in India
The healthcare segment of the FMCG industry mainly consists of Over-the-counter (OTC) products. OTC drugs are non-prescription drugs that can be consumed by individuals without requiring a prescription from a healthcare professional.
Market drivers for OTC drug market
The key drivers for OTC drug market are:
- Growing geriatric population suffering from various diseases
- Prevalence of disease among the youth due to their everyday lifestyles
- Easy availability, affordability, and increased awareness among patients
Packaged food industry in India
The packaged food market in India is predicted to develop at a CAGR of 4.6% from 2022 to 2027, reaching a value of $3.4 billion by 2027.
Market drivers for the packaged food industry
The key growth drivers for the industry are:
- Growing size of middle-class population and rising disposable income
- Inclination of millennial toward the western lifestyle
- Internet penetration in rural areas, and technological breakthrough
Impact of Covid-19 on the FMCG industry
The following were the impact of pandemic on the FMCG sector:
E-Commerce boost: The e-commerce companies operating in the grocery segment saw an initial spike in demand as more people ordered online.
Focus on digital marketing: With more consumers buying FMCG products online, companies are shifting their marketing budgets towards digital channels. This includes investing in SEO, social media marketing, and online advertising
Better inventory management: Companies are using technology to manage their inventory better. This includes using RFID tags to track inventory levels and locations and predictive analytics to forecast future demand.
Health consciousness: The demand for organic and natural ingredient infused food products increased at an exponential growth rate.
Shift in supply chain: The shift to online purchases has changed the FMCG supply chain. To meet the needs of online consumers, companies are investing in new technologies such as warehousing and fulfillment solutions.
Improved logistics: Technology is also being used to improve the logistics and transportation of FMCG products. This includes using GPS tracking to optimize delivery routes and the use of drones and robots for last-mile delivery.
Key figures to consider India’s online shopper base is estimated to increase to 400–450 million by 2027. Most of these shoppers are already in the digital funnel. Presently, 450–500 million people have used social media, out of which 180–190 million have shopped online in 2021, which is expected to increase significantly. 25% of the total household expenditure in India comes from just 5% of the households. Executives at supermarkets and online stores said ‘natural products have been flying off store shelves clocking 20-25% year-on-year growth.
Trends to look out in FMCG industry
The following are the trends that impact the FMCG industry:
Online retail: In 2021, almost 10.7% of retail sales were executed digitally compared with 4.7% in 2019. As consumer look for better and faster ways to shop, the introduction of Swiggymart and similar apps will continue to penetrate the market and become mainstays
Disruption by smaller brands: There has been an increase in Homegrown Brands offering chemical-free, all-natural FMCG segment. This coupled with the D2C model adopted by some smaller brands brought them success rapidly.
Word-of-mouth: Unlimited access to the internet can easily lead to consumers being lost in choice. This leads to many shoppers choosing brands and making purchase decisions based on word-of-mouth.
Home delivery: The D2C model helps manufacturers cut down on distribution costs and has attracted major players to set up direct sales channels, set up multiple channels through digital platforms and their own websites. Doorstep delivery has led to a shift in how customers buy products.
Sustainable supply chains: The topic of climate change and the need for environmentally friendly practices has been a part of public discourse for decades; however, its impact on purchasing decisions is only just rising and starting to have a real impact on the FMCG market. Brands are also shifting their business models to be more sustainable and match these consumer needs.
Conclusion
The FMCG sector in India stands as one of the nation’s largest and most rapidly expanding industries, encompassing a diverse array of products, ranging from packaged foods and beverages to personal care items and household goods. This industry is characterized by fierce competition, ever-changing consumer preferences, and a mix of both domestic and international players, making it a dynamic and growth-oriented field.
Several factors have contributed to the remarkable rise of the FMCG industry in India, including the growing disposable income of consumers, increasing brand awareness, and a youthful population. These drivers have propelled the sector to become the fourth-largest in India, with boundless potential for innovation and expansion.
The FMCG market in India is set to reach $220 billion by 2025, with a remarkable CAGR of 14.9%. Key drivers behind this growth include the surge in health and wellness consciousness among consumers, the increased consumption in rural areas driven by rising incomes, a sustained demand for personal care products due to the pandemic, and the expanding online user base, which is leading to a shift towards digital marketing. The Covid-19 pandemic had several significant impacts on the FMCG industry, including a boost in e-commerce, a shift towards digital marketing, improvements in inventory management, and increased demand for health-conscious and sustainable products. The supply chain and logistics systems have also adapted to cater to online consumers through innovative technologies.
Key statistics to consider include the rapid growth of online shoppers, a small percentage of households contributing significantly to total expenditure, and the surging popularity of ‘natural’ products.
Furthermore, various trends are shaping the FMCG landscape, such as the continued growth of online retail, the rise of smaller sustainable brands, word-of-mouth influencing consumer choices, the prevalence of home delivery, and the adoption of sustainable supply chain practices in response to consumer concerns regarding environmental impact.
In essence, the FMCG sector in India presents a dynamic and promising landscape, with robust growth drivers, evolving consumer preferences, and an increasing emphasis on health and sustainability. As the industry continues to adapt to these changes, it is poised for substantial development and innovation in the coming years.
