The Hindu Business Line : A satisfying year for the FMCG sector

Food was clearly the fastest growing segment and health-and-wellness the toast of the season. So, all launches and variant additions were skewed towards fitness, beauty and health factors.

Debdatta Das

New Delhi, Dec. 29With the country’s economy on an all-time high, and consumerism clearly the order of the day, the Rs 70,000-crore domestic FMCG industry has had a particularly satisfying year in 2007.

Not only have the usual growth drivers such as penetration, per capita consumption, population, and household income been strong during the year, but the share of FMCG items in the Indian consumer’s wallet has also increased gradually over the past few years and more so ever in 2007. The willingness to spend backed by the ability to do so, has in fact been the most vital statistic leading to higher growth in the sector.

In fact, it was all smiles right from the word go. The year started on a positive note with the Finance Minister, Mr P. Chidambaram, declaring several tax sops for the industry alongside a greater focus on infrastructure development as well as a boost to rural income, thereby creating a bigger rural consumer base for FMCG companies, during annual Budget for the year 2007-08.

Budget boost

The direct impact factors were full exemption of excise duty on biscuits worth Rs 50 per kilogram or less, reduction of customs duty on food processing machinery from 7.5 per cent to 5 per cent, reduction of excise duty on food mixes including instant mixes to 8 per cent from 16 per cent, reduction of duty on edible oil and exemption of free samples and displays from the purview of fringe benefit tax. Among the companies that were directly benefited by the sops were ITC, Dabur, HUL and Marico.

This shot in the arm for the industry in the form of the Budget was followed by a lot of activity as well, what with players recognising the value of the inorganic route of acquisitions as a key factor for further growth. While on one hand big companies such as Tata Tea bought 24 per cent stake in the domestic premium water brand, Himalayan, for a staggering Rs 110 crore and Marico acquired the South African company Enaleni Pharmaceuticals for Rs 52 crore, markets were rife with rumours of other significant players such as Emami and Dabur on the prowl.

Food, a winner

As far as the organic route of growth is concerned, 2007 saw not only new brands being launched, it also saw innovation on the variant or value added side. However, even within this sphere, two facts clearly emerged; first that food was clearly the fastest growing segment and second, health and wellness was the toast of the season. So, all launches and variant additions were skewed towards fitness, beauty and health factors.

As far as segments were concerned, besides food — the hands down winner with a growth rate of almost 22-24 per cent — other categories that did well were the personal care and home care segments. Reasons for growth in the food segment can be attributed to the fast paced life of consumers, with an increasing demand for convenience and nutrition.

So, while the ready-to-eat and cooking brands grew rapidly and brands such as Maggi Soups and Kitchens of India clearly went slow on the calories, snacks brands such as Lays and Bingo brought down saturated fat levels. Mr Ravi Navare, Chief Executive of ITC Foods, whose Bingo was the snacks’ hit of the year, said, “The average rate of growth of the FMCG industry is 17-18 per cent, more than that of the non-food segments that have a growth rate of around 14 per cent. In fact for us at ITC, while Bingo did very well this year, our Sunfeast brand was also a revenue generator and we plan several new additions in the next year.”

Concerns

However, the biggest source of concern for the industry in 2007 was the ever increasing prices of raw material. Detergents and soaps were the most affected, with palm oil prices rising, followed by a rise in wheat, sugar and milk prices. “Though 2007 has been a good year, inflation and subsequent rise in the raw material prices are still a source of concern for the industry,” said Mr A. Mahendran, Director, Godrej Hershey’s, and Managing Director, Godrej Sara Lee.

The thought was reiterated by Mr Ranju K. Mohan, Vice-President, Marketing UW and Sales, Henkel India. He said, “While the companies have been able to avoid getting hit by the price increase this year by adjusting pack sizes with the price, the coming year will be difficult if the trend continues.”

In fact, the effects are already being felt, with the home category seeing a relative slow in growth rate over the past two months, mainly due to rise in prices.