FMCG WIZARDS CONTEST: Future of FMCG in India (5 years from now)

Welcome to India's first FMCG Wisdom Website

I am rolling out a contest on FMCG sector in form of a Reaserch Paper. As many people in FMCG marketers community are interested in doing projects in FMCG sector, i am starting this Contest - FMCG WIZARDS.

CONTEXT
There are different FMCG categories existing in India. At a macro level there are mainly four categories – Home & Personal Care, Foods & Beverages, Cigarettes and Alcohol and at a micro we sub categories under HPC and F&B. Some of them are quite established in India. Just to name a few, the established ones are Soaps, Shampoos, Biscuits, Confectionary, Cigarettes, Salt, Snack Foods(Chips & Namkeens) are more than 1000 Cr. categories. Other FMCG categories are in nascent stage like Ready to Eat, Breakfast Meals, which are well within 100 Cr.

There are some categories like Chips & Namkeens, which today has a huge market of 2000 Cr. and was miniscule 6 years back. One thing is very important to understand here is that the smaller FMCG categories today will be more than 1000 Cr. and will contribute a considerable percentage in the portfolio of FMCG categories. Apart from the already existing categories in India, there are many other niche FMCG categories, which are non-existent in India but are well established in developed nations. But gradually India will experience those categories in India.

The deliverables of the research paper are:

1. List of all FMCG categories and their current potential in Crores. Do refer: http://fmcgmarketers.blogspot.com/2006/09/fmcg-product-categories.html
2. Split the categories into established and nascent categories
3. List of untapped categories in India which are prevalent in other nations
4. Viewpoints on the scope/ potential of nascent and untapped product categories in India in next the 5 years, looking into the changing consumer behavior
5. Lastly, what all FMCG companies in India should enter into these categories

The essence, which should come out from the project are the budding FMCG categories, which has a huge potential in India in next 5 years.

DATE OF SUBMISSION
Please mail the research papers by 16th April, 2007 on nitin.blogger@gmail.com with details of the team members (maximum 2) and your backgrounds.

FMCG WIZARDS WINNERS
I will shortlist 2 teams. The papers will be published on FMCG Marketers.

Put in your best to come out with interested insights, which can be useful for the FMCG fraternity.

Best of Luck.

Budgets Implications on FMCG Sector

The Budget gives more focus on the agricultural/farm sector that will boost the rural income thus providing better growth prospects to the FMCG companies. With 12.2% of the world population living in the villages of India, the Indian rural FMCG market is something no one can overlook. Better infrastructure facilities will improve their supply chain. Also, with rising income and growing consumerism, FMCG sectors are likely to benefit. Growth potential for all the FMCG companies is huge as the per capita consumption of almost all products in the country is amongst the lowest in the world. Further, if these companies can change consumer's mindset and offer new generation products, they would be able to generate higher growth in the future.

Points to remember

• Farm sector has been given the top priority. Agriculture investments to go up to 2% of GDP
• Duty on edible oil has been reduced
• Excise duty exempted for all food mixes and biscuits
• Custom duty on Sunflower oil (crude and refined) reduced by 15 per cent while exempted from additional CV duty of 4 per cent Customs duty on food processing machinery and their parts is being reduced from 7.5% to 5%
• Excise duty has been fully exempted on biscuits of per kilogram
• Excise duty on food mixes, including instant food mixes, has been reduced from 16% or 8% to Nil
• Free samples and displays are exempt from the purview of FBT
• Footwear - Excise duty on parts of footwear reduced from 16% to 8%
• Venture capital investing in dairy industry will get a pass through status
• Better rural infrastructure development to be an area of focus
• Increase in dividend distribution tax from 12.5% to 15%
• 1% higher education cess to charged
• The dividend distribution tax on dividends paid by money market mutual funds and liquid mutual funds increased to 25 % for all investors
• No implementation of value-added tax (VAT) on cigarettes
• Specific excise duty on cigarettes increased by about 5%

CHANGES EXPECTED

• The focus in agriculture will benefit rural income that in turn will help FMCG companies Thrust on Increased investment in agricultural activities and rural infrastructure would be positive for the sector
• Increase in spending towards upliftment of rural populace to lead to increased demand for durables in the long term
• CST reduction expected to lower manufacturing costs of FMCG players
• Reduction of excise on food mixes is beneficial to ITC, as this segment is a new growth area
• FMCG companies spend a lot of money on advertising and brand building. Exclusion of samples and displays from FBT will help them in promoting their products
• Better infrastructure will help better access and more distribution network to the FMCG companies. It will help them improve the supply chain
• Companies have huge investments in the liquid funds, the higher tax on dividend distribution will reduce their other income. The impact of higher tax (cess) on the industry is likely to lower net margins, albeit marginally. Also all the FMCG companies will benefit from the infrastructure development funds that will boost to rural income

HLL, Marico, Dabur and ITC will benefit out of it.

1. Britannia and ITC are likely to benefit due to reduction in excise on biscuits
2. ITC will also benefit from the reduction of excise duty on instant mixes
3. Duty reduction on edible is a positive for companies like Marico
4. Positive for footwear companies like Bata, Liberty Shoes and Mirza International

Source: Indian Budget 2007-08 - Part I - Fast Moving Consumer Goods (FMCG)

Thanks Mr. Finance Minister for this hygienic budget for FMCG Sector !!

ROSS - Return on Shelf Space

Lets take an example of Biscuits. The different brands are:
1. Sunfeast
2. Britannia
3. Parle
4. Priya Gold

There will be a space for these brands in biscuit category. When i talk about space it is the area which is visible to the consumer. Suppose it is 10X Sq. ft and is divided into 3X, 2X, 2X, 3X.

Now there will be some sale of this brands in that mall.

So you will get a variable ROSS= (Sales in a month)/Sq. Feet

This variale will vary from brand to brand .... More the ROSS, more is the benefit for the retailer ... If ROSS for a particular brand is more, retailer can give more space to that brand.

This anlaysis will give you how fast moving the brand is and other things when you get into it.

Exercise for guys interested in FMCG/ Retail: Visit few Malls... and see ROSS values for different brands in different malls ... and do an analysis which is the best ...

Ideally the more selling the brand is ... more space should a retailer give to that brand. All this what i have writtten is SPACE MANAGEMENT and there is something called CATEGORY MANAGEMENT ... which say that All marie biscuits be together in a shelf... Diapers to be with Beer Cans (This also come out marketing analytical techniques)

In US, as modern trade is more prevalent, they give lot of weightage to space in a key account, as every Sq. Ft cost many pennies.

This also lead to something called PLANNOGRAMMING Principles. This says that the consumer view a particular shelf from left to right; some SKUs are sold more that the other;

So should we have more display of packets of a fast moving SKUs or give equal space for SKUs. As India Retail construct is changing to modern formats ... our Mall owners and the concerned organizations are becoming SPACE CONSCIOUS.

SAVE the SPACE.

Innovations in FMCG sphere: India

There are two types of innovations - Evolutionary and Revolutionary

A) Evolutionary: Its just an addition to some innovation/ launch etc done in past. Just take the example of Colgate Maxfresh. Its just an addition of a new attribute to the existing portfolio.

B) Revolutionary: It is something out of box - alltogether new where nobody has entered so far. Lets take an example of Lays Kukure where they did some innovation with Snack Foods category in FMCG. Other example is Salt Toothpaste - its exactly not revolutionary, but its really a different value propositions which consumers never thought of. This was possible after lot of R&D done in area of dental

Now think of weird innovations - some liquid which when applied on hands will remove all the germs and make your hand absolutely clean without even using water. It has an awesome utility - its is revolutionary. But here the important point is whether this is launched in right time to the right markets for set of consumers.

But definately there are untapped innovations which FMCG Marketers keep exploring to increase their business and move up the value chain.

DO you have some innovation in your mind. Do comment!!

Lavazza eys on Barista

One more acquisition!! This time its that of the leading coffee chain in India by Italian coffee chain, Lavazza.

This all started with the visit of an official/ owner of Lavazza who visited a Barista outlet few weeks back and made his mind to take Barista in their international portfolio.

Italy's largest coffee company Lavazza is taking over Barista (Owner: NRI C Sivasankaran) and Fresh and Honest Café Ltd. (FHCL). The transaction would be completed over the next 4 weeks. With their plush looks, ambience and range of coffees, the two chains enjoy a mainly young clientele that Lavazza would inherit.

Lavazza’s entrance would preclude the US coffee major Starbucks that has been in talks with various companies for their foray into India. Lavazza owns the exclusive coffee chain Lavazza BLUE, and has a range of served as well as off the shelf products including Bevanda Bianca and Ciocolatto.

Barista has over 150 Espresso Bars and Barista ‘Crème’ outlets in over 29 locations in India. Besides India, Barista also has cafes in locations across Srilanka, Oman and the UAE.

FHCL operates in the freshly-brewed coffee vending business in India. FHCL has an installed base of 2500 Swiss, fully Automatic Vending Machines (AVMs) across the country. FHCL's client list includes 5-Star Hotels, high-end restaurants, large corporations, railway stations, airports & hospitals.

Both companies are owned by Sterling Infotech, that took over the operations from the Tata Group in December 2004, when Tatas exited their final 10 per cent stake in the company.
Commenting on the deal, Mr. Alberto Lavazza, CEO of Lavazza Group said : "We are delighted to enter the rapidly growing Indian market through Barista and FHCL. The acquisition allows us to take a leading position in coffee shops."

Lavazza has annual revenues of over $ 1.2 billion and operates in over 80 countries in both out of home (café chains and coffee vending) and retail businesses.

Few months back Barista added illy (new flavour from Italy) in their portfolio and now an Italian company is set to buy Barsita.

Now the point to understand here is that what value added will Lavazza make to the old sexy Barista. I am a loyal customer Barsita and spend around Rs. 1500 a month and wont make any difference to me Lavazza taking over Barista.

In past we use to have CCD and Barista and now we have recently seen the entry of Costa Coffee. And the Starbucks of world will be soon making a foray to India. Now the interesting question is whether we have this much consumer who will give business to these chains. Definately we have consumers varying from Tribes in Andaman & Nicobar Islands to the Hap crowd of Mumbai - a pure heterogenous market, but i am really doubtful of the number of consumers who spend Rs. 30 for a Cappachino cup of Coffee in Barsita, CCD or Barista.

Lets wait and watch and see whether these chains will actually be successful in India in short or long term. Best of Luck Lavazza!!