Scaling New Heights

With rapid socio-economic changes taking place in India, the country is witnessing the creation of many new markets and a further expansion of the existing ones. With above 300 million people moving up from the category of rural poor to rural lower middle class between 2005 and 2025, rural consumption levels are expected to rise to current urban levels by 2017. Such developments in India’s markets are expected to create major opportunities for Indian companies and MNCs alike and further fuel consumer demand in India.

According to a study by the McKinsey Global Institute (MGI), Indian incomes are likely to grow three-fold over the next two decades and India will become the world's fifth-largest consumer market by 2025, moving up from its position in 2007 as the 12th-largest consumer market. Further, according to data released by Visa, (the world's largest retail electronic payments network), annual commercial spending in India was estimated at US$ 2.3 trillion in 2007, an increase of 23 per cent from 2006. According to Visa's Commercial Consumption Expenditure (CCE) index, India was ranked in terms of the size of total business and government expenditure as the fourth fastest growing market in the Asia Pacific (APAC) region.

In spite of the rising inflation and fears about a slowdown, consumer demand in India is still upbeat. In an analysis (carried out by Economic Times) of the top 50 consumer goods and services firms, it was seen that the June quarter saw a sales growth of 24 per cent (year-on-year) compared to last year. The firms included in the analysis were from sectors like automobiles, textiles, fast moving consumer goods (FMCG), consumer durables, liquor, airlines, telecom services, footwear, and retail among others. Sales of daily consumption items went up by 5-10 per cent and the FMCG business increased by 18.8 per cent, while the consumer durable segment also recorded strong volume growth in the second quarter of the 2008-09 fiscal.

Moreover, approximately 315 hypermarkets are expected to come into existence in Tier-I and Tier-II cities across India by the end of 2011, riding on the boom in organised retail sector, says a joint study by consultancy firm KPMG and industry body, ASSOCHAM. The study states that 212 Indian towns are capable of sustaining the development of such hypermarkets in 2008.

FMCG

The FMCG sector has been registering double-digit growth in sales since the last couple of years. Currently, with annual revenues of US$ 14. 74 billion, it is the one of the most promising sectors.

Interestingly, the FMCG sector is witnessing rapid growth in rural areas and is estimated to grow by 40 per cent compared to the growth of 25 per cent in urban areas. Companies like ITC, Godrej Agrovet, DCM Shriram among others are growing rapidly in rural areas and in fact they may outdo their urban counterparts like Reliance Fresh and the Future Group-owned Food Bazaar chain.

Tremendous growth is being recorded by the value added and aspirational products. These products are estimated to propel the FMCG industry to grow by 16 per cent (in sales) during 2008-09, compared to 14.5 per cent during 2007-08.

Another promising trend is the growth of ‘out-of-home consumption’, which is emerging as a new section in the FMCG sector. With changing lifestyles, the concept of three core meals fast vanishing, companies like Coke, ITC, and Dabur are venturing into this market and are bringing out new product packaging for the segment.

The segment is likely to see a lot of fresh investment in the days to come. PepsiCo has announced a US$ 500 million investment in India over the next three years. Having already invested US$ 700 million in the country, the new investment would push the company’s investments above the US$ 1 billion mark. PepsiCo is also working on developing a nutritious product targeted at young women.

Significantly, several Indian FMCG companies have also been aggressively exploring global markets through both acquisitions and alliances. In the past three years, they have acquired about 15 companies and have spread their presence in more than a dozen countries.