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Food and Beverages Sector

The document discusses various policies and trends related to the FMCG sector in India. It notes that the Union Budget 2018-19 increased standard tax deductions and decreased customs duties on some imports, which will boost consumers' disposable income. It also discusses the implementation of GST, which has led to price decreases and supply chain optimization in the FMCG sector. Other policies like FDI rules, the food security bill, and relaxed licensing are also summarized as supporting growth of the FMCG sector. Key demand and supply drivers are outlined, like demographics, rising incomes, and infrastructure development. Emerging opportunities in rural markets, innovative products, and online retail are also highlighted.

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87 views8 pages

Food and Beverages Sector

The document discusses various policies and trends related to the FMCG sector in India. It notes that the Union Budget 2018-19 increased standard tax deductions and decreased customs duties on some imports, which will boost consumers' disposable income. It also discusses the implementation of GST, which has led to price decreases and supply chain optimization in the FMCG sector. Other policies like FDI rules, the food security bill, and relaxed licensing are also summarized as supporting growth of the FMCG sector. Key demand and supply drivers are outlined, like demographics, rising incomes, and infrastructure development. Emerging opportunities in rural markets, innovative products, and online retail are also highlighted.

Uploaded by

stuti jain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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REVIEW ON THE ENTREPRENEURIAL ECOSYSTEM

GOVERNMENT POLICY AND FRAMEWORK


UNION BUDGET 2018-19
The standard deduction of Rs 40,000 (US$ 618) for transport allowance and
reimbursement of miscellaneous medical expenses, will increase the disposable
income in the hands of the common people.

The customs duty on import of products such as shaving and after-shave


preparations, fruit juices and vegetable juices, edible oils of vegetable origin are
expected to boost the domestic sector.

GOOD AND SERVICES TAX


The rate of GST on services lies between 0-18 per cent and on goods lies between
0-28 per cent

Major consumer product manufacturing companies like PepsiCo, Dabur,


Hindustan Unilever etc. are aligning their supply chains, IT infrastructure and
warehousing systems ahead of unified GST regime, so as to facilitate seamless
interstate movement of goods.

Prices of commodities in the FMCG sector, like soaps, shampoo, detergents,


biscuits, savory snacks etc decreased after the implementation of GST, leading to a
3-8 per cent decrease in prices of goods at modern retail stores. The GST is
expected to transform logistics in the FMCG sector into a modern and efficient
model as all major corporations are remodeling their operations into larger
logistics and warehousing.

Warehousing cost for FMCG companies is estimated to fall by 25-30 per cent
backed by the implementation of the GST. The number of warehouses will
decrease from 45-50 to 25-30 and the size of warehouses will become larger.

EXISE DUTY
Excise duty on instant tea, quick brewing black tea, and ice tea would be decreased
to reduce the retail price by 30 per cent
Excise duty on other beverages and lemonade would be decreased to reduce retail
sale price by 35 per cent.

Excise duty on various tobacco products other than beedi would be increased,
resulting in retail price of tobacco products going up by 10-15% up.

FDI IN ORAGANISED RETAIL


The government approved 51 per cent FDI in multi-brand retail in 2006, which
will boost the nascent organised retail market in the country .

It also allowed 100 per cent FDI in the cash and carry segment and in single-brand
retail.

FOOD SECURITY BILL


FSB would reduce prices of food grains for Below Poverty Line (BPL) households,
allowing them to spend resources on other goods and services, including FMCG
products .

This is expected to trigger higher consumption spends, particularly in rural India,


which is an important market for most FMCG companies.

SETU SCHEME
Government has initiated Self Employment and Talent Utilisation (SETU) scheme
to boost young entrepreneurs.

Government has invested US$ 163.73 million for this scheme.

RELAXATION OF LICENSE RULES


Industrial license is not required for almost all food and agro-processing industries,
barring certain items such as beer, potable alcohol and wines, cane sugar and
hydrogenated animal fats and oils as well as items reserved for exclusive
manufacture in the small-scale sector.
DEMAND DRIVERS OF INDIAN FMCG SECTOR
DEMOGRAPHICS
India, with its population of 1.2 billion, is one of the largest consumer markets in
the world. It is also demographically one of the youngest with around 50% of its
population below the age of 25 and around 65% below the age of 35. The majority
of Indian consumption of fast food is driven by people between the ages of 18 and
40. The appetite of the young Indian population has been a key driver in QSR
industry growth.

INCREASE IN DISPOSABLE INCOME


Increase in disposable incomes of middle class families resulted in them spending
more on food consumption. Per capita income increased by CAGR 9% to US$
1,350 in 2013 compared to US$ 450 in 2000. Consumers are now spending as high
as 51% of their income on food products.

CHANGE IN CUSTOMERS’ PREFERRENCES


Food habits have changed due to changes in family structures. With the changing
habits there is an increased preference for convenience and higher instances of
eating out. Certain section has been exploring culinary experiences due to the
global mobility of the Indian consumer. This resulted in the emergence of the
ready-to-cook/ ready-to-eat segments of the food & beverage industry. Youth is a
growth driver.

RISE IN NUMBER OF WORKING WOMEN


Women form nearly 25% of the workforce now. With more women spending a
substantial number of hours at work, there is little to no time to prepare elaborate
meals at home, as generations before them did. More working women are spending
their disposable incomes on eating out or serving ready-to-eat or prepared foods
picked up on the way home from work.
HEALTH AND HYGIENE CONSCIOUS
Rising awareness and incomes among upwardly mobile urban consumers are
making them care more about health and fitness. The mushrooming of juice bars
and kiosks selling salads and wraps are cases in point. Consumers are opting for
healthy options at the supermarket as well. Many now cook with healthier oils as
opposed to ghee and butter, the traditional cooking medium in India.
SUPPLY DRIVERS
ECONOMIC LIBERALISATION
With economic liberalization in the early 1990s, barriers to doing business were
either removed or minimised. Economic reforms helped India attract investments
in the sector from foreign companies wanting to enter the Indian market and also
from private equity firms.

INFRASTRUCTURE DEVELOPMENT
As an offshoot of the growth in this sector, third party logistics providers, which
transport the produce and food products from source to destination have also
emerged.

CONTRACT CULTIVATION
Companies are signing contracts with farmers to grow a specific crop and
guaranteeing to buy the produce at an agreed price—has emerged as a preferred
way to source agricultural produce. Take the case of potatoes. Pepsico , which
supplies Lays, has 400 farmers cultivating 2,000 acres of potato fields in Gujarat
under contract. Pepsi Foods has over 2,000 farmers on contract, covering 7,000
acres across Haryana, Punjab, and Uttar Pradesh.

EMPLOYMENT
FMCG sector is the most preferred sector for employment. The FMCG industry is
often associated with sales roles, so you might assume these are the only options
available. It is undoubtedly the case that sales are a hugely important factor for
any business operating in the sector, but it is also worth noting that there are
many varied opportunities available that could suit your skillset. FMCG
companies are driven by sales, but these sales cannot happen without stellar
work from those in marketing, analysis and management positions.
GROWTH OPPORTUNITIES IN INDIAN FMCG
SECTOR
RURAL MARKET
Leading players of consumer products have a strong distribution network in rural
India they also stand to gain from the contribution of technological advances like
internet and e-commerce to better logistics Godrej is focusing on rural market for
household insecticides segment. At present, Godrej accounts for 25 per cent of the
household insecticides sales from rural areas

Rural FMCG market size is expected to touch US$ 220 billion by 2025

INNOVATIVE PRODUCTS
Rural Market Indian consumers are highly adaptable to new and innovative
products. For instance there has been an easy acceptance of men’s fairness creams,
flavored yoghurt, Cuppa mania noodles, gel based facial bleach, drinking yogurt,
sugar free Chyawanprash.

PREMIUM PRODUCTS
With the rise in disposable incomes, mid and high-income consumers in urban
areas have shifted their purchase trend from essential to premium products.

Premium brands are manufacturing smaller packs of premium products. Example:


Dove soap is available in 50g packaging.

Nestle is looking to expand its portfolio in premium durables cereals, pet care,
coffee, and skin health accessing the potential in India.

SOURCING BASE
Indian and multinational FMCG players can leverage India as a strategic sourcing
hub for cost-competitive product development and manufacturing to cater to
international markets
PENETRATION
Low penetration levels offer room for growth across consumption categories

Major players are focusing on rural markets to increase their penetration in those
areas.

ONLINE FMCG
It is estimated that 40 per cent of all FMCG purchases in India will be online by
2020, thereby making it a US$ 5-6 billion business opportunity.
EXPANSION OPPORTUNITIES
BOOSTS IN FDI AND INVESTMENTS
100 per cent FDI is allowed in food processing and single-brand retail and 51 per
cent in multi-brand retail.

This would bolster employment and supply chains, and also provide high
visibility for FMCG brands in organized retail markets, bolstering consumer
spending and encouraging more product launches.

The sector witnessed healthy FDI inflows of US$ 12,186.57 million during April
2000 to March 2018.

Within FMCG, food processing was the largest recipient; its share was 69.32 per
cent.

FMCG companies announced investment intentions of Rs 9,144 crore (US$ 1.36


billion) between January – April 2018 from sugar, fermentation, food processing,
vegetable oils and vanaspathi, soaps, cosmetics and toiletries industries.

SHIFT TO ORGANISED SECTOR


Organized sector growth is expected to grow as the share of unorganized market in
the FMCG sector fall with increased level of brand consciousness

Growth in modern retail will augment the growth of organized FMCG sector.

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