Larger FMCG companies can negotiate better rates during times of high input cost inflation.

Small and fragmented suppliers have limited bargaining power.

Huge investments in establishing brand identity and setting up distribution networks.

However, rising contribution of women to the working force and growing nuclear families have led to higher demand for convenience foods, especially in urban areas. Several brands are positioned with narrow product differentiation.

Not being an essential commodity, the demand for consumer products is elastic.

Distribution networks are being strengthened in rural areas. Abundant supply through a distribution network of over 8 m stores across the country.How to Research the Consumer Products Sector (Key Points)

Despite being one of the fastest growing markets globally for FMCG products, the per capita FMCG consumption in India is still amongst the lowest in the world, giving the industry a long runway for growth.

Moreover, rates on food and hygiene products have been reduced to 0-5% and 12-18%, respectively. Many of the FMCG products such as soap, toothpaste and hair oil now come under the 18% tax bracket against the previous 23-24% rate.

The Goods and Services Tax (GST), launched in 2017, has been beneficial for the FMCG sector.

Global retailers, who are keen to increase their footprint in India can now cash in on the consumption growth story of the country.

The Government of India has approved 100% Foreign Direct Investment (FDI) in the cash and carry segment of the sector along with 51% FDI in multi-brand retail.

Brand consciousness has also aided growth.

Growing awareness, easier access and changing lifestyles have been key growth drivers for the sector.

Demand for quality goods and services have been going up in rural areas, on the back of improved distribution channels of FMCG companies. On the other hand, the rural segment contributes 45% and is growing at a faster pace compared to the urban segment.

The urban segment accounts for 55% of the overall revenue generated by the FMCG sector.

There are three main segments in the sector – household and personal care which accounts for 50%, healthcare which accounts for 31%, and food and beverages which accounts for 19% of the sector.

Fast moving consumer goods (FMCG) is the 4th largest sector in the Indian economy.

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Fmcg industry report