Confederation of Indian Industry

Since 1895

FMCG Roadmap
to 2020
The Game Changers
Abhishek Malhotra
Vikash Agarwalla
Srishti Chaudhry

Prepared by
This Report has been prepared by Booz & Company Inc for the Confederation of Indian Industry (CII)

© Confederation of Indian Industry (CII), 2010

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CONTENTS Message from Conference Chairman 3

Executive Summary 4
Abbreviations and Acronyms 6
1. Industry Context 7
1.1. The FMCG Industry: Growth in the Last Decade 7
1.2. Growth across FMCG Categories 7
1.3. Growth across FMCG Players 7
2. Determinants of Industry Growth and Outlook for the Future 10
2.1. Industry Growth Drivers 10
2.2. FMCG Roadmap to 2020 12
3. Megatrends Shaping the Indian FMCG Industry 13
3.1. Accelerating Premiumization 14
3.2. Evolving Categories 16
3.3. Goldmine at the Bottom of the Pyramid 22
3.4. Rapid Globalization 28
3.5. Many-Indias 31
3.6. Growing Modern Trade 34
3.7. Eco-consciousness 39
3.8. Game-changing Technologies 42
3.9. Enabling Policies 46
4. Implications for the FMCG Industry 48
4.1. Industry Paradigms in 2020 48
4.2. Imperatives for the FMCG Industry 48
4.3. Implications for Other Stakeholders 54
Endnotes 55
About the Authors 55

2 FMCG Roadmap to 2020

 The Indian FMCG industry is over INR 1300 billion in size. It touches the life
MESSAGE FROM of every Indian and therefore has perhaps the widest reach among all industries
CONFERENCE in India! The industry has tripled in size over the last 10 years, growing much
faster than in past decades. This has been facilitated by the many changes in
CHAIRMAN the Indian economic and industrial landscape—reduced levels of taxation,
easier import of materials and technology, reduced barriers to entry of
foreign players, growing organizational maturity of Indian players, growth
of media, and, of course, the growing affluence and appetite for consumption
of the Indian consumer. The industry’s potential to grow further and faster is
awesome, given the low penetration of most categories and rising consumer
incomes.

Though many changes have taken place over the last 20 years, I believe the
rate of change in the FMCG operating environment is set to accelerate. The
waves of change will be propelled by government policy, channel customers,
technological advances, leaders of social change such as NGOs, consumer
behaviour and, of course, the players themselves. Change will therefore occur
along many dimensions simultaneously, in a more compressed time scale
at the intersection of these change vectors. This will produce significant,
if unpredictable, outcomes for the industry. Over the last 20 years, almost
all FMCG companies have been riding the rising tide and almost all have
prospered. That may, however, not hold true over the next 10 years. While the
industry is set to grow at an even faster rate, in this round there could be as
many losers as winners!

Winners will discard archaic models which prioritize urban markets over rural
and innovate more complex but vastly more insightful segmentation models.
They will alter the dialogue with modern retailers and the emerging specialized
trade channel customers in meaningful ways, to grow the market and earn
profitable market share. They will use technology to not just pare costs, but
to create flexible supply chains which can access more consumer segments and
satisfy more consumer requirements. They will also use technology to both
win more consumers and collaborate more intensely with consumers to create
innovative products. Issues of sustainability will become far more central to
their agendas.

In this context, all stakeholders in the FMCG industry will find this report
by Booz & Company valuable. Booz has developed an excellent model to
understand the forces shaping the FMCG industry and this model is supported
by a strong analytical foundation. Several interesting conclusions flow
from the application of this model which should inform many board room
discussions as companies in India and elsewhere grapple with issues of the
future. Industry associations and the CII FMCG committee will no doubt
see value in this report, as they seek to influence different stakeholders; and,
of course, investors will vote with their money as they identify companies
that reflect a stronger understanding of these dynamics in their strategy and
execution.

Kannan Sitaram
Chairman
CII FMCG Forum 2010

FMCG Roadmap to 2020 3

 The Indian FMCG industry at INR
EXECUTIVE 1300 billion (in FY2010) accounts
SUMMARY for 2.2 per cent of the GDP of the
country.
Given the inherently essential nature
of the products, the sector is more or
less immune to recessionary pressures.
The last decade has seen the sector
grow by 11 per cent annually. Robust
GDP growth, opening up of rural
markets, increased income in rural
areas, growing urbanization along
with evolving consumer lifestyles
and buying behaviours have all been
drivers of this growth.
Over the next decade, all the above
drivers are expected to continue to
impact the industry favourably. Based
on discussions with industry experts as
well as Booz & Company analysis, we
believe that the FMCG industry will
grow at a base rate of at least 12 per
cent annually to become an INR 4000
billion industry by 2020. Additionally,
if some of the factors play out
favourably within an environment of
enabling policy and easing of supply
constraints, 17 per cent growth may be
expected over the next decade, leading
to an overall industry size of INR
6200 billion by 2020.
FMCG consumption is becoming
more and more broad-based, and has
reached an inflexion point where the
growth can be expected to take off,
following the traditional ‘S-shaped’
curve witnessed across many markets.
While on an average, the growth of
the industry will be strong, it will
not be uniform. Variations are likely
across product categories, companies
and locations.
Based on our research and extensive
interviews, we have identified nine
mega trends across consumers,
markets, and environments which will
shape the industry by 2020.
4 FMCG Roadmap to 2020
1. Accelerating Premiumization:
Continuous income growth
coupled with an increased
willingness to spend will push
consumer up-trading and demand
for higher priced, better quality
(real or perceived) products.
2. Evolving Categories: Many
consumers with rising economic
status will shift from basic ‘need’ to
‘want’ based products. In addition,
evolving lifestyle behaviour and
emphasis on beauty, health,
and wellness will see increased
requirements for customized and
more relevant products.
3. Goldmine at BOP: A significant
majority of the population in the
country, especially in the rural
markets, will become an important
source of consumption by moving
beyond the ‘survival’ mode. This
bottom-of-the-pyramid (BOP)
segment will require tailored
products at highly affordable prices
with the potential of very large
volume supplies.
4. Rapid Globalization: While many
leading foreign multinational
companies (MNCs) have operated
in the country for years, given
liberal policies, the next decade
will witness increased competition
from Tier 2 and 3 global players. In
addition, larger Indian companies
will continue to seek opportunities
internationally and also gain access
to more global brands, products,
and operating practices.
5. Many Indias: Despite the
complexities of our language,
culture, and distances, the Indian
market has largely been seen as
a homogenous market. Increased
scale and spending power will
demand more fragmented and
customized business models
 (across products, branding and
operating structures).
6. Growing Modern Trade: The share
of modern trade will increase and
may be expected to account for
nearly 30 per cent of the total trade
by 2020. This channel will compete
with existing traditional trade
(approximately 8 million stores
which will continue to grow) and
offer both a distribution channel
through its cash & carry model as
well as other avenues to interact
with the consumer.
7. Eco-consciousness: Global climatic
changes, dwindling natural resources,
and growing ecological awareness of
consumers are increasing emphasis
on environmental concerns. The
pressure on companies to go green
is growing due to the involvement
of various stakeholders—the
government (through policy), the
consumers (through brand choice)
and NGOs (through awareness and
advocacy).
8. Game-changing Technologies:
Increased relevant functionality
coupled with lower costs will
enable technology deployment to
drive significant benefits and allow
companies to deal with complex
business environments. This will
FMCG Roadmap to 2020
be seen both in terms of efficiencies
in the back-end processes (for
example, supply chain and
distribution) as well as in the
front-end (for example, consumer
marketing).
9. Enabling Policies: Many
government policies under
consideration, if executed, can help
create a more suitable operating
environment. This will help
boost both demand and supply.
Demand will go up because of
increase in income levels and
spread of education and supply
will be augmented by removal of
process bottlenecks and boost in
infrastructure investments.
While some of the above trends can
already be observed today, many are
yet to break the existing paradigms.
In addition, the confluence of many
of these change drivers—consumers,
technology, government policy,
channel partners—will have a
multiplier effect and magnify both
the magnitude as well as the pace
of change. As with any change that
is disruptive in nature, there will be
winners and losers.
This transition from a stable and
homogenous operating model to a
dynamic, unpredictable and rapidly
changing operating model will have
significant implications for the
industry and its stakeholders. To excel
in this new model one will need to
enhance current capabilities and build
new ones to bridge gaps. In this new
setup, FMCG companies will have six
imperatives from a business strategy
perspective:
1. Disaggregating the operating model
2. Winning the talent wars
3. Bringing sustainability into the
strategic agenda
4. Re-inventing marketing for
‘i-consumers’
5. Re-engineering supply chains
6. Partnering with modern trade
Stakeholders including government,
retailers, NGOs, and investors
will also need to play a key role in
supporting the growth of the industry,
while continuing to deliver on their
core business and social mandates.
In conclusion, the FMCG sector in
India is poised for rapid growth in the
next 10 years. Companies will need
to evolve to better meet the rapidly
changing consumer needs within
an increasingly complex operating
environment. The FMCG industry in
2020 will be larger, more responsible,
and more tuned to its evolved
customers.
5
ABBREVIATIONS FMCG Fast Moving Consumer Goods
GDP Gross Domestic Product
AND ACRONYMS FY Financial Year
INR Indian Rupees
US$ US (American) Dollars
NREGS National Rural Employment
Guarantee Scheme
APMA Agriculture Products
Marketing (Regulation) Act
NFSA National Food Security Act
FDI Foreign Direct Investment
MVNO Mobile Virtual Network
Operators
TRAI Telecom Regulatory Authority
of India
OCB Overseas Corporate Body
SSI Small-scale Industry
NGO Non-governmental
Organization
CSR Corporate Social
Responsibility
MNC Multi-national Company
OTC Over the Counter
SMS Short Message Service
VAS Value-added Service
MRP Maximum Retail Price
GST Goods and Service Tax

6 FMCG Roadmap to 2020


1 on-year growth of approximately 11
INDUSTRY
CONTEXT
1.1. The FMCG Industry: Growth
in the Last Decade
The fast moving consumer goods
(FMCG) industry1, which accounts
for 2.2 per cent of India’s GDP, is
expected to attain a size of INR 1300
billion by FY2010. Over the last
few years the industry has witnessed
a high rate of growth boosted
by favourable macroeconomic
conditions, increased rural incomes,
a rising consumption-culture in India
and a proliferation of consumer
awareness campaigns.
FMCG Roadmap to 2020
The sector witnessed a robust year-
per cent in the last decade, almost
tripling from INR 470 billion in
FY2001 to the current size. The last
five years have augured well for the
industry with an annual growth rate
of approximately 17 per cent since
FY2005. Even in the meltdown years
of FY2008 and FY2009, the FMCG
industry witnessed sustained growth
rates of 14 per cent and 11 per cent,
respectively, demonstrating that
unlike other sectors, this sector was
relatively recession-proof
(see Exhibit 1).
1.2. Growth across FMCG
Categories
The FMCG industry in India has
grown rapidly and the growth rates
across different product categories
are good indicators of how the Indian
consumer has evolved.
Within the category of food products,
which accounts for nearly 45 per
cent of the industry size, staple
products like edible oils have grown
at single digits given a high degree
of penetration as well as established
usage patterns. Fruit juices on the
other hand have reported exponential
growth, moving from near-zero
levels in FY2000 to INR 9 billion
at present. Similar trends are visible
in the personal products category
with skin-care creams outpacing the
growth of more mundane product
lines such as toothpaste. Increased
incomes, changing social habits and
growing awareness of healthier and
packaged beverages have contributed
to these patterns (see Exhibit 2, p. 8).
1.3. Growth across FMCG Players
Three well-identified sets of players
operate within a highly developed
and intensely competitive landscape
7
of the Indian FMCG market
(see Exhibit 3, p. 9):
1. Foreign players who are present
through their subsidiaries such
as Unilever, P&G, Nestle and
PepsiCo.
2. Strong Indian players with
established national presence such
as Marico, Dabur and Godrej
Consumer Products.
3. Regional or small domestic players,
such as Ajanta, Anchor, CavinKare
etc., who are present in a few
regions of the country.
Most of the foreign players such
as such as HUL, P&G etc., have
either established their presence
or are actively looking towards
entering India through organic and/
or inorganic routes. Kraft Foods
for example, has entered India by
buying Cadbury; and Danone, the
French dairy major is re-establishing
its presence in the food processing
market through its tie-up with Yakult
Honsha, a Japanese probiotics major.
There are also numerous Indian
players who have established
themselves in niche segments by
developing differentiated products
and positions and have thus become
industry leaders. Dabur and Marico
are entities which have established
their brand of health supplements
(Chyawanprash) and coconut hair
oils (Parachute) through products
intrinsically linked to the traditional
Indian psyche. These categories are
therefore difficult to break into. Little
wonder then that foreign MNCs
have largely stayed away from these
product segments.
Apart from these, there are regional
and small-scale FMCG players such
as small tea producers and organic
food producers, who mainly
compete by offering low-priced
products with similar looks or
packaging compared to the bigger
brands, to the ‘right consumers’
typically based in rural areas or in
small towns. These players with
lower corporate overheads and
clear focus on specific consumer
requirements have a competitive edge
over larger FMCG players.

Exhibit 2: Selected Category Growth

(FY2008-FY2010)

35%
24% 26%
21%
16%
11%
8%

Oils Biscuits Fruit Drinks Skin Care Toothpaste Shampoo Hair Oil

Source: IDFC Institutional Research, Euromonitor, Booz & Company analysis

8 FMCG Roadmap to 2020

Booz & Company analysed the sales
and profitability of approximately 100
listed FMCG companies across foreign
MNCs and large and small Indian
players. The high growth rate of the
FMCG industry was reflected in the
growth rate of these players. Also, the
last decade saw a golden run for the
Indian players who grew at a CAGR of
12 per cent in 2001-05 and 19 per cent
in 2006-10. This compares handsomely
with reported figures of 2 per cent and
16 per cent in the respective periods for
the foreign MNCs.
While this has widened choices
for consumers, markets are, on
the downside, more fragmented.
Players are offering multiple products
within common categories resulting
in brand erosion and decline in
dominance.

Exhibit 3: Sales Growth – FMCG Players

19%
(CAGR)

17%
16%

12%
11%

9%
8%

2%

2001-2005 2006-2010

Player Average Large Indian

Foreign MNCs Regional / Small Domestic

Source: CMIE, Booz & Company analysis of ~100 FMCG players

FMCG Roadmap to 2020 9

 2.1 Industry Growth Drivers
2 Having matured in a decade of
tremendous economic growth, the
Indian FMCG industry is now ready
DETERMINANTS to sustain that growth and forge
OF INDUSTRY ahead. There are three key forces at
work within and outside the industry
GROWTH AND which drive this development.
OUTLOOK FOR
2.1.1. Developmental Cycle of
THE FUTURE the Industry
Booz & Company analysis of
consumption patterns across
countries has revealed that most
categories of consumer products tend
to follow an S-curve of growth with
the initial consumption driven by rich
consumers and early adopters. At the
trigger point though, the consumption
becomes more wide-spread and then
increases exponentially. Subsequently,
the categories of consumer products
mature as consumers move from a
‘need-driven’ to a more ‘want-driven’
consumption pattern as explained
by Rostow’s Stages on Economic
Growth.2
The tipping point for exponential
growth, however, varies across
categories. At per capita GDP of
US$ 7000, the basic consumption
of staples as a proportion of total
food consumption (measured by
calories of intake), initially, tends to
grow faster. For example, per capita
consumption of wheat grows fast
when GDP is US$ 2000-5000 per
capita. However, the snacks category
displays growth when GDP is in the
range of US$ 4000-7000 per capita,
though this rise occurs comparatively
late. Socio-cultural norms and
behaviours considerably impact
both timing and growth patterns of
various food categories. For example,
Mexico reports high rates of snacking
due to local food habits, while Latin
America displays strong inclination
for shampoos, which is driven not

Exhibit 4: Key Drivers of the FMCG Industry in India

CONTRIBUTION TO FMCG
GROWTH DRIVER PAST GROWTH (2001-2010) FUTURE GROWTH (2011-2020)
TRANSFORMATION

GDP Growth ~7% 8-9%

Population Growth 1.5% 1.2%

• ~14% annual growth • >15% annual growth

Per Capita (disposable income) (disposable income)
Income Growth
• Women’s participation 34% • Women’s participation closer
in 2010 to levels in developed nations
(70%)

• 2.3% urbanization • 2.5% urbanization

Lifestyle Changes • ~60% people in 15-59 age- • Similar age profile
group in 2010 • More up-trading in urban
and rural areas

• NREGA • GST
Government Policy • Farmer loan-waiver • FDI
• Right to Education
• Food Security

10 FMCG Roadmap to 2020

only by the availability of water but
also social norms related to personal
hygiene.
While the Indian GDP per capita
is low, many Indian consumer
segments which constitute rather
large absolute numbers are either
close to or have already reached the
tipping point of rapid growth. This
is true for many categories of
consumer durables, beauty and
wellness goods, such as, skin-care
products and even edibles such as
packaged beverages, all of which
have reported significantly faster
growth rates.
2.1.2 Macroeconomic Factors
Favourable macroeconomic drivers
such as the growth in GDP, coupled
with rising incomes, increased
participation of women in the
workforce and the tapping of the
rural markets, are seen to be enabling
growth in the FMCG sector (see
Exhibit 4, p. 10). These are elaborated
upon below:
• The Indian economy is expected to
overtake UK in the coming decade,
with GDP growth ranging between
8-10 per cent.3
• India is expected to reach China’s
current population figure of 1.4
billion by 2020.
• Per capita incomes supported
by various government schemes
and policies are expected to rise
in both rural and urban areas.
Participation of women in the
Indian workforce is also likely to
rise. Estimates suggest that if it
increases to approximately 70 per
cent (as in the developed nations),
it will further boost GDP growth
by 2-3 per cent.
• Favourable government policies
such as the introduction of GST
can be expected to substantially
decrease supply chain costs.
Increased FDI in multi-brand retail
may open up a large channel for
sales. Other policy measures such
as lower income taxes, the Food
Security Act, Right to Education,
infrastructure schemes etc have
also acted as enablers of higher
consumption.
2.1.3 Evolving Consumer Profile
Lifestyle changes, a comparatively
young population and greater
willingness to spend more on better
quality products are expected to boost
the consumption-driven economy.
Rural markets, given the current low
penetration and high potential for
up-trading are expected to bring about
super-normal growth for FMCG
companies.
All these factors will combine to
catapult consumer demand for FMCGs
to newer heights (see Exhibit 5).

Exhibit 5: FMCG Growth Ladder

Demand INCREASING UNFORESEEN

Drivers NEW CONSUMERS CONSUMPTION UP-TRADING FUTURE DRIVERS

• Population growth • Increasing • Using premium,

• Increasing penetration consumption in sophisticated
(access to rural areas, every occasion products
more coverage) • Increasing occasions • Increasing income,
of consumption women’s participation
• GDP, increased in workforce, lifestyle
incomes, younger changes powering
population driving above
the above

Supply Modern Trade + Technology Investments + Regulations

Drivers

FMCG Roadmap to 2020 11

Young population (below age of 30
years) comprise 59 per cent population
currently, and the composition is likely
to remain similar over the next decade.
This augurs well for the industry as
the young have greater willingness to
spend more.
2.2 FMCG Roadmap to 2020
Booz & Company analysis and
discussions with industry experts
indicate that the FMCG industry may
grow at a base rate of at least 12 per
cent annually to become INR 4000
billion industry in 2020. Additionally,
if some of the positive factors play
out favourably, it could even record
a 17 per cent growth over the next
decade, leading to an overall industry
size of INR 6200 billion by 2020.
These growth rates, however, depend
on varying economic scenarios
(see Exhibit 6).
Exhibit 6: Growth Scenarios of FMCG Sector
(IN INR BILLION)
17%
12%
1300
FY10E
Source: News articles, Booz & Company analysis
12
• Base Case models an ‘As-Is’ scenario
where the key assumptions are that
GDP growth will continue at the
same pace (of about 7 per cent) in
the next decade and there will be no
major change in regulations.
• Optimistic Case models a
‘Transformation’ scenario where
key assumptions are that GDP
growth will touch 9 per cent in
the next decade, and favourable
changes in regulations (such as
FDI in multi-brand retailing or
rolling-out of the GST) will unlock
industry potential.
While the overall growth rates may
be anticipated to lie in the 12-17
per cent range, many product
categories are likely to grow much
faster as consumer incomes increase,
behaviours evolve and requirements
change. In some areas one would
6250
Optimistic Case
17%
Base Case
12%
2850
4000
2300
FY15P FY20P
expect Indian FMCGs to follow
well-established growth-evolution
paths. However, in many product
categories growth may be accelerated
by the explosive economic rise, young
consumer base and the influence
of the ubiquitous media. Some of
that impact is already evident in a
category like liquid hand-wash which
has shown very strong growth driven
by increased consumer awareness
around personal hygiene specifically
for children.
Given the nascent stage of
development across many categories
even supply-led actions can help
trigger rapid growth. For example,
many packaged food categories
(such as soups, breakfast cereals, and
fruit juices) have seen rapid growth
rates driven by increased presence of
modern trade.
FMCG Roadmap to 2020
 CII–Booz research on industry
3 evolutions in other markets and
discussions with industry experts and
practitioners helped identify nine key
MEGATRENDS forces that will change the face of
SHAPING THE the industry over the next ten years.
These trends may be categorized into
INDIAN FMCG three broad groups, based on their
INDUSTRY origins or sources (see Exhibit 7).
However, their impact will be freely
felt across multiple stages of the
industry value chain.
• Consumer-related Trends:
Changing demographic profiles and
evolving behaviour significantly
impact the way consumers
consume and interact with
products and services. Numerous
and diverse consumers in India
throw up an equally mind boggling
diversity of consumption trends
and patterns. At the same time,
three prominent trends merit
some discussion. The first one
is increasing ‘premiumization’
which will see consumers trading
up the price ladder in search of
additional functionality or brand
promise. Second, at the middle
Exhibit 7: Key Trends Shaping the FMCG Market in India
1 Accelerating Premiumization 4 Rapid Globalization
2 Evolving Categories 5 Many Indias
3 Goldmine at BOP 6 Growing Modern Trade
ers
Ma
um
rke
ns
ts
Co
Environment
7 Eco-consciousness
8 Game-changing Technologies
9 Enabling Policies
Source: Booz & Company analysis
FMCG Roadmap to 2020
of the pyramid, the evolution
of consumption behaviour will
be seen to lead to significant
changes within and across product
categories. And finally, many
companies will find increasing
value at the Bottom of the Pyramid
(BOP) by serving products
customized to specifically meet the
requirements of this large market.
It may be said that there will be
significant scaling up at each step
of the consumer income–pyramid
to be able to justify independent
commercialization of the business
potential.
• Market-related Trends: These
pertain to evolving geographical
markets or channels for the FMCG
players. The key trends within
this segment will be the viability
of sub-markets in India, growing
organized retail and the increasing
globalization of FMCG players.
These players need to be conscious
of such trends and adapt their
products as well as go-to-market
strategies as per their target
markets.
13
• Environment-related Trends:
These are influenced by socio-
political, legal, environmental
and technological reprioritizing
that is inevitable in a dynamic
environment. Changing
government policies, growing
importance of sustainability,
evolving media platforms and
technology will compel FMCG
players to adopt business strategies
which keep the interests of
communities and the environment
in mind for inclusive development.
3.1. Accelerating Premiumization
3.1.1. Trend Description
The motivation for buying premium
products varies with consumer
income. The rich are willing to
buy premium products for their
‘emotional value’ and ‘exclusive feel’,
and their behaviour is very close to
consumers in developed economies.
They are well-informed about various
Exhibit 8: Household Distribution by Income and Profiles of Affluent Consumers in India
HOUSEHOLD DISTRIBUTION BY ANNUAL INCOME
1% 2%
2%
11%
86%
2010
Source: McKinsey Global Institute, NCAER, Booz & Company analysis
14
product options, and want to buy
products which suit their style. The
upper middle class wants to emulate
the rich and trade up towards higher-
priced products which offer greater
functional benefits and experience
compared to products for mass
consumption. Such products are
often referred to as ‘masstige’
products.
The rising income of Indian
consumers has accelerated this
trend towards ‘premiumization’
or consumer up-trading. The
improved purchasing power of
Indian consumers is supported by
greater workforce participation
among women and an increasingly
younger earning population with
higher consumer willingness to
spend on lifestyle products. These
factors will gradually combine to give
considerable push to premiumization
in the future, making it more
> INR 1 million (Rich)
5%
INR 0.5-1.0 million
(Upper Middles)
29% INR 0.2-0.5 million
(Lower Middles)
64% < INR 0.2 million
(Bottom of the Pyramid)
2020
pronounced as compared to the last
decade.
The premiumization trend can be
observed prominently in the top two
income groups mentioned already, the
rich with an annual income exceeding
INR 1 million, and the upper middle
class with an annual income ranging
between INR 500 thousand and
INR 1 million (see Exhibit 8). While
these two income groups account for
only three per cent of the population
currently, it is expected that by
2020 their numbers will double to
constitute seven per cent of the total
population.
By 2020 these groups will constitute
large enough numbers to merit a
dedicated business strategy that
FMCG companies will do well to
adopt and follow. As per estimates,
the ‘Rich’ will grow to approximately
30 million people in 2020, which
AFFLUENT CONSUMERS
IN INDIA
• Rich: Spend high
proportion on personal
care, entertainment, etc.;
want luxury and exclusivity
• Upper Middles: Have
similar needs as the rich and
purchase inexpensive
brands of known companies
FMCG Roadmap to 2020
is more than the current total
population of Sweden, Norway and
Finland put together! Similarly, the
‘Upper Middles’ will be a population
of about 70 million in 2020, which is
more than the current population of
the UK.
The Indian population is also
quite young compared to those in
developed economies. People in
the age group of 15-44 comprise
approximately 60 per cent of the
population (see Exhibit 9, p. 16).
There are multiple ways in which
the burgeoning younger population
is supporting premiumization. First,
the profile of the young population
reveals more actively employed
people. This means, increased
incomes available in households to
spend on expendables. Second, young
people tend to spend more compared
to their parents and grandparents,
and are easily attracted towards
‘high-end’ products. Third, they are
more exposed to the media and its
influences, specifically new platforms
such as the internet, mobile phones
etc. Their awareness levels are
higher, and they are better informed
about developments around them.
FMCG Roadmap to 2020
Continued favourable age distribution
is a driver for premiumization in the
future as well.
There are several examples of
consumers up-trading to more
premium products, as well as FMCG
companies launching various products
to capture the premium market:
• Dove, the premium personal
and hair care brand from HUL,
increased its market share from 0.1
per cent in 2005 to approximately
5 per cent in 2010 in the hair care
products category.
• L’Oreal, with premium brands in
cosmetics, hair care and skin care,
has been growing rapidly in India
with 7.5 per cent market share in
cosmetics climbing up to the third
position in this category. Similarly
for hair colour, L’Oreal has occupied
20 per cent share of the INR 12
billion hair colour market with
premium brands such as L’Oreal
Excellence Crème and Garnier
(a ‘masstige’ brand).4 As a result,
L’Oreal’s overall sales have doubled
in the last five years, and the growth
trend is expected to continue.
‘Many consumers are likely to indulge
in choice-driven consumption, which
will increase demand for premium
and super premium products in urban
India. The middle and upper middle
classes will be the chief contributors to
this …’
—Mint, Dec 2009
• P&G’s Olay (premium anti-ageing
skin-care brand) captured 20 per
cent market share within one year
of launch in a category which grew
five times between 2007 and 2008.
We expect that in the future, FMCG
players will need to increase their
efforts to cater to the ever-growing
needs of consumers demanding
premium products.
3.1.2. Possible Strategies for FMCG
Players
Going forward, those FMCG
players who decide to tap into the
premiumization trend will find the
need to align their business strategy
to the pulse of the relevant consumer
classes.
Product Strategy: Premium
products are intended to convey
‘prestige’ or ‘super-premium’
position that has ‘aspirational’ value.
People increasingly want products
which are different, safe, and ethical
with ingredients and/or features that
have special and measurable benefits.
Indian FMCG players are likely to
gain from investment in technology
to develop and manufacture
15
such products in order to ride the
crest.
Marketing: For advertising ‘prestige’
products, one may use special
catalogues or niche print media,
while for ‘affordable premium’
products, the mass media may be
harnessed for marketing campaigns.
Depending on the positioning, the
campaign may either emphasize
and demonstrate effectiveness and
benefits of the product, or create an
‘emotional bond’ with the consumers
by highlighting relevant messages,
say, by establishing ‘exclusivity’ for a
top-end brand.
Sales and Distribution: For selling
premium products a ‘high-touch
or experiential’ and ‘differentiated’
sales process may find better
alignment with the product strategy
and overall business objective. For
example, product demonstrations by
salespersons or a trial run to educate
consumers about high efficiency and
other benefits of the products may be
devised. The quality of human capital
deployed for sales and distribution
will need to be enhanced significantly
through specialized training
programmes if such a sales process is
to be enabled.
3.2. Evolving Categories
3.2.1. Trend Description
There are three ways in which a
category can evolve.

Exhibit 9: Estimated Age Distribution of Indian Population, 2010

7%

14% 31%
0-14 Yrs

15-29 Yrs

30-44 Yrs

45-59 Yrs

20% >60 Yrs

28%

Source: United Nations; Booz & Company analysis

16 FMCG Roadmap to 2020

First, as consumers’ needs change,
they start purchasing more evolved
and sophisticated products within a
category, hence, the product offering
must also transform to keep pace
with demand trends. For instance,
consumers have moved from
toothpowders to toothpastes and are
now also demanding mouth-wash
within the same product category.
Second, consumers start demanding
customized products, specifically
tailored to their individual tastes and
needs. Nowhere is this more apparent
that in the differentiated demand for
toothpaste depending on individual
oral care needs.
Third, driven by growing concerns
about beauty, health, and wellness
Lately, in the oral hygiene category,
supplementary products like
mouthwash and sugar-free chewing
gum have also seen increased
acceptance amongst consumers.
FMCG Roadmap to 2020
supported by hygienic and
healthier lifestyles, consumers
shift towards personal grooming
products which purportedly
further these goals.
Such, category evolution is
primarily observed among the
upper middle and lower middle
income classes. While these
consumer groups in India account
for approximately 150 million
people currently, their size is
expected to increase to about 500
million people in 2020, which
is approximately 1.5 times the
current population of the US
(see Exhibit 10, p. 18).
Shift towards Evolved Products
In the oral care category, consumer
preferences have shifted over time.
While neem datun for brushing teeth
was a common tradition earlier, it was
replaced by the tooth powder in 1970s
and 80s. The toothpaste emerged in
late 1980s and 90s. Toothpaste
penetration has increased from 50
per cent in 2005 to 55 per cent in
2010. Lately, in the oral hygiene
category, supplementary products like
mouthwash and sugar-free chewing gum
have also seen increased acceptance
amongst consumers.. The current
penetration of mouthwash is 6 per cent
and is growing at a rate of 35 per cent.
Toothpowder has seen a decrease in
penetration from 35 per cent to 30 per
cent in the last 5 years.
This trend is likely to pick up in the
coming decade with a maturing economy
17
and increased sophistication in
emerging consumer choices.
An analysis of consumption
patterns across economies shows
that consumers’ tastes change as an
economy matures. For instance, as per
capita GDP rises, in the initial years,
wheat consumption per capita rises
as well. Larger number of consumers
emerge from relative poverty to
choose wheat over coarse grains.
Then, as consumers start moving
towards convenience products (such
Exhibit 10: Evolving Needs of Middle Class Consumers in India
HOUSEHOLD DISTRIBUTION BY ANNUAL INCOME
1% 2%
2%
11%
86%
2010
Source: McKinsey Global Institute, NCAER, Booz & Company analysis
18
as pre-mixes and processed foods) per
capita wheat consumption starts to
fall. Finally, it levels-off as consumers
start demanding more product variety
suited to their preferences. India is
expected to follow a similar pattern
of consumption across staple food
products (see Exhibit 11, p. 20).
Increased Product Variety
Consumers are increasingly
demanding customized products
which are suited to their individual
needs. Micro-segmentation for
> INR 1 million (Rich)
5%
INR 0.5-1.0 million
(Upper Middles)
29% INR 0.2-0.5 million
(Lower Middles)
64% < INR 0.2 million
(Bottom of the Pyramid)
2020
product development and mass-
customization for identifying different
product variants is already underway.
For instance, a decade ago, only a
limited variety of products such as
shampoos was available within a
particular brand. Now most large
players have launched many variants
in accordance with hair types (oily /
dry / normal), the seasons in which
these can be used (winters / summers)
as well as consumer categories,
targeted separately at men, women,
and children. P&G’s Head and
MIDDLE CLASS CONSUMERS
IN INDIA
Evolving Needs: Increasingly
want sophisticated products in
categories; desire products which
improve their appearance and
are good for their health; want
products meeting their specific
needs
FMCG Roadmap to 2020
Shoulders brand which started with
two variants in 1997 now boasts 11
variants to choose from.
Mass-customization in India will
intensify in the future with FMCG
players profiling the potential buyer
by age, region, personal attributes,
skin type, ethnic background,
and professional choices. Micro-
segmentation will amplify the need
for highly customized market research
so as to capture the specific needs
of the consumer segment targeted,
before the actual product design
phase gets underway.
Increasing Beauty, Health and
Wellness Concerns
The beauty products market is
expected to grow by 15-20 per cent in
FMCG Roadmap to 2020
the future, which is the direct result
of the changing socio-economic status
of the Indian consumers, especially
the women. Better paying jobs and
exposure to fashion and beauty trends
prevailing in the developed world
through the television and other
media have resulted in changing tastes
and choices. Middle class women
are now more conscious of their
appearance and are willing to spend
more on enhancing it. Products such
as colour cosmetics (growing by 46
per cent), sun care products (growing
at 13 per cent) have latched on to this
trends rapidly.5 Indian men are also
becoming more conscious of their
appearance, and several companies
have been launching beauty and
grooming products specifically
targeted at men. HUL has launched
‘In the skin category, there have
been over 1200 brands and variants
launched in the last five years alone.
Even in a more developed category like
soaps there have been over 800 brands
and variants launched in the last five
years.’
—Gopal Vittal, ED,
Home and Personal Care,
Hindustan Unilever Limited
Vaseline for Men, Emami came out
with Fair and Handsome, and L’Oreal
has launched Garnier Men Power
Light products. As per estimates,
the demand for in-salon skin care
treatments by men is increasing by 40
per cent annually.6
Along with beauty products, there is
an increased awareness about good
health practices among consumers
today. Sedentary lifestyles and
unhealthy habits have led to the
rise of lifestyle-related diseases such
as diabetes and heart problems.
Increased awareness of health-
related issues has led to the demand
for healthier products with lower
calories, less sugar, more nutritional
content, and with a greater
19
proportion of natural ingredients.
This trend has impacted the food and
beverages category to a large extent,
along with some other categories such
as personal care, and fabric care.
The market size of health drinks and
health foods is about INR 50 billion
currently and is expected to grow at
approximately 10 per cent annually in
future (see Exhibit 12, p. 21).
We have already witnessed heightened
activity around health product
launches by FMCG players, and this
is only expected to increase in the
future.
• Nestle recently launched Maggi Dal
• Sugar Free Gold has been targeting
health-conscious and diabetic
people, and claims that it results in
reducing intake by approximately
500 calories per day.
• Marico launched Saffola Gold
with LoSorb technology, which
results in less oil absorption while
frying.
Atta noodles, expected to provide
dietary fibres and protein, thus
lending to a healthy meal. Recently
multi-grain Maggi has also been
launched.

Exhibit 11: Wheat Consumption Patterns

High Wheat Consumption

per Capita

Pre-mixes

Bulk-flour Branded Flour/ Segmented Food

Bakeries
Processed Food Specialized
Bakeries
Fast Food

India China Brazil

Drivers

COST QUALITY CONVENIENCE CUSTOMIZATION

Source: United Nations; Booz & Company analysis

20 FMCG Roadmap to 2020

3.2.2. Possible Strategies for FMCG
Players
Innovations towards more ‘evolved’
and sophisticated product forms,
healthier variants of existing
products, and enhanced product
portfolios to introduce a much larger
variety suited to different consumer
groups may provide critical tools for
grappling with the dynamic Indian
consumer landscape.
Evolved product forms of developed
markets adapted to Indian
requirements along with new product
development leveraging the ‘health
platform’ will demand focused R&D
and market research efforts.

Exhibit 12: Market Size and Growth in the Health and Wellness Space

GROWTH RATE (%)

2009 - 2012
24
Ayurvedic
22 Medicines &
Products
20

18 Alternative
Medicines
16

14

FMCG Products
12
Health &
10 Food Drinks

8 Skin &
Health Care
6 Dietary
Supplements
4

0
0 5 10 15 20 25 30 35 40 45 50 55 60 65
APPROXIMATE MARKET SIZE (IN INR BILLION), 2009

Source: Businessworld publication, Marketing Whitebook 2010

FMCG Roadmap to 2020 21

During market research, greater
consumer segmentation may be
required to identify consumer
needs and market potential.
Manufacturing processes will
need to be adapted to serve mass
customization objectives.
The supply chain, marketing and sales
and distribution process may have to
be redesigned to best reach the target
consumer segment. For example,
using gymnasiums for selling health
drinks or stocking of a product for
a specific ethnic group near their
residential area may be strategic
targeting moves.
Complex business models have
to support ever widening product
portfolios, variants, and products
types straddling categories.
3.3. Goldmine at the Bottom of the
Pyramid
3.3.1. Trend Description
We have defined the bottom-of-
the-pyramid or BOP consumers as
those who earn less than INR 200
thousand per annum per household.
This group currently constitutes
about 900-950 million people in India
(see Exhibit 13). Unlike the middle
class segment, which is rather urban,

Exhibit 13: Profile of BOP Consumers in India.

HOUSEHOLD DISTRIBUTION BY ANNUAL INCOME

1% 2% > INR 1 million (Rich)

5% INR 0.5-1.0 million
2%
11% (Upper Middles)

29% INR 0.2-0.5 million

(Lower Middles) BOP CONSUMERS IN INDIA

Spend mostly on essentials, no / very

limited demand for expensive lifestyle
products

86%

64% < INR 0.2 million

(Bottom of the Pyramid)

2010 2020

Source: McKinsey Global Institute, NCAER, Booz & Company analysis

22 FMCG Roadmap to 2020

already well-served and competitive,
the BOP markets are largely rural,
poorly-served and uncompetitive. The
second characteristic of BOP markets
is that a lot of their basic needs are
yet unmet: financial services, mobiles
phones and communication, housing,
water, electricity and basic healthcare
are lacking.
Rural BOP population is estimated to
be about 78 per cent of the total BOP
population in the country
(see Exhibit 14).
The growth trends, issues and
challenges in rural markets are
somewhat different from those
in urban areas. Income is largely
Exhibit 14: Rural and Urban BOP Population Distribution
Urban
22%
Source: IFC and World Resources Institute
FMCG Roadmap to 2020
agricultural, which is dependent
on monsoons. Supply chain is
constrained by poor infrastructural
development.
However, government initiatives such
as the National Rural Employment
Guarantee Act (NREGA), increasing
minimum support prices of crops,
Sampoorna Grameen Rozgar Yojna,
Pradhan Mantri Gram Sadak
Yojana and Swarnjayanti Gram
Swarozgar Yojana (with a total
allocation of INR 535 billion in
FY2010) are changing the rural
landscape of India.
Between FY2007 and FY2010
disbursement under NREGA has
78%
Rural
increased from INR 125 billion to
INR 390 billion. Minimum support
price (MSP) of key crops such as
paddy and wheat rose at a CAGR
only 2 per cent and 3 per cent in the
period FY2003-FY2007 but between
FY2007 and FY2010, these prices
have risen at attractive CAGRs of 18
per cent and 20 per cent respectively.
These initiatives along with
government-sponsorship of self-
help groups have resulted in higher
disposable incomes, greater women’s
empowerment and improvement of
social indicators in the rural economy
(see Exhibit 15, p. 24).
23
It is heartening to note that by
2025, percentage rural population
in the INR 200 thousand to INR
500 thousand category is projected
to increase to 22 per cent from the
present level of 3 per cent.
Rural Growth Outpacing Urban
Markets
As a result of rising incomes, the
FMCG market growth in rural
areas at 18 per cent per annum has
recently exceeded that of the urban
markets at 12 per cent. Products
such as fruit juices and sanitary pads
which had no demand in the rural
markets earlier have suddenly started
establishing presence. While the rural
market comprises only 34 per cent
of the total FMCG market currently,
given the current growth rates, its
contribution is expected to increase to
45-50 per cent by 2020 (see Exhibit
16, p. 25).
While most FMCG players have
succeeded in establishing sufficient
access to their products in rural
areas, the next wave of growth is
expected to come from increasing
category penetration, development
of customized products for these
markets and up-trading rural
consumers towards higher-priced
and better products.

Exhibit 15: Promising Annual Income Levels and Social Indicators in Rural India

RURAL HOUSEHOLD INCOME DISTRIBUTION

145 161 167 59% 59%

> INR 1 million
3% 1% 0% 7% 1% 1% 2% 2%
100%
46%
22% INR 0.5-1.0 million
35% 36%
50% INR 0.2-0.5 million 27%
48% 22%
INR 90-200 thousand 1981
61%
41%
26% < INR 90 thousand 2007

2005 2015 2025 Number of Below Rural Literacy

Pucca Houses Poverty Line

Source: CII Rural Report, Consumer Lifestyles-India, Euromoniter, Indian Institute of Foreign Trade

24 FMCG Roadmap to 2020

While category penetration has
increased in rural areas in the last
decade, there is further scope to raise
the levels to match urban penetration
in the future (see Exhibit 17, p. 26).
Blurring Urban-Rural Divide
Rural women are now more
brand-conscious and are shifting
towards brands used by their urban
counterparts. They want quality
products in their homes. The demand
for branded healthcare products,
branded processed food and
beverages and toiletries is expected
to grow in the future. Many local
brands have been finding it difficult
to grow in rural areas because of this
shift, thereby providing increased
opportunities to the organized FMCG
players to target this market with
their products.
This trend may eventually erase
differentiation between the urban and
rural brands, with the rural consumers
increasingly demanding the same

Exhibit 16: Retail Growth in Rural and Urban India

20%
Rural

15%

Urban
10%

5%

0%
2003 2004 2005 2006 2007 2008 2009

-5%

-10%

Source: Edelweiss, IDFC Securities, Booz & Company analysis

FMCG Roadmap to 2020 25

products as urban consumers in the
next decade. Cheaper brands will
however co-exist for products with
wide price differentials between local
brands and well-established brands.
For products with narrower price
variations, some amount of up-trading
can be expected.
However, the affordability of
branded products will remain a
challenge for BOP consumers. For
higher-end brands, consumers in this
segment will want price points which
are affordable and within their
budget and hence demand smaller
SKUs.
3.3.2. Possible Strategies for FMCG
Players
FMCG players with an eye on rural
volumes could gear their innovation,
manufacturing and rural supply chain
processes towards small-volume units
of products which the rural consumer
can afford. Shampoos in sachets are a
good example of the success of such
innovation.
Given the large number of BOP
consumers, the top line will need to
be volume-based rather than value-
based. Hence, a different business
model will need to be devised by the
FMCG companies. Some defining
features of such a business model are
outlined below. This is, however, not
an exhaustive list.

‘The corporate sector has realized that

the next growth in its business will
come from the rural sector. Rural is a
much discussed topic in boardrooms’
—Pradeep Kashyap,
Founder and CEO, MART

Exhibit 17: Rural and Urban Penetrations - A Comparison

RURAL PENETRATION (%) URBAN PENETRATION, 2009 (%)

Headroom
CATEGORY 2001 2009
for
growth
Toothpaste 32 45 75%

Skin Cream 20 33 32%

Dish Wash 12 16 60%

Shampoo 16 46 62%

Source: IDFC Securities, Edelweiss, A.C. Nielsen, Booz & Company analysis

26 FMCG Roadmap to 2020

 HUL’s Brand-Building Initiative Khushiyon Ki Doli

HUL has initiated a rural campaign called Khushiyon Ki Doli. The objective of
the campaign is to create awareness and engage with the masses through
technology. Vehicles equipped with LCD TVs, DVD players, small generators
etc roam rural habitations, mainly targeting housewives. A range of HUL’s
product commercials are played ranging from Surf Excel to Huggies Diapers.
HUL organizes games at the end of the campaign distributing sachets of
various products as prizes. HUL is also engaging with local retailers in rural
areas on purchase of merchandize or new sale of stocks.

• Innovative products customized to

local tastes available at affordable
price points.

• Effective and attractive product

packaging that enables convenient
use and storage.

• Effective mix of multimedia

marketing strategies to create a
‘buzz’; unconventional partnering
with NGOs and local governments
to influence the influencers,
educating consumers around
attributes and functionality of
products.

• Ensuring access to typically rural

or remote consumers through new
and low-cost ways of distribution
given the inadequate supply chain /
logistics infrastructure in these
areas. An entrepreneur driven
model would be an appropriate
example.
‘Increasingly, the rural consumer
will demand the same product as the
urban consumer and there will be
convergence.’
—Sunil Duggal, CEO,
Dabur India

FMCG Roadmap to 2020 27

3.4. Rapid Globalization
3.4.1. Trend Description
The Indian FMCG industry has a
very competitive landscape, with
three sets of players: the global
players or foreign MNCs, the large
Indian players, and regional or
small domestic players. Increasing
globalization has important
ramifications for foreign MNCs as
well as large Indian companies
with pan-India presence and
With a spurt in ‘reverse innovation’
foreign MNCs are leveraging India
as an ‘innovation hub’; consumer
research happens first in India, and
then, products are taken to other
markets.
28
sometimes, small international
footprints as well.
Many foreign FMCG multinationals
have established themselves on a firm
footing in India. Examples include
Unilever which has been present in
India since the 1930s, P&G, which
established its presence through its
Vicks brand in the 1950s, and Nestle,
which commenced operations in the
late 1950s.
In the recent past, India as one of
the fastest growing economies in the
world has attracted foreign MNCs
who see it as a key market. With a
spurt in ‘reverse innovation’ foreign
MNCs are leveraging India as an
‘innovation hub’; consumer research
happens first in India, and then,
products are taken to other markets.
Several foreign FMCG majors have
headed for India with the purpose
FMCG Roadmap to 2020
 Popularly Positioned Products

Nestle plans to build a dedicated R&D centre in India, which is expected

to commence operations by mid 2012. The centre will focus on developing
‘Popularly Positioned Products’, which can meet specific needs of consumers
belonging to lower income groups, and provide high-quality and nutritional
foods at affordable prices. These products are also expected to be sold in
other countries. Second, Nestle plans to broaden its product portfolio in India,
and has been evaluating the option of entering the breakfast cereals market,
a nascent but fast-growing category by leveraging its strong cereal brands
such as Nesquik, Cheerios etc.

of acquiring experienced talent, and

deploying them in similar markets
elsewhere. Companies are seeking
senior management experience in
handling a diverse and complex
market such as India, to crack other
markets by sharing ideas which have
worked before. Unilever for example,
has deployed senior resources from
India to East Europe, Africa, and
South-east Asia, where it expects to
see the next wave of growth.

Companies are seeking senior

management experience in handling
a diverse and complex market such
as India, to crack other markets by
sharing ideas which have worked
before.

FMCG Roadmap to 2020 29

There are numerous instances of
foreign FMCG attention to India:
• Kraft Foods acquired Cadbury’s
in 2009 to establish a foothold in
developing countries such as India.
• Ferrero Rocher is planning to
expand presence in India in the
confectionary segment.
• Many foreign MNCs are
contending to acquire Paras
Pharmaceuticals, a domestic player
with strong brands in OTC and
personal care categories.
• French cosmetics major L’Oreal is
planning to enter the deodorant
segment which is growing at 30 per
cent annually.
• GSK Consumer has recently
expanded into the noodles and
biscuits market in India through its
flagship brand Horlicks.
We can expect the foreign FMCG
MNCs already operating in India to
Exhibit 18: International Growth of Indian FMCG Players
STAGE 1
Hedging against
Domestic Competition
• Organic growth
• Target Indian diaspora of other
markets with existing product
portfolio
• Exports / limited channel reach
30
focus on the Indian business even
more strongly and develop their
Indian subsidiaries as a significant
contributor to global business by
increasing penetration of existing
products, while introducing greater
variety, broadening category
portfolios and developing new brands
and innovations. The multinationals
not present in India can be expected
to look for entry opportunities
in terms of organic or inorganic
expansion in the future.
Apart from foreign MNCs in India,
there are numerous large Indian
players which have started establishing
global footprints to diversify their
business risks and tap the growth
potential in other countries. Initially,
Indian FMCG players expanded
outside India to either target the Indian
diaspora in specific countries or to
hedge against increasing competition
within India. Traditionally, the same
product portfolio was taken to other
countries. However, increasingly
FMCG companies have been acquiring
international FMCG companies with
STAGE 2
Brand Sharing
• Inorganic growth by acquiring
international companies with strong
FMCG brands
• Broadening brand / product portfolio
for all target markets
• Increased sales and distribution as
distribution channels are augmented
through acquisition
strong brands to widen their product
portfolio, thereby sharing brands
between India and the global markets
of the acquired company. In the future,
many Indian domestic players are
expected to evolve into mini-MNCs
and therefore will need to develop
customized products to target the local
populations in international markets
(see Exhibit 18).
Examples of Hedging against
Domestic Competition
• Godrej Consumer Products Ltd.
took its hair colours and Fairglow
soap to the UK targeting the Indian
population residing there.
• Dabur International exports
products to over 60 countries,
targeting the Indian diaspora in
those countries.
Examples of Brand Sharing
• Godrej acquired Keyline Brands
(a UK-based FMCG player) in
2006, which enabled it to enter the
skin care segment using Keyline’s
brands. It introduced the latter’s
STAGE 3
Targeting Local Populations
of Other Countries
• Organic growth after establishing
presence in other markets
• Behaving as a multinational and
developing customized products for
local populations of global markets
FMCG Roadmap to 2020
 brands such as Erasmic (shaving
products) and Cuticura (talcum
powder) in India.
• Dabur acquired the Turkish FMCG
company Hobi Kozmetik Group
this year to strengthen its presence
in the Middle East and North
Africa. Hobi Kozmetik is present
in the personal care market and
sells a wide variety of hair care
and skin care products under the
brands ‘Hobby’ and ‘New Era’
in 35 countries. Its brands also
enjoy significant market shares
in their respective categories.
As Hobi’s brands complement
Dabur’s portfolio, they give Dabur
a strong platform in new product
categories in India (by introducing
Hobi’s brands) and new markets
(leveraging Hobi’s established
presence).
• Marico acquired the skin care
company Sundari LLC, and
two aromatic soap brands in
Bangladesh.
• Wipro acquired the marketing
rights for Chandrika soap in India
and other SAARC countries. As
Chandrika is the second largest
selling brand in south India, this
was seen as aligning with Wipro’s
strengths in markets like Andhra
Pradesh, where its soap brand
Santoor was already the market
leader.
Examples of Targeting Local
Populations of Other Countries
• Emami bought a manufacturing
facility in Egypt this year. This
acquisition was seen to be
consolidating its presence in Africa,
a fast growing market which
contributed about one-third to the
company’s international business.
The plant is expected to serve as a
regional manufacturing base for the
Middle East, Europe, and African
markets. Also, international
FMCG Roadmap to 2020
business accounted for 20 per cent
of Emami’s turnover in FY2010
and this is expected to grow
further.
• Godrej has introduced sandalwood
and ayurvedic variants of Godrej
No. 1 in British super-markets
which has helped it attract the
British Afro-Asian population
which has a high demand for
ethnic-Indian products.
• Marico’s skin care services brand,
Kaya, recently acquired aesthetic
skin care business of Derma Rx,
a company providing skin care
services. Derma Rx operates three
centres in Singapore and one in
Kuala Lumpur, with consumer base
of approximately 37,000. This is
expected to help Marico establish its
presence in the market for skin care
products in Singapore. It may also
open Kaya clinics in the country.
3.4.2. Possible Strategies for FMCG
Players
Going forward, we expect the larger
players in India to marry the best
of global practices with the Indian
operational nuances (regulations,
channel mix, consumer preferences
etc) in their business models. Foreign
MNCs will bring in global business
models and products to India, adapt
them to Indian tastes, develop
products in India and market them to
similar geographies internationally as
well.
Large, Indian FMCG players will
learn nuances of operating in other
countries in managing new retail
channels and different regulations
and bring back these best practices
to India. Also, Indian MNCs will
now have to develop organization
designs that are geared towards a
geographically-diversified model.
Indian players integrating with
acquired companies successfully
would need to retain the human
capital to ensure continuity and
understanding of the characteristics of
the local market.
They would need to ensure that while
acquiring a company, there is either
an absence of or very limited overlap
with the acquired brands. This helps
avoid the elimination of one brand’s
share by another.
Companies would need to
institutionalize best practices between
various markets.
In fact, expansion into new
geographies may help companies
to identify new trends which could
occur in other markets. For example,
changing consumer preferences in one
country may be replicated in another
market with a time-lag, which can
be captured by a geographically-
diversified business. Companies with
presence in developed nations with
a high share of organized retail may
also be able to apply their learning in
India.
Indian players developing into
international organizations will have
to follow global standards in terms of
governance, people processes, etc.
3.5. Many-Indias
3.5.1. Trend Description
Spanning an area of 3.3 million
square kilometres, India is a vast
country with 29 states. Language,
eating habits and sartorial styles vary
by region, or state, and ethnic group.
Increasingly, FMCG players
are realizing that India is not a
homogenous market but consumer
preferences vary significantly.
Second, certain states present higher
growth potential in certain categories
necessitating a focussed business
strategy to drive growth. Recently,
the BIMARU states of Bihar, Madhya
Pradesh, Rajasthan and Uttar Pradesh
31
have been responsible for tremendous
growth in FMCG compelling players
to look at these states more closely.
It has become imperative for FMCG
players to grow ‘regional’ in their
thinking and move towards an
increasingly decentralized operating
model in India. Given the large
Indian population, consumers within
a state provide FMCG companies
sufficient scale to form dedicated
organizations for individual regions
or states. By 2020, Maharashtra’s
GDP will exceed that of Greece,
Belgium, and Switzerland, and Uttar
Pradesh’s economic size will exceed
that of Singapore and Denmark (see
Exhibit 19). So, having a dedicated
firm for Maharashtra or Gujarat can
prove to be a realistic and profitable
proposition.

Exhibit 19: Some Indian State GDPs Compared to Select Country GDPs

GDP PPP IN 2020 (IN INR BILLION)

25,000

20,000

15,000

10,000

5,000

0
Maharashtra UP Andhra WB Gujarat Greece Belgium Switzerland Singapore Denmark
Pradesh

Note: Extrapolation of 2001-2009 Growth Rates

Source: IMF, CIA World Factbook, Booz & Company analysis

32 FMCG Roadmap to 2020

 Buzz Around the BIMARUs

‘BIMARU contributes 35-45 per cent of our sales. These states are not
BIMARU for us; we would be BIMARU without them.’
—Aditya Agarwal, Director, Emami Group of Companies

‘Godrej is planning to increase marketing spends and distribution network in

these states. These states consume 17-18 per cent of Godrej’s products. We
expect it to go up to 25 per cent in a year’s time.’
—A Mahendran, MD, Godrej Consumer Products Ltd

‘Apart from the youth factor, what makes BIMARU important is that the
consumers here are brand-loyal. The diaper category has seen 43 per cent
growth in UP in FY2010 over the previous year.’
—Anil Chugh, Senior VP, Wipro Consumer Care and Lighting

‘Dabur registered strong double digit growth in BIMARU states in FY2010

Varying Consumer Preferences and expects that to continue. Dabur rolled out special rural focussed sales
As consumer preferences differ initiatives in BIMARU states. Rural distribution reach was stepped up in many
across regions and states, companies high potential districts, penetrating to villages of lower population strata.’
may be well-advised to follow a —George Angelo, EVP Sales, Dabur India
regional strategy in terms of product
ingredients, positioning, marketing
campaign, and channels.

Historically, we have seen some

examples of ‘regional adaptation’ of
business strategies by companies:

• HUL launched Brooke Bond

Sehatmand for low-income
consumers to compete against
regional tea companies such as
Wagh Bakri, Girnar and Sapat.
Sehatmand was specifically meant
for down-trading consumers in
Uttar Pradesh, Madhya Pradesh,
Bihar, Jharkhand and Chhattisgarh.
HUL also launched brand Ruby,
specifically for the Karnataka
market.

• HUL launched a regional detergent

brand in Punjab called Chokra
which is present in two or three
districts of the state.

• Several players adapted ‘beverage

flavours’ to local tastes, while
tobacco players customized blends
to regional preferences

FMCG Roadmap to 2020 33

We expect this trend of launching
different product variants in different
regions / states to continue in the
future.
3.5.2. Possible Strategies for FMCG
Players
Strategizing for Growth Centres
Bihar, MP, Rajasthan and UP together
comprise 36 per cent of India’s
population, and 40 per cent of India’s
youth. However, their cummulative
contribution to FMCG consumption
is only 24 per cent, which shows
sufficient room for growth.
Further, per capita income in the four
states has started growing at 13 per
cent, exceeding the national average
growth rate.
Hence, going forward, the Indian
FMCG sector can expect to see
significant growth from BIMARU.
For players to take full advantage of
this potential, a separate strategy will
have to be devised for such regions
with greater resource deployment
and more focused product and sales
initiatives.
Other Strategic Tools
Overall, decentralization or
regionalization will become an
increasingly important theme for
34
FMCG players. They will need to
identify and achieve clarity on their
strategy in each state targeted.
Product Strategy: FMCG players need
to ensure that brands which do well
in specific regional markets do not
lose out due to their focus on national
brands. For example, for HUL,
Hamam leads in Tamil Nadu, Rexona
leads in Andhra Pradesh and Sunlight
detergent leads in West Bengal and
Kerala. However, lack of focus on these
individual brands has led to loss of
market share in these specific markets.
Marketing Strategy: Marketing
strategy and expenditure may vary
with states, their position in the
market, and growth trajectories. Also,
the positioning will have to be better
adapted to consumer preferences.
Supply Chain Strategy: Sales and
distribution structures, investment
in logistics and warehousing among
other facilities cannot remain
inflexible across states.
Competitive Strategy: Competitive
strategy of national players will
also need to watch out for regional
players which have better customized
products for a particular region.
Organization Design: Going
forward, FMCG players may need
to decentralize their organizational
design, with separate R&D and
strategic planning operations for
different states.
3.6. Growing Modern Trade
3.6.1. Trend Description
Historical Growth of Organized
Retail
No strategic exercise is complete
without a business strategy for the
retail sector, as the FMCG industry
depends on retail for consumer sales.
While India’s retail sector has been
growing at over 7 per cent annually, a
large proportion of it is unorganized
retail in the form of scattered mom-
and-pop stores which require a
very resource-intensive distribution
process in terms of manpower and
logistics. Also, volume per retail store
is very low. However, modern trade
or organized retail has created a
concentrated (high volume)
channel for distribution by FMCG
players. Second, the share of some
consumer product categories such
as processed food and beverages is
also expected to grow rapidly within
organized retail, which makes the
latter a very crucial contributor to
the industry.
Modern trade is still at a nascent
stage in India; the share of modern
FMCG Roadmap to 2020
trade in retail last year was only
about five per cent. However, it has
been growing very rapidly displaying
approximately 25 per cent annual
growth (see Exhibit 20).
Several formats exist within modern
trade and organized retail, such as,
hyper marts, supermarkets, and
cash-and-carry (which is essentially
organized wholesaling). While super-
markets have the highest share in terms
of the number of stores (approximately
85 per cent of total modern trade
stores in 2009), hyper marts account
for the highest area (approximately 70
per cent of the total area under modern
trade). Cash-and-carry is still nascent
with only about eight stores in 2009.
In a large and growing market such
as India, we expect existing formats
to evolve and new formats to come
up in the future, driving the growth of
various FMCG categories.
Local Indian players have been
experimenting with different

Exhibit 20: Organized Retail Penetration in Select Economies

(% OF TOTAL RETAIL)
85.0%
81.0%

55.0%

40.0%

Organized retail
has grown at 24% 30.0%
CAGR over the
last 4 years but 20.0%
significant
headroom exists

3.1% 4.8%

India India China Indonesia Thailand Malaysia Taiwan US

2005 2009

Source: IBEF, Centrum Research Report 2009, Technopak, Booz & Company analysis

FMCG Roadmap to 2020 35

business models with mixed success.
The Future Group is one of the
prominent players in this space and
operates more than 1000 stores
with different formats such as Big
Bazaar (hypermarket), Food Bazaar
(supermarket), Central (urban
mall), futurebazaar.com (online
shopping portal), home town (home
furnishings), and Aadhar (rural
retailing).
The economic slowdown dented the
growth of organized retail during
2008 and 2009. Lower footfalls
resulted in lower sales growth
Exhibit 21: Modern Trade Penetration
(% OF TOTAL RETAIL)
11.0%
4.8%
2009 2014E
Source: IBEF, Booz & Company analysis
36
and margins contracted as retail
expansion had been financed through
debt and the interest rates were now
rising. There were also increasing
funding constraints. However, growth
has picked up again and expansion
plans are now being announced.
Future Growth
Modern trade is expected to grow
very rapidly in the future with its
share in total retail projected to reach
11 per cent by 2014 and 30 per cent
by 2020 (see Exhibit 21).
This growth will be supported by:
30.0%
2020E
• High economic growth: GDP is
expected to grow at 8-10 per cent
in the future, boosting growth in
all sectors.
• Increasing incomes: Incomes are
expected to continue to rise which
should further drive convenience
shopping.
• Increasing urbanization: Organized
retail will continue to increase
presence in Tier 1 and Tier 2 cities,
which are growing faster than
metros.
FMCG Roadmap to 2020
• Improving infrastructure: The
government is increasing its thrust
on improving infrastructure. A
recent example is the construction
of the Golden Quadrilateral, a
dedicated freight corridor which
will result in improved supply
chain efficiencies.
Future Trends in Modern Trade
This analysis has tried to capture the
ongoing and future trends within
modern trade which are expected
to impact the FMCG industry.
Among these are a focus on supply
chain management for improved
FMCG Roadmap to 2020
profitability, emergence of private
labels, expansion of modern trade
beyond metros and the rise of cash-
and-carry business in India (see
Exhibit 22).
Focus on Supply Chain Management:
Organized retailers are going to be
increasingly interested in reducing
time-to-market. To achieve this, it will
be important to invest in inventory
management and related technology
for capturing sales data, forecasting
demand and generating automatic
replenishment.
Exhibit 22: Organized Retail Industry Trends
Focus on Supply Chain
Management
Expansion beyond
Metros
Source: Booz & Company analysis
Decreasing inventory levels will also
require strong backward integration
with distributors or manufacturers.
Retailers will also need to optimize
logistics further in terms of
warehousing and transportation
etc. For this it will be imperative to
increase supplier collaborations.
Emergence of Private Labels: Private
labels or products manufactured
and marketed by retailers, have
been growing in India as they are
very attractive to retailers for three
reasons:
Emergence of Private
Labels
Rise of Cash-and-Carry
37
First, they help retailers to improve
profitability as the margins for
private labels are higher (30-35 per
cent on average) compared to the
manufacturer’s brands.
Second, they help retailers to create
differentiation between competitors
as they are unique to their stores.
Third, the emergence of retailing as a
specialist function and the growth of
multiple retailing have helped retailers
push manufacturers towards greater
margins.
Experience has shown that the
retailers who most consistently exceed
expectations are rewarded with higher
average sales, more repeat business,
and invaluable goodwill. All these are
critical stepping stones on the journey
to sustainable loyalty.
Exhibit 23: Private Label Share in Overall Organized Retail Sales
46%
40%
35%
29%
Switzerland UK Germany Spain
Source: Technopak, Booz & Company analysis
38
Further, penetration by private labels
in India is quite low compared
to other developed countries
(see Exhibit 23).
Due to all these factors, it is expected
that private labels will become a
major threat to FMCG players in the
future.
Expansion beyond Metros: Organized
retailers have started expanding their
presence from metros to smaller
cities. For example, Big Bazaar had
44 per cent of its stores outside the
top 19 cities in 2009. There are plans
to open stores in Tier 1 and Tier 2
cities in Tamil Nadu as well. Similarly,
Lifestyle is planning to expand its
base across 22 cities by FY2013. This
further implies that modern trade will
become increasingly important for
FMCG players as a major channel not
27%
21% 20% 20%
11%
France Australia USA India World
Average
just in metros, but in other cities as
well (see Exhibit 24, p. 39).
Rise of Cash-and-Carry: Several
foreign, organized retailers have been
increasing their presence in the cash-
and-carry business in India. Metro
was one of the first to enter India
in 2003. It targeted kirana owners,
hotels, restaurants and catering
services through five outlets across
Bangalore, Mumbai, Hyderabad
and Kolkata. Wal-Mart entered the
cash-and-carry business through a
joint venture with Bharti Enterprises
under the brand name ‘Best Price’. It
has three stores in Punjab currently
and plans to expand to 10-15 stores
over the next few years. Similarly,
Carrefour is expected to set up its first
cash-and-carry store in Delhi. Cash-
and-carry is expected to provide an
alternative channel to FMCG players
FMCG Roadmap to 2020
in the future. However, whether cash-
and-carry would form a significant
chunk of total sales is a question
given that all foreign retailers are
eyeing the retail opportunity and
waiting for multi-brand FDI in retail
to open up.
3.6.2. Possible Strategies for FMCG
Players
With increasing importance of
modern trade, channel segmentation
is expected to become crucial for
FMCG players, along with the
adoption of a greater collaborative
approach with the most important
channel partners.
With the emergence of private
labels, the retailer-manufacturer
relationship will come under greater
pressure. FMCG players will need
to become primary suppliers to top
retailer-partners by leveraging their
position as market leaders. They
may also have to provide special
discounts. Second, to prepare a
Exhibit 24: Percentage Share of Retail Presence Across Different Cities, 2009
Number of Stores 113
26%
30%
Planning to open 9%
Stores in T1/T2 cities
in Tamil Nadu
35%
Big Bazaar
Number of Cities 58
Source: Technopak, news articles, Booz & Company analysis
FMCG Roadmap to 2020
better value proposition to retailers,
they will also need to shift their role
from transaction to advisory and
help in category development, joint
promotions etc.
The need for FMCG players to
improve execution in terms of
merchandising in the top organized
retail accounts and invest in
technology to gain insights into
consumer behaviour and purchasing
patterns will significantly increase in
the future.
3.7. Eco-consciousness
3.7.1 Trend Description
What makes sustainable business
practices essential? Increased eco-
sustainability of business will be
extremely important for FMCG
companies in the future. Global
climatic changes and the growing
scarcity of natural resources have
already led to increased concerns
about the environment. The pressure
on companies from key stakeholders
27 18 45
100%
49%
67% 61%
31%
39%
33% 9%
11%
Shoppers Lifestyle Pantaloons
Stop
9 8 22
to be environmentally responsible is
gradually on the rise.
Various stakeholder responses to eco-
concerns are showcased below.
• Government: India is committed
to reducing carbon emissions
by 25 per cent by 2020 and the
government has been imposing
stringent environmental norms on
companies. Also, many states have
enacted legislations such as the ban
on plastic bags to further the cause.
• Consumers: Concern for the
environment has changed
the purchasing behaviour of
consumers. An Edelman survey of
6000 global consumers conducted
between August and October, 2008
found that 87 per cent believed it
was their ‘duty’ to contribute to a
better environment.
• Media and NGOs: Environmental
activists and journalists are
Top 4
5 to 15
16 to 35
Others
Planning to open
45 stores across
22 cities by FY13
39
 becoming increasingly vocal in
their protests against companies
which have been polluting the
environment or not engaging in
judicious use of resources. Some
NGOs routinely monitor and
track the CSR efforts of FMCG
companies in India, driving
awareness and importance of such
initiatives (see Exhibit 25).
• Competitors: Some FMCG
companies have started pioneering
‘sustainability’ efforts. For example
ITC has been publishing an annual
report on sustainability and has
also conducted sustainability audit
of businesses and subsidiaries.
HUL has been focusing on ensuring
sustainable practices in business.
Nestle has initiated pollution-free
waste disposal at manufacturing
plants, while Dabur has been
focusing on reducing energy
consumption, increasing renewable
Exhibit 25: Karmayog CSR Rating of FMCG Companies Across India
DISTRIBUTION OF FMCG COMPANIES
ACROSS CSR RATINGS
25
0%
7%
20%
28%
4%
48%
2007
Performance of FMCG companies is improving but
many are still in the lowest bracket
Note: 5 is the best rating and 0 is the worst rating on CSR performance
Source: Secondary research, Booz & Company analysis
40
energy and plans to become carbon
positive in the next few years.
Such measures are forcing other
players to also involve themselves
considerably in driving green
practices.
• Channels: Some of the global
modern trade players have
mandated sustainability
requirements from their suppliers.
Wal-Mart has been at the forefront
of such initiatives. Such practices
will soon be implemented in
emerging markets like India.
• Investors: Foreign investors have
also been driving the sustainability
agenda in the companies they
invest in by benchmarking with
global practices.
Some of the top sustainability issues
worldwide have also been identified
for the FMCG industry in India. The
41 43
2% 2%
5%
26%
27%
20% 23%
44% 44%
2008 2009
most important of these are packaging,
water-use, harmful emissions and the
impact of products on health. These
have been detailed below:
• Packaging: Primary and secondary
packaging costs typically constitute
approximately 8-10 per cent of
the total cost base for most FMCG
players. A significant proportion
of packaging is polymer-based
and non-biodegradable. It has
been observed that for essential
commodities such as milk, the
packaging issue is not given much
importance by the consumers or
regulators; while for products such
as snacks, packaging sustainability
has attracted more attention.
Hence, FMCG players should take
a closer look at their packaging
cost-base and try to eliminate or
reduce the quantity of packaging
material used and upgrade to bio-
degradable packaging materials.
5
4
3
2
1
FMCG Roadmap to 2020
• Harmful emissions: This is a
problem area for FMCGs given
these are logistics-intensive
businesses that also release
greenhouse gases during their
manufacturing processes. Since fuel
scarcity in the future is likely and
transportation is a major GHG
culprit, companies should strive to
make transportation more efficient
and encourage usage of renewable
energy through use of hybrid
vehicles for transportation.
• Water utilization: With depleting
groundwater and scarcity of
fresh water, FMCG companies
should resort to water-efficient
technologies during manufacturing,
and recycle used water.
• Health impact of products: This is
a big concern for both consumers
and the government. It has
been observed that increasingly,
consumers are reading through
the nutritional information on
products, and becoming more
conscious of the harmful impact of
categories such as snacks and fast
foods. The FMCG industry needs
to lead by example in this case and
shift towards healthier products.
• Others: FMCG players should
partner with suppliers which
provide green (organic) raw
materials, drive the usage of
renewable energy sources and more
energy efficient technologies such
as CFL for lighting up offices and
factories.
Business Sense in Driving
Sustainability
Adopting green technology and
processes has also started making
economic sense for companies.
The following points enable better
understanding of how this has
worked:
FMCG Roadmap to 2020
• Rising costs of resources: Costs
of doing business will increase,
especially in areas dependent
on natural resources. Many
commodities have seen a high
degree of price volatility and
long-term forecasts indicate
sky rocketing costs of natural
resources.
• Affordable Green Technology:
Cost-effective green tech-
nologies are emerging, as is the
supporting ecosystem comprising
of researchers, regulators and
other such personnel facilitating
and supporting their development.
Commercialization further
ensures the profitability, or at
least the economic feasibility, of
green initiatives. For example,
the widespread adoption of
solar energy systems had long
been hampered by the high cost
of photovoltaic (PV) cells per
kilowatt-hour compared with
other energy sources. But as
the price of traditional energy
skyrocketed, low-cost thin-film
technology became increasingly
commercialized and this has begun
replacing first-generation crystalline
silicon PV installations today. As
solar energy’s cost per kilowatt-
hour continues to drop, it is
estimated that a larger proportion
of the population will adopt this.
• Impact on top-line and bottom-
line: More and more business
leaders are recognizing the fact that
going green can have a dramatic
effect on their companies’ financial
results. To capture this value,
they use green programmes to
eliminate waste and drive efficiency
throughout the enterprise and, in
more advanced cases, to create
top-line growth by bringing new
product offerings to market. An
example lies in organic foods. Also,
Wal-Mart has decided to sell only
concentrated laundry detergents,
which require less packaging and
space for transport and storage,
saving fuel and transportation costs
while driving a green initiative.
Increasing Commitment Levels for
Sustainability
Since the forces driving sustainability
are compelling and enduring,
every company should incorporate
sustainable business practices. This is
not a business choice but a prerequisite,
particularly for major FMCG
companies. More and more companies
realize that if they don’t address the
green challenge in a rigorous way,
their costs will increase over time, their
reputations in the market will suffer,
and they will miss some of tomorrow’s
most valuable market opportunities.
The three levels of sustainability based
on the commitment levels of companies
are described below (see Exhibit 26,
p. 42).
Responsible Green: This is the least-
evolved level of green business, and
is characterized by a limited and
legalistic approach to sustainability.
Companies that pursue green at
this level are focused on projects
and initiatives designed to ensure
compliance with environmental laws
and regulations in the locales in which
they operate. They also respond to
the green demands of value chain
partners (suppliers or retailers) they
cannot afford to lose. At this level,
companies don’t develop capabilities
which support green, and may not
even have a dedicated environmental
function. However, some managerial
attention is required for awareness of
ever-changing regulations and market
conditions. Also, some investments
may be required to prove compliance
in terms of tracking and reporting.
Most of the Indian companies are at
this level of sustainability.
41
• Efficient Green: These companies
approach sustainability with
an internal focus, and strive
to simultaneously reduce
environmental impact, lower
costs, and enhance operating
efficiencies. They can take the form
of a simple e-mail message asking
office workers to voluntarily turn
off their computers before leaving
work or entail a rigorous effort
to reduce waste by redesigning
products. They can feature
dedicated efforts and significant
investments, but typically they
deliver relatively short-term
payback. The key is to balance
the investments—in resources,
systems, and assets—with the likely
payoff. Continued focus of senior
leadership on costs and efficiency
savings provides significant support
for sustainability initiatives.
• Differentiated Green: Differentiated
green companies pursue green in
a strategic way throughout the
Exhibit 26: Levels of Commitment to the Environment
Responsible Green
(Compliance)
• Pursue green sustainability initiatives which
focus on regulatory compliance
• Could be either government driven
• ...or value chain partner driven (supplier /
retailer)
Source: Booz & Company Going for Green: A Capabilities Approach to Environmental Opportunity, Dec 2009
42
value chain of the business and in
a variety of new businesses and
business opportunities. Going
for green at the differentiated
green level requires significant
investments of time, effort, and
capital. The company can expect to
obtain long-term paybacks in terms
of more efficient operations, and
increased market share vis-à-vis
competitors.
3.7.2. Possible Strategies for FMCG
Players
Going forward, FMCG players will
need to make a choice in terms of
their sustainability efforts—either they
choose a ‘defensive’ or a ‘proactive’
approach. They can either wait for the
regulations to evolve and compel them
towards adherence to sustainability
norms, or grab the opportunity and
start building a sustainable business
model to drive business advantage in
the future. Including sustainability as
a core business strategy and driving
sustainable elements throughout
Efficient Green
(Selective investment to drive
Efficiencies)
• Leverage green to identify cost reduction /
efficiencies
• Companies can leverage lean principles to
attain this level
• This should be the base minimum for all
companies as there is significant money on
the table (both cost and revenue) which can
be achieved
product lifecycle through product
innovation, investment decisions, or
marketing can go a long way towards
creating a sustainable FMCG business.
3.8. Game-changing Technologies
3.8.1. Trend Description
Technology, an all-pervasive factor,
is significantly impacting all facets
of business. In the FMCG sector,
technology facilitates front-end
processes of business by creating
consumer awareness, enables efficient
sales and distribution and runs back-
end processes like market research,
generating shopper insights, gathering
business intelligence, supply chain
management etc. It is believed that in
the future, FMCG players will need to
significantly increase their investments
in technology and use it to derive
competitive advantage.
Technology at the Front-End
Technology options for creating
consumer awareness and promoting
sales have proliferated in the last
Differentiated Green
(Usage of sustainability to drive
competitive advantage)
• Elevate Green Strategy to a core strategy,
and not just a CSR initiative
• Use the ‘green lens’ over the product life
cycle, considering the environmental impact
through the entire value chain
• Integrate Green Messaging into brand
positioning and messages
• Manage trade-offs explicitly across growth,
cost, sustainability, risk and service
FMCG Roadmap to 2020
decade, with increased adoption
of broadband the evolution of
social networking sites as major
media platforms, and the growth
of value-added services on mobiles.
An increasingly young population
coupled with increased participation
of women in workforce have lent
support to the adoption of new
consumer favouring technologies.
While print and television account
for 86 per cent share in advertising
at present, internet advertising has
grown at approximately 30 per
cent annually. The Indian youth is
spending most of their time at the
television and on the Internet.
As per estimates, Google products
account for 30 per cent of online time
spent by Indian consumers
(see Exhibit 27).
Four platforms or technologies which
could play a major role in consumer
Exhibit 27: Media Channels Consumption by Youth
(AGE-GROUP OF 13-35 YEAR OLDS, 2009)
MINUTES / DAY
100
90
80
70
60
50
44
40
32
30
20
10
0 0
Newspaper Magazine
Average Time Spent
Source: National Book Trust-NCAER Survey 2009 across ~400 villages and ~200 cities, secondary research, Booz & Company analysis
FMCG Roadmap to 2020
awareness in future have been
detailed below:
Social Marketing: Social marketing
sites such as Facebook, Orkut,
Twitter, Linkedin etc are becoming
increasingly popular, especially among
the youth. Facebook for instance has
approximately 14 million Indian users
at present. Similarly Linkedin, aimed
at creating a network of professionals,
has about 3 million users and India is
one of its fastest growing subscriber
bases. Several FMCG players have
started targeting social networking
sites for creating brand awareness.
Capital Foods has reported 30 per
cent growth in revenue over the past
six months attributing its growth to
the advertising campaign it launched
on Facebook. Amul has 52,000 fans
on Facebook and heavy traffic of
discussions on its community page.
Perfetti Van Melle has appointed
MILLION YOUTH
98
70
60
TV Radio Internet
# Youth Utilizing Channel
Isobar to manage its digital image on
Facebook and Twitter.
• Benefits: Social networking sites
provide a low-cost alternative
to traditional channels or offline
business networking events which
involve significant marketing
expenses. The sites are interactive
and create a viral effect reaching
out to a community of users who
are interacting with each other.
• Leveraging social marketing
sites for co-creation and sales:
FMCG players can also leverage
these sites for engaging with
consumers on product design and
sales imperatives. Apparel brands
such as Benetton, Wills Lifestyle,
Pantaloons and Van Heusen are
tapping social networking sites as
design centres driving efforts of
co-creation with end-users. The
300
250
200
150
100
50
43
 contributions from users on various
features ranging from colour,
textures to designs are welcomed.
Also, some players such as ITC
are seen pushing their online sales
for Wills Lifestyle through their
member community on Facebook.
However, given the nascent nature
and untested efficacy of social
marketing, it will be prudent to use
it complementarily with other offline
channels for a holistic engagement.
Mobiles as a Major Platform for
Consumer Engagement: Mobile
phone penetration in India has been
increasing at approximately 75 per
cent annually for the last five years.
Mobiles can be a very powerful
platform for consumer engagement
given their extremely wide reach. The
number of mobile users is expected to
reach 900 million by 2014. Given the
advent of 3G, value-added services
will get increasingly enhanced.
• Increasing Popularity of Mobile
Advertising: Given the advantages
such as direct and personalized
communication, and a high
access to rural consumers who
accounted for more than 100
million subscribers in 2009, mobile
advertising is seen to be gaining
popularity.
• Marketing Campaigns on Mobiles:
Several FMCG players have started
creating marketing campaigns for
mobile phones. Cadbury came
up with an interactive campaign
which allowed students to check
their exam results using Reliance
India mobile service. If the
student passed, he got an SMS
congratulating him saying ‘Pappu
Pass Ho Gaya’ along with the
exam result and this encouraged
him to celebrate the moment with
a Cadbury Dairy Milk Chocolate.
Similarly, Coca-Cola started a
44
contest titled ‘Sprite Kholega to
Bolega’ in which all Sprite bottles
would have a code number printed
under the crown. When this code
was sent as an SMS to a designated
phone number, the buyer could
win free talk-time ranging between
INR 50 and INR 5,000, and other
mobile freebies.
• Advent of 3G: Historically,
the mobile has attracted low
advertising expenditure because of
its format of advertising—simple
text SMS or basic pictures.
However, 3G will enable rich media
content and video transmission
over the phone. About 100 million
users are expected to have 3G
handsets in 2012-13 up from the
current 20 million users. With
3G, advertisers would be able to
subsidize the cost of downloading
rich media content by subscribers.
For instance, a song from a new
Bollywood film could be put up for
download with an advertisement of
a soft drink company as a pre-roll
or a mid-roll. Consumers could
download this song for free while
the soft-drink company would pay
for the download.
• Approval for Mobile Virtual
Network Operators (MVNO):
Recently, the Telecom Regulatory
Authority of India (TRAI) has
created the pathway for MVNOs
to operate in India. Their entry
can be expected to accelerate the
growth of mobile advertising in
future, as they are dependent on
VAS and advertising to differentiate
themselves from other service
providers. MVNOs provide
mobile phone services by buying
airtime from existing telecom
operators, which they then market
by leveraging their brand and
distribution network. MVNOs
can even offer the entire mobile
service for free if the subscriber
opts to receive a certain number of
ads per week. Blyk for instance is
an MVNO in the UK which sells
mobile network for free by giving
customers free airtime in exchange
for accepting up to six advertising
messages per day. Blyk generates all
of its revenue from advertisers and
ensures that it has a user base that
advertisers will pay a premium to
reach.
Online Advertising: FMCG
players have been increasing their
focus on online advertising with
expenditure on the medium growing
approximately 57 per cent annually
between 2006 and 2009, with
further 30 per cent annual growth
expected in the future. This is also
in line with the expected increase
in broadband penetration in India
from approximately 3 per cent at
present.7 Leading FMCG companies
such as HUL, P&G, Cadbury and
Tata Tea have been ramping up their
online advertisement budget for
specific brands. For instance, HUL
created an online campaign with its
Sunsilk Gang of Girls, while Tata Tea
came up with Jaago Re and Lipton
launched Stay Sharp. At present,
FMCG players spend only 1-2 per
cent of their marketing budget on
online advertising. This is expected
to increase to 10 per cent in line with
global trends in the next few years.
Globally, as companies use the
online medium for enhancing brand
awareness, the advertisements become
more interactive. For example, in
the US Pepsi runs online contests
for Pepsi Max and Doritos wherein
consumers can upload 30-second
commercials about Max/Doritos.
There is online voting on these
advertisements and awards of up to
US$ 5 million are given to winners.
The internet can be a very powerful
medium to target specific consumer
FMCG Roadmap to 2020
segments such as students who
comprise of approximately 30 per
cent of total internet users and urban
professionals.
Growing penetration of credit cards
in the economy will also boost online
purchase. At present, credit card
penetration in India is just 2-3 per
cent, while in the developed markets
it is 10-12 per cent.
Advertisements in Gaming: The
gaming industry in India, though
nascent, is INR 18 billion in size,
and is growing at approximately 40
per cent annually. A growing young
population, increasing affordability
of goods due to higher disposable
incomes and low price of hardware
and content (with game download
prices coming down), proliferation
of developers and publishers and
growing awareness through internet
and social media are some of the
factors leading to growth of this
industry.
Some FMCG players have already
started testing waters in the gaming
advertisement world. Cadbury has
a Tetris-like game where bars of
chocolate are the building blocks,
while AXE, HUL’s deodorant for
Exhibit 28: IT-enabled Supply Chain Management at HUL
Product Flow Supplier
IT Systems
• Dispatch Daily
Source: HUL CLAS Conference Investor Presentation 2008, Booz & Company analysis
FMCG Roadmap to 2020
men, has partnered with Zapak for
creation of ‘Axe Inxtinct’ for the
brand to stay on top of its consumers’
minds.
The size of gaming advertisement in
India was INR 9 billion in 2009. It
is expected to grow three times in
the next three-four years. Though
the penetration of gaming is low
compared to mass media such as
television and print, it is a powerful
tool for the marketers as the
engagement level with the consumers
is quite high.
Technology at the Back-End
FMCG players can leverage
technology for driving greater
efficiency in various back-end
processes. By deploying data-
capturing technologies at points-
of-sales, players can understand
consumer purchase behaviour.
Similarly, for gathering business
intelligence on competitors
leveraging technology at the retail
end is becoming common practice.
Supply chain management also has
tremendous potential for driving
efficiencies through tools of demand-
forecasting, production scheduling,
inventory optimization, logistics
planning etc. Several FMCG players
Planning Hub
Manufacturing
C&FA
Plant
Central Unify
• Production • Sales
Plan-weekly • Stocks
• Dispatch Daily • Prices
• Invoicing
have been investing in technologies
for back-end processes.
Coca-Cola has invested in customized
wireless hand-held devices for its sales
persons. The devices have wireless
receipts of the list of customers to be
visited and other customer details.
They also allow transmission of
activity reports back to the office.
Sales people can now spend two more
hours of quality time with retailers
due to this technology.
HUL has an internet-based supply
chain management system which
connects it to the redistribution
stockists. This focuses on primary
sales (HUL to stockists) and
secondary sales (stockists to retailers)
along with enhanced communication
and has enabled release of inventory
reduced field force time by 50 per
cent, and ensured full time availability
at retail outlet (see Exhibit 28).
Wal-Mart globally has radio-
frequency identification tags
incorporated into products in stores
which perform the same functions
as bar-codes thus enabling access
to historical and geo-spatial details
of the product. These are widely
used in supply chain management
Distributor Kirana
Distributor Mgmt Hand-held Device
System
• Availability
• Stocks
• Sales
45
for improving efficiency of
inventory tracking, cutting cost
of documentation, and enhancing
efficiency of scheduling through geo-
positional tracking.
3.8.2. Possible Strategies for FMCG
Players
Leveraging technology across the
value chain of product innovation,
manufacturing, sales and distribution,
and marketing can help FMCG
players derive various benefits in
terms of designing better products
and becoming cost-efficient on the
one hand, and expanding the market
through better engagement with
consumers on the other.
FMCG companies can capture better
consumer insights by deploying
various technologies at point-of-
sales and involving consumers in
co-creation processes through online
channels.
Inventory management systems,
handhelds for capturing data,
production planning tools and vendor
management tools could be used by
FMCG players to derive supply chain
efficiencies.
Various new platforms such as
internet, mobile, and media such
as gaming have widened choices
for marketers. However, marketing
efforts will need to account for the
specific consumer segment being
targeted. For efficient marketing,
companies need to focus on the
concept of ‘return from marketing
investments’ or the top line growth
achieved per marketing rupee spent.
3.9. Enabling Policies
The FMCG industry is regulated
comparatively lightly and in spite
of tremendous competition, the
government acting as the watch dog,
limits its role to prescribing product
norms to protect consumers’ interests
(regulation on MRP, Prevention of
46
Food Adulteration Guidelines and
other such), and to providing specific
incentives to priority industries.
The Indian Government has enacted
several policies and Acts aimed at
fostering the development of the
FMCG industry. The government has
also been enacting several measures to
drive inclusive growth of the economy
by targeting the economically and
socially weaker sections and creating a
platform to bridge the gap between the
‘poor’ and the ‘rich’.
3.9.1. Facilitating Growth of FMCG
Players: Supply Side Factors
Historically, the government has
introduced policies aimed at attaining
international competitiveness through
reduced duties, automatic foreign
investments and food laws. Some
positive regulatory triggers for the
industry are mentioned below:
• Food Processing and Agro Industry
» Recognized by the government
as priority sector, industrial
licensing exemption is extended
to almost all products in this
category.
» Automatic investment approval
and up to 100 per cent foreign
equity is allowed in the industry.
» For organized players, excise
duty benefit for 10 years from
commencement of a unit is
offered.
» Pricing benefit for unorganized
players has been reduced with
favourable tax scheme for
organized players, especially for
biscuits, noodles, cigarettes.
• Exports
» 100 per cent export-oriented
units can be set up after
government approval.
• Foreign Direct Investment
» Automatic investment approval
(including foreign technology
agreements within specified
norms), up to 100 per cent
foreign equity or 100 per cent
for NRI and Overseas Corporate
Bodies (OCBs) investment, is
allowed for most of the food
processing sector except malted
food, alcoholic beverages and
those reserved for small scale
industries (SSI).
» Within retailing, FDI is allowed
in single-branded retailing (up
to 51 per cent), and in cash-and-
carry / wholesale business (up to
100 per cent).
3.9.2. Facilitating Consumer
Demand
The government has been playing a
significant role in driving inclusive
growth of Indian consumers through
direct measures such as decreased
tax rate and raised salaries (the Sixth
Pay Commission was lauded for its
recommendations in this direction)
which enable greater disposable
incomes to be available to the
consumers, as well as indirect welfare
measures through employment
generation, provision of education,
providing food security etc.
• Increase in Disposable Incomes
» Income-Tax rates have been
decreasing. The tax rate for
income of INR 0.6 million
is down from 27 per cent in
FY2003 to 9 per cent in FY2011.
» Rise in salaries of government
employees through the Sixth Pay
Commission. There have been
payouts of INR 400 billion since
2008.
• Rise in Rural Incomes
» Rural expenditure by the
government has increased from
INR 230 billion in 2006 to INR
830 billion in 2010.
» The farmer loan waiver
scheme and the National Rural
Employment Guarantee Scheme
(NREGS) have driven increasing
incomes in rural areas (NREGS
provided employment to
FMCG Roadmap to 2020
 approximately 50 million homes
in FY2010).
• Increasing Awareness
» Right to Education is expected
to result in increased awareness
among consumers which will
drive quality-consciousness
among them. As per The
Right of Children to Free and
Compulsory Education Act
2010, every child in the age-
group 6-14 will be provided
eight years of elementary
education, and any cost which
prevents a child from accessing
school will be borne by the
State, which will have the
responsibility of enrolling the
child, and ensuring attendance
and completion of eight years of
schooling.
3.9.3. Areas for Regulatory
Intervention
However, there are some areas in
which the government needs to come
out with appropriate regulations,
such as introduction of GST, opening
of FDI in multi-brand retail, and
stricter norms to curb counterfeit
products. These are expected to
have a significant impact on how the
FMCG sector performs in the coming
years
• GST: The government is expected
to implement GST in the near
future. This would help to replace
the multiple indirect taxes levied on
consumer products (by central and
state tax authorities). There will
be several benefits of implementing
GST. A uniform and simple tax
would help in reducing prices of
consumer products due to a more
efficient supply chain. Currently,
FMCG players have warehouses
in every state to avoid certain
taxes, which results in a higher
FMCG Roadmap to 2020
cost of operation. Also, logistical
delays can be avoided with the
elimination of multiple levels of
taxes, and mitigation of differences
in tax structures across states.
Consumption would grow with
reduced prices. Tax collections
from the FMCG industry will
also increase with increased tax
compliance and broad-basing of
products and services for which the
tax is levied.
• FDI in Multi-Brand Retail: At
present, no FDI is allowed in multi-
brand retail, which is preventing
global retailers such as Wal-Mart
and Carrefour from establishing
their retail operations in India. It
has been seen that in developed
markets, large organized retailers
have brought huge benefits to
consumers by lowering the total
cost of supply chain operations.
Going forward, the government is
expected to change the FDI policy
for multi-brand retail in India,
to allow more competition in the
sector.
• Counterfeit Products: Counterfeit
products pose a serious threat to
the growth of FMCG industry. As
per estimates, counterfeit goods
account for 10-15 per cent of the
total size of the FMCG industry. To
the exchequer, these result in a loss
of INR 45 billion. The government
is expected to come out with more
stringent policies to enforce Trade
Mark and Copyright Laws to
protect the rights of consumers and
FMCG companies.
• Revamping Agriculture Products
Marketing (Regulation) Act
(APMA): As per APMA, food
processors are not allowed to buy
directly from farmers. As a result,
many intermediaries are involved
in the supply chain. This creates,
first, a monopolistic environment
in which the farmer does not have
any say in determining the price.
Second, the intermediaries, who
are fragmented, do not invest in
modernizing the supply chain and
the warehousing infrastructure
remains poor. Logistics, specifically
for perishable raw materials such
as fruits and vegetables are ignored
which results in huge wastage of
produce, or sub-standard products
which do not meet international
standards. Third, food processors
have to pay a higher price for
procurement, as the raw materials
go through several layers of
intermediaries. To avoid this, all
the state governments are expected
to come out with a policy to allow
FMCG players to directly source
agricultural raw materials from
farmers.
• National Food Security Act
(NFSA): This is expected to ensure
that the basic needs of the rural
poor are satisfied, and they can
have a better lifestyle by spending
on discretionary products. The
NFSA will require the government
to provide 35 kg of foodgrain at
INR 3 per kg to almost everyone
(barring the rich) in one-fourth of
the poorest blocks of the country,
and will cover 40-50 per cent of the
people in the rest of the country.
• Ramping Labour Laws: India
has archaic and inefficient labour
laws, with strictly defined norms
for work hours, over-time,
contract employees etc. These
result in inefficient operations for
manufacturers. The government
needs to modernize the labour laws
to enable FMCG manufacturers to
improve their efficiency and lower
costs of production.
47
 4.1. Industry Paradigms in 2020
4 The FMCG industry in 2020 will be
characterized by:
IMPLICATIONS • Large Size: The Indian FMCG
FOR THE FMCG industry in 2020 is expected to
reach a size of INR 3700 billion–
INDUSTRY INR 5200 billion. As a major
contributor to economic growth in
the next decade it will contribute
close to 3 per cent of the GDP.
• Increased Product Complexity:
The market for FMCG products
is becoming increasingly
heterogeneous with evolution
of different consumer segments
which have very different needs.
One product will not be able to
successfully target all consumer
segments and companies will have
to make very difficult choices.
They will either focus on one / a
few niche segment(s) or straddle
various consumer segments with a
basket of product variants.
• Evolving Consumers: Consumers
are becoming more aware about
products and associated functions
/ benefits. They are taking out time
to learn more about the products
they should choose. This trend
therefore can be expected to change
buying behaviour and consumption
patterns significantly and rapidly.
• Increased Competitive Intensity:
Competition in the industry is
expected to further intensify with
regional players targeting national
expansion, and more global players
targeting the Indian market.
• Channel Evolution: The channel
choices in the industry are
expected to widen with increasing
penetration of organized retail
and internet / B2C commerce.
While FMCG companies will
need to develop a detailed sales
and marketing strategy for these
48
channels, they will have to renew
focus on traditional trade which
will continue to retain its position
as the dominant channel.
• Environmental Concerns:
With increasing pressure from
government, NGOs, and
consumers for efficient and prudent
use of environment and natural
resources, the FMCG industry will
need to significantly increase its
efforts to drive sustainability as a
core business strategy.
Significant among these factors are
those that can force a complete
break from existing paradigms.
In addition, the confluence of
these change drivers—consumers,
technology, government policy,
and channel partners—will have a
multiplier impact and magnify both
the magnitude as well as the pace of
change.
As with any transformational change
here too there will be winners and
losers. Many product categories
will grow rapidly (30-40 per cent
annually) given fast adoption rates
across large market. Other categories
may mature and slow down to single
digit growth rates. Similarly, the
competitive intensity will increase
significantly. There will be an urgency
to grab a share of what will, in
ten years, be amongst the largest
consumer markets of the world
leading to a proliferation of products
and services. New leaders will emerge
by leveraging tailored business
models, relevant products, nimble
marketing, fast time-to-market, and
efficient supply chains.
4.2. Imperatives for the FMCG
Industry
The transition from a stable and
homogenous operating model to
a more dynamic, unpredictable
and rapidly changing operating
FMCG Roadmap to 2020
environment will have significant
implications across stakeholders.
The movement of consumers in and
out of categories, the changes to
the structure of consumption across
segments and the co-existence of
seemingly conflicting attitudes to
consumption will create a level of
complexity and challenge never
seen before. Winning in this new
world will require enhancing current
capabilities and building new ones to
bridge gaps.
In our view, in this new world,
FMCG companies will have six
imperatives from the perspective of
business strategy.
4.2.1. Disaggregating the Operating
Models
FMCG players are facing divergent
choices at each link of the value
chain depending on their business
offering and the target market.
Very different business models are
required for targeting the premium
segment, the middle class, and
bottom-of-the-pyramid consumers.
Business operations too differ when
consumers of different age-group
/ regions / genders are targeted.
FMCG companies will need to build
capabilities across the value chain for
the specific consumer segment which
they target. Strategies of targeting
consumers belonging to different
income classes are illustrated below
(see Exhibit 29).
Hence, going forward, FMCG
companies will need to manage
an increasingly complex operating
model depending on the set of
choices they make in terms of target
market, product offering, extent
of decentralization (region / state)
and extent of globalization. In the
operating model design, companies
will also need to drive efficiencies
in time-to-market and ensure that
decision rights are properly defined
to ensure quick decision making in
reaction to changing consumer trends.
For those who operate across a
spectrum of markets and segments,
it will be crucial to evaluate where
they should disaggregate their
business models in order to deal
effectively with both new as well
as mature segments. They will also
need to figure out areas where scale
and integration can give them more
advantage. This will have implications
on the way all aspects of the business,
from distribution to marketing to the
supply chain are configured
(see Exhibit 30, p. 50).

Exhibit 29: Divergent Choices in FMCG Business

FMCG VALUE CHAIN

Offering/Market R&D Supply Chain Manufacturing Marketing Sales & Distribution

• High investment in R&D • Managing imported • Large variety, • Targeted media - niche • High-touch model -
Premium • Product with high ingredients/products customized solutions magazines, brochures, company-owned
Product for efficacy, using break- • Out-bound logistics • Low production etc. outlets
the Affluent through technology customized as per • Branding to create • High service -
customer preferences ‘differentiation’ dedicated sales force

• Low investment in R&D • Ensure availability of • Few unit sizes • Use of mass media - • Low-touch model
Standard • No customization products at point-of- • Mass production TV, national newspaper with focus on
Product for sales through efficient expanding reach
Mass inventory management • Discounts/promotions
Consumption
to drive penetration

• High investment in R&D • Achieve low cost through • Customized to produce • Use of local media - • Shared Channel
Customized • Low-cost no-frills partnerships/alliances ‘smaller’ SKUs outdoor advertising • Local people used for
Product for adapted to local • Low-cost driven by (banners), NGO sales
BOP Market preferences shared facility/low volunteers
rentals/high utilization

Source: Booz & Company analysis

FMCG Roadmap to 2020 49

4.2.2. Winning the Talent Wars
With accelerating growth in the sector
in terms of more products, brands,
categories, geographies of operation
etc, the demand for human capital
is going to increase significantly.
Also, higher quality of talent will be
required to deal with the increasingly
complex Indian market. Two key
areas of emphasis will be attraction of
the best available talent and ensuring
development and retention of the
acquired talent.
With increasing employment choices
available to students, the FMCG
industry is likely to face a talent
crunch in both acquisition and
retention. In colleges, students prefer
high-paying jobs which require desk-
work rather than physically strenuous
sales jobs in FMCG companies. As a
result most of the bright students do
not even apply to FMCG companies.
For instance, in one of the Indian
Exhibit 30: Key Challenges in the Future Operating Model
• Increasing complexity in front-
end and back-end technology
• Avoiding duplicity across
businesses
• Ensuring knowledge sharing /
transfer across portfolios
Knowledge
• Managing different business
processes
• Leveraging synergies across
businesses / portfolios
Source: Booz & Company analysis
50
Institutes of Management, while 30
per cent students took up marketing
jobs from campus in 2003, the
number decreased to 15 per cent in
2010. With new industries scaling
up and offering more attractive
value propositions, this percentage
will continue to reduce. Talent
scarcity is expected to intensify in the
future, and the industry will need to
devise an attractive employee value
proposition for bright graduates to
acquire quality talent.
Retention is equally important
as traditionally, the industry has
continuously lost key talent to other
growing / high-paying industries such
as telecom and the financial sector
in the absence of suitable rewards
and recognition. A key challenge
will be to maintain employee loyalty,
hence companies will need to
focus on employee segmentation to
disproportionately reward the top-
Technology
Structure
People
Processes
performing employees (with monetary
and non-monetary incentives) along
with quick career progression.
4.2.3. Bringing Sustainability into
the Strategic Agenda
While the other stakeholders,
consumers, government, and
channels, will need more time to
prepare for driving the sustainability
agenda, FMCG players will need
to proactively start building a
sustainable business model to drive
competitive advantage in the future,
instead of simply complying with
stipulations and regulations. The
principles which can help FMCG
companies achieve this are:
1. Sustainability as a Core Business
Strategy: Sustainability should be
an integrated element at the core
of the overall strategy of a firm.
The products should be green,
they should be marketed as green,
• One company vs. multiple
separate companies for
different target markets
• Very different levels of control
and decision rights
• Building workforces (value,
mass, premium) with very
different capabilities
• Different human capital
management processes
FMCG Roadmap to 2020
 and a substantial portion of the
company’s revenue should be come
from the sale of green goods. To
achieve this, sustainability must
be on the agenda of the senior
leadership, established as a cultural
trait within the company, driven
across the organization.
2. Sustainability in Product
Innovation: FMCG players should
embed green in their innovation
efforts. Because sustainable
initiatives require new ways of
looking at problems, companies
could leverage innovation and new
product development best practices
to support their green initiatives.
3. Using the Sustainability Lens
throughout the Product Lifecycle:
Companies should view the entire
product lifecycle through a green
lens. They should seek ‘cradle-to-
cradle’ lifecycles in which products
or their content can be used again
and again with zero waste. A good
example is Nike’s idealistic long-
term vision of sustainability—‘to
design products that are fully
closed loop: produced using the
fewest possible materials, designed
for easy disassembly while allowing
them to be recycled into new
products or safely returned to
nature at the end of their life’.
4. Sustainability Driving Major
Decisions: The implications of
companies’ choices in terms of
environmental impact should
be assessed and the trade-offs
involved in all major decisions,
including sustainable programmes
(renewable energy sources
and recycled materials, energy
efficiency and material yields)
should be weighed against
risk, cost, growth, and service/
quality. PepsiCo has incorporated
sustainability as a criterion in
its capital expenditure filter. All
capital expenditure requests over
FMCG Roadmap to 2020
INR 5 million must include a
review of the sustainability issues
and opportunities surrounding the
request.
5. Integrating Sustainability into
Marketing and Messaging:
Companies should develop
consistent messaging about
their sustainability efforts and
incorporate them into their
communications at all levels.
In this way, they attract and
inform stakeholders, including
customers, employees, investors,
and regulators. The sustainability
index for consumer products that
Wal-Mart has announced is a
good example of how sustainable
initiatives can be structured and
communicated in ways that bolster
corporate credibility. Similarly,
PepsiCo India has annual reporting
on sustainability as a part of its
global initiative, with impetus
on reducing water and electricity
consumption, and improving
packaging.
4.2.4. Reinventing Marketing for
‘i-Consumers’
Deep consumer understanding and
interaction has always been at the
heart of the FMCG sector. Going
into the future, marketing will need
to target individual consumers who
want customized products, as well as
consumers who are spending more
and more time online, hence the
term ‘i-consumers’. Many companies
periodically engage with consumers
through surveys, focus groups,
test markets, product testing and
other mechanisms. Similarly FMCG
companies have been significantly
large users of advertising mediums
(print, television and outdoor) to
communicate with their consumers.
In the rapidly evolving environment
it becomes more critical to know,
respond to and communicate with the
consumer.
Across the globe, companies are
migrating away from traditional paid
advertising towards ‘below the line’
media and marketing programmes
that put them in direct contact with
consumers. In India, new platforms
have emerged in the form of mobile
phones; with planned investments in
broadband there will be significant
increase in online usage. This shift
is giving rise to a new generation of
customized marketing platforms,
transforming the way in which
consumers experience advertising and
establish relationships with brands.
Digital marketing platforms will
be a big part of this strategic shift.
They will redefine what it takes
to succeed in building brands and
reaching customers. Companies will
need to use emerging technology
in new assets such as databases,
websites, and branded content. They
will need to develop new analytical
models to measure the effectiveness
of media spending. They will also
need to manage the integration of
advertising planning, media buying,
promotions management, and other
tasks currently handled by multiple
agencies.
Companies that build these
capabilities will find that their
marketers can play a more strategic
business role. Yesterday’s marketing
organizations used to stick to
tactical functions to support strategic
decisions that had already been
made. Tomorrow’s marketing leaders
will help set the strategy for major
advertising, promotions, and public
relations campaigns, and serve as
growth champions in the development
of brands, products, and new
businesses.
Over the next few years, FMCG
marketers will look to shift their
creative and media strategies to fully
capitalize on the online opportunity
and make digital media a bigger
51
priority in their brand strategies.
In India, mass marketing through
traditional print and television will
continue to play a role in driving
increased awareness, but marketers
will need to develop their presence
in interactive channels that not
only drive greater brand awareness
but also enable new insights into
consumers.
4.2.5. Re-engineering Supply
Chains8
As consumer behaviour shifts across
segments, re-engineering the supply
chain will be critical to stay abreast
of these changes and reach an
increasingly fragmented customer
base. Supply chains are already
under pressure to deliver at lower
costs and offset generally rising costs
for raw materials and energy. This
pressure may intensify even further as
governments (either nationally or at
the state or city level) put a price on
carbon emissions and establish new
regulations on waste. Changing tax
laws with the implementation of GST
would lead to simplification and more
uniformity.
Today’s supply chains were built on
yesterday’s blueprints, in a world
where low energy and transportation
costs, cheap labour, relatively
inexpensive raw materials, complex
tax laws and scarce environmental
regulations were fixed assumptions.
The supply chain of the future, by
contrast, will have to be leaner,
greener, and more tailored to manage
increasing complexity.
This will require three key actions:
• Rethink product and packaging
formulation: Companies will
need to consider their choices
in product design and process
technology—the inherent drivers
of cost, sustainability, and risk.
What ingredients are used, how
52
much packaging is required for
the finished product, and what
changes in material choice or
manufacturing process would
reduce material and energy usage
would be important decision
points. It is essential to understand
the economics of product and
process choices before considering
supply chain changes. Small
changes to such inherent factors
can create large market and cost
impacts.
• Restructure the supply chain
network and footprint: Once
product and process choices have
been reconsidered, the supply
network needs to be realigned to
balance cost, service, risk, and
sustainability in meeting market
demand. Changing regulation,
specifically GST, as well as new
areas of demand acceleration, such
as eastern India, will need to be
incorporated. The challenge for
manufacturers is to make the right
footprint trade-offs not only for
today but also for an uncertain
tomorrow. Successful companies
will build more flexibility and
adaptability into their networks
with investments in technologies
and assets that can react to changes
in demand as well as variability in
factors like labour costs and energy
use.
• Realign the role of suppliers and
third parties: In an environment
of increased uncertainty, close
collaboration between supply
chain partners has become more
important than ever. Pressures felt
by manufacturers—higher material
costs, sustainability requirements,
supply and demand imbalances,
product safety issues, resilience
and environmental concerns—are
shared by suppliers. Today, the
role played by suppliers has gone
well beyond merely providing raw
materials. Now suppliers routinely
provide a broad set of materials
and services. They also participate
in product development efforts by
sharing ideas as well as making
investments in new processes and
technologies.
4.2.6. Partnering with Modern Trade
Modern trade is still at a nascent
stage in India. The share of
modern trade in retail last year was
approximately five per cent. However,
it has been growing very rapidly since
at approximately 25 per cent and
is likely to contribute nearly 25 per
cent of the total retail sales in India,
becoming a very critical partner.
This will be more critical for many
categories which even today derive
significant sales from this channel
given the consumer base.
FMCG companies and retailers have
started on a somewhat adversarial
note. Uncertainty about the business
models (store formats) as well as
consumer reactions coupled with
traditional mistrust have been
contributors to this uncomfortable
partnership. Negotiations over price,
promotional support, and marketing
budgets, among other persistent
areas of disagreement, often result
in damaged relationships and minor
gains—only to have the fights resume
the following year.
For more than a decade, retailers and
suppliers in many developed markets
have tried to learn to collaborate
more and move beyond the old zero-
sum games. Their initiatives have
included assigning ‘captains’ to work
with each other on ways to drive
category growth and forming industry
groups (such as Efficient Consumer
Response and Collaborative Planning,
Forecasting, and Replenishment) that
pursue supply chain optimization. Yet
despite all the hard work, only partial
success has been achieved.
FMCG Roadmap to 2020
Retailer–supplier partnerships have
failed primarily because buyers tend
to view their value in a limited way:
purely as a means of extracting lower
prices or extra-promotional dollars
from FMCG suppliers in their yearly
negotiations. Buyers often walk away
from a negotiation feeling successful,
unaware that their victory may
well have been compromised by the
failure to address issues that could
have much more impact on retailer
and supplier profits, such as in-store
availability. The shelves are still not
fully stocked, and what seemed like
a highly profitable day’s work is
actually only a slightly larger share of
a smaller pie.
The nascent stage of modern trade
in India provides FMCG players
and also the retailers with a unique
opportunity to learn from global
models and get to a win-win position
at a faster rate. The benefits of
collaboration include:
Revenue-margin enhancement:
Working jointly to harness
complementary skills and apply the
knowledge needed to grow a category
can be a win-win proposition. This
effort can be as simple as linking
the supplier’s consumer insight
to the retailer’s proper process
improvement. A wide range of
supplier-related processes can be
improved by more collaborative
retailer–supplier relationships,
including promotion planning and
execution, demand forecasting, and
stock replenishment. One of the best
sources of information for improving
these processes is the retailer’s point-
of-sale data.
Supply chain improvements: More
efficient distribution, streamlined
inventory, increased product
availability, and improved
merchandising operations are all
FMCG Roadmap to 2020
within the reach of collaborative
retailer–supplier relationships as well
. 31, p. 54).
Moving from a supplier to a partner
will require FMCG companies to
pay careful attention to how they
structure their relationship. They may
reap rich rewards if they were to:
• Generate a full basket of
possibilities, but home-in on a few
prioritized opportunities that are
critical to both businesses.
• Establish an open dialogue,
but ensure that the terms of all
agreements are explicitly defined
upfront.
• Create transparency by sharing
benefits, costs, and information
openly, but build in appropriate
confidentiality measures.
• Set both short- and long-term
agendas with supply partners to
capture value quickly but still
pursue the big ideas.
• Gain top-level support, but stay
focused on the execution.
• Be more open with all suppliers,
but choose collaboration partners
wisely.
4.3. Implications for Other
Stakeholders
While FMCG companies will have
to significantly change to meet
the requirements of the evolving
industry, this will also have an
impact on the entire ecosystem and
other stakeholders. We have broadly
divided the stakeholders in the FMCG
industry into these five entities—
FMCG players, government, retailers,
NGOs and investors.
Each of these stakeholders will need
to play a key role to support the
growth of the industry towards a
win-win situation for all (see Exhibit
4.3.1. Government
The FMCG industry supports many
social objectives and plays a key
role in driving economic growth
by providing significant direct and
indirect employment opportunities,
making vast contributions to the
exchequer, and supporting growth
of agriculture through backward
linkages. The government has taken
several steps towards inclusive
growth of the FMCG industry by
supporting the demand growth, which
should be continued in the future.
However, on the supply side, there
are a few areas which need regulatory
intervention to unlock the break-
through potential of the industry.
These include implementation of GST
which can save FMCG companies
from multi-layered taxes and drive
long-term efficiencies in supply
chain; allowing FDI in multi-brand
retail which will enable large global
retailers to bring best-practices to
India; enforcing regulations to curb
counterfeit consumer products which
will significantly reduce economic
loss to the industry; revamping the
Agriculture Products Marketing Act
to allow food processing players
to buy directly from the farmers;
and revamping labour laws to
drive efficiencies among FMCG
manufacturers.
4.3.2. Retailers
As discussed earlier, retailers and
FMCG players have a symbiotic
relationship and need to co-operate
with each other for smooth
operations and growth enhancement.
Both traditional retailers and
organized retailers will need to
collaborate with the FMCG players
for driving breakthrough growth
in the sector. They should focus on
53
co-investment in technology and
improvement of infrastructure.
For the traditional retailers, better
infrastructure is required at the point-
of-sale which ensures uninterrupted
electricity, IT infrastructure for
capturing sales and collection. For the
organized retailers, while the focus
has to be on increasing efficiency and
driving differentiation, investment in
supply chain and greater partnership
with suppliers for the overall category
development will be required to
derive long-term economic benefits.
Also, organized retailers and FMCG
players can share talent and best
Exhibit 31: FMCG Industry Stakeholder Map
FMCG
Players
Government
NGOs
Source: Booz & Company analysis
54
practices, while driving overall FMCG
growth.
4.3.3. NGOs
NGOs which act as the guard rails of
the FMCG industry can have a major
role to play in driving sustainability
efforts. Going forward, NGOs
would need to act aggressively as
the sustainability gatekeepers, and
increasingly monitor and track the
industry to ensure that best-practices
are highlighted and sustainability
agenda is not ignored. Secondly,
NGOs can indirectly continue to
enable expansion FMCG offtake into
Retailers
Investors
rural markets, acting as financial
enablers by giving credit to small
retailers / entrepreneurs and through
other measures.
4.3.4. Investors
Global as well as domestic investors
should seriously consider the
Indian FMCG industry for future
investments given the highly attractive
market. Also, along with market
expansion, investors will need to
monitor FMCG companies, tracking
their expenditures to ensure that the
bottom-line growth matches / exceeds
the top-line growth.
FMCG Roadmap to 2020
Endnotes
1
The FMCG industry has been defined to include these categories: food products, personal care, oral care, fabric care, hair care, OTC
products and baby care. The size of the industry has been estimated through retail sales, and the growth rates indicate nominal growth of the
industry, and include both the organized and unorganized FMCG industry. Conversion of 1US$ = INR 45 has been used in the document.
2
According to Rostow, it is possible to identify all societies, in their economic dimensions, as lying within one of five categories: the
traditional society, the preconditions for take-off, the take-off, the drive to maturity, and the age of high mass-consumption.
3
Goldman Sachs projections
4
L’Oreal Deutsche Report, MSN News.
5
Source: Euromonitor
6
http://www.thehindubusinessline.com/2010/04/20/sories/2010042053960500.htm
7
Booz & Company, Bring Mass Broadband to India: Roles for Government and Industry, 2010.
8
Booz & Company, Next Generation Supply Chains, 2009.

About the Authors

Abhishek Malhotra is a Partner with Srishti Chaudhry is a senior consultant with

Booz & Company and is based in Mumbai. Booz & Company and is based in Gurgaon.
He leads the Consumer, Media & Retail She has experience in growth, financial plan-
work for the firm in India. ning and business transformation aspects of
Abhishek has 13 years of consulting consumer products, energy and healthcare
experience with Booz and his main focus industries. Srishti studied business manage-
has been business transformation and ment in the Indian Institute of Management,
operations strategy with experience in con- Ahmedabad.
sumer, media, retail and industrials products.
He has participated in engagements in Asia,
Australia, Europe, and North America.
Abhishek received his MBA from the
Indian Institute of Management, Ahmedabad,
India and his BE in Electronic Engineering
from Punjab Engineering College,
Chandigarh, India.

Vikash Agarwalla is a Senior Associate with

Booz & Company and is based in New Delhi.
He works as a part of the Consumer, Media
& Retail practice of the firm in India.
He has over 7 years of management con-
sulting experience and his main focus has
been business transformation and operations
strategy with experience in consumer, media,
retail and industrials products.
Vikash received his MBA from the Indian
Institute of Management, Lucknow, India and
his BE in Mechanical Engineering from Delhi
College of Engineering, Delhi, India.

FMCG Roadmap to 2020 55