FMCG industry holds potential to grow by over 15 per cent in 2-3 years

The fast moving consumer goods industry, that witnessed a slowdown for the past three years, has a potential to grow by more than 15 per cent over the next 2-3 years if players in the sector focus on improving brand penetration, a recent study revealed.

“India is at the cusp of the FMCG S-curve and there is significant room to grow over the next 5-10 years. A nominal GDP growth rate of roughly 12 per cent over the next three years could signal an FMCG growth by over 15 per cent, depending on player action,” the CII-Bain & Company said.

The industry’s growth rate compared to GDP has fallen to 0.8 from a historical ratio of 1.2, it said.

“This slowdown is perplexing; it cannot be fully explained either by changes in consumer spending power which have only marginally decelerated in growth or any significant shifts to non-FMCG categories, including the rise of e-tailing,” the report said.

During the slowdown, FMCG companies scaled back growth-oriented investments and shifted focus to sustaining profits all at the cost of the top line.

The report noted that the industry has seen the growth rate accelerating in 2016 over the previous two years, with 18 of the 22 categories recording an uptick, driven by rural markets.

Last year, the FMCG industry grew at 9 per cent till October and rural growth was 1.7 times the urban.

Across these 22 categories, volume growth was driven by underlying penetration gains and even highly penetrated categories such as toothpaste and hair oil, both with over 95 per cent penetration, recorded material penetration gains, it added.

“Food emerged as the fastest growing segment at 10 per cent, with larger towns and more affluent consumers driving this growth. On the other hand, home care grew at 9 per cent, which was driven by less affluent consumers residing in small towns and rural areas,” it said.