Indulgent consumers in urban and rural areas, who are buying more premium products or ‘uptrading’— and buying them more often — will propel India’s domestic consumer goods industry by as much as eight times by 2025, according to a study by The Nielsen Company.
The market size could touch $100 billion or Rs5 lakh crore from the current $12 billion, or Rs60,000 crore, and the growth could be even more pronounced as companies go deeper in hinterland.
“Some 35% of Indian household spend is on food. That’s a whopping $330 billion per year, which will grow to approximately $900 billion by 2020,” Antonio Helio Waszyk, chairman and managing director, Nestle India, said, at the Ficci Food Processing event on Wednesday in Mumbai, quoting another report by The Boston Consulting Group.
According to Ficci estimates, there will be investment worth Rs14,000 crore by food processing companies in India in the next two years. Nestle India is likely to invest Rs1,700 crore over the next two years.
On Tuesday, Coca-Cola announced an investment of $2 billion in India over five years.
While 60% of the market is still at the bottom-of-the-pyramid, premiumisation is the most prominent trend across categories of foods and personal care, according to Hindustan Unilever Ltd, the country’s largest consumer goods company.
While rural consumers are aiding volumes for these companies, urban consumers are adopting modern retail outlets faster for nascent but fast growing categories like processed foods and personal care.
“Premiumisation in urban and rural penetration are the two biggest opportunities in India,” Harish Manwani, chief operating officer, Unilever and chairman, Hindustan Unilever Ltd, said, during a media interaction in Mumbai last month.
The consumer giant has already started getting over 10% of its sales from modern retail outlets.
“Our presence in modern trade is quite strong. When modern trade comes in, it accelerates the development of the categories like food,” said Manwani.
The FMCG industry gets about 7% of its sales from modern trade while the traditional mom-n-pop stores continue to dominate the pie.
For Kellogg India that sells breakfast cereals like cornflakes and oats, contribution to sales from modern retail outlets is as high as 40%. Increasingly, companies like ITC Ltd, Godrej Consumer Products Ltd, Marico Ltd, Britannia Industries and others are giving impetus to modern trade as a means to communicate with consumers.
The Nielsen study also suggests that modern retail stores are likely to nearly triple sales to $5 billion by 2015 from the current $1.8 billion.
Consumer companies like Godrej Consumer Products suggest modern retail business will contribute to the growth of consumer goods sector rapidly, more so, if foreign direct investment in multi-brand retail is permitted.
“We believe favourable macro economic drivers such as GDP and population growth, coupled with rising income levels and lifestyle changes will drive the consumer goods market’s growth. Rising rural penetration compared to urban penetration presents another growth opportunity; multiple usage of products offers further upside,” Edelweiss Securities analysts Abneesh Roy and Harsh Mehta said in the report on Wednesday.
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