FMCGs 'can log double-digit growth for 25 yrs'

The Indian FMCG industry is capable of double-digit growth for the next 25 years, according to M S Banga, chairman of Hindustan Lever, the country's largest consumer goods giant.

This is good news for the FMCG players that have been finding it difficult to grow the topline. Banga was speaking at the Confederation of Indian Industry organized National FMCG Conclave on Tuesday.

"There is great scope for penetrative and consumptive growth. Market share is computed by what we can measure. Why not measure by opportunity for consumption or the number of times a consumer can use a product. India's FMCG industry is capable of double digit growth for the next 25 years, Banga said.

He emphasized that challenges throws up opportunities for the FMCG sector. These challenges include profitable growth, increased competition, advertising claims, intellectual property rights, evolution of retail among others.

According to Centre for Monitoring Economy (CMIE), the Indian economy is expected to grow by 7.4 per cent in 2003-04 and the next year is also likely to be good for the country.

"Inflation will be around 4.5 per cent in FY-04. Even the farm output has increased but volatile in agriculture growth is a matter of concern," said CMIE managing director and CEO Mahesh Vyas.

In his keynote address, Banga began by stating that India is witnessing simultaneous change across Industry and the country, unlike the South American and ASEAN economies who witnessed sequential changes in the mid to late 90s.

This has resulted in increased opportunities for consumers, and also enormous competition for their wallet and minds.

Piruz Khambatta, chairman and managing director of Rasna, said the government should play a substantial role in fuelling growth by looking at rationalisation of the tax structure as taxes account for 20 per cent of FMCG product prices.

According to Banga, in the 90s, prices shot up and half of India's industrial growth came through price increases while the other half came through volume. Today, with increased competition, there is very little avenue to drive growth through price increases.

Hence, the opportunity lies in driving volume growth and the ability of companies to sell more units/cases, which is the most important metric for business, Banga pointed out.

However, there is increased pressure on margins and businesses tend to nudge up prices ahead of cost.

Today, businesses must plan for price inflation and focus on driving cost down, not only in traditional fixed costs but also from overhead structures, supply chain etc.

With tremendous reliance on promotions to drive brand growth, it leads to brand commoditisation. Banga said this trend needs to be reversed.

On the volatility in agriculture sector, Vyas said the sector was in trouble in five out of the nine years.

"The biggest ordeal for this sector was not lack of availability but absence of purchasing power in rural markets," Vyas said, adding "if India can invest more in agriculture and modernise the commodities markets, a major growth will come about".

The growth in last five to seven years has been consumption expenditure driven and not investment driven. It was also important to invest as it would create more jobs and thereby increase spending, added Vyas.