The past five years have seen a quantum jump in the consumer non-durables industry, as rising disposable incomes drove consumption growth while higher product prices aided value growth.
Between 2001 and 2005, the industry grew at a compounded annual growth rate of 5.7%, which jumped to an estimated 19.8% between 2005 and 2009. Will this level of growth sustain? If the predictions of high economic growth are proven right, then this growth will continue albeit at a more moderate pace.
A big disappointment for the industry next fiscal is the likely postponement of a common goods and services tax (GST), originally slated for an April launch. That will be tragic as the fiscal year starting 1 April will see the fiscal stimulus measures being rolled back. Companies enjoyed lower excise and custom duties for a year, which will taper off.
GST would have softened the blow by lowering the overall tax incidence on makers of consumer non-durables and also made the supply chain more efficient. An increase in costs thus seems likely in fiscal 2011. Benign inflation in fiscal 2010, except for food, helped consumer companies, which may also change.
Graphic: Yogesh Kumar / Mint
A key trend that will become visible in the coming years is the growing influence of multinationals (MNCs). From skin creams to chocolates, emerging markets including India are in their sights. Whether they succeed in growing their share of the Indian market is a different matter, but they are likely to increase the level of competition.
These companies are not just eyeing the premium end of the market; the middle and even the lower rungs of the market are in their sights. There is also the possibility of some of the local and regional brands becoming acquisition targets as MNCs seek inorganic growth opportunities.
Products tailored for rural markets and low-priced packs are figuring prominently in their strategy. GlaxoSmithKline Consumer Healthcare Ltd, which sells Horlicks in India, has made a low-cost product Horlicks Asha just for the rural markets. This variant is about 40% cheaper than the regular Horlicks.
Nestle India Ltd has launched Maggi Rasile Chow noodles for Rs4, which it says has been developed to suit the tastes of the rural consumer. Indian companies, too, are eyeing the rural market. The next few years will be a litmus test of whether rural markets can be a large and viable opportunity for marketeers.
Urban markets will continue to be the main growth engine, as growing disposable incomes, rising urbanization and wider product offerings drive growth. Traditionally, categories such as personal care have been driving growth but packaged food products are growing at a faster rate and will increasingly contribute to growth, as long as companies get their act right.
In fiscal 2011, consumer product companies are thus likely to experience good growth, even if at slightly lower rates than the previous year.
If more confirmation is needed, consider this: The recently released 2009 Nielsen Campus Track-B School survey shows consumer products as the preferred sector for management students graduating in 2010. It also topped the list among industries of the future. That marks a return to fame for a sector which had lost out on campus years ago to more glamorous sectors such as financial services, telecom and media.
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