I have always found Equitymaster's Sector briefs (see link above) a good source for coming upto speed fast - on sector basics. Taking the liberty of quoting verbatim (the basics part) from the above to serve as a sector primer of sorts (which we will keep refining in time) before we dive headlong into identifying long-term best buys from the Sector.
Fast Moving Consumer Goods Sector
|The consumer products industry has been growing at a brisk pace in the past few years backed by robust economic growth and rising rural income. Growth drivers such as premiumization, rapid urbanization, evolving consumer lifestyles and emergence of modern trade have shielded the industry from the slowdown.
The consumer products or the Fast Moving Consumer goods (FMCG) sector is valued at Rs 1.6 trillion (Source: Nielsen). The industry is urban-centric with 66% share of the goods being consumed by urban India. Metropolitan cities & small towns (population of 1-10 lakh) have been driving the FMCG consumption in urban India since 2002. In fact middle India, comprising of the small towns and consuming 20% of overall FMCG sales, has been growing the fastest across rural and urban segments. As per Nielsen, the FMCG market size of middle India is set to expand from Rs 287 bn in 2010 to over Rs 4 trillion by 2026. Rural India, where 70% of the population resides but only 34% consume FMCG goods, presents the biggest market potential for the industry. Backed by low unit packs and aggressive distribution reach, rural market size has expanded four times to Rs 564 bn since 2002. Companies such as Hindustan Unilever (HUL)andDaburwhich derive nearly half their sales from rural India have been increasing their reach.
|FMCG goods are retailed through two primary sales channels - General Trade and Modern Trade. General Trade comprising of the ubiquitous kirana stores is the largest sales channel forming 95% of overall retail sales. However, growth of consumer goods retailed through Modern Trade channel is outpacing the growth of FMCG products in General Trade. Factors such as a comfortable and modern store experience, access to a wide variety of categories and brands under a single roof and compelling value-for-money deals are attracting consumers to organized retail in a big way. But modern trade is still an urban phenomenon with 17 key metros contributing to 73% of overall modern trade in India. Product categories such as packaged rice, liquid toilet soaps, floor cleaners, breakfast cereals, air fresheners & mosquito repellent equipment have a higher penetration in modern trade channel. Despite the relatively recent performance of private label products in India, it is already close to 7% of modern trade sales. Modern Trade is expected to gain greater importance with opening up of foreign direct investment in multi-brand retail.
|The implementation of the Goods and Services Tax (GST)is expected to benefit the sector immensely by reducing the overall incidence of taxation. GST aims to reduce the cascading effect by replacing a multitude of indirect taxes such as central excise, service tax, VAT and inter-state sales tax with a single GST rate. Moreover, FMCG companies will be able to optimize logistics and distribution costs in the GST era. The resulting cost savings by the companies can be passed on to the final consumer thereby boosting demand. However the implementation of GST has currently been put on the backburner by the government.|