In the Fast-Moving Consumer Goods (FMCG) sector, homegrown firms have outpaced many Multinational Companies (MNCs) in growth and market cap. It could become possible because of better consumer connect, inorganic growth and entry into global markets.

FMCG: An Analysis

According to a Anand Rathi Institutional Research report, the study of FMCG companies, over 10 years, in India establishes the fact that domestic firms have clearly left behind many MNCs, in growth and market cap. It is heartening that over the years domestic FMCG firms have transformed from single-product companies to multi-category firms. The Research said that FMCG Firms’ margin and return ratio have improved, by the use of steady cash-flows to invest in products and distribution to enhance growth.

The revenues of the FMCG firms have registered a 21 per cent CAGR over 10 years from the financial year 2005-06 to 2014-15, while their profits have been registered at a 24 percent CAGR.

During the same period of ten years FMCG MNCs have registered a lower 13 percent CAGR in revenue, while their profits have come at a 14 percent CAGR.

It has been claimed in the Research report that domestic FMCG players have developed their product portfolios from recess offerings such as Chyawanprash to more mainstream offerings such as skin care products and beverages. And the cash flows from these recess products have been utilized by the domestic entrepreneurs to expand into new product categories.

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Reasons for Growth of Domestic FMCG

The Research report, while identifying the reasons for better development of FMCGs companies, asserted that four ‘I’s were the driving forces for the growth of domestic companies. These four ‘I’s are: Better India-consumer connect; innovation; inorganic growth; and international foreys. These four ‘I’s have been the main growth drivers for domestic companies.

It has been noticed that most domestic firms have been competent to leverage the their three, barring innovation, ‘I’s for better than MNCs. It is on record that domestic firms-such as Dabur, Emami, Bajaj Crop., Marico etc. have largely ascribed their rise to traditional categories such as hair oils, chyawanprash, natural/aurvedic health care, etc.

The simple reason behind this is that many domestic players comprehend traditional Indian preferences better and have offerings to address these preferences.

The amazing growth of domestic FMCG companies has been assisted by a better sales mix, scaled-up benefits, and greater cost-controls. The margin gains are expected to continue especially for small and midcap FMCG operators that have yet to get profit from the scaled-up benefits.

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Swift Growth

Establishing a sort of trend, most of the domestic FMCG initiated their international business in ‘exports’ that acquired pace with a distributor model and later through forming manufacturing capacities. In addition, the inorganic route has been patted to capture a large slice of the international pie.

The focus of these businesses is in emerging economies such as Africa, the Middle East, South East Asia and South America, pointing to growth potential. It is important here to note that domestic FMCG firms have embarked on a slew of acquisitions internationally, which have accrued in their fast growing international sales. It has been watched with keen interest that while MNCs have been very cautious with acquisitions owing to precipitous valuations and an uncomfortable fit with their portfolios, many domestic players have been quite aggressive on inorganic growth. No one can deny business and grown them fast.

Some transformed domestic FMCG Firms

Marico’s international operating margin has improved from single digits to 17 percent in the financial year 2015. Similarly, GCPL has enhanced its margin in its South American operations by cost-saving steps through Project Iceberg.

Jyothy Labs acquired and successfully transformed the loss-suffering Henkel India Unit. Similarly, Emami, after acquiring Zandu, has developed it substantially and extended the brand.

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Poverty is hard to define, even though it is a term that we use very often. A minimum income level used as an official standard for determining the proportion of a population living in poverty. Poverty lines vary in time and place, and each country uses lines which are appropriate to its level of development, societal norms, and values.

According to the definition by Planning Commission of India, the poverty line is drawn with an intake of 2400 calories in rural areas and 2100 calories in urban areas. If a person is unable to get that much minimum level of calories, then he/she is considered as being below the poverty line.

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“Indicators of Poverty & Hunger”, absolute poverty as the absence of any two of the following eight basic needs:

• Food: Body Mass Index must be above 16.
• Safe drinking water: Water must not come solely from rivers and ponds, and must be available nearby (less than 15 minutes’ walk each way).
• Sanitation facilities: Toilets must be accessible in or near the home.
• Health: Treatment must be received for serious illnesses and pregnancy.
• Shelter: Homes must have fewer than four people living in each room. Floors must not be made of dirt, mud, or clay.
• Education: Everyone must attend school or otherwise learn to read.
• Information: Everyone must have access to newspapers, radios, televisions, computers, or telephones at home.
• Access to services: This item is undefined by Gordon, but normally is used to indicate the complete panoply of education, health, legal, social, and financial (credit) services.

The term “Absolute Poverty”, is however slightly misleading when defined in this manner, as there are great numbers of people who have none of these eight basic needs met, yet these are still lumped with those who have four or five or even six of these basic needs met.

The basic needs approach is one of the major approaches to the measurement of absolute poverty in developing countries. It attempts to define the absolute minimum resources necessary for long-term physical well-being, usually in terms of consumption goods. The poverty line is then defined as the amount of income required to satisfy those needs. The ‘basic needs’ approach was introduced by the International Labour Organization’s World Employment Conference in 1976.

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“Perhaps the high point of the WEP was the World Employment Conference of 1976, which proposed the satisfaction of basic human needs as the overriding objective of national and international development policy. The basic needs approach to development was endorsed by governments and workers’ and employers’ organizations from all over the world. It influenced the programmes and policies of major multilateral and bilateral development agencies, and was the precursor to the human development approach.”

Causes of Poverty in India

• High level of dependence on primitive methods of agriculture
• High population growth rate
• High Illiteracy (about 35% of adult population)
• Regional inequalities

The Government has introduced a number of antipoverty programs since independence to alleviate poverty. These include various employment guarantee programmes such as National Rural Employment Programme, Rural Landless Employment Guarantee Programme etc. Recently, Government has initiated National Rural Employment Guarantee Program (NREGP). As per NREGP, the government will provide 100 days of employment per year to whosoever is willing to work. NREGP is considered as a landmark program in poverty alleviation measures.

One of the major problems with poverty alleviation programs is their implementation. Rajiv Gandhi once said that out of 100 paisas allocated for poor only 14 paisa reaches them. But in spite of their weaknesses, poverty alleviated program can be credited for their success in alleviating poverty to an extent. Greater public-private partnership and committed and efficient bureaucratic machinery are required to tackle poverty.

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