Chapter Seven INDUSTRY ANALYSIS: FMCG Chemical & Pharmaceutical Sectors
Business Environment and Current Issues • TO ANALYSE IMPACT OF QR (Quantitative Restrictions) REMOVAL on imports of FMCG items • Study strategic management aspects of MNCs and domestic firms in the QR-free period. • FMCG sector, was projected to have maximum impact of QR Removal, because most of the items were under SIL and restricted list.
QR on IMPORTS • Quota System, Restricted List, SIL, Canalised List = QRs. • India had to remove QRs on imports of 1425 items by 2001, in bulk, as per the WTO decision, stating that BoP position of India had improved.
The beginning of the removal • On 1st April 2000- QRs on 714 importable items were taken away. • QRs on further 715 items were removed on 1st April, 2001.
The FMCG sector-Market Structure • Definition. Consumer non durable goods required for daily or frequent use • Impact on International & Domestic players • Sectors covered- Chocolate, Butter, Milk food, Oral Hygiene, Poultry, Shaving Brushes, Coconut Oil, Cheese, Tea and Coffee, Cigarettes, Beverages
Chocolates • Limited Imports: High Import Duties (35% in 2000 &01 to 30% -2002, after QR Removal in 2000. • Escalating Competition: Promotional outlays • Nestle,Cadbury: Major players People can import these products without license. MNCs can import and sell, instead of invest in factory, produce in India and sell.
Butter • Market Size:55,000 tonnes,growth rate 8 to 10% • Import duty 40% has been imposed • European and American countries provide subsidies of 50%
Milk food for babies • MNC Players: Nestle, Heinz • Import wider range of products from parent cos. • Advent of new products will help increase size of market
Oral Hygiene • Major Players: Colgate Palmolive,Gillette, SmithKline Beecham • Customs duty of 35% • Very sensitive market
Poultry • Market size 11000 crs • Duty structure was 100% along with QR • In 2000 Mutton imports put under OGL followed by chicken in 2001 • No major impact on the domestic market because customers prefer fresh chicken, not imported one • Packaged branded imports can make a dent
Shaving brushes • MNC’s : Colgate,Palmolive,Gillette/local players • Imports allowed at 35% after removal of QRs • Good for Consumers
Coconut oil • Surplus/palm oil imports from S.E.Asian countries • Witnessing a low price level of Rs 30000/ton (9 year low) • Impact due to QR removal import duty at 100% over supply being sold at a discount rate
Cheese • Market: 300 crores. • Major players; Amul, Brittannia, Verka, Vijaya . • Import duty; 35%, Demand for 60% (WTO bound rate) • Market expected to grow in future.
Cigarettes • Foreign brands [Marlboro,Dunhill,B&H etc.] flooding the market.(was on Restricted list before 2001) • Now, Normal custom rate of 35%. • Huge revenue losses earlier due to smuggling. • Lower end under threat [including bidis] from cheap imports from Sri Lanka, Bangladesh [Lara, Aziz etc.].
Alcoholic Beverages • Customs duty of 220% reduced to 182% in Budget-02 • States free to impose AD [Mhr = Rs.1800, Pnj =Rs.540 per case]. • Labelling norms for foreign players. • Projections – Import Demand for Scotch to grow @ 18-20% [ from 12%]. Limited threat to other segments provided duties remain same in future.
Impact analysis-year 2001 • Domestic production of Soaps, Detergents, Oral Care, Skin Care, Beverages, Milk products, Baby food witnessed flat or negative growth rates • Exceptions-edible oil,bakery products, chocolates, shampoos, hair dyes etc(but single digit growth rates) • Food sector less impacted than personal care.
Impact analysis-Budget 2002-03 • Reduction in excise on cosmetics and toiletries(16% to 8%) • Excise on bulk tea(Rs. 2/kg to Rs. 1/kg) • Increase in excise on toothbrushes(4% to 8%) • Increase in customs on tea & coffee(70% to 100%) • No hike in cigarette excise • Custom on liquor reduced(210% to 182%)
The Future • Distribution Chain • Organised Retail Market