FMCG companies ramp up acquisitions amid spending surge

Bengaluru: The fast-moving consumer goods (FMCG) market in India is set to grow at a 14.9% compound annual growth rate (CAGR) to $220 billion by 2025, from $167 billion in 2023, according to a report published by TeamLease earlier this year. Banking on this likely growth, major consumer brands like Emami, Marico, Hindustan Unilever Limited (HUL) and others are ramping up acquisitions.

Analysts and experts say that these large companies in the sector are looking to expand their portfolio due to growing consumer demands and are focusing on established, smaller brands that are already present in the digital space and are well-recognized, rather than creating a product from scratch. DH.

In August, Kolkata-based consumer goods giant Emami acquired 100% stake in Helios Lifestyle, the company behind luxury men’s cosmetics brand The Man Company.

Its peer, Tata Consumer Products, in 2023 also acquired Capital Foods, owner of the Ching’s Secret and Smith & Jones brands, as well as Organic India, a company selling organic herbal teas and health foods.

Meanwhile, Adani Wilmar reportedly has $1 billion in its war chest for strategic acquisitions. Additionally, Reliance Industries is also planning to invest Rs 3,900 crore in its consumer goods division.

“FMCG giants are looking at expanding their portfolio to grow inorganically. Acquiring these brands makes sense as most of them can be found through digital channels – a place where larger players are looking to increase their presence,” said Karan Taurani, senior vice president, Elara Capital.

The share of e-commerce and fast-moving consumer goods (FMCG) in the market has grown significantly, now standing at 10-12%, compared to 4-5% before the COVID-19 pandemic, thanks to the rapid adoption of online platforms that offer discounted products with the convenience of doorstep delivery in minutes, Elara Capital said in a report.

The preferences and choices of Indian consumers are also changing as they opt for premium products and competitive prices, and in urban areas, customers are opting for organic products, which is also reflected in the purchasing behaviour of companies.

“FMCG brands are making acquisitions to expand their portfolio and keep up with trends,” said Ankur Bisen, senior partner and head of consumer, food and retail at Technopak Advisors.

“Consumers have a lot of choice, and I don’t see that changing anytime soon. People are looking for quality more than brand, even if it means a higher price,” said Neeti Sharma, CEO of TeamLease Digital.

Analysts, however, differed on the issue of smaller brands eating into the market share of larger players. “While distribution is a big benefit for smaller brands because of their presence on digital platforms, they can eat into the market but only to a very small extent, hence it is not a big issue,” Taurani added.

As per a report by Teamlease, consumer spending in India is estimated to touch $6 trillion by the end of the decade due to the increase in the number of middle- and high-income families.

Counting on this, experts believe that the wave of acquisitions is likely to continue in the near future. Even Indian conglomerates, which do not have a strong presence in the consumer goods sector, are optimistic about the sector.

“It also makes sense to acquire brands inorganically that are performing well. This is one reason why we will continue to see a lot of acquisitions in the FMCG sector over the next three to five years,” said Anand Ramanathan, Partner, Consumer Products and Retail Sector Leader, Deloitte India.