Fast Moving Consumer Goods Essay
Fast Moving Consumer Goods
FMCG are products that have a quick shelf turnover, at relatively low-cost and don’t require a lot of thought, time and financial investment to purchase. The margin of profit on every individual FMCG product is less. However the huge number of goods sold is what makes the difference. Hence profit in FMCG goods always translates to number of goods sold. Fast Moving Consumer Goods is a classification that refers to a wide range of frequently purchased consumer products including: toiletries, soaps, cosmetics, teeth cleaning products, shaving products, detergents, other non-durables such as glassware, bulbs, batteries, paper products and plastic goods, such as buckets. ‘Fast Moving’ is in opposition to consumer durables such as kitchen appliances that are generally replaced less than once a year. The category may include pharmaceuticals, consumer electronics and packaged food products and drinks, although these are often categorized separately.
The term Consumer Packaged Goods (CPG) is used interchangeably with Fast Moving Consumer Goods (FMCG). Three of the largest and best known examples of Fast Moving Consumer Goods companies are Nestlé, Unilever and Procter & Gamble. Examples of FMCGs are soft drinks, tissue paper, and chocolate bars. Examples of FMCG brands are Coca-Cola, Kleenex, Pepsi and Believe. The FMCG sector represents consumer goods required for daily or frequent use. The main segments of this sector are personal care (oral care, hair care, soaps, cosmetics, toiletries), household care (fabric wash and household cleaners), branded and packaged food, beverages (health beverages, soft drinks, staples, cereals, dairy products, chocolates, bakery products) and tobacco. The Indian FMCG sector is an important contributor to the country’s GDP. It is the fourth largest sector in the economy and is responsible for 5% of the total factory employment in India.
The industry also creates employment for 3 people in downstream activities, much of which is disbursed in small towns and rural India. This industry has witnessed strong growth in the past decade. This has been due to liberalization, urbanization, increase in the disposable incomes and altered lifestyle. Furthermore, the boom has also been fuelled by the reduction in excise duties, de-reservation from the small-scale sector and the concerted efforts of personal care companies to attract the burgeoning affluent segment in the middle-class through product and packaging innovations. Unlike the perception that the FMCG sector is a producer of luxury items targeted at the elite, in reality, the sector meets the everyday needs of the masses. The lower-middle income group accounts for over 60% of the sector’s sales. Rural markets account for 56% of the total domestic FMCG demand. Many of the global FMCG majors have been present in the country for many decades. But in the last ten years, many of the smaller rung Indian FMCG companies have gained in scale. As a result, the unorganized and regional players have witnessed erosion in market share.
History of FMCG in India
In India, companies like ITC, HLL, Colgate, Cadbury and Nestle have been a dominant force in the FMCG sector well supported by relatively less competition and high entry barriers (import duty was high). These companies were, therefore, able to charge a premium for their products. In this context, the margins were also on the higher side. With the gradual opening up of the economy over the last decade, FMCG companies have been forced to fight for a market share. In the process, margins have been compromised, more so in the last six years (FMCG sector witnessed decline in demand).
The growth potential for FMCG companies looks promising over the long term horizon, as the per-capita consumption of almost all products in the country is amongst the lowest in the world. As per the Consumer Survey by KSAT echnopak, of the total consumption expenditure, almost 40% and 8% was accounted by groceries and personal care products respectively. Rapid urbanization, increased literacy and rising per capita income are the key growth drivers for the sector. Around 45% of the population in India is below 20 years of age and the proportion of the young population is expected to increase in the next five years. Aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent demand with more money and anew mindset. In this backdrop, industry estimates suggest that the industry could triple in value by 2015 (by some estimates, the industry could double in size by2010).
In our view, testing times for the FMCG sector are over and driving rural penetration will be the key going forward. Due to infrastructure constraints (this influences the cost-effectiveness of the supply chain), companies were unable to grow faster. Although companies like HLL and ITC have dedicated initiatives targeted at the rural market, these are still at a relatively nascent stage. The bottlenecks of the conventional distribution system are likely to be removed once organized retailing gains in scale. Currently, organized retailing accounts for just 3% of total retail sales and is likely to touch 10% over the next 3-5years. In our view, organized retailing results in discounted prices, forced-buying by offering many choices and also opens up new avenues for growth for the FMCG sector. Given the aggressive expansion plans of players like Pantaloons, Trent ,Shopper’s Stop and Shoprite, we are confident that the FMCG sector has a bright future.
Budget Measures to Promote FMCG Sector
2% education cess corporation tax, excise duties and custom duties Concessional rate of 5% custom duty on tea and coffee plantation machinery
The education cess will add marginally to the tax burden of all FMCG companies The dividend distribution tax on debt funds is likely to adversely affect the other income components of companies like Britannia, Nestle and HLL The measure to abolish excise duty on dairy machinery is a positive for companies like Nestle Concessional rate for tea and coffee plantation machinery is a positive for Tata Tea, HLL, Tata Coffee and other such
Top Ten Players in FMCG Sector Companies:-
1. Hindustan Unilever Ltd.
2. ITC (Indian Tobacco Company)
3. Nestlé India
4. GCMMF (AMUL)
5. Dabur India
6. Asian Paints (India)
7. Cadbury India
8. Britannia Industries
9. Marico Industries
10. Procter & Gamble Hygiene and Health Care
In order to carry out any research investigation there is a need of a Systematic method and to adopt a well-defined procedure for each and every research there is also a need of methodology. Methodology of any research constitutes the selection of representative sample of the universe or the general population, application of the appropriate research tools and the techniques.
There is an old saying in Spain “TO BE A BULLFIGHTER YOU MUST LEARN TO BE BULL” means you never really understand a Person until you consider things from his point of view . In the same way to meet and satisfy the target customer the study of customers behavior of crucial important because he is king. Customer behavior studies , how individuals , groups and organizations selected buy use and dispose of goods , services, ideas or experiences to satisfy their needs and Desires.
According to JAMES F. FUGAL, “Customers behavior consists of the acts of individuals in obtain and using goods and services including the decision process that precede and determine these acts.
The research involves the following steps:-
1. DEFINE THE PROBLEM AND RESEARCH OBJECTIVE:-
If the problem is clearly defined, it is half solved .The problem/Objective here to assess the scope of rural marketing for FMCG sector.
2 – COLLECT THE INFORMATION:-
The information is collected from secondary sources-websites, magazines, newspapers, and magazines.
3- ANLAYZE THE INFORMATION:-
The next step in the marketing research process is to exact Findings from the collected data.
4-PRESENT THE FINDINGS AND CONCLUSIONS:-
As the last step, the findings and conclusion of whole Research are presented in the end.
The research report offers insights into the dynamics of growth in a competitive market environment. The salient features of development the survey have identified include:- The improvement has been much more pronounced in volume terms than in value terms for most of the products. One of the greatest achievements made by the FMCG industry has been the ‘sachet’ bugs which have helped the companies to introduce products in smaller package sizes, at lower price points and reach new users and to expand market share for value added products in urban India. Several cost saving measures, various tax benefits, rising demand, good monsoon have helped the industry to achieve positive growth.
Most of the multinational companies have started sourcing their products from India. HLL has become the production center in respect of personal consumer products like oral care, skin care products, soap, detergents globally for Unilever. There has been a trend from shift to own manufacturing from third party manufacturing or procuring goods from third party small-scale manufacturers. Though the companies are going global, they are focusing on the overseas markets like Bangladesh, Pakistan, Nepal, Middle East and CiS countries because of the lifestyles, consumption habits similar to India. Godrej Consumer, Marico, Dabur, Vicco laboratories are among the companies.
The offshoots and mushrooming of regional companies which are posing a threat to bigger FMCG companies like HLL. The rise of Jyothi Laboratories, throwing challenge to Reckitt Benckiser is a case in point. FMCG market remains highly fragmented with almost half of the market representing unbranded, unpackaged home made products. This presents a tremendous opportunity for makers of branded products who can convert consumers to branded products. There is competition between the organized and the unorganized sectors in the FMCG sector. Marketing and distribution are very important in FMCG companies. New products require a large investment in product development, market research, and awareness campaign, developing franchise for a new brand advertisements, free samples and product promotions.
All these developments have made the consumers strong, who are in a position now to choose a variety of products, from a number of companies, at different price points. Bargaining power of customers is high. Key factors to success are distribution (in rural markets) and advertising (in urban markets). Critical factors for success are the ability to build, develop and maintain a robust distribution network. The fact that a lot of women have started looking for specialized products has driven growth. Post liberalization period provided the consumers the opportunity to make choices amongst the products of domestic companies and imported products