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FMCG Sector- Quick Analysis

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FMCG Sector- Quick Analysis
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Kalpana Heliya
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Kalpana Heliya
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FMCG Sector- Quick Analysis - October 3rd, 2009

The fast moving consumer goods indust ry has seen recessionary t rends
in terms of its revenue and profitability growth in the past 6 -12 months
due to the price war among the major players in the industry, and slower growth in consumer spending on non durables. The key reason for the
price war was to gain higher market share which would dr ive volume growth. Further the rising populat ion in I ndia, improving per capita income of an I ndian consumer is expected to drive the demand among the FMCG companies. The presence of the MNC in the rural segment has been significant ly low and is dominated by the local players. Hence, to compete with them and gain a major foothold in rural I ndia most of the FMCG majors like HLL, Procter and Gamble, Colgate – Palmolive indulged into price war to gain market share in such untapped markets.

Structural Analysis of FMCG Industry

Typically, a consumer buys these goods at least once a month.

The characteristics of FMCG products are:

- The products often cater to 3 very dist inct characterist ics like necessity, comfort and luxury. They meet the demands of the ent ire cross sect ion of population. Price and income elast icity of demand varies across products and consumers.

- Individual items are of small value but all FMCG products put together account for a significant part of the consumer's budget.

- The consumer spends lit t le t ime on the purchase decision. He seldom ever looks at the technical specificat ions. Brand loyalt ies or recommendat ions of reliable retailer/ dealer drive purchase decisions.

- Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequent ly, as and when required.
Brand switching is often induced by heavy advert isement , recommendation of the retailer or word of mouth.

Scope for branded players

- The I ndian FMCG market has been divided for a long t ime between the
organized sector and the unorganized sector. While the lat ter has been crowded by a large number of local players, compet ing on margins, the
former has been varied between a two-player-scenario to a mult i-player
one. Unlike the U.S. market for fast moving consumer goods (FMCG) ,
which is dominated by a handful of global players, I ndia's Rs.460 billion
FMCG market remains highly fragmented with roughly half the market
going to unbranded, unpackaged home made products. This presents a
tremendous opportunity for makers of branded products who can convert
consumers to branded products. However, successfully launching and
growing market share around a branded product in I ndia presents
tremendous challenges.

Take distribution as an example. India is home to six million retail outlets
and super markets vir tually do not exist . This makes logist ics part icular ly
for new players extremely difficult. Other challenges of similar magnitude
exist across the FMCG supply chain. To over come these difficult ies the
FMCG players have taken init iat ive to gain market share through price
cuts or through various promotional activities like ‘Ek ke saath Ek free’.

Key focus areas for FMCG players

Key focus areas for FMCG players which could drive volumes and help gain market share by indust ry players in the future are classified here

Rural marketing

Rural market ing has become the latest market ing mant ra of most FMCG majors. True, rural I ndia is vast with unlimited opportunities, wait ing to be tapped by FMCG majors. To gain advantage of this the Indian FMCG sector is busy putting in place a parallel rural marketing strategy. 70 percent of the nat ion's populat ion that means rural India can bring in the much-needed volumes and help FMCGvcompanies to log in volume-driven growth. This would benefit the FMCG players who have already hit saturation points in urban India.


One of the age-old problems that FMCG has been facing not only in I ndia
but globally is that of dist ribut ion. I ntegrat ing operat ions with your
dist ributors and channel partners is a Herculean task. Few ways to
reduce pain involved in this link:

Reducing supply chain costs by reducing intermediar ies – Organised retail chains have set up systems for inventory management and quick servicing, thereby offering the opportunity for a company/supplier to reduce dist ribut ion cost by reducing intermediaries such as wholesalers/distributors and supplying directly to the warehouse of retail chain.

I ncreasing sales by driving channel width - The relat ive share of grocers to FMCG sales has dropped from over 50 percent in the early 90’s to 35 percent in the late 90’s. On the other hand the contribution of chemist outlets and paan outlets has been increasing. This has been a result of both SKU’s (sachets) and mini dispensers being specifically designed to facilitate entry to these outlets and increase consumer interface.

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Re: FMCG Sector- Quick Analysis - October 5th, 2009

very nice evaluaaation...................................... ......................................
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