Wrote by : Saraswat Bhattacharya MBA 090093 Amrita school of business
1. What is FMCG? Products which have a quick turnover, and relatively low cost are known as Fast Moving Consumer Goods (FMCG). FMCG products are those that get replaced within a year. These include a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, tooth cleaning products, shaving products and detergents, as well as other nondurables such as glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also include pharmaceuticals, consumer electronics, packaged food products, soft drinks, tissue paper, and chocolate bars.
Overview of the industry:
The FMCG industry is volume driven and is characterized by strong MNC presence, a well established distribution network, low penetration level, low margin, low operating cost, and intense competition between organized and unorganized segment. The products are generally branded and backed by marketing, heavy advertising, slick packaging and strong distribution networks. But despite the strong presence of MNC players, the unorganised sector has a significant presence in this industry. In most categories, the unorganised sector is almost as big as the organised sector, if not bigger. Its strong distribution network and deep penetration in regional market, high reach, lower price than branded products and higher margin to distributors and retailers is eating away the market. India‟s FMCG sector is the fourth largest sector in the economy and creates employment for more than three million people in downstream activities. The Indian FMCG sector, with a market size of US$ 25 billion (2007–08 retail sales), constitutes 2.15 per cent of India‟s GDP. The industry is poised to grow between 10 to 12 per cent annually. Its principle constituents are Household Product, Personal Care, and Food & beverages. It is currently growing at a double digit growth rate. The FMCG segment can further be classified under the premium segment and popular segment. The premium segment caters mostly to the higher/ upper middle class which is not price sensitive apart from being brand conscious. The price sensitive popular or mass segment consists of consumer belonging mainly to the semi urban or rural areas that are not particularly brand conscious. Products sold in the popular segment have considerably low price than their counter parts.
The growth potential for FMCG companies looks promising over the long term horizon. As per the Consumer Survey by KSA Technopak, of the total consumption expenditures, 40% and 10% 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 Indian population in India is below 20 years of age and proportion of the Indian population is expected to increase in next five years. Aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent demand with more money and a new mindset. Also middle class segment contributes largely to this
industry. India offers a large and growing market of 1 billion people of which 300 million are middle class. With increased disposable income and increase in overall lifestyle this sector spends huge in consumer goods. The large share of fast moving consumer goods (FMCG) in total individual spending along with the large population base is another factor that makes India one of the largest FMCG markets. Even on an international scale, total consumer expenditure on food in India at US$ 120 billion is amongst the largest in the emerging markets, next only to China.
Apart from the demand for basic goods, convenience and luxury goods are growing at a fast pace too. The urban population between the ages of 15 to 34 years is expected to increase from 107 m in 2001 to 138 m in 2011,...