FMCG industry

Topics: Fast moving consumer goods, Economic growth, Economics Pages: 13 (3818 words) Published: October 30, 2013
FMCG Industry

Introduction
The fast moving consumer goods (FMCG) sector is a large and important part of almost every economy in the world, insofar as the products associated with the industry represents a big part of every consumer budget. The goods produced by the industry are basically necessities and the inelastic nature of the goods makes their impact on economies worldwide significant. The FMCG are sometimes referred to as consumer packaged goods and the various products are characterized by being sold quickly, in large quantities, and at low costs and include almost all consumables regularly bought by consumers. The FMCG industry consist of both a supplier side that manufactures the goods and a retail side such as wholesalers or supermarkets, that sell the products produced by the suppliers. The link between the manufacturers of FMCG and the retailer side are logistics providers and intermediaries that constitute a smaller but significant part of the industry. Few industries rely more on efficient logistics systems than the FMCG industry. In a modern economy, an efficient transportation system is of great importance and it can perhaps be considered especially important for FMCG firms. This is because most FMCG firms would ideally want their products to saturate the market by being available at practically every outlet in order to increase sales. In the soft drink industry for instance, consumers may have a preferred brand. If this brand is not available however, they will in most cases simply purchase a rival or substitute product – not go to another store to buy their preferred brand. You can thus have a high value product and spend heavily on advertisement, but if the product is not widely available in stores, revenues will be limited as consumers will mostly buy their second choice product instead. Being able to distribute your products widely in the market, making them accessible when and where a customer wishes to purchase it, is as a consequence highly important to FMCG firms. The higher sales connected with intense distribution of FMCG should of course increase profits in itself, and since it also leads to higher production it should also lead to better opportunities for economies of scale. This should then result in even higher profits. As intense distribution is highly difficult, or at least expensive to attain in a market with poor infrastructure, profits should, all other things being equal, therefore be lower in such markets compared with comparable markets with better infrastructure. The negative effect of poor infrastructure on sales should especially be evident when it comes to a poor transportation system and to a lesser degree on for instance poor sanitation and communications infrastructure. This is simply because only the former influences distribution directly. A consequence of this is that many FMCG companies spend large amounts on maintaining and running distribution networks, either by themselves or with partners, in order to assure they have the necessary options for bringing their products to markets. The products in the FMCG industry are by nature defined as bulk products, meaning they are produced and consequently sold in large quantities to wholesalers and retailers. Additionally there are many customers, both directly downstream from the production company as well as the end user. This means that the consumers bargaining power goes down as they are not concentrated and buys in relatively small amounts compared to amounts produced. Mainly this is true for FMCG retailers and less for FMCG suppliers, since the latter sells to the former to a large extend. As previously mentioned, a large part of the income of most households are set aside for FMCG products since there are so many of the products that consumers use on a daily basis and which needs to be bought regularly. This results in a very high number of products being produced and consequently sold by the FMCG industry at all...
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