FAST MOVING CONSUMER

GOODS
Characteristics of FMCG industry
a) The industry is characterised by a strong focus on the four
P's of marketing. I
b) It is a high volume,low value driven industry in most
categories.
c) It is brand driven,rather than product driven
d) The capital investment required in plant & machinery is not
high & any reasonably sized industrial house can enter the
industry in manufacturing.
e) Distribution network is extremely vital for the success of
the organisation.

Characteristics of Indian FMCG Sector:

i) Heavy Launch Sector: As the entire launch process goes

through a series of processes such as product
development,market research,tests, marketing,promotion &
brand building,this requires large capital investment.

Launch costs are as high as 50-100% of the revenue in the

first year which would reduce as the brand matures.
ii) Presence of a large unorganised market : Factors like
low entry barriers in terms of low capital investment,fiscal
incentives from the government,low brand awareness led to
the mushrooming of the unorganised sector.

Local players understand the local demand & local players

have more than 50% share of the market.
iii) Pace of competition : Increasing competition is the main
reason for loss of pricing power in most brands.

FMCGs brands are unable to deliver the experiential

difference beyond a point & hence,find it difficult to hold on to

a premium pricing for long.

iv) Distribution network: The vast & diverse rural d requires
a multi-tiered distribution networks,efficient logistics &
infrastructure to reduce the high distribution costs.

Companies need to review distribution strategies,to leverage

the best possible distribution at the least possible cost,as this
is a crucial factor in deciding the profitability of an
organisation.
v) Capacity to Consume: Rural income levels are
determined by the vagaries of monsoon and rural demand is
not as steady as urban demand.

Organisations have to create a capacity for consumption for

the rural consumers so that a consumer market is created.

If,the rich use cash to build inventory as per their

convenience,then the poor who have unpredictable income
streams & subsist on daily wages have to use cash
conservatively which forces the poor to make purchases only
when they have cash & buy only what they need immediately.

vi) Brand BuildingMajor Indian consumer product

companies like Britannia,P&G,HLL,Colgate etc have a very
sound presence througout the Indian market with strong
brands.

Although brand loyalty is comparatively low for FMCGs but

there are a few exceptions to this rule.Products like
cigarettes,personal hygeine products are found to command
a high level of brand loyalty.
vii) Rise of Regional Brands: Regional brands are taking on
well known established brands by pursuing geographical or
need based flanking strategy.

Flanking attacks make excellent marketing sense for smaller

and regional players with limited resource.This is how Nirma
detergent powder became a national brand & a household
name also.

The smaller players have also started delivering on the

quality front.

National players have started reducing prices employing

innovative packaging & developing price points, which are

comfortable.
Large number of SKUs : Rationale behind having
increasing SKUs from the smallest to the largest is to capture
all possible preferences for consumption patterns of FMCGs
vary with price,necessity and pack size.

With lower disposable income as well as lower exposure to

products,smaller pack sizes to be more acceptable than
larger ones in rural markets of India.

CHALLENGES IN FMCG INDUSTRY

1) Sustaining Growth in Mature Categories : Incremental
gains in penetration for matured products categories like
soaps,detergent cakes,salt etc will come at a substantially
higher cost.

The viable strategy for FMCG organisations is to

encourage consumers to increase penetration of these
categories in semi urban/rural areas through product trials
& increased penetration.

2) Increasing Penetration for Emerging Categories:Some

emerging categories like processed products,value added
skin products etc have to be penetrated in semi
urban/urban areas with product trials.
3) Innovation: One of the biggest challenges facing the

FMCG industry is to innovate at the next level.

4) More Spending Options with Consumers : Consumers
now have more spending options than a few years ago but
the lure of new avenues of expenditure in products &
services lead to consumers restricting their spends on
FMCGs.eg-Rural consumers have adopted mobile telephony
on a large scale.
5) Price Wars & Commoditisation of brands : In the last
few years, there has been intensification of price wars.

FMCGs manufacturers have been slashing the prices of

detergents & shampoos.
6) Counterfeits: The illict trade of counterfreits,refilled & grey
products causes an annual loss of over Rs.2,500 crores to
the FMCG industry.

According to a Nielsen study,Delhi acts as a distribution

centre for about 70% of counterfreits annually.

HLL incurred a loss of upto Rs.1,500 crores on account of

counterfeit production of its brands,out of the total estimated
loss of upto Rs.2,500 crores for the FMCG industry.
7) Low Order Value Per Rural Retailer per visit : Not only
the rural retail outlets are highly scattered but also their
orders interms of value per visit per organisation makes the
operation of distribution of products in rural areas financially
unviable.

PENETRATION OF DIFFERENT FMCG

PRODUCTS IN RURAL MARKET
CATEGORY
PENETRATION
BRAND
Toilet Soap
91%
Lifebuoy
Washing Cake
88%
Wheel
Tea
77%
Lipton Taaza
Washing
Powder
70%
Nirma
Salt
64%
Tata Salt
Biscuits
61%
Parle G