Professional Documents
Culture Documents
Of
MARKETING
On the topic of
ECONOMICS PROBLEMS FACED BY FMCG COMPANIES (SUPPORTED
BY DATA) WITH THE LIKELY SOLUTION AND BUSINESS STRATEGY TO
OVER COME THESE PROBLEM
SUBMITTED TO
MR. CHANDRASHEKHAR DOGRA
SUBMITTED BY
RAJNISH SINGH
MBA (regular)
SEC- RR1902
ROLL NO.-RR1902A11
REG. NO-10901327
ACKNOWLEDGEMENT
INDEX
INTRODUCTION
1FAST MOVING CONSUMER GOODS (FMCG)
HISTORY OF FMCG COMPANIES IN INDIA
CURENT SITUATION
OVER VIEW OF INDIAN FMCG MARKET
PROBLEM OF FMCG COMPANIS
ANALYSIS OF FMCG SECTORS
1 STRENGTHS
2 WEAKNESSES
3 OPPORTUNITIES
4 THREATS
STRUCTURAL ANALYSIS OF FMCG INDUSTRY
1DESIGN AND MANUFACTURING
2MARKETING AND DISTRIBUTION
FORCOSTING OF FMCG COMPANIES
STRATEGY OF FMCG COMPANIES
1COMPETITIVE STRATEGIES ALLOWED BY FMCG COMPANIS IN
INDIA
2POWER BRANDS THE NEW FMCG MANTRA
TOP 10 FMCG COMPANIES IN INDIA
SOLUTION OF FMCG COMPANIES
1WHAT SHOULD THE FMCG PLAYERS DO NOW
2DISTRIBUTION BRAND MANAGERS TO BUSINESS MANAGERS
REFRENCE
INTRODUCTION
Fast Moving Consumer Goods (FMCG)
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, and 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 NESTL, 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, and 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 m 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 middleclass 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 every day 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.
CURRENT SITUATION
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 KSA-Technopak,
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 a new 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 by 2010).
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 3-5 years. 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 Pantaloon, Trent, Shoppers
Stop and Shoprite, we are confident that the FMCG sector has a bright future.
APR-SEP 2009
COMPANY
SALES RS A&P
A&P/SALES%
APR-SEP 3YRS
CR
HINDUSTANUNILEVER 8703
SPENDRSCR
1132
2009
13.0
AGO
8.9
DABUR INDIA
1591
234
14.7
11.9
MARICO
1389
176
12.7
12.1
GLAXOSMITHKLINE
964
156
16.2
13.1
955
141
14.7
17.5
GODREJCONSUMER
1014
94
9.3
10.3
EMAMI
400
75
18.7
2.5
305
31
10.1
1.3
JYOTHY LABS
250
14
5.5
8.0
CONSUMER
COLGATE POLMOLIVE
INDIA
billion, is expected to grow at a compounded 30 per cent over the next five years.
The share of modern retail is likely to grow from its current 2 per cent to 15-20
percent over the next decade, analysts feel.
The Indian FMCG sector is the fourth largest sector in the economy with a total
market size in excess of US$ 13.1 billion. The FMCG market is set to treble from
US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as
per capita consumption in most product categories like jams, toothpaste, skin care,
hair wash etc in India is low indicating the untapped market potential. Burgeoning
Indian population, particularly the middle class and the rural segments, presents an
opportunity to makers of branded products to convert consumers to branded
products. India is one of the worlds largest producers for a number of FMCG
products but its FMCG exports are languishing at around Rs 1,000 crore only.
There is significant potential for increasing exports but there are certain factors
inhibiting this. Small-scale sector reservations limit ability to invest in technology
and quality up gradation to achieve economies of scale. Moreover, lower volume
of higher value added products reduce scope for export to developing countries.
The FMCG sector has traditionally grown at a very fast rate and has generally out
performed the rest of the industry. Over the last one year, however the rate of
growth has slowed down and the sector has recorded sales growth of just five per
cent in the last four quarters. The outlook in the short term does not appear to be
very positive for the sector. Rural demand is on the decline and the Centre for
Monitoring Indian Economy (CMIE) has already downs called its projection for
agriculture growth in the current fiscal. Poor monsoon in some states, too, is
unlikely to help matters. Moreover, the general slowdown in the economy is also
likely to have an adverse impact on disposable income and purchasing power as a
whole. The growth of imports constitutes another problem area and while so far
imports in this sector have been confined to the premium segment, FMCG
companies estimate they have already cornered a four to six per cent market share.
The high burden of local taxes is another reason attributed for the slowdown in the
industry At the same time, the long term outlook for revenue growth is positive.
Give the large market and the requirement for continuous repurchase of these
products, FMCG companies should continue to do well in the long run. Moreover,
most of the companies are concentrating on cost reduction and supply chain
management. This should yield positive results for them. The profile of major
leading FMCG Market Players is as follows:
critical, will benefit, added Mr. Banga. According to Mahesh Vyas, executive
director, the Centre for Monitoring Indian Economy (CMIE), the year holds a lot of
promise, if growth is good and inflation is lower. Volume growth and no price
reduction is good for FMCG, said Mr. Vyas. He, however, said fresh investments
were critical for sustained growth in the economy. Another serious challenge which
the industry is faced with, said Mr. Banga, is consumer promotions where freebies
are threatening to lead to the commoditization of the industry. I believe that the
industry must take a serious note of it. It is threatening the very premise on which
the FMCG industry stands today (i.e. branding), Mr. Banga added. As to how
HLL, which is a leading FMCG company, would boost its volumes and maintain
its margins, Mr. Banga said the only way out was branding. He denied that HLL
was cutting down upon its advertising spends, which he said, was only on a
quarter-on-quarter basis. The total advertising expenditure for HLL declined to Rs
182.74 crore during the third quarter ended September 30, 2003, from Rs 217.80
crore.
One of the reasons is the fact that the Conditional Cash Transfer scheme (CCT) is
gathering support as a replacement for myriad welfare schemes. Along with the
rural employment guarantee scheme, loan waivers and increase in prices at which
agricultural products are bought, the CCT could solve the FMCGs problem of
unpredictability of agricultural income and the associated fall in market demand.
The mainstay of the rural thrust of FMCG companies is based on the hope that
there are disposable incomes lying untapped in the hinterland: if the rural
population spends some of this, it will certainly boost demand in the current
recession. With urban consumption in decline or stagnating because of the
economic slowdown, FMCG companies have been hit hard. The idea is to give a
choice to the rural customer to shift to branded products, from traditional,
surmountable. Its expected that catching the villages fancy should be far easier
than that of the info-fatigued urban buyer. The rural market already accounts for 50
percent of FMCG products like pressure cookers, tea, branded salt and tooth
powder. Companies expect to increase market share and to add products to the
rural portfolio. According to ASSOCHAM, which announced early this year that
the FMCG sector is pegged to grow at 40 percent in the rural market, rising rural
incomes, healthy agricultural growth, boost in demand, rising consumerism and
better penetration of FMCG products, are the reasons for this projection. Agrees
Deepak Jolly, a director with Coca-Cola India: The rural thrust in India today is
huge. In many ways, I would say it is the main driver for the markets. Among the
few things that the FMCG companies are seeking from this budget is that the taxes
and duties that have been reduced by the government to promote the sector should
not be revoked. If only they could have the same impact on the monsoon: any
weakening or failure there will considerably affect the purchasing power of
villagers and volumes of FMCG products. Its in this context that the gathering
support for the conditional cash transfers (CCT) scheme should be seen it
proposes that the government deposit an amount in the account of beneficiaries
identified according to poverty criteria. The amount is deposited in the name of the
woman member of the household and accessed only if children go to school or
attend the health centre. Farmers are spending more than ever to cultivate; villagers
are spending more than ever to buy food. The government hopes to bring the
National Food Security Bill that provides monthly 25kg to BPL families at Rs 3
per kg. It would be interesting to watch if the disposable income left after such
subsidies will be used for consumption.
STRENGTHS:
1. Low operational costs
2. Presence of established distribution networks in both urban and rural areas
3. Presence of well-known brands in FMCG sector
WEAKNESSES:
1. Lower scope of investing in technology and achieving economies of scale,
especially in small sectors
2. Low exports levels
3. "Me-too" products, which illegally mimic the labels of the established brands,
narrow the scope of FMCG products in rural and semi-urban market.
OPPORTUNITIES:
1. Untapped rural market
2. Rising income levels i.e. increase in purchasing power of consumers
3. Large domestic market - a population of over one billion
4. Export potential 5. High consumer goods spending
THREATS:
1. Removal of import restrictions resulting in replacing of domestic brands
2. Slowdown in rural demand.
3. Tax and regulatory structure
STRUCTURAL ANALYSIS OF FMCG INDUSTRY
Typically, a consumer buys these goods at least once a month. The sector covers a
wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos,
creams, powders, food products, confectioneries, beverages, and cigarettes. Typical
characteristics of FMCG products are: -
1. The products often cater to 3 very distinct but usually wanted for aspects necessity, comfort, luxury. They meet the demands of the entire cross section
of population. Price and income elasticity of demand varies across products
and consumers.
2. Individual items are of small value (small SKU's) although all FMCG
products put together account for a significant part of the consumer's budget.
3. The consumer spends little time on the purchase decision. He seldom ever
looks at the technical specifications. Brand loyalties or recommendations of
reliable retailer/ dealer drive purchase decisions.
4. Limited inventory of these products (many of which are perishable) are kept
by consumer and prefers to purchase them frequently, as and when required.
5. Brand switching is often induced by heavy advertisement, recommendation
of the retailer or word of mouth.
DESIGN AND MANUFACTURING
Markets all over the world have been on a roll in 2003 and the Indian bourses are
no exception having gained almost 60% in 2003. During this period, while there
are sectors that have outperformed this benchmark index, there are also sectors that
have under performed. FMCG registered gains of just 33% on the BSE FMCG
Index last year. At the macro level, Indian economy is poised to remained buoyant
and grow at more than 7%. The economic growth would impact large proportions
of the population thus leading to more money in the hands of the consumer.
Changes in demographic composition of the population and thus the market would
also continue to impact the FMCG industry. Recent survey conducted by a leading
business weekly, approximately 47 per cent of India's 1 + billion people were
under the age of 20, and teenagers among them numbered about 160 million.
Together, they wielded INR 14000 Cr worth of discretionary income, and their
families spent an additional INR 18500 Cr on them every year. By 2015, Indians
under 20 are estimated to make up 55% of the population - and wield
proportionately higher spending power. Means, companies that are able to
influence and excite such consumers would be those that win in the market place.
The Indian FMCG market has been divided for a long time between the organized
sector and the unorganized sector. While the latter has been crowded by a large
number of local players, competing on margins, the former has varied between a
two-player-scenario to a multi-player one.
Unlike the U.S. market for fast moving consumer goods (FMCG), which is
dominated by a handful of global players, India'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 India presents tremendous challenges. Take distribution as an example.
India is home to six million retail outlets and super markets virtually do not exist.
This makes logistics particularly for new players extremely difficult. Other
challenges of similar magnitude exist across the FMCG supply chain. The fact is
that FMCG is a structurally unattractive industry in which to participate. Even so,
the opportunity keeps FMCG makers trying.
the whole sector. When we come on to FMCG Sector main strategies lay behind
market strategies, cost, and quality strategies. Here in this report you are going
to get information about such type of strategies of FMCG giants.
RELATED TO TWO COMPANIES HUL & ITC
HUL (Hindustan Unilever Ltd.)
HUL & ITC are major companies in FMCG market in India. When we compare
both companies on the basis of their strategies i.e. , their competitive strategies in
the present market. When we look at the present segment breakup for both of the
companies then we came to know that their different products vary too much in the
market.
HUL
Hindustan Unilever (HUL) is the
ITC
portfolios of products sold via a strong business. It is diversifying into nondistribution channel. It owns and
track. In the past three years, till 2008 business contributes 40% to its
HULs net sales have witnessed a
It's been almost five years since these three FMCG giants opted to manage their
brand portfolios on the basis of the power brand strategy. How have they fared?
And what does the future hold?
slowdown. Its Operation Bharat that focused on personal care products made the
most out of surging rural incomes. The result was there for all to see. The company
has been able to clock in double-digit profits every three years and log in doubledigit revenues every four years. Britannia with its Tiger brand of biscuits and
Colgate-Palmolive with its low-priced and conveniently-packaged products
designed for the rural masses have been other pioneers in rural marketing.
DISTRIBUTION
One of the age-old problems that FMCG has been facing not only in India but
globally is that of distribution. Integrating operations with your distributors and
channel partners is a Herculean task. Few ways to reduce pain involved in this link:
Tough market situations and a more aware and savvier demanding consumer have
necessitated that yesterday's Brand Managers be transformed into Business
Managers who understand consumers and can innovate and be flexible to move
with the consumer. Gone are the days when brands could be made to gallop with a
big budget media plan, a generous dose of below-the-line and above-the-line
activities and constant promotions and schemes in the market. Consumers who
have become demanding yet inscrutable in terms of attitudes, outlook, moods and
behavior have rendered conventional Brand Management tools obsolete.
REFERENCE
http://www.coolavenues.com/know/mktg/competitive-strategies-2.php
http://www.rediff.com/money/2005/nov/15spec.htm
www.hll.com
www.itc.com
www.insightory.com
www.oppapers.com
http://www.indianmba.com/Faculty_Column/FC448/fc448.html