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 theorganized sector and the unorganized sector. While the latter has beencrowded by a large number of local players, competing on margins, theformer 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. At the macro-level, over the long term, the efforts on the infrastructure front (roads, rails, power,river linking) are likely to enhance the living standards across India. Till date, India's per capitaconsumption of most FMCG products is much below world averages. This is the latent potentialthat most FMCG companies are looking at. Even in the much-penetrated categories like oaps/detergents companies are focusing on getting the consumer up the value chain. Going forward, much of the battle will be fought on sophisticated distribution strengths. Structural Analysis Of FMCG Industry

necessity. as and when required.Brand switching is often induced by heavy advertisement.The products often cater to 3 very distinct but usually wanted for aspects . toilet soaps. Structural Analysis Of FMCG Industry Typically. a consumer buys these goods at least once a month. a consumer buys these goods at least once a month.Major factors which distinguish this sector from other are as following: soaps/detergents companies are focusing on getting the consumer up the value chain. Typical characteristics of FMCG products are: 1.The products often cater to 3 very distinct but usually wanted for aspects . He seldom ever looks at thetechnical specifications. comfort. beverages. Distinguishing features of Indian FMCG Business FMCG companies sell their products directlAy to consumers. 2. beverages. luxury. 3.Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently.The consumer spends little time on the purchase decision. toilet soaps. They meet the demands of the entire cross section of population. toothpaste.The consumer spends little time on the purchase decision. Brand loyalties or recommendations of reliable retailer/ dealerdrive purchase decisions.Typically. Brand loyalties or recommendations of reliable retailer/ dealerdrive purchase decisions. shampoos. recommendation of the retailer or word of mouth. shampoos. Typical characteristics of FMCG products are: 1. and cigarettes. powders. creams. 4. comfort. Price and income elasticity of demand varies across products and consumers.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. and cigarettes. food products. creams. 3. much of the battle will be fought on sophisticated distribution strengths. Price and income elasticity of demand varies across products and consumers. confectioneries. confectioneries.necessity. . The sector covers a wide gamut of products such as detergents.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. luxury. as and when required. 5. powders.Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently. toothpaste. The sector covers a wide gamut of products such as detergents. Going forward. 4. They meet the demands of the entire cross section of population. food products. He seldom ever looks at thetechnical specifications. 2.

Competition 1. TV reaches 67% of urban consumers and 35% of rural consumers.Factors that enable small. and maintain a robust distribution networkPart . It also makes new product launches difficult since retailers are reluctant to allocate resources and time to slow moving products. and (3) logistics . advertisement expenditure varies from 5 . (2) flexibility in controlling labor costs.The challenge associated with the launch and/or brandbuilding initiatives is that few no mass media options. Critical factors for success are the ability to build. Major features of the marketing function include the following: 1.IV 3. special packaging and consumer promotions become an expensive but required activity associated with a successful FMCG. theatres. test marketing and launch.III 1. Super markets virtually do not exist in India.sometimes its essential to get certain products manufactured near the market. 2.India is home to six million retail outlets. Creating awarenessand develop franchise for a new brand requires enormous initial expenditure on launchadvertisements. recommendation of the retailer or word of mouth. 3.000 villages. Launch costs are as high as 50- 100% of revenue in the first year.Significant Presence of Unorganized Sector .12% depending on the categories. develop.Basic technology for manufacturing is easily available. For established brands. sales tax .Brand switching is often induced by heavy advertisement. 3.Low Capital Intensity . Major features that distinguish this sector from the others include the following: -Part .160 towns and four million in 627. the business has low working capital intensity as bulk of sales from manufacturing take place on a cash basis. Alternatives like wall paintings. Modifications and improvements rarely change the basic process. technology for most products has been fairly stable. including 2 million in 5. Marketing and Distribution Marketing function is sacrosanct in case of FMCG companies. 2.Technology .5. Also.Limited Mass Media Options .New products require a large front-ended investment in product development.Manufacturing of products by third party vendors is quite common.Huge Distribution Network .Third-party Manufacturing . This makes logistics particularly for new players extremely difficult. free samples and product promotions. Also.Most product categories in FMCG require relatively minor investment in plan and machinery and other fixed assets. unorganized players with local presence to flourish include the following: 2. market research.Basic technology for most products is fairly simple and easily available. Design and Manufacturing 1. video vehicles. Benefits associated with third party manufacturing include (1) flexibility in production and inventory planning. Distinguishing features of Indian FMCG Business FMCG companies sell their products directly to consumers. 3.High Initial Launch Cost .The small-scale sector in India enjoys exemption/ lower rates of excise duty. 2.

family management. Entry barriers are high due the nightmare logistics associated with distributing a FMCG and the limited mass media options available to build a brand. This makes them more price competitive vis-à-vis the organized sector.A highly scattered market and poor transport infrastructure limits tahe ability of MNCs and national players to reach out to remote rural areas and small towns.Low brand awareness enables local players to market their spurious look-alike brands. 6. the intensity of competition from branded and unbranded goods and the power of retailers make the FMCG a structurally unattractive industry . A general assessment of this would lead to the conclusion that FMCG is not a Structurally Attractive Industry to Enter. Likewise. 4. focused product lines and minimal expenditure on marketing.Lower overheads due to limited geography.etc. 5.