Paper-203(Corporate

Planning and
Strategic HRM)

FMCG Industry- A brief

analysis by Porter’s five
Factor Model
Presented by:
Asmita Paul(06) Ayush Agarwal(07) Debkumar Mazumder(08) Dipanwita Sarkar(09)
Jyotishko Sen Sharma(10)
Contents
 FMCG at a glance
➢ Fast moving consumer goods (FMCG) is the fourth largest sector in the
Indian economy. There are three main segments in the sector

✓ food and beverages, which accounts for 19% of the sector;

✓ healthcare, which accounts for 31% of the share; and
✓ household and personal care, which accounts for the remaining 50% share.

➢ The Retail Market in India is estimated to reach US$ 1.1 trillion by 2020 from
US$ 840 billion in 2017, with modern trade expected to grow at 20 25% per
annum, which is likely to boost revenue of FMCG companies. Revenue of FMCG
sector reached Rs. 3.4 lakh crore (US$ 52.75 billion) in FY18 and is estimated to
reach US$ 103.7 billion in 2020. FMCG market is expected to grow at 9-10% in
2020.

➢ Rise in rural consumption will drive the FMCG market. It contributes around
36% to the overall FMCG spending. In the third quarter of FY20 in rural India,
FMCG witnessed a double-digit growth recovery of 10.6% due to various
government initiatives (such as packaged staples and hygiene categories); high
agricultural produce, reverse migration and a lower unemployment rate.
Five Factor Model of Porter

Potential
Entrants

Threat of new entrants

Bargaining power
of suppliers Bargaining power
Industry of buyers
Competitors
Suppliers
Buyers
Rivalry Among
Existing Firms

Threat of
substitute products
or services

Substitutes
 Intensity of rivalry among existing competitors

❖ Numerous or Equally Balanced Competitors: We find that the rivalry is very

high in this particular industry as every company wants to increase the
market share in the economy.

❖ Slow Industry Growth: As the industry is going slow, the new non
users are not being able to get converted into consumers, so there
is an extremely form of rivalry among the existing companies in the
Source: Kantar
industry.

❖ High Fixed or Storage Costs: The companies make sure that their products
are sold the earliest in order to reduce or recover the high warehousing or
storage cost. Hence, this constant competition leads to higher rivalry
among the existing players.
❖ Differential cost and switching cost: Sometimes it is observed that
the differentiation and switching cost is present where by the brand
loyal customers are present and there is low intensity of rivalry
however in certain cases it is observed that switching cost is easily
available and the consumers move from one product to the other
going to either lower cost of the same product.

❖ Capacity Augmented in Large Increments: There is a very high level

of competition among the existing players.
❖ High Strategic Stakes: Some of the companies which are fully into
the FMCG industry, their stake is very high hence there is a very high
level of competition with its competitors. Some companies who do
not have full stake in the FMCG and have other business to fall back
upon other than the FMCG alone, their stake is lower thereby
competition is low for these companies.

❖ High Exit Barriers: It is observed that in the FMCG industry there is not
much barriers for either entry or exit hence the competitors can easily
come in all leave the industry.
 Barriers to entry

❑ Product Differentiation : (Unique selling point)

✓ Dant Kanti focuses on herbal ingredients
✓ Most of the colgate toothpastes are fluoride based
✓ Patanjali, which challenged the multinational’s dominance of the
segment with its Dant Kanti toothpaste, grew share by 150 bps to 8.6%
compared with a year ago.
✓ With a fourth of India’s toothpaste market being herbal now, Colgate is
trying to be on a strong footing with a changing toothpaste portfolio and
has been competing with Ved Shakti since past few quarters

❑ Government Initiatives
✓ On November 11, 2020, Union Cabinet approved the production-linked incentive
(PLI) scheme to boost India’s manufacturing capabilities, exports and promote the
‘Atmanirbhar Bharat’ initiative.

✓ GST reduced to 18% from 24% for daily essentials and 5% from 12% for food and
hygiene products

✓ The Government of India has approved 100% FDI

✓ Also drafted a new Consumer Protection Bill

❑Capital Requirement:
❑Switching Cost:
 PRESSURE FROM SUBSTITUTE PRODUCTS

➢ Advantageous price performance trade-off with industry’s

product

• Strategic decisions like price point and quality play key roles in attracting
consumers. With narrow product differentiation under many brands, it’s
rather easy for a consumer to switch to another brand.

• The price level mass products such as Fast Moving Consumer Goods
(FMCG) is relatively different comparing to competing products in the
market .

• The price level of new products should be cheaper or equal as compared to

the prices of the established competitor’s products.

• only 12% of consumer brands have a winning pricing strategy.

• Price performance plays an important role in FMCG industry by

– Is a simplified best value source selection strategy
– Permits trade-off between price and performance in reaching award
decision
• The market share of Nestle's Maggi noodles has shrunk by almost half.
The share of Maggi dropped to 42% from a high of 77% in the year-ago
month in June 2015.
• ITC Foods' Sunfeast Yippee brand of instant noodles is a up with a 33%
market share on June 2015 .
• Nestle India's instant noodles brand Maggi has attained over 70 per cent
market share and almost touched the pre-crisis level in value terms on
April 2020.

The company reported a 11 per cent profit rise for the June 2020 quarter
at Rs 486.6 crore, with total sales at Rs 921.5 crore.

• ITC Foods' Sunfeast Yippee brand of instant noodles attained 18%

market share.
Profit rises for yippee is 5.5% to Rs 351.8 crore, with total sales at Rs.
232.2 cr on April 2020.
 ➢ Substitutes industries earning high profits

• Britannia Industries is one of the most trusted India’s leading Top FMCG
Companies with a 100-year legacy.

• Market Cap: 75,893 Cr.

• ROE: 30.25 %

• Sales Growth (3Yrs): 9.60 %

• Britannia Industries clocked 21% growth in its consolidated net profit at Rs

1,402.63 crore for the full financial year ended March 31, 2020.

• The sales turnover for FY19 is 10482.45 crore and for the FY20 is 10986.68
which is 4.80%.

• Bisk Farm is a brand which is owned by SAJ Food Products (P) Ltd, a part of
the Aparna Group of Companies headquartered in the city of Kolkata and
was founded on 2000, controls 15% of market share in East India.
Key financial indicators FY2019 (Audited) FY2020 (Audited)
Operating Income (Rs. crore) 969.78 860.28
PAT (Rs. crore) 6.28 2.28

The turnover has reached 1500cr for the year ended March, 2020.
 Bargaining Power of Suppliers

➢ It is dominated by a few companies and is more concentrated than the

industry it sells to
The bargaining power is higher for the supplier group in this case.

➢ Availability of Substitutes
In the FMCG industry, the bargaining power of suppliers of raw materials
and intermediate goods is not very high because there are ample
number of substitute suppliers available. The availability of substitute is
really high in FMCG sector. Buyers have a choice to approach an
alternative supplier, this way even large and powerful suppliers can be
kept under check.

➢ The industry is not an important customer of the supplier group

Here the bargaining power of the supplier group will be low as the
industry is not an important customer and can survive very well without
the supplier’s products.
➢ The supplier product is an important input to the buyer's business
A company such as Unilever has large suppliers like foreign firms but the
average supplier is moderate in size. This external factor imposes a moderate
intensity force on the consumer goods industry environment. In addition, the
moderate population of suppliers enables them to impose significant but limited
influence on firms like Unilever.

➢ The supplier group's products are differentiated or it has built up switching

costs.
The bargaining power of the supply group will be higher if their product is
unique. Buyers will look forward to buy it and they can dictate the terms.

➢ The supplier group poses a credible threat of forward integration.

When this is true, the suppliers have immense bargaining power. They can
remove all intermediaries down the supply chain and acquire retail outlets.
 Bargaining power of buyers

❑ It is concentrated or purchases large volumes relative to seller sales

✓ If a large portion of sales is purchased by a given buyer this raises the
importance of the buyer's business in results.

❑ The products it purchases from the industry are standard or

undifferentiated
✓ Buyers, if find alternative suppliers, may opt for the other unless
the products stands out.

❑ It faces few switching costs.

✓ If there are many alternative suppliers available, the cost of switching
is low. So, buyer’s power would be high.

➢ Amul Federation has achieved a Compound Annual Growth Rate (CAGR) of

more than 17% since last 10 years because of higher milk procurement,
continuous expansion in terms of adding new markets, launching of new
products and adding new milk processing capacities across India.

➢ Like Amul, Mother Dairy is also focusing on innovative products to woo

consumers. over the years. Today, Mother Dairy manufactures, markets & sells
milk and milk products including cultured products, ice creams, paneer and
ghee under the Mother Dairy brand.
 ❑ The products it purchases from the industry represent a significant
fraction of the buyer's costs or purchases
✓ If a buyer is able to get similar products/services from other suppliers,
buyers depend less on a particular supplier. Therefore, the power of the
buyer would be greater.

❑ Buyers pose a credible threat of backward integration

✓ If buyers either are partially integrated or pose a credible threat of backward
integration, they are in a position to demand bargaining concession.

❑ The buyer has full information

✓ Where the buyer has full information about demand, actual market prices,
and even supplier costs, this usually yields the buyer greater bargaining
power.

➢ Powai was the first tea estate in the area. It later grew to be one of the three
largest tea-producing estates of the TATA group in North India. The estate
is now ensconced between Powai reserve on one side and Dehing reserve
forest, on the other.

➢ Sustained efforts over the years bore a handsome fruit in 2013 when, the
tea estate listed its highest produce of tea and crops that constitute its
Agri Business.
Thank You