RESEARCH PROJECT

on

SUPPLY AND DEMAND ANALYSIS OF

FMCG PRODUCT

Submitted to

MAHARASHTRA NATIONAL LAW

UNIVERSITY, AURANGABAD
Submitted by

AUVESH KHAN

B.BA.LL.B. (Hons.) Semester-2nd

Roll No. 2022/BBALLB/83

Paper: Business Economics and Mathematics

Under the guidance of

Dr. Kumar Saurabh

Assistant Professor of Management,

Maharashtra National Law University,

Aurangabad

April 2023

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 DECLARATION
I AUVESH KHAN (2022/BBALLB/83) student of Maharashtra
National Law University Aurangabad, hereby declare that the
project report on “SUPPLY AND DEMAND ANALYSIS OF
FMCG PRODUCT” is an original and authenticated work done
by me.

I further declare that it has not been submitted elsewhere.

RESEARCHER

AUVESH KHAN

2
 INDEX
Sr.No. Name of Chapter Page No.

1. ABSTRACT 4

2. INTRODUCTION 5-6

3. 7
OBJECTIVES

4. 8
DATA COLLECTION AND
ANALYSIS

5. 9-11
FINDINGS

6. 12-14
ANALYSIS OF FINDINGS

7. 15
CONCLUSION

8. 16
REFERENCES

3
 ABSTRACT
FMCG product touches every aspect of human life. These products are
frequently consumed by all sections of the society and a considerable portion
of their income is spent on these goods. Apart from this, the sector is one of
the important contributors of the Indian economy. This sector has shown an
extraordinary growth over past few years, in fact it has registered growth
during recession period also. The future for FMCG sector is very promising
due to its inherent capacity and favorable changes in the environment. This
paper discusses on Supply and demand analysis of FMCG product.

Keywords: FMCG brands, FMCG sector, supply of FMCG, demand of

FMCG.

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 INTRODUCTION

The nature of fast-moving consumer goods (FMCG) prompts the marketers to

come up with new promotional strategies every day. While businesses cannot
survive without product promotional strategies it is important to understand
the factors that lure customers towards purchasing a certain brand that is
highly differentiated. Even though the presentation of messages and the nature
of packaging play a great role in how consumers perceive these products, the
factors of demand and supply play a critical role in determining the purchasing
behavior. This research shall specifically examine the factors that determine
how consumers perceive the trends in FMCGs. It shall also examine the
elements that motivate suppliers to bring their products to the markets.

The Fast-Moving Consumer Goods (FMCG) sector is the key contributor of

the Indian economy. This fourth largest sector of Indian economy provides
employment to around 3 million people which accounts for approximately 5%
of the total factory employment in the country. These products are daily
consumed by each and every stratum of the society irrespective of social class,
income group, age group etc. FMCG sector is more lucrative because of low
penetration levels, well established distribution network, low operating cost,
lower per capita consumption, large consumer base and simple manufacturing
processes for most of products resulting in fairly low capital investments.

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The industry is highly competitive due to presence of multinational companies,
domestic companies and unorganized sector. A major portion of the market is
captured by unorganized players selling unbranded and unpackaged products.
More than 50 per cent of the total revenues of FMCG companies come from
products worth Rs 10 or le This has made the proliferation of localized brands
which are offered in loose form in small towns and rural part where brand
awareness is low. In last 10 years domestic players are giving tough
competition to multinationals; in fact they have outstripped many MNCs in
growth and market cap. Between 2005- 2014 the profit of domestic companies
increased by 24% against 14%increase of multinational companies.

Urban India accounts for 66% of total FMCG consumption, while rural India
accounts for the remaining 34%. However, rural India accounts for more than
40% of the consumption in major FMCG categories such as personal care,
fabric care and hot beverages. As per the analysis by ASSOCHAM, companies
like Hindustan Unilever Ltd and Dabur India generate half of their sales from
rural India while Colgate Palmolive India and Marico constitute nearly 37%
respectively.

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 OBJECTIVES

Statement: The research emanates from the argument that fast-moving

consumer goods exist in a perfect competition kind of environment and as
such the suppliers are price takers.

Thus, the study pursued the following objectives.

 Identify the factors that determine the demand for fast-moving consumers
goods.

 Establish the elements that determine the changes in the supply of FMCGs.

 Examine the importance of these demand and supply elements to the marketer.

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 DATA COLLECTION AND ANALYSIS

To establish the factors that determine the demand and supply of fast-moving
consumer goods the researcher designed a questionnaire where consumers
were supposed to list the factors that determine their purchase behavior for
these daily products such as toiletries, beverages, tooth paste over the counter
drugs among others. Additionally, suppliers were given a different
questionnaire where they were also asked to provide the factors that motivate
them to take their products to the market. The respondents were also allowed
to give explanations where necessary. The sample of the respondents were
picked using random sampling method. The study thus had 30 consumers and
30 suppliers.

Since, the sampled respondent from 25 states after which the researcher
forwarded an online questionnaire to the participants who had accepted to
participate in this research. All the respondents returned their duly filled forms.
The collected data was analyzed using the excel spreadsheet tool and the
output presented in form of graphs and tables.

The research design employed in this study had some limitations that would
otherwise affect the conclusions that the researcher arrived at after the
analysis. Firstly, the sample study was small and therefore it may not be
optimally representative. Secondly, the time frame within which the results
were obtained was quite short yet the market conditions are quite dynamic.
The fact that the survey was conducted through an online platform it lacked
the personal touch where the respondents could clarify some of their reasons.
Nevertheless, the study ensured that it gets opinions from respondents in
different locations within the United States.

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 FINDINGS

The study collected data from adults who frequently purchase fast-moving
goods as well as the sellers who were classified as suppliers. In total, the
respondents were 60 comprising 36 women and 24 women. The consumers
were 18 women and 12 men. Supplies, on the other hand, were 12 women and
18 men.

Table 1: Number of Participants

Gender Supplies Consumer

Male 18 12

Female 12 18

Total 30 30

FACTORS DETERMINING DEMAND

The consumers were required to list the factors that motivate them to choose or
stick to a certain brand of any fast-moving product. 26 respondents
representing 88.7% listed price as the biggest factor that determine their choice
of product A over B. 18 respondents felt that the income, they earn would
determine the frequency and the quantity that they purchase. Twenty-three
consumers also noted that the availability of other products with the same uses
often determined their purchase behavior especially when there were price
changes. 19 participants further stated that the packaging and the frequency of
advertisement would often lure them towards certain products. Fifteen

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consumers also listed their tastes as an important factor when purchasing some
items such as soap, milk, toothpaste because they preferred certain flavors. As
such, they would still purchase these products even when the prices changed.

Table 2: Factors Determining Demand of FMCGs

Factor Respondents

Price 26

Income 18

Availability of substitutes 23

Advertisements 19

Tastes and Preferences 15

FACTORS DETERMINING THE SUPPLY OF FMCGS

The suppliers were also requested to outline the factors that motivate to sell
their products. All the suppliers stated that price was a major factor only that
they had little control over the price since the products were highly
differentiated. While the price was a major determinant, they were forced to
match their prices to the relative market price. 29 participants listed the cost of
production or obtaining the products as the core factor. Another 20 listed the
cost of transportation as a major determinant. The nature of the population also
determined the kind of FMCGs that these suppliers brought to the market. This
factor was listed by 17 respondents. 12 respondents felt that the government
policies also affected the goods that they brought to the market citing
examples of over-the-counter drugs. 14 respondents pointed out the prices of
related products as a determinant in their effort to supply their goods to the

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market.

Table 3: Factors determining the Supply of FMCGs

Factor Respondents

Production cost 29

Transport cost 20

Population Orientation 17

Price of Substitutes 14

Government Policies 12

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 ANALYSIS OF FINDINGS

In this research, the respondents were not restricted to specific factors and as
such, they were allowed to use their own words to describe the factors they
thought determined why they made a purchase or decided to make a sale.
Farmer (2013) defines fast-moving consumer goods as those products that are
purchased quite often or sold frequently at low prices. They include items such
as packed food, toiletries, body lotions and beverages among others. While
these products are not classified as necessities because human beings can
survive without them, modern households have made relatively necessary. The
products are sold by many firms who simply attempt to differentiate them
through packaging, and various flavors. Consequently, these products cannot
be classified as purely normal goods and neither are they fully inferior goods.

However, the demand for these products is affected by changes in price as the
respondents in this research stated. Additionally, the incomes of the consumers
would affect the quantity purchased per cycle. For instance, low-income
earners may not purchase expensive perfumes and body lotions. They will opt
for cheap products as long as they satisfy their need to “smell nice.” Thus, the
availability of substitutes come in as a strong factor for the sellers. Consumers
who are not restricted by the prices and income will, however, focus on their
tastes preferences as a determinant of which product to purchase.

The responses from the suppliers affirmed the fact that they have limited
control over the price of the FMNGs. Nonetheless, some companies have set
the price limits of these products making it difficult for new entrants to set
higher prices. A majority of the suppliers pointed out the cost of factors of
production as a determinant of the quantity they bring to the market.
Generally, an increase in the factors of production forces the suppliers to pass

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the cost to the consumers through pricing. Therefore, when the factor cost is
quite high, they reduce the profits that the firms make especially in a highly
competitive market.

The research thus established that the fast-moving consumer goods market in
the United States somewhat operates in a perfect competition environment.
According to Becker, this market is characterized by many buyers and many
sellers. As such the suppliers are price takers while the sellers are price takers.
The market also has no barriers to entry and exit. As such firms can only
maximize their output at the point where the marginal revenue is equal to
marginal cost. Firms that attempt to sell their products at a price above P1 shall
incur losses and hence they will exit the market.

Perfect Competition Market Structure

Unfortunately, the perfect market model is an ideal situation that was created
by economists that may not exist in the normal world. Firstly, there is a
component of the perfect flow of information and no transport costs. While the
Americans have access to the components that provide them with information
about the prices of various products in different states, the transport costs will
always hinder perfect transference of these items. Moreover, another
assumption of an ideal perfectly competitive market states that firms produce
and sell homogeneous products. As observed in this case, the FMCGs market
is highly differentiated. Each firm has its way of being unique even though the
items being sold are either substitutes or complementary products. Lastly, the
FMNGs market has price leaders who have set the pace, especially on pricing.
Besides, consumers have the autonomy to choose the kind of goods that they
purchase.

Rationale and the Implication to the Marketing Departments

The researcher while conducting the survey did not request the suppliers to
state the size of their firms or their pricing policy. Since the majority of the
suppliers stated that they could not set their unique price revealed that no
supplier was a price leader. The research thus dismisses the assumption

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fronted in the thesis statement that Fast-moving consumer goods should be
categorized in perfect competition. On the contrary, the market structure for
the FMCGs is monopolistic in nature. Firstly, there are many buyers and
sellers in this market just as is the case with perfect competition. The price
leaders can increase the prices marginally and the consumers have the freedom
to choose the products that will satisfy their needs.

Resultantly, individuals promoting first moving consumer goods should not be

afraid to popularize their items. One of the components that came out from the
survey that affect the behavior of the consumer was an advertisement.
Therefore, marketers should continue being as unique and creating lasting
impressions in the minds of the consumers. The uniqueness of the product can
even allow them to set a unique market price.

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 CONCLUSION

The research was prompted by a belief that the first moving consumer goods
operate in a perfectly competitive market structure. Consequently, the research
sought to establish the factors that determine demand and supply in the
FMCGs market. The survey revealed that price affected demand, price of
substitutes, tastes and preferences as well as the income of the consumers. The
suppliers on their part stated that government policy, factor costs and the
constitution of the population affected the quantity of the products that they
brought to the market. Additionally, the researcher noted that the FMCGs
market was highly differentiated and that consumers could make a choice of
what they want to purchase. It thus concluded that this market structure is
monopolistic and not a perfect market.

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 REFERENCES

 Becker, G. S. (2017). Economic theory. Routledge.

 Farmer, N. (Ed.). (2013). Trends in packaging of food, beverages and other

fast-moving consumer goods (FMCG): markets, materials and technologies.
Elsevier.

 Manders, J. H., Caniëls, M. C., & Paul, W. T. (2016). Exploring supply chain
flexibility in a FMCG food supply chain. Journal of Purchasing and Supply
Management, 22(3), 181-195.

 https://www.onlinemanipal.com/blogs/how-supply-chain-helps-fmcg-
industry

 https://www.ukessays.com/assignments/factors-that-determine-the-
demand-and-supply-of-fast-moving-consumer-goods-2021.php

 https://www.maersk.com/industry-sectors/fmcg

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