FMCG industry Essay
FMC industry BY boxes FMC Industry Introduction The fast moving consumer goods (FMC) sector is a large and important part of almost every economy in the world, insofar as the products associated with the industry represents a big part of every consumer budget. The goods produced by the industry are basically necessities and the inelastic nature of the goods makes their impact on economies worldwide significant. The FMC are sometimes referred to as consumer packaged goods and the various products are characterized by being sold quickly, in large quantities, and at low costs and include almost all consumables secularly bought by consumers.
The FMC industry consist of both a supplier side that manufactures the goods and a retail side such as wholesalers or supermarkets, that sell the products produced by the suppliers. The link between the manufacturers of FMC and the retailer side are logistics providers and intermediaries that constitute a smaller but significant part of the industry. Few industries rely more on efficient logistics systems than the FMC industry. In a modern economy, an efficient transportation system is of great importance and it can perhaps be considered especially important for FMC firms.
This is because most FMC firms would ideally want
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Being able to distribute your products widely in the market, making them accessible when and where a customer wishes to purchase it, is as a consequence highly important to FMC firms. The higher sales connected with intense distribution of FMC should of course increase profits in itself, and since it also leads to higher production it should also lead to better opportunities for economies of scale. This should then result in even higher profits.
As intense distribution is highly difficult, or at least expensive to attain in a market with poor infrastructure, profits should, all other things being equal, therefore be lower in such markets compared with comparable markets with better infrastructure. The negative effect of poor infrastructure on sales should especially be evident when it comes to a poor transportation system and to a lesser degree on for instance poor sanitation and communications infrastructure. This is simply because only the former influences distribution directly.
A consequence of this is that many FMC companies spend large amounts on maintaining and running distribution networks, either by homeless or with partners, in order to assure they have the necessary options for bringing their products to markets. The products in the FMC industry are by nature defined as bulk products, meaning they are produced and consequently sold in large directly downstream from the production company as well as the end user. This means that the consumers bargaining power goes down as they are not concentrated and buys in relatively small amounts compared to amounts produced.
Mainly this is true for FMC retailers and less for FMC suppliers, since the latter sells to the former to a large extend. As previously mentioned, a large part of the income of most households are set aside for FMC products since there are so many of the products that consumers use on a daily basis and which needs to be bought regularly. This results in a very high number of products being produced and consequently sold by the FMC industry at all times. The enormous sales in the FMC industry combined with relatively low entry barriers in many parts of the industry results in stiff competition and often low margins.
The FMC industry is largely dependent on macroeconomic factors such as oil prices, and this makes long term forecasts difficult ND often dangerous as the economic climate changes rapidly in this regard (Russia today 2007). This means that the industry can be very hard to predict at the moment, as the fluctuations in oil prices, inflation and spending power as well as most other significant variables tend to be prominent as the economic climate adjusts to the recent upheaval. This will make the situation on individual markets different both from each other but also from what the markets usually looks like.
FMC sector In India India is the world’s second largest nation by population after China and is the world’s arrest democracy. India has been among the world’s fastest growing economies in recent years with an average GAP growth of 9% for the last four years (CIA 2009) but has however felt the current downturn in the world economy following the financial crisis. Since a considerable part of the Indian GAP growth is driven by domestic consumption (Ads 2006), the effects of the economic crisis on India was initially expected to be limited.
However, the crisis caused a sharp decline in the Indian stock market followed by foreign institutional investors withdrawing funds. This drop in available venture capital from foreign investors led to greater demand for capital from the domestic market and eventually to soaring interest rates (Keenan 2009). This greater cost of capital put negative pressure on the output of the Indian economy. Indian’s GAP growth rate was thus significantly lower in the final quarter of 2008 compared to previous years at around 5. 3% (World Bank).
While this rate of growth is still relatively strong in a global perspective, it is not enough to sustain the current rate of employment in the country as the normal growth rate of India is likely to be higher than 5. 3%. This has also been confirmed by surveys in the country indicating significant Job losses recently (World Bank). The Indian government has sought to minimize the impact of the economic crisis on India by means of two stimulus packages totaling IIS$8 billion, which is less than loft the country’s GAP.
These have however widely been seen as insufficient to boost economic growth. In comparison, the Chinese government intends to spend in excess of IIS$ 586 billion in order to stimulate domestic demand (Candelabra et al 2009). The amount of FDA in India is estimated at $142. 9 billion in 2008, which is only slightly more than FDA in Denmark. Compared to the other BRICK countries, India is also lacking in foreign much and China more than five times as much FDA (CIA 2009). The Top ten FMC companies in India Hindustan Milliner Ltd. 6. Asian Paints (India) 2.
TIC (Indian Tobacco Company) 7. Academy India 3. Nestle India 8. Britannic Industries 4. GAMMA (MAUL) 9. Procter & Gamble Hygiene and Health Care 5. Dabber India 10. Marino Industries Major Segments of the FMC Industry The detergents segment is growing at an annual growth rate of 10 to 11 per cent during the past five years. The local and unrecognized players account for a major hare of the total volume of the detergent market. The preference is given to detergents in urban area compared to bars. Household care segment is featured by intense competition and high level of penetration.
With rapid arbitration, emergence of small pack size and sachets, the demand for the household care products is booming. In washing powder segment, HULL is the leader with -?38 per cent of market share. Other major players are Naira, Hinkle and Proctor & Gamble. 2. Personal Care Personal care segment includes personal wash products, hair care products, oral care products, cosmetics etc. The Indian skin care and cosmetics market is valued at $274 million and is dominated by HULL, Colgate Palmolive, Gillette India and Godard.
The coconut oil market accounts for 72 per cent share in the hair oil market. The hair care market can be segmented into hair oils, shampoos, hair coolants & conditioners, and hair gels. In the branded coconut hair oil market, Marino (with Parachute) and Dabber are the leading players. Sachet makes up to 40 per cent of the total shampoo sale. Again the market is dominated by HULL with around -?47 per cent market share; P occupies second position with market share of around -?23 per cent. Personal wash can be further segregated into three segments namely Premium, Economy and Popular.
Here also, HULL is the leader with market share of -?53 per cent; Godard occupies second position with market share of -?10 per cent. Swelling disposable incomes of the Indian consumers, growth in rural demand and upgrading to the premium products are the key drivers for future demand growth in major FMC categories. The skin care market is at a primary stage in India. With the change in life styles, increase in disposable incomes, greater product choice and availability, people are becoming more alert about personal grooming.
The major players in this segment are Hindustan Milliner with a market share of -?54 per cent, followed by Covariance with a market share of -?12 per cent and Godard with a market share of -?3 per cent. The oral care market can be segmented into toothpaste – 60 per cent; toothpaste – 23 per cent; toothbrushes – 17 per cent. This segment is dominated by Colgate- Palmolive with market share of -?49 per cent, while HULL occupies second position with market share of -?30 per cent. In toothpaste’s market, Colgate and Dabber are the major players.
This segment comprises of the food processing industry, health beverage industry, read and biscuits, chocolates & confectionery, Mineral Water and ice creams. The three largest consumed categories of packaged foods are packed tea, biscuits and soft drinks. Indian hot beverage market is a tea dominant market. The major share of tea market is dominated by unrecognized players. Leading branded tea players are HULL and Data Tea. Major players in food segment are HULL, TIC, Godard, Nestle and Maul.
Effects of Infrastructure On FMC Industry The current state of infrastructure in India makes the country a challenging environment or foreign firms in the market as well as for firms who are considering a raked entry. The Indian infrastructure is in general under pressure from the growing wealth and population in the country as development projects struggle to keep up with the rate of change. The poor infrastructure often cripples Indian and foreign businesses through the absence of adequate and consistent power supply, inadequate port capacity as well as an insufficient transportations system (Kumar 2007).
Another example of the struggle to keep up with the country’s growth can be witnessed in Indian’s airports, which are for most travelers the first impression they get of India when they arrive in the country. This first impression is rarely a particularly pleasant one as Indian’s airports are for the most part in appalling condition, but recent prevarication of the largest airports has led to heavy investment and as a result to great improvements in capacity and service (Cook 2009). Upgrading Indian’s airports to standards worthy of the world’s biggest democracy thus seems to be successful.
Unfortunately, other parts of the country’s infrastructure do not seem to be able to follow this success story. The Indian road network is thus in no respect comparable to western standards; or Chinese standards for that matter as they in imprison have in excess of 41,000 kilometers of expressways (CIA 2009). But with the amount of funds invested in Indian’s roads currently, and with constant improvements in the quality of Indian road vehicles, the efficiency of road transportation should improve significantly in the coming years.
It is however unsure whether the improvements are able to keep up with the rapidly increasing number of road vehicles in the country. India has 12 major seaports along their 7,000 kilometer coastline with the port of Kendal in the western corner of India currently handling the most cargo. The biggest seaport when it comes to container traffic is the ports of Iambi however, which handle around 58% of Indian’s container traffic (Indian Ports Association)As it is the case with other parts of the Indian infrastructure, the capacity of the Country’s ports is insufficient to cover demand efficiently.
The inefficiency of Indian ports does not stop with slow turnaround times however. When goods have been unloaded in India it takes an average of 21 days to clear the imported cargo, most likely due to time-consuming customs clearing, while the same is done in Singapore in Just three days (The Economist AAA). FMC firms importing perishable products compared to more efficient markets. Since India has a large urban population concentrated in very large cities, it is possible to reach a significant number of Indian consumers by entering a few major cities – what could be defined as market hotshots.
As these consumers can be reached by means of the country’s better developed roads and railways, it is possible to service a considerable market in India without the hassle of long haul transports to distant rural regions at less than 30 kilometers an hour. Firms hesitating to launch a full-scale market entry on the Indian market due to infrastructure concerns can thus perform a limited entry to the market in the country’s hotshots. Besides the challenges India faces with worn down and too small airports, seaports and transportation systems, the country have two additional problems relevant to foreign companies.
First of all, Indian’s overstressed power grid leads to power failures on a daily basis all around the country, sometimes hour long, and even in the most developed areas (Renounce 2009). The country suffers from a chronic shortage of electricity as new additions to the grid have failed to meet he increasing demand due to the high level of economic growth. The power shortages are expected to persist in the coming years (Trusted Sources 2009) and should therefore be taken into consideration before engaging in FDA in India.
Secondly, the availability of freshwater is expected to become a major problem in India in the not so distant future when industrial consumption rises and running water becomes accessible to the majority of the population. Water shortages are most likely to hit the poorest part of the population though while most businesses and their workers are unlikely to be affected. In industries where water consumption is especially high, the lack of a steady supply of freshwater may however become a problem. Some parts of the FMC industry are likely to be among companies with a significant need for good quality freshwater.