FMCG INDUSTRY

Valued at US$ 10 trillion Indian FMCG industry is expected to reach around US$ 15 trillion by
2025 with a CAGR of around 5.4%. (Source: EMIS). Fast Moving Consumer is one of the
largest industry dealing with categories like household and personal care. Rising youth
population and increase in brand recognition has aided to demand. Increase in disposable
income and rural household penetration shows a positive future for this sector. Rise in
consumption level will also drive this sector as it contributes around 36% of its total
revenue. Though urban sector is one of the largest contributor to FMCG’s revenue, the
industry has grown faster in rural India over past few years. Since, FMCG products have
demand throughout the year, it attracts a lot of investment. It witnessed around US$ 16.8
billion FDI between 2000-2020.

Rising population and increasing urbanisation is continuously driving economic growth in

our country. Around 68% rise in urban population in last two decades gave high rise in
disposable income. This led to increase in people’s inclination towards branded and
premium products. Increase in online business stores like Grofers, Amazon and rise of
numerous sales channels has made these FMCG products available to consumer at much
lower price level.

Government has also allowed 100%FDI in single brand retail and 51% in Multiple brand
retail. There has been a lot of key developments in these sector. Nestlé’s plan of investing
around 700 crore in for a new plant ,ITC investment of 700 crore in a food park in Madhya
Pradesh, HUL deal with Glenmark pharmaceuticals to acquire its VWash brand are few of
these. Reduction in GST on food products to 0-5 % and 12-18% on hygiene product is also
another important initiative as it is expected it will change logistic in FMCG sector.

PORTER ANALYSIS

Competitive rivalry

The competition in this industry is very high among different companies. The reason behind
is the availability of similar goods. Since, similar type of goods are provided by every
companies, a slight rise in price can shift your potential customers towards your
competition. Companies also need to maintain high storage and distribution channels to
outplay their Competitors.

Threats of New Entrants

It is difficult for a new entrant as one requires a strong distribution channels and wide
network to survive in this industry. Moreover the initial capital investment is also high.
Moreover, already existing companies with strong brand name makes it difficult for new
entrants to earn customer. However the labour cost is low and once if a new entrant is
available to find proper network and technology, they can establish themselves in this
industry.

Bargaining power of customers

Customers in FMCG Industry enjoy high bargaining power . Availability of substitutes and
similar goods gives customer a freedom to choose alternative if the price of goods increases.
Moreover, switching cost is also negligible as customers can easily shift towards competitors
product .

Bargaining power of Supplier

Threat of substitutes

There is a high threat of substitutes. Numerous brands provide similar kind of products and
there is very less product differentiation. Companies often involves themselves in price war
to gain consumers attention and to deal with their product substitutes .

PESTEL ANALYSIS

Political factor

It is an important factor for the stability of the FMCG business. Government taxes and policy
directly affects the input price which directly affects the final price of goods. Similarly
government subsidies helps in faster growth as companies funding from outside is reduced.
It reduces companies debt and the interest amount.

Economic Factors

FMCG industries success also depends on the national income the country, If National
income is high, consumers will have high disposable income and the demand for the goods
will increase. Similarly low National income might lead to lower demand for the products.

Social factors
Change in consumer’s social lifestyle and increase in consumerism has a positive effect on
FMCG industry. Since lot of options are available to consumers, they have the upper hand,
consumers can choose what product they need.

Technological Factors

Technological advancement helps companies to increase their level of production. In FMCG

industry advancement in technology helps companies to build effective distribution network
and making quality goods available to end customers in minimum time. Increase in online
shopping has made FMCG companies to hugely invest on technology, so that the can
maintain higher customer service all over the country.

Environmental Factors

Environmental factor plays an important role in FMCG industry to analyse the demand of
the product. Demand for Air conditioners increases in summer and to gain the maximum
profit, companies starts providing discounts and other incentives. Government has made a
lot of laws to ensure that companies carry out their business in environmental friendly
manner like proper waste disposable, less carbon emission techniques.

Legal Factors

It’s important for companies under FMCG industry to carry their business under the legal
framework for smooth flow of activities. Laws like employment law to provide employment
opportunity to local peoples, consumer protection law for consumer safeguard are some
important law that FMCG companies must keep in their mind.

CHALLENGES

Lack of infrastructure like poor roads. Ineffective supply chain, inefficient storage can
adversely affect the FMCG business. Companies need to proper analysis of availability of
these resources in different cities before setting up their plan. The process in very time
consuming and involves additional cost burden. Counterfeits good is another issue faced by
FMCG companies. This loss of sale is around 300billion rupees for FMCG sector every year. It
reduces higher control over distribution channels and timely screening of the process.