Risk Management of

FMCG Sector
 Overview Of FMCG
Sector

• Fast Moving Consumer Goods (FMCG) goods

are popularly named as consumer packaged
goods.
• The volume of money circulated in the
economy against FMCG products is very high,
as the number of products the consumer use
is very high.
• Competition in the FMCG sector is very high
resulting in high pressure on margins.
 FMCG Sector

• The market is more pressurized with presence of

local players in rural areas and state brands.
• Companies spend a large portion of their budget on
maintaining distribution networks.
• Fast Moving Consumer Goods, which refer to things
that we buy from local supermarkets on daily basis,
the things that have high turnover and are relatively
cheaper.
• The Indian FMCG sector with a market size of
US$13.1 billion is the fourth largest sector in the
economy
 Top 10 FMCG Companies
3 2
4

10
7
6

8
1 5
 Characteristics Of
FMCG

• From the consumers' perspective:

– Frequent purchase
– Low involvement (little or no effort to choose the item --
products with strong brand loyalty are exceptions to this
rule)
– Low price
• From the marketers' angle:
– High volumes
– Low margins
– Extensive distribution networks
– High stock turnover
 Growth Prospect

• Large Market

• Spending Pattern

• Changing Profile and Mind Set of

Consumer
 Advantages To The
Sector

• Governmental Policy

• Central & State Initiatives

• Foreign Direct Investment (FDI)

 STRENGTHS
- Low operational costs
- Presence of established
distribution networks in
both urban and rural areas
- Presence of well-known
brands in FMCG sector
- Untapped rural market
- Rising income levels, i.e.
increase in purchasing power
of consumers
- Large domestic market- a
population of over one billion.
- Export potential
- High consumer goods
spending
OPPORTUNITIES
WEAKNESS
- Lower scope of
investing in technology
and achieving
economies of scale,
- Low exports levels
- "Me-too" products,
- Removal of import
restrictions resulting in
replacing of domestic
brands
- Slowdown in rural
demand
- Tax and regulatory
structure
THREATS

Political (incl. Legal)
Environmental regulations and
protection
Tax policies
International trade regulations
and restrictions
Contract enforcement law
Consumer protection
Employment laws
Government organization
attitude
Competition regulation
Political Stability
Safety regulations
PEST Analysis
Economic Social Technological
Government research
Economic growth Income distribution
spending
Interest rates & monetary Demographics, Population Industry focus on
policies growth rates, Age distribution technological effort
New inventions and
Government spending Labor / social mobility
development
Unemployment policy Lifestyle changes Rate of technology transfer
Work/career and leisure
Life cycle and speed of
Taxation attitudes
technological obsolescence
Entrepreneurial spirit
Exchange rates Education Energy use and costs
(Changes in) Information
Inflation rates Fashion, hypes
Technology
Health consciousness &
Stage of the business cycle (Changes in) Internet
welfare, feelings on safety
(Changes in) Mobile
Consumer confidence Living conditions
Technology
 Structural Analysis

• Price and income elasticity of demand varies across products and

consumers.
• Individual items are of small value (small SKU's) although all FMCG
3 Important products put together account for a significant part of the
Aspects: consumer's budget.
• The consumer spends little time on the purchase decision.
• Brand loyalties or recommendations of reliable retailer/ dealer drive
- Necessity
purchase decisions.
- Comfort • Limited inventory of these products (many of which are perishable)
- Luxury are kept by consumer and prefers to purchase them frequently, as
and when required.
• Brand switching is often induced by heavy advertisement,
recommendation of the retailer or word of mouth.
Budget
 Risks in FMCG sector

• Due to cut throat competition there is severe pressure

on margin for the manufacturers of FMCG products.

• The rural and semi urban population is growing but the

problem faced by the FMCG manufacturers is the
logistics.

• Some problems associated with rural markets is acute

dependence on the vagaries of the monsoon, seasonal
consumption linked to harvests, festivals and special
occasions, poor roads and power problem.
 Risks in FMCG sector

• Once the product fails its not easy to revive it back.

• When the company launches a new product its

competitor will also launch the new product in the same
line, within the short span.

• Hopping from one product to another is too high , due to

very large pool of products. Customer Loyalty is big issue.

• Tolerance level in the customer satisfaction is quite

low , due to easy availability of other options.
 Hopping Nature
Customer Loyalty

Die Hard Switchers Fence Switchers Die Hard

Loyalist Sitters Opponent

The major issue with this sector is the 80% of the customers
are Fence Sitter. Hopping from one product to another is
too high , due to very large pool of products.
 Market Analysis
Growth

Size Distribution
Channels

Risk Profit
DISTRIBUTION CHANNEL
Introduction About
The Industry Players
COMPREHENSIVE RISK
MANAGEMENT SYSTEM
RISK MANAGEMENT
Risk Management At
AT
 Strategies At Dabur

• Cost
- Variable Costs
- Fixed Costs
• Competition
• Consumer demand
- The majority of Indian population tends to
go towards the Indianised natural and herbal
products thus they made it their USP.
 Risk identification
Chief Risk Officer
Risk Mitigation

A team of Risk officers at each

company location

Employees

Risk Register
 Risk Register

Human
Regulatory
Marketing Operations Finance Resource
Affairs
Development

The Risk Register is reviewed

periodically by senior management and
is presented to the Audit Committee on
a quarterly basis.
 Risk Analysis

• One of the key risks - rising inflationary trend and high food prices which can
lead to compression in demand for nonfood consumption activities.
• A poor monsoon, if it happens, can impact rural incomes and dampen rural
consumption and spends.
• Increase of imitation / fake products and brands can hamper our growth.
• Any unexpected changes in regulatory framework pertaining to fiscal benefits
and health related issues which may impact parts of our business or
profitability is one of risks faced by the company.
• A slowdown in overall economic growth can lead to pressure on disposable
incomes and spending power of people.
• The Company is well aware of these risks and challenges and has put in place
mechanisms to ensure that they are managed and mitigated with adequate
timely actions.
 Internal Control
Systems

• Standard Operating Procedures (SOPs)

• Introduced the COSO framework for
internal controls and adequacy of
internal audit.
• The Internal Audit Department reports
to the Audit Committee of the Board of
Directors, which recommends control
measure from time to time
THANK YOU