Industry few years the rate of growth for

Industry Analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table
of Contents

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Serial Number

Particulars

Page Number

 
1

 
Introduction

 
3

 
2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industry
Analysis: FMCG Industry

 Company Selected:

 

Introduction

 

About
FMCG Industry

Fast
moving consumer goods (FMCG) or consumer packaged goods (CPG) are products which
can be sold quickly and low cost at the same time. Many of the FMCG have short
shelf life because of high demand or high perishability. The profit margin on
the FMCG products is usually low but is sold in large volumes at the same time.
The profit, therefore, can still be significant on these products.

An
FMCG product touches every aspect of human life. These products are frequently
used by the Indian masses and they spend a considerable part of their income on
these products. This sector is also one of the important contributors to the
GDP of the Indian economy. Over the past few years, it has witnessed enormous
growth. So much so, that even in the period of recession the FMCG witnessed growth.

Burgeoning
Indian population, particularly in the middle class and rural areas coupled with
the growing awareness about these products in these areas is a huge opportunity
for the FMCG brands. In fact, since last few years the rate of growth for the industry
has been more in rural area when compared with the urban area.

 

Every
sector on focused on some growth drivers. Same is the case with FMCG sector. Following
are the growth drivers of the FMCG sector-

1.    Strong
Distribution Channel

2.    Evolving
consumer lifestyle

3.    Growth
of modern trade

4.    Growth
of Rural markets

5.    Rise
in personal disposable income

6.    New
Product Launches

7.    Government
policies to support FDI inflow

8.    Greater
awareness of brands, products

 

 

 

The
sector has its strengths, weaknesses, opportunities and threats, just like any other
sector, which are discussed below-

 

Strengths

1.    Lower
product cost help them to reach a wider population because more and more people
can purchase the product

2.    Presence
of well-known brands in the FMCG sector helps them to reach easily because of
the brand strength and brand pull

3.    High
volume transactions help them in their profits as the margins are usually low

 

 

Weaknesses

1.    Low
export levels to other countries reduce the scope of growth

2.    Low
scope of investing in technology and achieving economies of scale, especially in
small sectors can again slow down the growth

3.    The
production of counterfeit products can slow down the growth, especially in the
rural sector

 

 

Opportunities

1.    The
large untapped rural market can prove to be a game changer for the FMCG sector

2.    High
consumer goods spending

3.    If
the export is somehow increased or pushed, the growth can be significant

4.    The
population of India will always be an opportunity for any company or sector

5.    Social
media’s growing popularity can play a big role for the companies in the FMCG sector

 

 

 

Threats

1.    The
tax and regulatory structure can harm the FMCG sector

2.    The
growing levels of pollution can be a threat to the consumers of this sector because
it can push to consumers to incline towards organic products

 

 

 

 

 

 

 

 

Given
below is the CAGR of the FMCG industry from 2016 to 2020

 

 

About
Britannia

Britannia
Industries is one of India’s leading food companies with a 100 year legacy and annual
revenues in excess of Rs. 9000 Cr. Britannia is among the most trusted food brands,
and manufactures India’s favorite brands like Good Day, Tiger, NutriChoice, Milk
Bikis and Marie Gold which are household names in India. Britannia’s product portfolio
includes Biscuits, Bread, Cakes, Rusk, and Dairy products including Cheese, Beverages,
Milk and Yoghurt. Britannia is a brand which many generations of Indians have
grown up with and our brands are cherished and loved in India and the world over.
Britannia products are available across the country in close to 5 million retail
outlets and reach over 50% of Indian homes.

The
company’s Dairy business contributes close to 5 per cent of revenue and Britannia
dairy products directly reach 100,000 outlets.

Britannia
Bread is the largest brand in the organized bread market with an annual turnover
of over 1 lac tons in volume and Rs.450 crores in value. The business operates
with 13 factories and 4 franchisees selling close to 1 million loaves daily across
more than 100 cities and towns of India. The
company was established in 1892 with an investment of Rs. 265.

 

 

 

 

 

 

1. Industry and Competition

1.1
Market Size and Characteristics

·       
FMCG
is the 4th largest sector in the Indian Economy.

 

 

 

 

 

·       
There
are mainly 4 main segments into which
FMCG can be divided which are –

 

Food and Beverages – 19% of the market share

 

This
segment includes health beverages, cereals, bakery products, snacks, ice cream etc.

         

Healthcare – 31% of the market share

It
includes OTC products.

         

Household and Personal
Care – 50% of the market share (combined)

It
includes products for oral care, skin care, hair care, feminine hygiene etc.

 

 

 

 

 

 

·      From $31.6 billion in 2011, the
industry has grown to $49.6 billion in 2017

 

 

·      Retail market in India is estimated
to reach US$ 1.1 trillion by 2020 from US$ 672 billion in 2016, with modern trade
expected to grow at 20 per cent – 25 per cent per annum, which is likely to boost
revenues of FMCG companies.

 

 

 

 

1.2
Characteristics of an FMCG company/product

 

·     
From the customers perspective-

 

1.    The
frequency of purchase of the product is very high by the customer. This is due
to the high perishability and non-durability of the product. So naturally the
customer buys these products as and when necessary.

2.    The
individual product is of low value. But when these are combined for any household,
it may contribute to a significant part of the household expenses.

3.    Word
of mouth as well as advertisement plays a major role in the product’s success.

 

 

·     
From the company’s angle-

1.    Since the price of the product is
low, the volume of the transactions is significantly high for the company.

2.    The profit margin per product is
low in FMCG products like biscuits etc. but since the transaction volume is high,
it results in significant profit for the company.

3.    Due to high perishability and non-durability,
the stock turnover is quite high for the company.

4.    The company aims to provide these
products to the largest extent possible. So for making this possible the company
requires extensive distribution networks.

 

 

 

 

 

 

1.3
Trends in the FMCG sector

 

 

          1.3.1 TRENDS IN THE URBAN AREA

 

·       
Premium Products

 

With the evident rise in the personal
disposable income of the individuals, particularly in the middle-level income households,
there has been a shift in the customer taste from essential to premium products.

 

Since the market players have also
started to take note of the, they are now focusing on increasing their product
portfolio introducing various premium products.

 

These
players have also identified India as a sourcing hub strategically for low cost
product development and manufacturing to cater to the demands of their international
markets.

 

·       
Customization

 

The
need for customized products is increasing as customers now prefer products according
to their needs and requirements. For example- shampoo for short hair or long hair.

 

·       
Globalization

 

The
Indian firms continue to expand globally. Many international players have also
set their foot in India who are doing well.

 

·       
Major
Chunk

 

The
urban area still accounts for almost 60% of the total market share of the FMCG
sector.

 

·       
Increased
Hiring

The
FMCG companies have increased hiring due to the projected growth, especially from
Tier 1 and Tier 2 cities like Kota (Rajasthan)

 

·       
Increasing
private label penetration

With
the rise in the number of retail players, private label has become popular in
the FMCG space. These goods are considered substitutes of the premium goods.

 

 

 

 

·       
Rising
importance of small sized packets

 

Companies
are increasingly keeping smaller stock keeping units at lower prices. It helps
them to sustain margins, increase volume from price-conscious customers.

 

 

1.3.2 TRENDS IN THE RURAL AREA

 

·       
Surprisingly,
rural area has been a major contributor to the growth of the FMCG sector. As a
matter of fact, the rural area growth has been more when compared to the urban area.

 

·       
This
is because there is still a huge potential for growth in the rural market as many
areas or villages are still untapped. The rural FMCG market
in India is expected to grow at a CAGR of 14.6 per cent, and reach US$ 220 billion
by 2025 from US$ 29.4 billion in 2016.

 

·       
In Financial Year 2017, the rural area accounted
for almost 40% of the FMCG market which stresses the importance of increased marketing
by the FMCG players in this area.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.4
Market Structure

 

The FMCG market of India
is divided into two sectors-

·       
Organized sector

·       
Unorganized sector

The organized
sector has only few Indian companies and MNCs whereas the unorganized sector is
crowded by many local players.

 

Indian FMCG market accounts
for about $29.4 billion where the market has been highly occupied by local and
unbranded products. This has been a challenge for many organized players to
successfully launch a product and to occupy the market share. Distribution and
supply chain has also been a challenge as India’s infrastructure and transport
systems not quite helpful with millions of retail outlets in the country. Although
infrastructure and transportation system is developing in recent times it is still
considered as a challenge by many players.

 

The FMCG sector has a wide
range of products including confectioneries, beverages, detergents, toothpaste,
toilet soaps, shampoos, creams, powders, food products, cigarettes.

 

The consumer spends little
time on the purchase decision. He seldom ever looks at the technical specifications.
Brand loyalties or recommendations of reliable retailer/ dealer drive purchase
decisions.

 

Brand switching
is often induced by heavy advertisement, recommendation of the retailer or word
of mouth.

 

 

Distinguishing features of Indian FMCG Business

FMCG companies
sell their products directly to consumers. Major features that distinguish this
sector from the others include the following:

 

·       
Design and Manufacturing

Low Capital
Intensity as most of products in FMCG requires relatively little investment in
plan, machinery and other fixed assets.

Basic technology required for manufacturing is easily
available.

Third party
manufacturing is common and the benefits include production and inventory planning
flexibility, flexibility in controlling labor costs and logistics.

 

·       
Marketing and Distribution

There is high
initial launch cost with huge investment in product development, market research,
test marketing and launch. Creating awareness for a new brand requires enormous
initial expenditure therefore becomes a must these companies.

Huge Distribution
Network as India has millions of retail outlets across the country making the logistics
functions difficult for many players.

With differentiation on functional attributes being
difficult to achieve in this competitive market, branding results in consumer loyalty
and sales growth. Leading FMCG firms like HUL, ITC, Nestle, Proctor & Gamble
and GlaxoSmithKline Healthcare–which account for almost 70 per cent of FMCG revenues
in the country–spend almost 10per cent of their turnover on advertising and brand
promotion. The promotion strategy includes tying up with top actors and other celebrity
brand ambassadors, besides going in for high-profile launches at leading retail
mall and outlets.

 

·       
Competition

Market is crowded with many unorganized players. Presence
of many unorganized players and highly capable MNCs provides fierce competition
in the market to launch many new brands. This gives wide range of choice of brands
for the customers.
The easing of the trade barriers encouraged the MNCs to invest in the Indian market
to cater to the needs of the consumers. The living standards rose in the urban
sector due to high disposable income along with the rise in the purchasing power
of the rural families which increased the sales volume of various manufacturers
of the FMCG products in India. The large-scale companies such as HLL, Godrej Consumer,
Marico, Henkel, Reckitt Benckiser and Colgate have targeted the rural consumers
and have also expanded their retail chain in the mid-sized towns and villages. On
the contrary to this, Nestle has always targeted the market of urban India and
focuses largely upon the value added products for the elite class or upper middle
class population.

 

·       
Contract manufacturing

 

As
FMCG companies concentrate on brand building, product development and creating
distribution networks, they are at the same time outsourcing their production requirements
to third party manufacturers. Moreover, with several items reserved for the small
scale industry and with these SSI units enjoying tax incentives, the contract manufacturing
route has grown in importance and popularity.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Players
in the FMCG market

 

 

 

 

Characteristics
of Competitors

Quite evidently, following are the
growth drivers of the FMCG industry in India-

1.    Robust
growth in GDP of India

2.    Evolving
customer life cycle

3.    Growth
of modern retail

4.    Shift
from unorganized to organized sector

5.    Changing
profile of the customer

6.    Changing
tastes and preferences of the customer

7.    Increased
income and consumption in the rural areas

8.    Rise
in per capita consumption

9.    Availability
of online stores for grocery

10. New
product launches

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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