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WHAT IS FMCG?
Products which have a quick turnover, and
relatively low cost are known as Fast Moving
Consumer Goods (FMCG).
FMCG products are those that get replaced
within a year.
Examples of FMCG generally include a wide
range of frequently purchased consumer
products such as food that are ready to eat,
ready to serve etc.
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CONT
Toiletries, soap, cosmetics, tooth cleaning
products, shaving products and detergents, as
well as other non-durables such as glassware,
bulbs, batteries, paper products, and plastic
goods.
FMCG may also include pharmaceuticals,
consumer electronics, packaged food products,soft drinks, tissue paper, and chocolate bars.
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FMCG INDUSTRY IN INDIA
Present
Fourth largest sector in the economy
Size - US$13.1 billion
Strong MNC PresenceWell established distribution network
Competition between organized and unorganizedsector
Low Costs of labour and Easy availability of keyraw materials
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TOP FMCG COMPANIES IN
2010
S. NO. Companies
1 Hindustan Unilever Ltd.
2 ITC (Indian Tobacco Company)
3 Nestl India
4 GCMMF (AMUL)
5 Dabur India
6 Asian Paints (India)
7 Cadbury India
8 Britannia Industries
9 Procter & Gamble Hygiene and Health Care
10 Marico Industry
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HISTORICAL GROWTH OF FMCG
INDUSTRY
0
200
400
600
800
1000
1200
1400
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E
470 490500
540585
710
860
1020
1160
1300
Golden years for FMCG industry GDP growthof 8% rural markets opened up
+17%
+6%
GDP growth of 5% annually
IN INR BILLION
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STRENGTHS:
Low operational costs
Presence of established distribution networks in both
urban and rural areas
Presence of well-known brands in FMCG sector
WEAKNESSES:
Lower scope of investing in technology and achieving
economies of scale, especially in small sectors
Low exports levels
"Me-too products, which illegally mimic the labels of the
established brands.
These products narrow the scope of FMCG products in
rural and semi-urban market.
OPPORTUNITIES:
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
THREATS:
Removal of import restrictions resulting in replacing of
domestic brands
Slowdown in rural demand
Tax and regulatory structure
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RISK INVOLVED IN FMCG
SECTOR
Three key areas concern the risk managerproduction,
marketing and distribution.
Risk of FMCG products also depends upon the
agricultural commodities procured from the farm alsoand the losses or damage happened in the farm level.
Some of the losses or damages are caused due to:-
1. Parasitic Diseases2. Mechanical energy
3. Physiological deterioration
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FMCG sector involves bakery in which biscuit
manufacturing is the most fast moving good for
consumers to use.
In biscuit manufacturing industry procurement of good
material like maida, salt, colour, preservatives,vanaspati, sugar, flavours etc.
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The risk in FMCG companies involve at every level or stages
in the market starting from procurement level to consumer
level because of these reasons:-
Heavy competition
Durability of the product.
Lower cost margin at every level.
Perishability of the product especially in food sector.
Hedging of the raw material at commodity exchange.
Less wastage to reduce cost in manufacturing the product.
Supply chain also creates risk. Longer the supply chain greater
will be risk and vice-versa.
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OTHER RISKS
1. Tax Structure - Complicated tax structure, highindirect tax, lack of uniformity, high octroi & entry tax
and changing tax policies.
2. Infrastructural Bottlenecks - Agricultureinfrastructure, power cost, transportation infrastructure
and cost of infrastructure.
3. Counterfeits and Pass-offs - Counterfeit products are
another issue for the FMCG sector. Taking advantage of the lackof literacy and consumer knowledge, several small manufacturers
churn out spurious products which they label akin to the big
brands, Lifeboy or Lax soap or Fivestare chocolate bars, Vicky
balm, for instance
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4. Emergence of Private Labels - Apart from the pressure onmargins, the biggest fear of FMCG players when facing MR is
the introduction of private labels or own brands. The fear is
justified because world over, private labels have served to lower
the consumers price points.
5. Regulatory Constraints - State borders cause a lot of delays
and it is common for 2-3 days of finished goods inventory out of
20 -30 days total stuck on various state borders due to a
requirement for multiplicity of permits and licenses.
6. Price of Inputs - Commodity prices fluctuate, which make it
difficult to finalize raw material prices, affecting the final price of
the product.
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