Institute of Business Administration,

Jahangirnagar University

Assignment on

FMCG Industry Analysis According to Porter’s Five

Forces Model

Submitted to
Moudud Ahmed
Course Instructor
Strategic Management
IBA-JU

Submitted by
S. M. Asaduzzaman
Batch: 23
MBA Program
IBA-JU

Submission Date: July 03, 2019.

Fast-Moving Consumer Goods (FMCG) are products that are sold quickly and at a relatively low
cost. Examples include non-durable goods such as packaged foods, beverages, toiletries, over-the-
counter drugs etc.

FMCG industry can be classified in three major categories- Foods and Beverage, Personal Care and
Household Care Industries. Foods and Beverage Industry includes all food products such as milk &
dairy products, biscuits and bakery products, frozen foods, ice cream, tea, coffee, baby foods, soft
drinks, tobacco and others.
On the other hand, Personal Care industry includes the products which are used for personal care like
perfume, cosmetics, toiletries products and other related products. Household products include the
products which are useful to maintain the house like cleaning and decorating. It includes room scents
or sprays, detergent powder, liquid detergent, soap noodles and related products.

According to Porter’s model FMCG industries have been reviewed under the following segments.

Intensity of rivalry among established firms

Competitive Rivalry refers to the competitive struggle between companies in the same industry to gain
market share from each other. If we take, for example, Unilever, ACI, and SQUARE altogether in
comparing the competition in selling soap, we can see that Unilever and SQUARE compete in the health
and the beauty soap category while ACI only in health category soap and sanitizer. Unilever has
different categories in health and the beauty soap. For example, Lux and Lifebuoy has different
categories within themselves according to smell and benefits. Though SQUARE have different
categories in beauty soap Meril, they don’t have any soap in health category except for Sepnil sanitizer.
On the other hand, ACI only have Savlon soap & sanitizer in health category. Due to the dominance
almost in all category, Unilever dominates the market and faces rivalry in certain categories from local
competitor. Competition among the local companies are higher than that of with an MNC. Due to slow
growth in demand in FMCG products the local companies struggle to have market share competing
with the MNCs because of strong brand image.

Bargaining power of buyers

Industry Buyers may be the consumers or end-users who ultimately use the product or intermediaries
that distribute or retail the products. The manufacturers themselves can be the buyers of some suppliers
besides the end users of their products. The manufacturers as a buyer can dictate the price but the
consumers have very little to no power to reduce the price of a product in FMCG industry. For example,
the dairy milk marketer Aarong have different sources of suppliers so they can bargain to buy superior
quality milk in bulk at the lowest price possible from a supplier. However, the pasteurized milk pack
produced from that is sold at the exact price quoted on the packet and consumers just pay without saying
a word. Same goes for ‘Shampoo’. Switching cost being lower for the same categories of product, the
consumers indirectly bargain for the right price.

Threats of substitute

Substitute Products are the products from different businesses or industries that can satisfy similar
customer needs. This threat is higher in this industry. For example, a person considering to buy a herbal
toothpaste may easily choose between Pepsodent Herbal (Unilever), Colgate Herbal, and Meswak
(SQUARE). Again, if we consider noodles, then substitution between Maggi (nestle), Knorr (Unilever),
Mama (Pran-RFL), and Cocola noodles is very probable. Locally produce copy of a same product make
it easy to substitute a product at lower price, but damage the brand image of the original product. As
this industry has many close substitutes, they are a strong competitive force.

Bargaining power of suppliers

Suppliers are organizations that provide inputs such as material and labor into the industry. Switching
costs to the manufacturers are not significant in this industry. Same raw materials stay available from
different suppliers. Some raw materials are imported from foreign suppliers which are available in the
market by more than a single supplier. Suppliers in this industry doesn’t work as a group or cartel that’s
why they can’t dictate the price of the raw materials. Very little threat of entering this industry by the
supplier exist due to huge product differentiation by the existing manufactures of FMCG goods and
lack of resources.

Risk of entry by potential competitors

Potential Competitors are companies that are not currently competing in an industry but have the
capability to do so if they choose. FMCG industry already has several established brands in all
categories. If we take, for example, coconut hair oil, ‘Parachute’ face very little competition from other
competitors due to their brand image and customer loyalty. Having a good brand image their unit sale
for this hair oil is high and they have achieved cost advantage and brand loyalty which is difficult for
the new entrant to copy easily. Over the period of business, the experience gathered by the existing
companies in this industry is a huge strength that can lead to an absolute cost advantage for this
companies. For example, the new entrant might find it difficult to establish a strong distribution channel
all over the country which the existing competitors already have.