INTRODUCTION

Fast Moving Consumer Goods (FMCG)

FMCG are products that have a quick shelf turnover, at relatively low cost and don't
require a lot of thought, time and financial investment to purchase. The margin of profit
on every individual FMCG product is less. However the huge number of goods sold is
what makes the difference. Hence profit in FMCG goods always translates to number of
goods sold. Fast Moving Consumer Goods is a classification that refers to a wide range
of frequently purchased consumer products including: toiletries, soaps, cosmetics, teeth
cleaning products, shaving products, detergents, and other non-durables such as
glassware, bulbs, batteries, paper products and plastic goods, such as buckets.’

Fast Moving’ is in opposition to consumer durables such as kitchen appliances that are
generally replaced less than once a year. The term Consumer Packaged Goods (CPG)
is used interchangeably with Fast Moving Consumer Goods (FMCG).Three of the
largest and best known examples of Fast Moving Consumer Goods companies are
NESTLÉ, UNILEVER AND PROCTER & GAMBLE. Examples of FMCGs are soft
drinks, tissue paper, and chocolate bars. Examples of FMCG brands are Coca-Cola,
Kleenex, Pepsi and Believe.

The Indian FMCG sector is an important contributor to the country's GDP. It is the fourth
largest sector in the economy and is responsible for 5% of the total factory employment
in India. It has a strong MNC presence and is characterized by a well established
distribution network, intense competition between the organized and unorganized
segments and low operational cost. Availability of key raw materials, cheaper labour
costs and presence across the entire value chain gives India a competitive advantage.
India needs around US$ 28 billion of investment in the food-processing industry.

The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in
2015. Penetration level as well as per capita consumption in most product categories
like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped
market potential..

At the macro level, Indian economy is poised to remained buoyant and grow at more
than 7%. The economic growth would impact large proportions of the population thus
leading to more money in the hands of the consumer.

.Unlike the perception that the FMCG sector is a producer of luxury items targeted
at the elite, in reality, the sector meets the everyday needs of the masses. The
Lower-middle income group accounts for over 60% of the sector's sales. Rural
Markets account for 56% of the total domestic FMCG demand. Many of the global
FMCG majors have been present in the country for many decades. But in the last
ten years, many of the smaller rung Indian FMCG companies have gained in scale.
As a result, the unorganized and regional players have witnessed erosion in market
share.
 HISTORY OF FMCG COMPANIES IN INDIA
In India, companies like ITC, HLL, Colgate, Cadbury and Nestle have been a dominant
force in the FMCG sector well supported by relatively less competition and high entry
barriers (import duty was high). These companies were, therefore, able to charge a
premium for their products. In this context, the margins were also on the higher side.
With the gradual opening up of the economy over the last decade, FMCG companies
have been forced to fight for a market share. In the process, margins have been
compromised, more so in the last six years (FMCG sector witnessed decline in
demand).

India - a large consumer goods spender

An average Indian spends around 40 per cent of his income on grocery and 8 per cent
on personal care products. The large share of fast moving consumer goods (FMCG) in
total individual spending along with the large population base is another factor that
makes India one of the largest FMCG markets.
 Consumer expenditure on food at International level
Even on an international scale, total consumer expenditure on food
In India at US$ 120 billion is amongst the largest in the emerging
Markets, next only to China.

CURRENT SITUATION

The growth potential for FMCG companies looks promising over the long-term horizon,
as the per-capita consumption of almost all products in the country is amongst the
lowest in the world. As per the Consumer Survey by KSA-Technopak, of the total
consumption expenditure, almost 40% and 8% was accounted by groceries and
personal care products respectively. Rapid urbanization, increased literacy and rising
per capita income are the key growth drivers for the sector.

Around 45% of the population in India is below 20 years of age and the proportion of the
young population is expected to increase in the next five years. Aspiration levels in this
age group have been fuelled by greater media exposure, unleashing a latent demand
with more money and a new mindset. In this backdrop, industry estimates suggest that
the industry could triple in value by 2015 (by some estimates, the industry could double
in size by 2010).
In our view, testing times for the FMCG sector are over and driving rural penetration will
be the key going forward. Due to infrastructure constraints (this influences the cost
effectiveness of the supply chain), companies were unable to grow faster. Although
companies like HLL and ITC have dedicated initiatives targeted at the rural market,
these are still at a relatively nascent stage. The bottlenecks of the conventional
distribution system are likely to be removed once organized retailing gains in scale.
Currently, organized retailing accounts for just 3% of total retail sales and is likely to
touch 10% over the next 3-5 years. In our view, organized retailing results in discounted
prices, forced-buying by offering many choices and also opens up new avenues for
growth for the FMCG sector. Given the aggressive expansion plans of players like
Pantaloon, Trent, Shopper’s Stop and Shoprite, we are confident that the FMCG sector
has a bright future.

COMPANY SALES A&P APR-SEP 3 YEARS

RS CR SPEND 2009 AGO
RS CR
HINDUSTANUNILEVER 8703 1132 13.0 8.9
DABUR INDIA 1591 234 14.7 11.9
MARICO 1389 176 12.7 12.1
GLAXOSMITHKLINE 964 156 16.2 13.1
CONSUMER COLGATE POLMOLIVE 955 141 14.7 17.5
INDIA GODREJCONSUMER 1014 94 9.3 10.3
EMAMI 400 75 18.7 2.5
ARGO TECH FOODS 305 31 10.1 1.3
JYOTHY LABS 250 14 5.5 8.0

OVERVIEW OF INDIAN FMCG MARKET

India offers a large and growing market of 1 billion people of which 300 million are
middle class consumers. India offers a vibrant market of youth and vigor with 54% of
population below the age of 25 years. These young people work harder, earn more,
spend more and demand more from the market, making India a dynamic and
inspirational society. Domestic demand is expected to double over the ten-year period
from 1998 to 2007. The number of households with "high income" is expected to
increase by 60% in the next four years to 44 million households. India is rated as the
fifth most attractive emerging retail market. It has been ranked second in a Global Retail
Development Index of 30 developing countries drawn up by A T Kearney. A.T. Kearney
has estimated India's total retail market at $202.6 billion, is expected to grow at a
compounded 30 per cent over the next five years. The share of modern retail is likely to
grow from its current 2 per cent to 15-20 percent over the next decade, analysts feel.

The Indian FMCG sector is the fourth largest sector in the economy with a total market
size in excess of US$ 13.1 billion. The FMCG market is set to treble from US$ 11.6
billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita
consumption in most product categories like jams, toothpaste, skin care, hair wash etc
in India is low indicating the untapped market potential. Burgeoning Indian population,
particularly the middle class and the rural segments, presents an opportunity to makers
of branded products to convert consumers to branded products. India is one of the
world’s largest producers for a number of FMCG products but its FMCG exports are
languishing at around Rs 1,000 crore only.

Small-scale sector reservations limit ability to invest in technology and quality up

gradation to achieve economies of scale. Moreover, lower volume of higher value added
products reduce scope for export to developing countries. The FMCG sector has
traditionally grown at a very fast rate and has generally out performed the rest of the
industry. Over the last one year, however the rate of growth has slowed down and the
sector has recorded sales growth of just five per cent in the last four quarters. Poor
monsoon in some states, too is unlikely to help matters. Moreover, the general
slowdown in the economy is also likely to have an adverse impact on disposable
income and purchasing power as a whole. The growth of imports constitutes another
problem area and while so far imports in this sector have been confined to the premium
segment, FMCG companies estimate they have already cornered a four to 6% market
share.
The high burden of local taxes is another reason attributed for the slowdown in the
industry At the same time, the long term outlook for revenue growth is positive. Give the
large market and the requirement for continuous repurchase of these products, FMCG
companies should continue to do well in the long run. Moreover, most of the companies
are concentrating on cost reduction and supply chain management. This should yield
positive results for them.

Indian FMCG Market Size

(In US $ Billions)

(Source: IBEF FMCG Analysis)

According to estimates based on China's current per capita consumption, the Indian
FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015.
The dominance of Indian markets by unbranded products, change in eating habits and
the increased affordability of the growing Indian population presents an opportunity to
makers of branded products, who can convert consumers to branded products.
FMCG Market Review
FY 09 Result Highlights

ANALYSIS OF FMCG SECTOR

STRENGTHS:
1. Low operational costs
2. Presence of established distribution networks in both urban and rural areas
3. Presence of well-known brands in FMCG sector

WEAKNESSES:
1. Lower scope of investing in technology and achieving economies of scale, especially
in small sectors
2. Low exports levels
3. "Me-too" products, which illegally mimic the labels of the established brands, narrow
the scope of FMCG products in rural and semi-urban market.

OPPORTUNITIES:
1. Untapped rural market
2. Rising income levels i.e. increase in purchasing power of consumers
3. Large domestic market - a population of over one billion
4. Export potential 5. High consumer goods spending

THREATS:
1. Removal of import restrictions resulting in replacing of domestic brands
2. Slowdown in rural demand.
3. Tax and regulatory structure
STRUCTURAL ANALYSIS OF FMCG INDUSTRY
Typically, a consumer buys these goods at least once a month. The sector covers a
wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos,
creams, powders, food products, confectioneries, beverages, and cigarettes.

Typical characteristics of FMCG products are: -

1. The products often cater to 3 very distinct but usually wanted for aspects - necessity,
comfort, luxury. They meet the demands of the entire cross section of population. Price
and income elasticity of demand varies across products and consumers.
2. Individual items are of small value (small SKU's) although all FMCG products put
together account for a significant part of the consumer's budget.

3. 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.

4. Limited inventory of these products (many of which are perishable) are kept by
consumer and prefers to purchase them frequently, as and when required.

5. Brand switching is often induced by heavy advertisement, recommendation of the

retailer or word of mouth.

DESIGN AND MANUFACTURING

1. Low Capital Intensity - Most product categories in FMCG require relatively minor
investment in plan and machinery and other fixed assets. Also, the business has low
working capital intensity as bulk of sales from manufacturing take place on a cash basis.

2. Technology - Basic technology for manufacturing is easily available. Also,

technology for most products has been fairly stable. Modifications and improvements
rarely change the basic process.

3. Third-party Manufacturing - Manufacturing of products by third party vendors is

quite common. Benefits associated with third party manufacturing include (1) flexibility in
production and inventory planning; (2) flexibility in controlling labor costs; and (3)
logistics - sometimes it’s essential to get certain products manufactured near the
market.
 MARKETING AND DISTRIBUTION
Marketing function is sacrosanct in case of FMCG companies. Major features
of the marketing function include the following: -

1.High Initial Launch Cost - New products require a large front-ended investment in
product development, market research, test marketing and launch. Creating awareness
and develop franchise for a new brand requires enormous initial expenditure on launch
advertisements, free samples and product promotions. Launch costs are as high as 50-
100% of revenue in the first year. For established brands, advertisement expenditure
varies from 5 - 12% depending on the categories.

2. Limited Mass Media Options - The challenge associated with the launch and/or
brand-building initiatives is that few no mass media options. TV reaches 67% of urban
consumers and 35% of rural consumers. Alternatives like wall paintings, theatres, video
vehicles, special packaging and consumer promotions become an expensive but
required activity associated with a successful FMCG.
3. Huge Distribution Network - India is home to six million retail outlets,
including 2 million in 5,160 towns and four million in 627,000 villages.
Super markets virtually do not exist in India. This makes logistics
particularly for new players extremely difficult.

FORCOSTING OF FMCG COMPANIES

Markets all over the world have been on a roll in 2003 and the Indian bourses are no
exception having gained almost 60% in 2003. During this period, while there are sectors
that have outperformed this benchmark index, there are also sectors that have under
performed. FMCG registered gains of just 33% on the BSE FMCG Index last year. At
the macro level, Indian economy is poised to remained buoyant and grow at more than
7%. The economic growth would impact large proportions of the population thus leading
to more money in the hands of the consumer.

Changes in demographic composition of the population and thus the market would also
continue to impact the FMCG industry. Recent survey conducted by a leading business
weekly, approximately 47 per cent of India's 1 + billion people were under the age of 20,
and teenagers among them numbered about 160 million. Together, they wielded INR
14000 Cr worth of discretionary income, and their families spent an additional INR
18500 Cr on them every year. By 2015, Indians under 20 are estimated to make up
55% of the population - and wield proportionately higher spending power. Means,
companies that are able to influence and excite such consumers would be those that
win in the market place.

The Indian FMCG market has been divided for a long time between the organized
sector and the unorganized sector. While the latter has been crowded by a large
number of local players, competing on margins, the former has varied between a two-
player-scenario to a multi-player one.

Unlike the U.S. market for fast moving consumer goods (FMCG), which is dominated by
a handful of global players, India's Rs.460 billion FMCG market remains highly
fragmented with roughly half the market going to unbranded, unpackaged home made
products. This presents a tremendous opportunity for makers of branded products who
can convert consumers to branded products.

However, successfully launching and growing market share around a branded product
in India presents tremendous challenges. Take distribution as an example. India is
home to six million retail outlets and super markets virtually do not exist. This makes
logistics particularly for new players extremely difficult. Other challenges of similar
magnitude exist across the FMCG supply chain. The fact is that FMCG is a structurally
unattractive industry in which to participate. Even so, the opportunity keeps FMCG
makers trying.

STRATEGY OF FMCG COMPANIES

COMPETITIVE STRATEGIES FOLLOWED BY FMCG COMPANIES IN
INDIA
Competitive Strategy consists of move of companies in order to attract customers.
With stand competitive pressures and strengthen an organization’s market position.
The main objective of Competitive Strategy is to generate a competitive advantage,
increase the loyalty of customers and to beat competitors.

Five main competitive strategies are:

· Overall low cost leadership strategy
· Best cost provider’s strategy
· Broad differentiation strategy
· Focused low cost strategy
· Focused differentiation strategy
Here competitive strategy varies from sector to sector and company to company. Thus,
it is not easy to predict a single or to find a single strategy for the whole sector. When
we come on to FMCG Sector main strategies lay behind market strategies, cost, and
quality strategies. Here in this report you are going to get information about such type of
strategies of FMCG giants.

Critical operating rules in Indian FMCG sector

• Heavy launch costs on new products on launch advertisements, free samples and
product promotions.
• Majority of the product classes require very low investment in fixed assets
• Existence of contract manufacturing
• Marketing assumes a significant place in the brand building process
• Extensive distribution networks and logistics are key to achieving a high level of
penetration in both the urban and rural markets
• Factors like low entry barriers in terms of low capital investment, fiscal incentives from
government and low brand awareness in rural areas have led to the mushrooming of
the unorganised sector
• Providing good price points is the key to success

Competition
1. Significant Presence of Unorganized Sector - Factors that enable small, unorganized
players with local presence to flourish include the following:
2. Basic technology for most products is fairly simple and easily available.
3. The small-scale sector in India enjoys exemption/ lower rates of excise duty, sales
tax etc. This makes them more price competitive vis-à-vis the organized sector.
4. A highly scattered market and poor transport infrastructure limits the ability of MNCs
and national players to reach out to remote rural areas and small towns.
5. Low brand awareness enables local players to market their spurious look-alike
brands.
6. Lower overheads due to limited geography, family management, focused product
lines and minimal expenditure on marketing.

COMPETITION MARKET SHARE

 POWER BRANDS, THE NEW FMCG MANTRA
Three men, one voice. Indian fast moving consumer goods companies like HLL, Godrej
Consumer Products Limited and Marico Industries are completely sold on the concept
of "power brands".

But in their rush to put their best brands forward, are these big companies in
danger of overlooking the potential offered by some of the also-ran brands?

It's been almost five years since these three FMCG giants opted to manage their
brand portfolios on the basis of the power brand strategy. How have they fared?
And what does the future hold?

TOP 10 FMCG COMPANIES IN INDIA

1. Hindustan Unilever Ltd.
2. ITC (Indian Tobacco Company)
3. Nestlé 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 Industries
RELATED TO TWO COMPANIES HUL & ITC

HUL (Hindustan Unilever Ltd.)

This Company is earlier known as Hindustan Lever Ltd. This is India’s largest FMCG
sector company with all type of household products available with it. It has Home &
Personal Care products, and also food and Water Purifier available with it. According to
Brand Equity, HUL has largest no of brands in most trusted brands list. 16 of HUL’s
brands featured in AC-Nielson Brand Equity list of 100 most trusted brands in 2008 in
an annual survey. For the entire year ending March - 2009 net turnover of company is
Rs. 20’239.33 Crore which is 47.99% higher than 31st December 2007’s Rs. 13675.43
Crore driven mainly by domestic FMCG’s with net profit stood at Rs. 2’496.45 Crore.

Products of HUL are: Annapurna; Ayush; Axe; Breeze; Bru; Brooke bond;
Clinic; Dove; Fair & Lovely; Hamam; Liril; Lux; Pears; Ponds; Pepsodent; Pureit;
Rexona; Rin; Sunlight; Surfexcel; Vaseline; Wheel.

ITC Limited

This Company was earlier known as Imperial Tobacco Company of

India Ltd. It is Currently headed by Yogesh Chander Deveshwar. Company mainly
operates in the industry like Tobacco, Foods, Hotels, Stationary and Greeting Cards
with the major products constitutes Cigarettes, packed foods, hotels, and apparels. For
the entire year ending Mar-2009 the turnover of company is at Rs. 15388 Crore which is
10.3% higher than previous year’s Rs. 13947.53 Crore, driven mainly by robust 20%
growth in non cigarette FMCG business with net profit stood at Rs. 3324 Crore.

ANALYSIS OF BOTH COMPANIES

HUL & ITC are major companies in FMCG market in India. When we compare both
companies on the basis of their strategies i.e. , their competitive strategies in the
present market. When we look at the present segment breakup for both of the
companies then we came to know that their different products vary too much in the
market.
HUL
Hindustan Unilever (HUL) is the largest
pure-play FMCG company in the country
and has one of the widest portfolios of
products sold via a strong distribution
channel. It owns and markets some of
the most popular brands in the country
across various categories, including
soaps, detergents, shampoos, tea and
face creams.
Performance
After stagnating between 1999 and ’04,
the company is back on the growth track.
In the past three years, till 2008 HUL’s
net sales have witnessed a CAGR of
11%, while net profit has posted a CAGR
of 17%.
HUL Segment Breakup
ITC
ITC is not a pure-play FMCG company,
since cigarettes is its primary business. It is
diversifying into nontobacco. FMCG
segments like foods, personal care, paper
products, hotels and agri-business to reduce
its exposure to cigarettes.
Performance
After stagnating between 1999 and ’04, the
company is back on the growth track. In the
past three years, till 2008 HUL’s net sales
have witnessed a CAGR of 11%, while net
profit has posted a CAGR of 17%. Despite
diversification, ITC’s reliance on cigarettes is
still huge. The tobacco business contributes
40% to its revenues, and accounts for over
80% of its profit. This cash-generating
business has enabled it to take ambitious,
but expensive bets in new segments and
deliver modest profit growth.
ITC Segment Breakup

SOLUTION OF FMCG COMPANIES

WHAT SHOULD THE FMCG PLAYERS DO NOW?

They should not only price their products competitively, but also offer their rural
prospects maximum value for money spent. Certainly, reaching out to 3.33 million retail
outlets is an uphill task. The only way out for Indian FMCG players: put in place an
aggressive cost structure that would enable them to offer low-price and value-for-money
products. But then, FMCG is a low-margin business with a high cost of raw materials.
Consider the case of Marico: its material cost works out to a high of 59 per cent on
sales. Therein lays the rural marketing paradox.
However, customer-centric and market-savvy FMCG companies have always chased
prospects when they perceive there is a latent demand. For instance, Hindustan Lever's
Rin, Surf and Lux are available even in India's most obscure villages. Hindustan Lever
had given shape to its rural strategy a few years ago when it perceived that its urban
market was shrinking due to an industrial slowdown. It’s Operation Bharat that focused
on personal care products made the most out of surging rural incomes. The result was
there for all to see. The company has been able to clock in double-digit profits every
three years and log in double digit revenues every four years. Britannia with its Tiger
brand of biscuits and Colgate-Palmolive with its low-priced and conveniently-packaged
products designed for the rural masses have been other pioneers in rural marketing.
DISTRIBUTION
One of the age-old problems that FMCG has been facing not only in India but globally is
that of distribution. Integrating operations with your distributors and channel partners is
a Herculean task. Few ways to reduce pain involved in this link:

· Reducing supply chain costs by reducing intermediaries – Organized retail chains

have set up systems for inventory management and quick servicing, thereby offering the
opportunity for a company/supplier to reduce distribution cost by reducing
intermediaries such as wholesalers/distributors and supplying directly to the warehouse
of retail chain.

· Increasing sales by driving channel width - The relative share of grocers to FMCG
sales has dropped from over 50% in the early 90's to 35% in the late 90's. On the other
hand the contribution of chemist outlets and paan outlets has been increasing. This has
been a result of both SKU's (sachets) and hardware (mini dispensers) being specifically
designed to facilitate entry to these outlets and increase consumer interface.

BRAND MANAGERS TO BUSINESS MANAGERS

Tough market situations and a more aware and savvier demanding consumer have
necessitated that yesterday's Brand Managers be transformed into Business Managers
who understand consumers and can innovate and be flexible to move with the
consumer. Gone are the days when brands could be made to gallop with a big budget
media plan, a generous dose of below-the-line and above-the-line activities and
constant promotions and schemes in the market. Consumers who have become
demanding yet inscrutable in terms of attitudes, outlook, moods and behavior have
rendered conventional Brand Management tools obsolete.
Salient feature
The FMCG sector is a key component of India’s GDP and is a significant direct and
indirect employer. It is the fourth largest sector in the economy and is responsible for
five per cent of total factory employment in the country. The sector also creates
employment for three million people in downstream activities, much of which is
disbursed in small towns and rural India. Unlike the perception that the FMCG sector is
a producer of luxury items targeted at the elite, in reality the sector meets the every day
needs of the masses, across the country. Low-priced products contribute the majority of
the sales volume and lower income and lower middle income groups account for over
60 per cent of the sector’s sales. Moreover, rural markets account for 56 per cent of
total domestic FMCG demand and FMCG outlets reach more villages than any other
basic facility such as primary schools or bus facilities. The FMCG sector has several
other salient features. It has strong links with agriculture and 71 per cent of sales come
from agro-based products; it is a significant value creator with a market capitalisation
second only to the IT sector and it is a key contributor to the exchequer. In 1998-99, it
accounted for eight per cent of total corporate tax; six per cent of central excise revenue
and seven per cent of state tax revenues.
 Conclusion
The FMCG sector has traditionally grown at a very fast rate and has generally out
performed the rest of the industry. Over the last one year, however the rate of growth
has slowed down and the sector has recorded sales growth of just five per cent in the
last four quarters. The outlook in the short term does not appear to be very positive for
the sector. Rural demand is on the decline and the Centre for Monitoring Indian
Economy (CMIE) has already downscaled its projection for agriculture growth in the
current fiscal. Poor monsoon in some states, too, is unlikely to help matters. Moreover,
the general slowdown in the economy is also likely to have an adverse impact on
disposable income and purchasing power as a whole. The growth of imports constitutes
another problem area and while so far imports in this sector have been confined to the
premium segment, FMCG companies estimate they have already cornered a four to six
per cent market share. The high burden of local taxes is another reason attributed for
the slowdown in the industry At the same time, the long term outlook for revenue growth
is positive. Give the large market and the requirement for continuous repurchase of
these products, FMCG companies should continue to do well in the long run. Moreover,
most of the companies are concentrating on cost reduction and supply chain
management. This should yield positive results for them.
REFERENCE
http://www.coolavenues.com/know/mktg/competitive-strategies-2.php
http://www.rediff.com/money/2005/nov/15spec.htm
www.hll.com
www.itc.com
www.insightory.com
www.oppapers.com
http://www.indianmba.com/Faculty_Column/FC448/fc448.html