Industry in rural area when compared with the urban

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 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.

Typical characteristics of FMCG products are:

The products cater to necessity, comfort and luxury.

Price and income elasticity of demand varies across products and consumers.

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.

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.

Limited inventory of these products (many of which are perishable) 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.

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

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.

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

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.

 

 

 

 

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