Background:
The size of the Indian fast-moving consumer goods (FMCG) sector is close to Rs 600 bn. The northern and the western regions of the country account for more than half of the market for consumer goods. Barring the fastest-growing personal care segment, no other product segment has seen the entry of so many players. In the past decade, the personal care industry has witnessed a consumer boom. This has been due to liberalization, urbanization, and an increase in the disposable incomes, and altered lifestyles, especially a heightened level of awareness among the rural community, consequent to the onslaught of satellite television. Furthermore, the boom has also been fuelled by the reduction of excise duties, dereservation from the small-scale sector and the concerted efforts of personal care companies to woo the burgeoning affluent segment of the middle class through product and packaging innovations. Unlike in the past, when domestic companies were not perceived as competitive vis-à-vis multinational corporations (MNCs), the scenario is gradually changing, with some domestic companies, like Nirma, Marico and Jyothi Labs, standing up to their MNC counterparts. Also, competition amongst the MNCs has intensified, leading to shrinkage of margins. The personal and home care segment has very low entry barriers of technology and capital requirements. This attracts new players and has resulted in intensifying competition. Despite this, the strong distribution networks and heavy investments needed for brand building remain key deterrents to new players. Low margins and high volumes characterize the industry. While the level of disposable incomes determines the overall sector growth, the market has already been segmented and sub-segmented. Companies have launched products at a number of price points to drive up volumes. New products are being launched in niche segments, and old products re-launched. Brand equity drives the customer's purchase decisions, and is the key to gaining market share. Also, competitive pressures have hiked the advertising budgets of most players. Besides, a profusion of promotional schemes are being offered. Most players, including Hindustan Lever Ltd (HLL), are struggling to maintain top line growth, despite the heavy advertising and sales promotion (ASP) expenditure. A lower price differential between the organized and the unorganized sectors from reducing excise duties allows the former to grow at the expense of the latter. The organized sector also has a superior distribution reach. Although most of the product categories are still in the growth phase, a few broad categories, like detergents, have reached a mature phase only in the urban market. According to industry sources, the affluent segment in the rural sector is growing at a faster rate than the urban one. For the past three years, the organized sector has been focusing on the rural markets, which are perceived to drive growth in the industry and which, to a very large extent, are dominated by unorganized players.
SWOT analysis of the FMCG industry:
Strengths:
· Well-established distribution network extending to rural areas.
· Strong brands in the FMCG sector.
· Low cost operations
Weaknesses:
· Low export levels.
· Small scale sector reservations limit ability to invest in technology and achieve
economies of scale.
· Several 'me-too' products.
Opportunities:
· Large domestic market.
· Export potential.
· Increasing income levels will result in faster revenue growth.
Threats:
· Imports.
· Tax and regulatory structure.
· Slowdown in rural demand.
R.yuvarani M.Phil Scholar Periyar University Salem-11
About the Author:
R.yuvarani M.Phil Scholar Periyar University Salem-11
