FAST MOVING CONSUMER GOODS (FMCG)

Fast-moving consumer goods (FMCG) or consumer packaged goods (CPG) are products that
are sold quickly and at relatively low cost. Examples include non-durable goods such as soft
drinks, toiletries, over-the-counter drugs, toys, processed foods and many other consumables. In
contrast, durable goods or major appliances such as kitchen appliances are generally replaced
over a period of several years. The term was coined by Neil H. Borden in 'The Concept of the
Marketing Mix' in 1965.
FMCG have a short shelf life, either as a result of high consumer demand or because the product
deteriorates rapidly. Some FMCGs such as meat, fruits and vegetables, dairy products, and baked
goods are highly perishable. Other goods such as alcohol, toiletries, pre-packaged foods, soft
drinks, and cleaning products have high turnover rates.
Though the profit margin made on FMCG products is relatively small (more so for retailers than
the producers/suppliers), they are generally sold in large quantities; thus, the cumulative profit on
such products can be substantial. FMCG is probably the most classic case of low margin and
high volume business.
The FMCG industry includes food and non-food everyday consumer products. They are usually
purchased as an outcome of small-scale consumer decision so they are heavily supported
(advertising, promotion) by the manufacturers. Typical purchasing of these goods occurs at
grocery stores, supermarkets, hypermarkets etc. The manufacturers are always exploring new
outlets and sales locations while the traditional retailers have introduced private label brands to
capture additional profit. Every one of us uses fast moving consumer products every day.
This business is based on building powerful brands and achieving a high level of distribution.
Global power brands are the choice of multinational companies. Local brands can compliment
these. Achieving superior distribution thorough a powerful supply chain and making sure the
products are available wherever someone might want or need it. The FMCG Supply Chain is the
interrelated collection of processes and associated resources It includes suppliers, manufacturers,
logistics service providers, warehouses, distributors, wholesalers and all other entities that lead
up to delivery to the final customer. Followed in the market through sales force activity it can
help gain a high level of distribution. Market Research, consumer research, segmentation and

product positioning is the compulsory homework of any company in this industry. Advertising
and promotions, POS activities drive brand awareness, trial purchase and is a core activity. While
TV advertising is most common new solutions are also used including internet advertisements.
High budgets, creativity and detailed planning are needed.
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 category may
include pharmaceuticals, consumer electronics and packaged food products and drinks, although
these are often categorized separately. The term Consumer Packaged Goods (CPG) is used
interchangeably with Fast Moving Consumer Goods (FMCG).
The largest and best known examples of Fast Moving Consumer Goods companies are Cocacola, 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
FMCG sector represents consumer goods required for daily or frequent use. The main segments
of this sector are personal care (oral care, hair care, soaps, cosmetics, and toiletries), household
care (fabric wash and household cleaners), branded and packaged food, beverages (health
beverages, soft drinks, staples, cereals, dairy products, chocolates, bakery products) and tobacco.
Marketing fast-moving consumer goods (FMCG) is one of the purest and most sophisticated
forms of selling there is. The great FMCG-selling companies, such as Procter & Gamble and
Coca-Cola, invented mass marketing almost single-handedly and grew to become multinational
giants in the process. FMCG played a major role in the rise of consumerism during the twentieth
century and drove the development of the media from the days of the sponsored radio show of
the 1920s. Selling FMCG provided the funds for the mushrooming growth of television and the
establishment of advertising agencies as a vast, lucrative industry. In the West, and now
increasingly in the rest of the world, almost everyone's lives are touched by FMCG.

Definition:
Definitions of FMCG vary, but generally the term is used to mean branded products that are:

used at least once a month;

used directly by the end-consumer;
non-durable; and
Sold in packaged form.

The main FMCG segments are

Personal care toothpaste, hair-care, skincare, soap, cosmetics, and paper products such

as tissues and sanitary towels;

household care fabric wash (laundry soaps and synthetic detergents) and household

cleaners (such as dish/utensil cleaners, air-fresheners and insecticides);

branded and packaged food and beverages soft drinks, cereals, biscuits, snack food,
chocolates, ice cream, tea, coffee, vegetables, meat, bottled water, etc.; and
spirits and tobacco

Characteristics:
The following are the main characteristics of FMCGs:

From the consumers' perspective:

Frequent purchase

Low involvement (little or no effort to choose the item)

Low price

From the marketers' angle:

High volumes

Low contribution margins

Extensive distribution networks

High stock turnover

The factors which customer focuses while purchasing FMCG products are

Price

Availability

Brand name

Quantity

Quality

Packing

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Reference

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. The only way out for 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.
DISTRIBUTION
One of the age-old problems that FMCG has been facing 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 fly 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.

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:

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.

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.

DESIGN AND MANUFACTURING

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.
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.
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 its 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: 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.
Limited Mass Media Options:
The challenge associated with the launched /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.
Huge Distribution Network:
FMCG require huge distribution network .This makes logistics particularly for new players
extremely difficult.

ENVIRONMENTAL ANALYSIS OF FMCG INDUSTRY

1. Macro Environmental Analysis
Demographic Environment: Population growth has a positive impact on FMCG industry
as it creates more and more demand for FMCG industry products. On the basis of world
economy in terms of population there are many opportunities for FMCG products.

Population Age Mix: The population age mix has impact on the variety of products that
FMCG companies can provide.
FMCG companies can diversify their products according to the population of age mix of market.
Most of the population of the world comprises of young people with diversified income groups
hence there are more opportunities for Personal Care and packaged Food Environment
Expansion.

Economic Environment: Increase in purchasing power of people has a positive impact on

FMCG Industry; Pakistan is one of the largest economies in the world in terms of purchasing
power with a strong middle class base. In Pakistan, there is no problem regarding the choice of

appropriate market segment because of rapid urbanization increase in demand, presence of large
number of urban population as a result of which large number of opportunities are available.
But as the purchasing power of people increases the company has to create more and more
innovative products.

Technological Environment: Basic Technology for manufacturing is easily available. Also

technology for most products has been fairly stable. Modifications and improvement rarely
change the basic process but use of new and better chemicals can improve the quality if the
products.

Political And Legal: Government policies and legal laws has an affect on FMCG sector.
Pakistan Governments policies of lifting of the quantitative restrictions reductions in excise
duties and automatic foreign investment has fostered FMVG growth. Removal of the regulatory
framework has allowed industry to explore every product and segment without constraints on
production capacity.

2. Micro Environment
Competitors: Most products categories in FMCG require minor investment in plant and
machinery and other fixed assets. Also, the business has low working capital intensity as bulk of
sales from manufacturing takes place on cash basis as there are large numbers of competitors.
There is a major threat from small scale industries in rural sector.
Unilever and Procter & Gamble both are competitors of each other as the Coca-cola and pepsi.

Suppliers: The bargaining power of suppliers of raw materials and intermediate goods is not
very high. There is ample number of substitute suppliers available and raw materials are easily
available in the marketed and most of the raw materials are homogeneous. There is no monopoly
situation in the supplier side because the suppliers are also competing themselves.

Consumers: As there is increase in purchasing power and knowledge of consumers demand

for more wide variety of products.

Consumers want more variety in personal care, packaged foods. They want different packaging
prices. As a result FMCG companies have introduced wide variety of products range.

Distribution Channels: For an FMCG company distribution network should be very wide.
FMCG companies should provide their products in each and every big retail store to local
grocery shop. Then only it can create more consumers and can maintain current consumers.

Demand & Supply: Currently, only a small percentage of the raw materials are processed
into value added products even as the demand for processed and convenience food is on the rise.
In the personal care segment, the low penetration rate in both the rural and urban areas indicates
a market potential.

Conclusion:
It's not hard to see just how deeply they penetrate our domestic lives. In the post-modern West,
attitudes towards FMCG are changing along with consumer behavior, and numerous lobby
groups pressurize large corporations as part of a general attempt to foster many kinds of social
reform. FMCG firms are easy targets of consumer boycotts, and must pay closer attention to
notions of corporate responsibility than ever before.Green issues, health issues, and fears about
biotechnology are just a few matters that companies cannot afford to ignore. In much of the
developing world, however, FMCG

are still welcomed as a symbol of progress

towards prosperity. Many people in Russia and China, for instance, want as much FMCG as they
can get. For leading brand manufacturers, the real opportunities for growth lie in these newer
markets.
In the West, power has shifted from the manufacturers to the retailers, and competition has
intensified. It's often a bitter struggle, as salespeople for supermarket suppliers battle for space
on the shelves and are trapped in a cycle of wasteful trade promotions that they cannot control.
For the salesperson in the field, it can be difficult to get a coherent overview of what is really
happening. Selling into stores has little to do with personal selling skills, and is focused on
getting a small edge in an endless, probably unwinnable, war. That small edge, however, can
translate into hefty profits for a while