FMCG INDUSTRY

Introduction
Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian economy
with Household and Personal Care accounting for 50 per cent of FMCG sales in India.
Growing awareness, easier access and changing lifestyles have been the key growth drivers
for the sector. The urban segment (accounts for a revenue share of around 55 per cent) is the
largest contributor to the overall revenue generated by the FMCG sector in India However, in
the last few years, the FMCG market has grown at a faster pace in rural India compared with
urban India. Semi-urban and rural segments are growing at a rapid pace and FMCG products
account for 50 per cent of total rural spending.
Market Size
The FMCG market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840
billion in 2017, with modern trade expected to grow at 20 per cent - 25 per cent per annum,
which is likely to boost revenues of FMCG companies. Revenues of FMCG sector reached
Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and are estimated to reach US$ 103.7 billion in
2020. The sector witnessed growth of 16.5 per cent in value terms between July-September
2018; supported by moderate inflation, increase in private consumption and rural income. 
Government Initiatives
 The minimum capitalisation for foreign FMCG companies to invest in India is
US$100 million.
 The Government of India has approved 100 per cent Foreign Direct Investment (FDI)
in the cash and carry segment and in single-brand retail along with 51 per cent FDI in
multi-brand retail.
 The Government of India has drafted a new Consumer Protection Bill with special
emphasis on setting up an extensive mechanism to ensure simple, speedy, accessible,
affordable and timely delivery of justice to consumers.
 The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of
the FMCG products such as Soap, Toothpaste and Hair oil now come under 18 per
cent tax bracket against the previous 23-24 per cent rate.
 PORTER 5 FORCE MODEL OF ITC

The five-force model of Porter helps to reach where the strength lies in a company scenario.
Porter's Model is in fact a business
strategy instrument that helps analyse an
industry structure's attractiveness. It
allows you to access your competitive
position's present power and the strength
of the position you plan to achieve.
Porters Model is regarded as an
significant aspect of the set of tools for
planning. If you know where the
strength lies, you can take advantage of your strengths and enhance the weaknesses and
compete effectively and efficiently.
Porters model of competitive forces assumes that there are five competitive forces that
identifies the competitive power in a business situation. These five competitive forces
identified by the Michael Porter are:

1. Threat of substitute products

2. Threat of new entrants
3. Intense rivalry among existing players
4. Bargaining power of suppliers
5. Bargaining power of Buyers

Threat of new entrants – Entry of a new competitor in the market weakens the power of
another company. Threat of new entry is high in case of ITC when –

 More of FMCG start-ups such as Genome Labs launching in India and competing
with other FMCG brands.
 Customer can easily switch from one brand to another (ITC consumers can start
purchasing HUL products) as there is low switching cost. So, in order to avoid this
ITC must provide the quality services to its customers.
 Product differentiation is the key aspect where a new entry can turn the tables around.
If there is not any product differentiation of ITC products, consumers tend to loose
 brand loyalty and switch over those brands which provides a differentiating feature to
the customers.
 Capital requirement.

Intense rivalry among existing players -

Rivalry in industry means the intensity of competition on the market among current rivals. 
Rivalry intensity relies on the amount and ability of rivals. Rivalry in the industry is high 
when :
 There are many competing players in the FMCG market so a consumer can easily
change its preference for a brand e.g. Tide of P & G can be easily replaced by Rin of
HUL if HUL provides a value proposition to the consumer.
 Fixed cost are high which results into huge production and reduction in prices.
 A company is suffering from losses but hey cant exit the industry as the exit barriers
are high in FMCG sector and they continue to compete with a minute market share
which other FMCG brand can acquire if the loss suffering firm exits the market.

Bargaining power of suppliers - Bargaining Power of supplier means how strong is the

position of a seller.  How much your supplier have control over increasing the Price of
supplies. Suppliers are more powerful when –

 Suppliers are concentrated and well organized

 a few substitutes available to supplies
 Their product is most effective or unique. For e.g. Cigarettes in case of ITC
 Switching cost, from one suppliers to another, is high
 You are not an important customer to Supplies

Bargaining power of Buyers - Bargaining Power of Buyers means, How much control the
buyers have to drive down your products price, Can they work together in ordering large
volumes. Buyers have more bargaining power when:

 Few buyers chasing too many goods

 Buyer purchases in bulk quantities
 Product is not differentiated
 Buyer’s cost of switching to a competitors’ product is low
 Shopping cost is low
 Buyers are price sensitive
 Credible Threat of integration

Threat of substitute products - Threat of substitute products means how easily your

customers can switch to your competitors product. Threat of substitute is high when:

 There are many substitute products available. For eg. Ponds from HUL and Fiama Di
Wills from ITC.
 Customer can easily find the product or service that you’re offering at the same or less
price
 Quality of the competitors’ product is better
 Substitute product is by a company earning high profits so can reduce prices to the
lowest level.