TASK 11

If it’s important to us, we will find a way – otherwise we will find excuses
FAST MOVING CONSUMER GOODS SECTOR

FMCG industry analysis:

The Fast-moving consumer goods (FMCG) sector is the 4th largest sector of the Indian
economy. It is characterised by high turnover consumer packaged goods, i.e. goods that are
produced, distributed, marketed and consumed within a short span of time. FMCG products
that dominate the market today are detergents, toiletries, tooth cleaning products, cosmetics,
etc. The FMCG sector in India also includes pharmaceuticals, consumer electronics, soft drinks
packaged food products and chocolates. Since the sector encompasses a diverse range of
products, different companies dominate the market in various sub-sectors. However, some of
the top FMCG companies in India are- Hindustan Unilever Limited, ITC Limited, Nestle India,
Britannia Industries and Marico.
Market Size
The retail 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 25% per annum, which is likely to boost
revenue of FMCG companies. Revenue of FMCG sector reached Rs. 3.4 lakh crore (US$ 52.75
billion) in FY18 and is estimated to reach US$ 103.7 billion in 2020. From October 2020 to
December 2020, the FMCG market rose 7.1%, driven by food items, health, hygiene and rural
areas.
Rise in rural consumption will drive the FMCG market. It contributes around 36% to the overall
FMCG spending. In the third quarter of FY20 in rural India, FMCG witnessed a double-digit
growth recovery of 10.6% due to various government initiatives (such as packaged staples and
hygiene categories); high agricultural produce, reverse migration and a lower unemployment
rate.

Investments/ Developments
The Government has allowed 100% Foreign Direct Investment (FDI) in food processing and
single-brand retail and 51% in multi-brand retail. This would bolster employment, supply chain
and high visibility for FMCG brands across organised retail markets thereby bolstering
consumer spending and encouraging more product launches. The sector witnessed healthy FDI
inflows of US$ 17.8 billion from April 2000 to September 2020.

Some of the recent developments in the FMCG sector are as follows:

• In February 2021, Food and snack company, Haldiram's partnered with Africa's Future
life to bring its nutritional food product range to India. The two companies launched a
range of four products—Smart Foods, Smart Oats and Ancient Grains, Crunchy
Granola and High Protein.
• In January 2021, Tata Consumer Products announced that it is looking for ways to add
more of its beverages’ portfolio onto a direct-to-consumer platform to capture the urban
online market.
 • In January 2021, Tata Consumer Products introduced two new products, TATA Tea
Tulsi Green and TATA Tea Gold Care, and reformulated its existing Tetley Green Tea,
with added Vitamin C.
• In January 2021, Dabur India decided to foray into the ‘cow ghee’ category. These
products will be prepared from milk sourced from indigenous cows bred in Rajasthan.
• In January 2021, Dabur India decided to foray into the ‘cow ghee’ category. These
products will be prepared from milk sourced from indigenous cows bred in Rajasthan.
• In January 2021, Del Monte has launched a special 1 litre pouch pack in India, priced
at Rs. 250 (US$ 3.42), thereby making olive oil affordable to consumers.
• In January 2021, FMCG businesses in India are planning to expand their oral care
portfolio by entering new and niche categories such as mouth sprays, ayurvedic mouth
cleansers and mouthwashes to meet the rising consumer demand for hygiene products.
• In December 2020, Godrej Consumer Products Limited (GCPL), under its Godrej
ProClean brand, has ventured into home cleaning products to meet the rising demand
for cleaning and hygiene products among Indian consumers. The home cleaning
products segment, which includes branded floor, toilet and bathroom cleaners, is
estimated to be ~ Rs. 2,600 crores (US$ 354.05 million).
• FMCG companies are focusing on strengthening their e-commerce engagement. An
Ayurveda baby care range has been introduced by Dabur, which will be sold only on e-
commerce platforms. With its contribution expanding from 1.5% to 5.6%, the e-
commerce division of the group has more than doubled over the previous year.
Similarly, in the first quarter of FY21, Marico's e-commerce sector has grown 37%
YoY, while Emami’s e-commerce business doubled to >100%.

Government Initiatives
Some of the major initiatives taken by the Government to promote the FMCG sector in India
are as follows:

• On November 11, 2020, Union Cabinet approved the production-linked incentive (PLI)
scheme in 10 key sectors (including electronics and white goods) to boost India’s
manufacturing capabilities, exports and promote the ‘Atmanirbhar Bharat’ initiative.
• The Government of India has approved 100% FDI in the cash and carry segment and
in single-brand retail along with 51% FDI in multi-brand retail.
• The Government 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 the 18% tax
bracket against the previous rate of 23-24%. Also, GST on food products and hygiene
products have been reduced to 0-5% and 12-18% respectively.
• GST is expected to transform logistics in the FMCG sector into a modern and efficient
model as all major corporations are remodelling their operations into larger logistics
and warehousing.
FMCG Sales Terminologies

Primary Sales: These are sales from the company to the distributor e.g., the amount of product
that a distributor purchases from the company. Normally Area Manager's and Regional
Manager's targets are set on Primary Sales.

Secondary Sales: These are sales from the distributor to the retailer. Usually, TM/TSM's
targets are always based on secondary sales.

Offtakes (Tertiary Sales): These are sales from the retailer to the customer. While offtakes
are not tracked by the company, trends of offtakes are tracked by some market research agency
like Nielsen.

Beat: This is the route that a salesman (DSR/SO/SR) follows on a particular day. For example,
beat on Saturday is Location X, and beat on Sunday is Location Y. If the salesman visits each
beat on every alternative day, all the retailers/stores/outlets in his sales territory will be covered
in two days. Thus, he will visit the same outlet of his beat thrice per week.

Numeric Distribution: The number (or percentage) of outlets where company's product is
present (outlets that have at least one SKU of a product) e.g. at how many outlets a company's
product is available is measured by numeric distribution.

Weighted Distribution: The percentage of the total sales volume that comes from the served
outlet.

Stock Keeping Unit (SKU): This refers to a specific product from a range of product of a
company. For example, 100-gram Dettol original soap is an SKU of Dettol soap of Reckitt
Benckiser (Reckitt Benckiser has other SKUs of Dettol soap like 50-gram Dettol soap, 200-
gram Dettol soap, etc.).

Sales Representatives (SR) or Sales Officers (SO): SR/SO can be employed either by
company or by distributors depending on company policy who are responsible for collecting
sales order from their assigned routes. After collecting sales orders from the outlets of his
assigned route, a SR/SO makes a summary of this total order and submits it to the distributor
for delivery. Based on this collected order (summary sheet) product delivery happens on the
next day by DSR or Deliveryman of distributor.
DSR: Distributor's Sales Representatives are employed by distributors but managed by
TM/TSM; DSRs are the salesmen who are responsible to make sales of company's products
(SKUs) to retailers. Typically, where SR or SO concept is available, DSRs are the deliverymen
who are employed to deliver company's products to outlets according to previously collected
orders by SR/SO. Where SR/SO concept is not practiced (e.g. not employed by company itself)
DSR plays the role of SR/SO and in that case distributor employs a separate delivery unit for
distributing products to retail.

Wholesalers: An outlet of a beat is considered as wholesaler if that outlet contributes more

than 50% sales of that particular beat (this assumption may differ for different companies).

Modern Trade: Super shops who mainly sell to premium customers e.g., Agora, Swanpa etc.
(Modern Trade is managed by the dedicated sales channel)

Trade Schemes or Trade Promotions (Widely Known as TP): These are schemes that are
given out in the market to boost sales from time to time. Trade Schemes are designed for the
trade i.e., Retailers/Wholesalers and the Distributors.

Trade Promos are of two types:

• Quantity Purchase Schemes (QPS): To inspire the retailers to buy more, sometime
company offers QPS. These typically look like this: Purchase of 144 pieces at a time
and get 8% discount. Basically, these are discounts offered on purchasing a particular
quantity of products.
• Value Purchase Schemes (VPS): These are same as QPS; the only difference is that
these are offered on value purchased instead of quantity. These would look like this:
Purchase of Tk 10,000.00 at a time and get 8% discount. These are discounts offered
on purchasing products of a predefined value.

Trade schemes are further divided into two types depending on who they are offered to:

• Primary Schemes: These are those that are deducted while the invoicing is done to the
distributor from the company’s end. This may be done to give the distributor an
additional margin.
 • Secondary Schemes: These are those which the distributor is supposed to first extend
to the market as per company declared trade scheme and then claims it back to the
company.

ROI (Return of Investment): This is calculated on monthly/quarterly/yearly basis to

understand distributor's profitability. ROI calculation is very important as it is a tool to
negotiate with your distributor to manage/deploy required investments.

The equation is simple: ROI= Return/Investment, Return = (Earnings – Expenses).

FOC: Free of Cost (Goods offered as free). Sometimes company offers FOC goods to retailers
as a part of special promotion.

Display: This refers to Shelf of an outlet that a company pays for (can also be a floor standing
unit (FSU) in Modern Trade). Company usually hires shelf space of an outlet on monthly rental
basis to display its products.

Strike Rate or Productivity: It is the % of all successful sales calls out of total calls made by
a DSR. This is generally measured on daily basis.

ECO: It stands for Effectively Covered Outlet or Effective Coverage which means how many
outlets out of total outlet of a route or market or territory are making at least one memo in a
month. With ECO a company measures active outlet number.

Other Popular Terms:

• EC: Effective Coverage,

• PC: Productive Call,
• LPC: Lines Per Call,
• LPD: Lines Per Day,
• LPM: Lines Per Month,
• LPI: Lines Per Invoice,
• KPI: Key Performance Indicator,
• TBTL: Time Bound Trade Load,
• DLTL: Display Linked Trade Load,
• NPLP: New Product Launch Process,
 • CP: Consumer Promotion,
• CO: Consumer Offer,
• L&D: Leakage & Damage,
• DD: Direct Distributor,
• SD: Super Distributor,
• OSDP: Out Stationed Distribution Point,
• JC: Journey Cycle,
• TMR: Town Market Report,
• Discounts: Primary Discounts, Secondary Discounts, Cash Discounts.

In the last 10 years, the revenue in FMCG industry in India has been growing at the rate of
21.4%. There was a drastic change in revenues in FMCG sector growing from US$ 31.6 billion
to US$ 52.8 from 2011 to 2017-2018 respectively. FMCG industry in India is expected to grow
at the rate of 27.9% CAGR (Compounded Annual Growth Rate) to sum to US$103.7 billion
by 2020. Additionally, the rural FMCG market is projected to grow at a CAGR of 14.6% to
reach US$100 billion by 2020 and US$220 billion by 2025. The rural setting accounts for 45%
revenue share while the urban setting dominates with 55% revenue share of the total revenue
of the FMCG industry. More than 65% of people in India stay in rural places and those people
spend around 50% of their total expenditure on FMCG products. The number of people buying
consumer goods online in India is projected to reach 850 million by 2025.
Driving factors leading to growth rate:

• Increased population of working women

• Increased disposable income and growing per capita expenditure
• Increased purchasing power of the customers
• Increased awareness of online shopping
• Higher brand recognition and consciousness
• Constant change in consumer preference
• Banking policies and government's regulations
• Growing interest for foreign investors

Profitability of FMCG
Basically, FMCG items hold a strong position in the global economy. Generally, FMCG items fetch
relatively small margins. However, they are generally sold in large quantities. Therefore, the
cumulative profit on such products is substantial. The margin for a distributor may range from
3% to 30% of the sales price, the margin for the retailer may range from very little to 60%.
This all depends on the type of product and who pays for the marketing activities. Most FMCG
companies are likely to maintain their profit margins due to rationalization of expenses and
lower corporate tax. Top IT companies are expected to report 1.5-3% growth in dollar-
denominated revenue. Metals companies are expected to post a strong quarter after weak first half of
FY20. The FMCG (Fast Moving Consumer Goods) is one of the most exciting industries to
work with. FMCG are organizations behind some of the world's biggest brand name such as
P&G, Unilever, PepsiCo, Nestle, Coca-Cola etc.

Competition level and its impact

India's huge population has always been a significant factor for the growth of FMCG sector in
the country. Between 1950 and 1980, the consumption of FMCG products were relatively low
due to the low per capita income. The post-liberalization era in India has witnessed a massive
growth in the selling of products in the domestic market. The Indian market also imported loads
of products from overseas markets which made increased the competition between the
organized and the unorganized sector. Major FMCG industry competitors in the market:

• Hindustan Unilever Ltd.

• ITC Ltd.
• Nestle India Ltd.
• Britannia Industries Ltd.
• Godrej Consumer Products Ltd.
• Patanjali Ayurved Limited.
• Dabur India Ltd.
• Marico Ltd.

The market of fast-moving consumer goods commonly known as FMCG is wide, diverse and
full of competition. A product with high-turnover and low-price falls under the category of
FMCG. Such products have a small shelf life. It includes items like toiletries, soap, cosmetics,
and non-durable items like glassware, bulb, paper products, and batteries. Items like medicines,
packaged food & drinks, soft drinks etc. also fall under the same category. The Indian FMCG
market is the fourth largest sector in the economy and it plays a crucial role in the Indian
economy and creates employment. The scenario of Indian market is mostly decided by the
FMCG companies. There are top business giants taking lead and several hundred emerging
companies trying hard to come forward and stand with leading FMCG producers.

Entry barrier to the FMCG

The Indian FMCG Industry is characterized with modest entry and exit barriers. The presence
of substitute products in FMCG lowers industry attractiveness and profitability because they
limit price levels. The threat of substitute products depends on: Buyers' willingness to
substitute. Major trends expected to influence FMCG markets in 2019 and beyond:

• Growth of e-commerce.
• Consumers demand product convenience.
• Greater focus on healthier products.
• Greater disposable income and more consumers in Asia.
• Millennial to become big FMCG influencers.
One needs to have sound strategy on how to leverage Modern Trade & E Commerce. When
we launch a new product make sure in top modern trade outlets your product has good
presence, visibility, trial generation through promoters.
Government policies

Goods and Service Tax (GST)

• GST, upon being implemented shall replace the multiple indirect taxes levied on FMCG
sector with a uniform, simplified and single-point taxation system. A swift move to the
proposed GST may reduce prices, bolstering consumption of FMCG products.

Food Security Bill

• The Food Security Bill has been passed recently by the Union Cabinet. As per the bill,
5Kg of food grains per person per month will be provided at subsidized prices by the
State Governments under the targeted public distribution system. This is expected to
result in higher inflow of investments into the agriculture sector in the coming years.

Excise Duty

• Excise duty on other beverages and lemonade would be decreased to reduce retail sale
price by 35%. Excise duty on various tobacco products other than beedi would be
increased, resulting in retail price of tobacco products going up by 10-15%.

Relaxation of License

• Rules Industrial license is not required for almost all food and agro-processing
industries, barring certain items such as alcoholic beverages, cane sugar, and
hydrogenated & animal fats as well as items reserved for exclusive manufacture in the
small-scale sector.

FDI in Organised Retail

• The government approved 100% FDI in selling of food products through E-commerce
in 2016. This is expected to boost the online food market in the country in the coming
years. It also allowed 100% FDI in the cash and carry segment and in single brand retail.
Other government initiatives such as Pradhan Mantri Jan Dhan Yojana through which
wage seekers are encouraged to open up bank accounts under Mahatma Gandhi
National Rural Employee Guarantee Act.

Life cycle of FMCG industry:

India is the most attractive FMCG market in the world. FMCG market matured in India over
the years but still it is highly fragmented. There are around 12-15 million outlets in the
country making it a US$ 327 billion market. In past 5 years FMCG market witnessed a
growth of 21.4% from 2010 to 2014, which is higher than Indian GDP growth.

Growing youth segment and working women population, rising incomes and rising
purchasing power, higher brand consciousness, changing consumer preference, growing
urbanization, increase in number of upper middle class and rising internet penetration are the
biggest drivers in the growth of FMCG industry of India. Also, rapid real estate infrastructure
development, easy access to credit, increased efficiency due to development in supply chain
and growing interest of investors are also helping FMCG sector to grow in India.

FMCG Industry in India unlike other emerging economy is still very traditional in nature and
is largely controlled by Cooperatives and Independent FMCG companies. Street markets play
an important role in the FMCG industry of India as most of the population does their
shopping here. Before the liberalization and globalization in 1991, western apparel, foods
etc., were not available in the Indian market and the brand awareness and recall among the
local population was negligible but after 1991 the awareness has steadily increased. This has
allowed international brands to flourish.

Apart from normal brick and mortar stores e-commerce is the next big sector in India and is
poised for a boom. India has all the necessary conditions like moderate per capita GDP, rising
internet connections, large number of engineering graduates etc. which are required for the
success of E-commerce. Currently the E-commerce Market is worth more than billions of
dollars but that is just the tip of the iceberg. The retail industry of India is hugely untapped
and investors can massively return when they decide to enter India’s retail sector.

The FMCG industry in India has recorded value growth of 7.3 per cent in October-December
quarter helped by consumption-led recovery during the festive period and increase in sales
from traditional as well as organized trade, according to data analytics firm Nielsen. Report
talks about growth, market trends, progress, challenges, opportunities, government regulations,
technologies in use, growth forecast, major companies, upcoming companies and projects etc.
in the FMCG Sector of India. In addition to it, the report also talks about economic conditions
of and future forecast of its current economic scenario and effect of its current policy changes
in to its economy, reasons and implications on the growth of this sector. Lastly, the report is
segmented by bazaars, brick and mortar shops and e commerce.
SWOT analysis of FMCG industry:

Strengths: Weakness:
1.Low operational costs 1.Lower scope of investing in
2.Presence of established distribution technology and achieving economies of
networks in both urban and rural scale, especially in small sectors.
areas. 2.Low exports levels
3.Presence of well-known brands in 3.Counterfeit products. These products
FMCG sectorial. narrow the scope of FMCG products in
4.Deep roots in local culture and great rural and semi-urban market.
understanding of consumer needs.

SWOT
ANALYSIS
Opportunities Threats:
1.Untapped rural market 1.Removal of import restrictions
2.Rising income levels, ie. Increase in resulting in replacing of domestic
purchasing power of consumers. brands
3.Large domestic market-a population 2.Slowdown in rural demand
of over one billion. 3.Tax and regulatory structure.
4.Export potential
5.High consumer goods spending.

Porter’s 5 forces model of FMCG industry:

Barriers to
entry:
Moderate

Bargaining
Intensity
power of
of rivalry:
consumers
High
Five : Low
forces
model

Bargaining
Threat of
power of
substitutes
suppliers:
: High
Moderate
Barriers to entry:
Entry of new players in an industry raises the level of competition, thereby reducing its
attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry
barriers exist in some industries (e.g., shipbuilding) whereas other industries are very easy to
enter (e.g., estate agency, restaurants, FMCG).

Key barriers to entry include:

• Economies of scale
• Product differentiation
• Brand Identity
• Customer switching costs
• Access to industry distribution channels
• Capital requirement
• Access to technology
• Government Protection
Economies of Scale are the key determinants of market structure and entry for any
organization. In FMCG Sector Economics of scale is highly attractive because units produced
of goods is very larger scale and the costs incurred on those is very less. Differentiation looks
to make a product more attractive by contrasting its unique qualities with other competing
products, in FMCG sector differentiation has been done via color, size, shape, quantity etc.
Product differentiation in FMCG sector is highly attractive. The most visible elements of a
brand are colors, design, logotype, name, symbol, etc. A well-built brand identity will
effectively communicate a company’s personality and its product value to potential
customers, helping build brand recognition, association and loyalty. So, the brand identity is
very high in FMCG Industry and the customer switching cost is very low because there are
ample no. players in the market. There is huge availability of distribution channels in FMCG
like manufacture, retail outlets, wholesaler etc. The Indian FMCG Industry is characterized
with modest entry and exit barriers.
Rivalry among competitors:
Competitiveness among the Indian FMCG players is high. With more MNCs entering the
country, the industry has become highly fragmented. Spending on advertisements continues
to grow and marketing budgets as well as strategies are becoming more aggressive.
Rivalry among competitors is includes:
• Number of competitors
• Industry growth
• Differentiation
• Switching cost
• Openness of terms of sale
• Excess capacity
• Strategic stakes
FMCG has been a safe sector for investors looking for predictable margins and stable returns
during the economic crisis. So, we can say that the industry growth in the FMCG sector is
high. The product differentiation is moderate in FMCG Sector that is the differentiation in
competitors is also moderate and switching cost from one company to another is low in this
sector. The intensity of competitive rivalry increases when success in an industry is important
to a large number of firms. For example, the success of a diversified firm may be important
to its effectiveness in other industries, especially when the firm is in interdependent or related
industries. The high strategic stakes impact the long-term profit potential for an organization
in this sector there are ample no. of competitors so that we can say that the excess capacity is
high and contribution of investor and stakeholders is also high.

Bargaining power of suppliers:

Suppliers to the industry wish to capture as much of the profit in the value chain as possible
prices are generally governed by international commodity markets, making most of the FMCG
companies a price taker. Due to the long-term relationships with suppliers etc., the FMCG
companies negotiate better rates during times of high input cost inflation. If an intermediary
is earning excessive profits, suppliers will raise prices in order to capture a greater share of
the profit

The bargaining power of suppliers includes:

• Number of suppliers
• Availability of substitute
• Supplier’s threat of forward integration
• Industry’s threat of backward integration
• Contribution to cost
• Industry’s importance to supplier
In this sector the power of suppliers of raw materials and intermediate goods is not very high
because there is ample number of substitute suppliers available so the bargaining power of the
suppliers is low. All firms must recognize that they compete against firms producing substitute
products, those products that are capable of satisfying similar customer needs but come from
outside the industry and thus have different characteristics. So, the availability of substitute is
really high in FMCG sector. High-volume, low-margin fast-moving consumer goods industry
contributed moderate rate of cost due to the involvement of advertisement, manufacturing,
packaging so that importance to supplier is also moderate.
Threat of substitutes:

The presence of substitute products in FMCG industry attractiveness and profitability because
they limit price levels.

The threat of substitute products depends on:

• Availability of close substitute
• Switching cost
• The relative price and performance of substitutes
• Profitability of the producers of substitutes

Being an essential commodity the demand for consumer products is elastic. Several brands
are positioned with narrow product differentiation. Companies entering a category /trying to
gain market share compete on pricing which increases products substitution. Hence, threat of
substitute is high in the FMCG industry. The cost of switching from one supplier’s product to
another supplier’s product is easy if the switching cost is lower but if it’s high then it’s difficult
to buyers, the switching cost in FMCG sector is low because of easy availability of products.
The relative price and performance of substitutes are closely related in this sector and
profitability of producers is depend on the performance of the substitute.
Bargaining power of consumers:
Bargaining power of buyers or consumers depends on:
• Number of buyers
• Availability of suppliers
• Switching cost
• Contribution to quality
• Contribution to cost

While firms seek to maximize their return on invested capital, buyers are interested in
purchasing products at the lowest possible price. To reduce cost or maximize value, customers
bargain for higher quality or greater levels of service at the lowest possible price by
encouraging competition among firms in the industry. Into this sector the availability of
buyers is high. High brand loyalty for a product discourages customers’ product shift. But low
switching cost and aggressive marketing strategies under intense competition between the
FMCG companies, induce consumers to switch between products, thereby driving value for
money deals for consumers. Brand loyalty for a product contributed good quality and high
cost.

PESTAL analysis of FMCG industry

POLITICAL FACTORS
• Political stability: Political stability is one of the important most factor which influence
the growth of business directly. If Political stability is higher, then it leads to perfection
in business & on the other hand if there is instability the business will have to suffer.
• Taxation policy: Tax policy of government will affect the price of inputs & it ultimately
affect the prices of final products & it will directly affect the sale of product.
• Government intervenes: This indicates that at what level the government intervenes in
the economy. If the government intervene is more sometimes it helps the organization at large extent.
• Subsidies: The subsidies which are provided by government to different organisation
at different level also help it to grow at faster rate & helps the organisation in reducing
the finance which is to be funded from outside & it directly reduces interest amount paid in favour of
fund raised from outside.
• Trading policies: This indicates the policies related to import & export of goods and
services from different nations. If the policies are favourable more goods & services
will be imported& exported, & on the other hand if policies are unfavourable, it will restrict the
import &export. Labour law: Labour law also affect the organisation, for example- child labour, a
child below14 year of age cannot work in factory or any hazardous place.

ECONOMIC FACTORS
• Interest rates: Interest rate directly affect the cost of capital, if the interest rate is higher
the cost of capital will increase & if it is lower than cost of capital will be lower. This
directly affect the profit of the organization & it’s growth.
• Tax charges: If the tax charged by the government is lower than it will reduce the product price & if
it is higher than it will increase the prices of the products.
• Exchange rates: This shows that what is the exchange rate or foreign currency rate. If
exchange rate is higher more amount is paid on import of goods & if it lowers less amount is to be paid
& on the other hand if it is higher the amount received will be more & if it is lower the amount received
will be low.
 • National income: National income is important factor as if affect the growth of the
organisation. If per capita income is more the amount spend will be more & if it will be lower the
amount spent will be less. Economic growth: Economic growth is important factor in the
development of the organization. If economy grows at a higher speed, it will directly affect the
growth of the organization.
• Inflation rate: Inflation means the rise in the value of all the product in the economy, if inflation rate is
higher the cost of products will be higher & if inflation rate is lower the cost of product will be lower.
This directly affect the growth of the organization.

SOCIO-CULTURAL FACTORS
• Demographics: Demographics is the study of human population in the economy. It helps the
organization to divide the markets in different segments to target a large of customers. For Example-
according to race, age, gender, family, religion, & sex.
• Distribution of income: This shows that how income is distributed in the economy. It
directly affects the purchasing power of the buyers. And ultimately leads to increase or decrease in
the consumption level of the products.
• Changes in life style: Change in life style also leads to increase or decrease in the demand for different
commodities. For example-presently LCD & LED TV’s have replaced Digital
• displayed TV set, this shows that the changes in life style of consumers.
• Consumerism: This indicates that a large number of options are available while purchasing of goods to
consumers, so the choice becomes easy & quality products can be choose by consumers. So, while
purchasing a consumer have different choices to select product according to his needs.
• Education levels: Education is one of the most important factors which influence the
buying
• power of consumer, while selecting a particular good a consumer should know all its features so
it can differentiate them with another products.
• Law affects social behaviour: Different laws are made by the government to safe guard the rights of
consumers. For example- Consumer protection act, this law indicates that a consumer can
file a case against a seller if he finds that he is cheated.

TECHNOLOGICAL FACTORS
• Advancement in technology: New technology helps in economising the scale of
production, this means that new technology helps in increasing the level of production, & reducing
the costs of inputs, & maximising the level of profits.
• Discoveries & innovation: Advancement in technology will leads to discoveries &innovations
& further improvements in technology so as to improve perfections in the production
process.
• Competitive forces: Advancement in technology will also leads to competition in the
markets, more quality products will be provided to consumers to cover a large number of markets.
• Automation: Change in technology will leads to automation, this means that with new
technology labour required is less as machines are automatic. All the works are done automatically by
the machines as earlier it is labour oriented. Now all the work is machine oriented.
• Obselete rate: Day-by-day new inventions are made so the rate of obsolete is higher, as
in Computer LAPTOPS have replaced the PC. This shows that the technology becomes obselete
very fast.
• Research & development: This department plays a vital role in the development of the
organization. As this department always do research that what are the demand of the
markets & how to make advancements so the organization can survive in the
competitive world
ENVIRONMENTAL FACTORS
• Ecological: The ecological and environment aspects such as weather, climate,
& climate changes, which may especially affect industry such as tourism, farming, &
insurance. In
• FMCG Air conditioner’s demand increase in summer season.
• Environmental issues: Global warming is one of the major issues now-a-days as external factor is
becoming a significant issue for firms to consider. Many remedies have been taken to
reduce Global warming.
• Environmental regulations: Various regulations have been declared by government to safeguard the
environment. For example-no company should through its waste in rivers.

LEGAL FACTORS
• Employment law: Employment law provides equal opportunities to every citizen to work &earn his
livelihood. It provides equal opportunities to every citizen.
• Consumer protection: This law helps to protect the rights of consumers & he can file a
case against seller if he fined that he is cheated.
• Industry-specific regulations: These laws are related to industry for example- no
industry can establish in between cities i.e.; it should be outside the cities.

Future of FMCG industry

Rural consumption has increased, led by a combination of increasing income and higher
aspiration levels. There is an increased demand for branded products in rural India. The rural
FMCG market in India is expected to grow to US$ 220 billion by 2025 from US$ 23.6 billion
in FY18.
On the other hand, with the share of unorganised market in the FMCG sector falling, the
organised sector growth is expected to rise with increased level of brand consciousness,
augmented by the growth in modern retail.
Another major factor propelling the demand for food services in India is the growing youth
population, primarily in urban regions. India has a large base of young consumers who form
majority of the workforce, and due to time constraints, barely get time for cooking.
Online portals are expected to play a key role for companies trying to enter the hinterlands.
Internet has contributed in a big way, facilitating a cheaper and more convenient mode to
increase a company’s reach. The number of internet users in India is likely to reach 1 billion
by 2025. It is estimated that 40% of all FMCG consumption in India will be made online by
2020. The online FMCG market is forecast to reach US$ 45 billion in 2020 from US$ 20 billion
in 2017.
It is estimated that India will gain US$ 15 billion a year by implementing GST. GST and
demonetisation are expected to drive demand, both in the rural and urban areas, and economic
growth in a structured manner in the long term and improved performance of companies within
the sector.

Submitted by,
Meghna B Raj
Finance department (21FMCG60 B4)