FMCG Industry Analysis

INDUSTRY ANALYSIS
Name :- Rhutika Kuwar

Roll No :- 2112631
FOOD INDUSTRY (FMCG : FAST -MOVING

CONSUMER GOODS) :-
MICHAEL PORTER’S 5 FORCE MODEL :-
INTRODUCTION :-
FOOD INDUSTRY :
The food industry is a complex, global network of diverse businesses
that supplies most of the food consumed by the world's population.
The term food industries covers a series of industrial activities
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directed at the production, distribution, processing, conversion,
preparation, preservation, transport, certification and packaging of
foodstuffs. The food industry today has become highly diversified,
with manufacturing ranging from small, traditional, family-run
activities that are highly labor-intensive, to large, capital-intensive
and highly mechanized industrial processes. Many food industries
depend almost entirely on local agriculture, produce, or fishing.
FAST-MOVING CONSUMER GOODS :-
Fast-moving consumer goods (FMCG), also known as consumer
packaged goods (CPG), are products that are sold quickly and at a
relatively low cost. Examples include non-durable household goods
such as packaged foods, beverages, toiletries, candies, cosmetics,
over-the-counter drugs, dry goods, and other consumables. Fast
moving consumer goods have a high inventory turnover and are
contrasted with specialty items which have lower sales and higher
carrying charges. Many retailers carry only FMCGs particularly
hypermarkets, big box stores and warehouse club stores. Small
convenience stores also stock fast moving goods; the limited shelf
space is filled with higher turnover items.
INDUSTRY RIVALRY :-
The food industry is very big and competitive. It is not rare for firms
within the industry to perform quite well. As a result, many
companies enter into the market every year in an effort to increase a
part of the profitable market. Jaradat (2013) exclaimed that a
competitive strategy with effective competitors will give the
company a competitive edge over other companies. In the food
industry, competition is relatively high. As for the Indian FMCG
industry competitiveness among FMCG players is quite high.With
more MNCs entering the country ,the industry has become highly
fragmented.
Rivalry among competitors include :-
THREATS OF SUBSTITUTE OF EXISTING PRODUCTS :-

Porter’s threat of substitutes definition is the availability of a product
that the consumer can purchase instead of the industry’s product. A
substitute product is a product from another industry that offers
similar benefits to the consumer as the product produced by the
firms within the industry. According to Porter’s 5 forces, threat of
substitutes shapes the competitive structure of an industry. With
high presence of multiple brands in the market, it is not a challenge
for consumers to switch from one product to another. Strategic
decisions like price point and quality play key roles in attracting
consumers. With narrow product differentiation under many brands,
it’s rather easy for a consumer to switch to another brand. The
threat of substitutes is informed by switching costs, both immediate
and long-term, as well as a buyer's inclination to change. There are
many substitutes of a single food product in the food industry .
For example :- coffee made by nestle has many substitute from
various different companies.
THE BARGAINING POWER OF BUYERS :-
While rising incomes and growing youth population have been key
growth drivers of the sector, brand consciousness has also aided
demand. With low switching cost inducing customers to shift to
other products, there will only be more demand for new products.
Also, the availability of same or similar alternatives, backed by strong
influence of marketing strategies will help the sector. As the
customers are more powerful, their tendency to bargain increases
especially the price sensitive customers as a result of which prices
may be forcefully reduced. In case of having power in the backward
integration for instance, customers in the food industry are able to
bargain over the decrease in price of the food items, this could result
as a threat for the company. With purchase decision, the bargaining
power increases. If more products are purchased, the bargaining
power is thus enhanced. In case of food industry the bargaining
power of customer is very strong. They demand good quality, a great
experience along with a reasonable price. If prices are set higher
customer might leave unreasonably.
THE BARGAINING POWER OF SUPPLIERS :-
The bargaining power of suppliers is the reverse of the bargaining
power of buyers. It is the price given for the product or services. This
too is a huge force in the industry. Suppliers can exert pressure on
businesses and even buyers by raising prices, lowering quality or
reducing product availability. Such decisions mostly affect the
buyers. Usually restaurants would get food from external sources
e.g butchers, different packaging companies and farmers and not
make their own. For instance most of the restaurants sell meat. The
supplier chosen will be according to the price the company sells its
product at. Thus, in most industries it is a weak force yet can still
advantage e.g Chipotle. It supplies organic produce and also
antibiotic free meat and therefore charges a price for the product
supplying
BARRIERS TO ENTRY :-
Barriers to market entry include a number of different factors that
restrict the ability of new competitors to enter and begin operating
in a given industry. For example, an industry may require new
entrants to make large investments in capital equipment, or existing
firms may have earned strong customer loyalties that may be
difficult for new entrants to overcome. The ease of entry into an
industry in just one aspect of an industry analysis; the others include
the power held by suppliers and buyers, the existing competitors and
the nature of competition, and the degree to which similar products
or services can act as substitutes for those provided by the industry.
Whereas to enter into FMCG industry is quite easy compared to
other industries.
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.
OVERVIEW OF INDIAN FMCG MARKET :-
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. The FMCG market in India is expected to increase at a
CAGR of 14.9% to reach US$ 220 billion by 2025, from US$ 110 billion
in 2020. According to Nielsen, the Indian FMCG industry grew 9.4% in
the January-March quarter of 2021, supported by consumption-led
growth and value expansion from higher product prices, particularly
for staples. The rural market registered an increase of 14.6% in the
same quarter and metro markets recorded positive growth after two
quarters. Final consumption expenditure increased at a CAGR of
5.2% during 2015-20. According to Fitch Solutions, real household
spending is projected to increase 9.1% YoY in 2021, after contracting
>9.3% in 2020 due to economic impact of the pandemic. 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. Rise in rural
consumption will drive the FMCG market. The Indian processed food
market is projected to expand to US$ 470 billion by 2025, up from
US$ 263 billion in 2019-20.
ROAD AHEAD FOR FMCG :-

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. 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. Also , 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$ 18.19 billion from April 2000 to March 2021.
CONCLUSION :-
FMCG Sector is a high volume and low margin industry, according to
Michael Porter's 5 forces model in FMCG industry, the number of the
buyers and the number of suppliers both are high, competition is
also very high that's by substitutes are easily available in there. If
customers are not so very brand loyal that means because of
substitute are easily available, the switching cost of buyers is also
very low. So overall we can say that the FMCG sector is highly
admirable in India because the contribution of this sector is almost
10% of the total GDP. It is one of the fastest growing sector and 4th
largest sector in India.
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INDUSTRY ANALYSIS

Name :- Rhutika Kuwar

FOOD INDUSTRY (FMCG : FAST -MOVING

THREATS OF SUBSTITUTE OF EXISTING PRODUCTS :-

OVERVIEW OF INDIAN FMCG MARKET :-

The retail market in India is estimated to reach US$ 1.1 trillion by

ROAD AHEAD FOR FMCG :-

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