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Fast-moving Consumer Goods (FMCG)

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August 23, 2024

 Why in news?

Recently, in a surprising turn, FMCG stocks saw an uptick even as the broader market faced a downturn.

What are the characteristics of FMCGs?

  • FMCG – They are Fast-moving consumer goods which refers to products sold quickly at a low costs and are typically non-durable.
    • It includes items such as packaged food, beverages, toiletries, over-the-counter drugs, and other consumables.
  • High demand- FMCG products are in constant demand due to their essential nature in daily life.
  • Low profit margins- While individual profit margins are low, the high volume of sales makes up for it.
  • Short shelf life- Many FMCG items are perishable or have a short shelf life, necessitating quick turnover.
  • High turnover rate- FMCG products are sold and replaced frequently.

                  FMCGs

Status of FMCG Sector in India

  • It is the fourth-largest sector in the Indian economy, valued at $200 billion
  • Employment – It provides employment to around 3 million people and accounts for approximately 5% of total factory employment in India.
  • Recent trends – Its sales growth (2022-23), grew 7-9% by revenues with 65% sale in urban areas.
  • Packaged food market growth is expected to grow twofold to US$ 70 billion in the next few years

                                    TrendsinFMCG

  • Measures taken – India have allowed 100% foreign equity in single-brand retail and 51% in multi-brand retail sectors
  • Union government aims to offer USD 1.42 billion investment through Production-Linked Incentive (PLI) scheme.

How FMCGs are marketed?

  • E-Commerce- It enables the consumers to purchase FMCG products online, enjoying the convenience of home delivery and often better pricing.
  • They have expanded the reach of FMCG products, making them more accessible to a broader audience.
    • For example: Amazon, Flipkart, and others
  • Q-Commerce- Quick-commerce refers to ultra-fast delivery services, typically within 10-30 minutes.
  • It focuses on small, high-demand FMCG products like groceries, snacks, and daily essentials.
    • For example: Zepto, Swiggy Instamart, Blinkit among others
  • Dark stores- These are small warehouses located strategically within cities to facilitate faster delivery for Q-commerce and e-commerce platforms.
  • They are not open to walk-in customers but serve as hubs for quick order fulfillment.
  • Phygital retail- A blend of physical and digital retail experiences, where consumers can shop seamlessly across both channels.
    • For example, a customer might try a product in a store but order it online for home delivery.

What are its significances?

  • Economic contribution- The sector is valued at USD 200 billion, reflecting its importance in the economic landscape.
  • Job creation- They employ millions directly and indirectly, from manufacturing to distribution, contributing significantly to employment across urban and rural areas.
  • Daily essentials- They are essential for daily living, including food, beverages, personal care, and household products.
  • Widespread distribution- They have developed extensive distribution networks, reaching even the most remote parts of India.
  • Adopts to consumer trends- They are key player in adapting to changing consumer behaviors and preferences, such as the shift towards healthier, eco-friendly, and premium products.
  • Resilience- It is relatively resilient to economic downturns as demand for essential goods remains stable, providing a buffer to the economy during difficult times.
  • Rural economy- They play a crucial role in the rural economy by providing goods, creating jobs, and stimulating demand, contributing to rural development.

What are their challenges?

  • Topline growth- The growth of revenue (topline) for FMCG companies is stagnant.
  • Price pressure- Consumers are challenging premium pricing, and companies are facing pressure on profit margins.
  • Business model adaptation- Large FMCG companies are adapting their models to trends, while smaller companies are confused or waiting for market conditions to improve.
  • Shift in consumer preferences - Consumers are increasingly favoring small, niche brands that are perceived as more holistic, green, and healthier.
  • Thus, small brands are challenging established FMCG giants.
  • New market entrants- They are asset-light, leveraging outsourced manufacturing and packaging, and relying on digital distribution channels, reducing costs and increasing flexibility.
  • Logistics challenges- Disruptions in logistics due to pandemics, geopolitical issues, or natural disasters significantly impact the availability of products and the overall business.
  • Environmental concerns- There is growing pressure on FMCG companies to adopt sustainable practices, reduce plastic usage, and minimize their carbon footprint.

What lies ahead?

  • Offer products across the economic spectrum, catering to all classes from poor to super-rich.
  • Offer more health-conscious products, organic goods, and clean-label offerings as consumers started shifting focus on healthier lifestyle.
  • Adopt a portfolio approach, offering products that cater to various segments, from value-for-money to premium and ultra-premium.
  • Shift towards localized production and sourcing, especially for essential goods.
  • Use technologies such as AI and IoT to optimize supply chain efficiency, predict demand, and manage inventory more effectively.
  • Demonstrate ethical practices, including fair labor practices, responsible sourcing, and contributions to social causes, to maintain consumer trust and brand loyalty.
  • Adopt circular economy models, focusing on reducing waste, recycling, and reusing materials in their production processes.

References

  1. The New Indian Express | Challenges of FMCG
  2. Invest India | FMCG sector in India
  3. IBEF | Recent Trends in FMCG sector
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