The Fmcg Sector Is Currently Economics Essay

The Fmcg Sector Is Currently Economics Essay India has a vast untapped grocery in the rural aras as comfortably which accounts for more than 700 Million consumers i.e. 40 of the perfect FMCG market. This market provides a abundant opportunity for the FMCG sector because of its large market space and low levels of organise player penetration.7) The FMCG sector has a strong future and bequeath plow to see growth because it depends heavily on an ever-increasing internal market for consumption, and request for these goods is more or less inelastic irrespective of recession or pomposity. Thus, this sector go forth grow, though it whitethorn not be a smooth growth path, due to the present world-wide economic slowdown, rising inflation and fall of the rupee. However, this sector testament see strong growth in the long run.8) Un same(p) the developed countries where the FMCG sector is dominated by still a few players Indias FMCG sector is highly fragmented with both unionised and unorganized players playing an important role. The political sympathiess proposal of allowing 51% FDI in multi shuffling name sell whitethorn opposition the future of the retail sector to slightly extent though the impact is expect to be highly positive. panic of new entrants Moderate-Low regulatory barriers-Intense competition requiresheavy investments in brand building which discourages lilliputian playersThreat of substitutes High-Multiple brands positioned with narrow product preeminence-Companies trying to gain market sh are compete on set which additions product substitutionRivalry among competitors High-Entry of MNCs into the country-Use of extremely vulturous marketing strategiesBargaining power of consumers Low-High brand loyalty for rough products, discourages product shifting-Low switching addresss-Aggressive marketing induce customers to switch between productsMICHAEL PORTERS 5 FORCE MODELBargaining power of provider Moderate-Prices are governed by Inte rnational commodity markets, making FMCG cos price takers-Due to the long term relationships with suppliers etc., FMCG companiesnegotiate better rates during quantify ofhigh input cost inflationThe above graph is found on the analysis of the sales and get aheadability of approximately 100 listed FMCG companies crossways unknown MNCs and large and small Indian players. As can be seen from the graph the average CAGR of the FMCG sector rose from 8% (2001-05) to 17% (2006-10). at that place has been a drastic increase in the CAGR in the case of foreign MNCs which shows the variety of choices available to the consumersEconomy ImpactFavorable economic factors like gross domestic product growth coupled with a rise in incomes, change magnitude participation of women in the workforce and the tapping of rural markets energise led to a spurt in the growth rate of the FMCG sector in the recent decade.The Indian economy is expected to overtake UK in the coming decade, with GDP growth ra nging between 8-10 per cent.India is expected to reach Chinas current people view of 1.4 billion by 2020.Per capita incomes support by various presidential term schemes and policies are expected to rise in both rural and urban areas (The UPA govt bullion transfer scheme for the poor people, expectations of economic reco rattling bring with it the accept of increased salaries and more employment opportunities all of which testament lead to increase in the per capita income of the country that will have a direct impact on the FMCG sector)Participation of women in the Indian workforce is also probably to rise. Estimates suggest that if it increases to approximately 70 percent (as in the developed nations), it will further boost GDP growth by 2-3 per cent.Favorable government policies such as the introduction of GST can be expected to well decrease go forth chain costs.FDI in multi-brand retail up to 51% will open up a large channel for sales. new(prenominal) policy measures s uch as lower income taxes, the Food Security Act, slump to Education, infrastructure schemes etc have also acted as enablers of higher consumption.Evolving Consumer Profile India has a comparatively younger community compared to most other countries of the world, who have greater willingness to spend on better quality products which is expected to boost the consumption-driven economy. y out(p)h population (below age of 30 years) comprise 59 per cent population currently, and the composition is seeming to remain similar over the neighboring decade. hobnailed markets, given the current low penetration and high untapped authorization are expected to bring about super-normal growth for FMCG companies.All these factors will combine to catapult consumer demand for FMCGs to newer heights.Interest rates and inflation and its impact on the FMCG sectorGiven the current economic scenario and the average inflation rates at 9.09% in India (2012) it has a taken a bell shape on the FMCG sec tor.High prices have led to reduced consumption of FMCG goods direct to fall in demand which has led to lower sales for the companies and unnatural their profit margins. Also, as a result of inflation prices of raw materials have shot up leading to a spurt in the cost of occupation for companies which has again had a negative impact on the profit margins. The central banks decision of cut in interest rates has make it easier for the companies to borrow money in the capital markets to further their plans of expansion and variegation but it has not led to any major increase in consumer spending.Major players in the FMCG industry1) Foreign Players Hindustan Unilever Ltd., ITC, Nestle, Reckitt Benckiser, Cadbury, Procter Gamble, Godfrey, Phillips, Henkel, Spic, Johnson Johnson, Revlon, PepsiCo2) Indian Players Marico, Dabur, Godrej, Wipro, Amul, Nirma, Britannia3) Regional or small domestic players Ajanta, Anchor, CavinKare etcSWOT Analysis of the FMCG sectorSTRENGHTS1) Favourable government policies in terms of reduced level of taxes, fewer import restrictions on raw materials and technology and reduced barriers of entry of foreign players2) Low operational costs as labour costs in India are very less3) Existing and well established brands in the FMCG sector4)Good supply chain and statistical distribution networks in both urban and rural markets5) FDI of 51% in multi brand retail will redefine the entire retail sector with new entrants, improvements in supply chain and distribution networks6) use up for FMCG products is mostly inelasticWEAKNESS1) Counterfeit products This is a major paradox that is hampering the growth of the FMCG industry. Counterfeit products account for an estimated 10-15% of the total size of the FMCG industry which resulted in a loss of INR 45 billion to the exchequer.2) The scope of investing in technology is less and it is difficult for companies to achieve economies of scale particularly the small sector ones.OPPORTUNITY1) The rur al Indian market presents a wide opportunity for the FMCG sector as still most of it is untapped and and to be explored2) Slow and steady rise in per capita income of the Indian population would lead to increase in demand for FMCG products3) Burgeoning middle class with a lot of potential to spend large amounts of their income on FMCG products4) India has a huge domestic market with close to 1 billion population5) howling(a) export potentialTHREAT1) Increasing rate of inflation which is likely to raise the cost of raw materials thereby increasing cost of production and putting stress on overall industry profits2) turn in fuel prices may further lead to increase in distribution costs3) Declining value of the rupee against other currencies of the world may further reduce margins as cost of importing raw materials will rise4) Dipping industrial growth and slowing global economy may lead to fall in demand for FMCG productsFuture of the FMCG sector in India (2020)As per recent estima tes the FMCG industry may grow at a base rate of at least 12 per cent p.a. to become INR 4000 billion industry in 2020. However, if the economic conditions turn out to be favourable and everything goes as expected the sector may eventide record a 17 per cent growth over the next decade, leading to an overall industry size of INR 6200 billion by 2020. This still depends solely on the future economic scenario.Modern trade is expected to grow very rapidly in the future with its share in total retail projected to reach 11 per cent by 2014 and 30 per cent by 2020 This growth will be supported by-High economic growth GDP is expected to grow at 8-10 per cent in the future, boosting growth in all sectors. Increasing incomes Incomes are expected to continue to rise which should further drive spending. Increasing urbanization Organized retail will continue to increase presence in Tier 1 and Tier 2 cities, which are growing fast-breaking than metros.-Improving infrastructure The government is also focusing a lot on infrastructure development which is expected to improve the supply chain and distribution networks.Key to EDUCORPORATEBRIDGE investment rankings BUY = judge to outperform the local market by 10% O-PF = Expected to outperform the local market by 0-10% U-PF = Expected to underperform the local market by 0-10% SELL = Expected to underperform the local market by 10%. Performance is defined as 12-month total return (including dividends).2011 EDUCORPORATEBRIDGE, India. Note In the interests of timeliness, this document has not been edited.Other disclosures will comexXXXXXXXXXXXXXXXXXXXXXXXXX