REPORT ON FMCG INDUSTRY WITH

REFERENCE TO NESTLE

SUBMITTED TO:
Arun Kumar Bhagwat, DGM
Karvy Stock Broking Ltd

Name of the Student : Karra Roja Kumari

Course : PGDM+MBA(Cardiff)
Institute: Universal Business School

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 CONTENTS

NO. TOPIC PAGE

NO.

1 INTRODUCTION 4

2 SWOT ANALYSIS OF FMCG SECTOR 7

3 PEST ANALYSIS OF FMCG SECTOR 9

4 NESTLE- AN OVERVIEW 11

5 SWOT ANALYSIS OF NESTLE 12

6 BCG MATRIX OF NESTLE 12

7 PORTER’S FIVE FORCES MODEL OF NESTLE 14

8 FINANCIAL ANALYSIS OF NESTLE- A BRIEF SUMMARY 16

8 CONCLUSION 19

9 BIBLIOGRAPHY 20

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ABSTRACT

FMCG product touches every aspects of human life. These products are frequently consumed
by all sections of the society and a considerable portion of their income is spent on these goods.
Apart from this, the sector is one of the important contributors of the Indian economy. This
sector has shown an extraordinary growth over past few years, in fact it has registered growth
during recession period also. The future for FMCG sector is very promising due to its inherent
capacity and favorable changes in the environment (Anon., n.d.).

Fast-Moving Consumer Goods (FMCG) or Consumer Packaged Goods (CPG) are products
that are sold quickly and at relatively low cost. Examples include non-durable goods such as
soft drinks, toiletries, and grocery items. Though the profit margin made on FMCG products is
relatively small, more so for retailers than the producers/suppliers, they are generally sold in
large quantities. FMCG is probably the most classic case of low margin/high volume business.
Many of the players on the retailer side such as Walmart, Carrefour are among the largest and
most recognized global companies. Global leaders in the FMCG segment include Johnson &
Johnson, Colgate-Palmolive, Kellogg's, Heinz, Nestlé, Unilever, Procter & Gamble, L’Oreal,
The Coca-Cola Company, General Mills Inc., PepsiCo.

KEY WORDS: FMCG, GDP, FDI, SWOT analysis, PEST analysis, BCG matrix, Portel’s
Five Force Model

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 1. INTRODUCTION
The Fast Moving Consumer Goods (FMCG) sector is the key contributor of the Indian
economy. This fourth largest sector of Indian economy provides employment to around 3
million people which accounts for approximately 5% of the total factory employment in the
country. These products are daily consumed by each and every strata of the society irrespective
of social class, income group, age group etc. The industry is highly competitive due to presence
of multinational companies, domestic companies and unorganized sector. A major portion of
the market is captured by unorganized players selling unbranded and unpackaged products.

More than 50 per cent of the total revenues of FMCG companies come from products worth
Rs 10 or less1. This has made the proliferation of localized brands which are offered in loose
form in small towns and rural part where brand awareness is low. In last 10 years domestic
players are giving tough competition to multinationals; in fact, they have outstripped many
MNCs in growth and market cap. Between 2005- 2014 the profit of domestic companies
increased by 24% against 14% increase of multinational companies. Urban India accounts for
66% of total FMCG consumption, while rural India accounts for the remaining 34%. However,
rural India accounts for more than 40% of the consumption in major FMCG categories such as
personal care, fabric care and hot beverages. Companies like Hindustan Unilever Ltd and
Dabur India generate half of their sales from rural India while Colgate Palmolive India and
Marico constitute nearly 37% respectively (U., June, 2015).

1.1. Fast Moving Consumer Goods

Fast Moving Consumer Goods are inexpensive products that require little shopping efforts.
These are non-durable products which are sold in packaged forms. These products are
purchased by the end-consumer in small quantities and frequently. The main FMCG segments
can be classified as Personal Care, Household care, Branded and Packaged food and Tobacco.

➢ Personal Care: It consists of oral care; hair care; skin care; personal wash (soaps);
cosmetics and toiletries; deodorants; perfumes; paper products (tissues, diapers,
sanitary); shoe care etc.

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➢ Household Care: It comprises of fabric wash (laundry soaps and synthetic detergents);
household cleaners (utensil cleaners, floor cleaners, toilet cleaners, air fresheners,
insecticides and mosquito repellents, metal polish and furniture polish).
➢ Branded and Packaged Food and Beverages: It consists of health beverages; soft drinks;
staples/cereals; bakery products (biscuits, bread, cakes); snack food; chocolates; ice
cream; tea; coffee; processed fruits, etc.
➢ Spirits and Tobacco: An exact product-wise sale break up for each of the items is
difficult (Patil, feb 2016).

• The percentage of revenues spent on innovation is more for FMCG sector than other
sectors. It is seen as growth strategy which uses consumer insights to either develop
new products or use it as an extension to the existing product line. One area where
FMCG firms are investing worldwide is health and wellness. These products can be
categorized into different categories:
• Products like snacks, chips, soups, dairy etc. are the fastest growing category which are
baked instead of fried, low on trans fats
• Use of natural ingredients such as fruit, soy, olive oil, green tea
• Supplements like vitamins, protein and minerals
• Fortified foods and beverages in cereals, bread, soups, tea, probiotics in dairy.

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 Source: PWC analysis

1.2. MAJOR PLAYERS

Major players in the Indian market include Nestle, Cadbury, Hindustan Unilever, Colgate-
Palmolive, ITC limited, Parle agro, Procter & Gamble, Marico, Godrej group, Amul and
Britannia Industries, etc. All the companies put together make Indian FMCG sector as big as
shown below:

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 2. SWOT ANALYSIS OF FMCG SECTOR

•low operation costs

•excellent distribution network
STRENGTHS •favourable government policies

•huge advertisement costs

WEAKNESSES •pirated products

•export potential
•large customer base
OPPORTUNITIES

•cut throat competition

THREATS
•external forces like inflation, market fluctuations, govt norms and decisions, etc

Strength of FMCG
▪ The operation cost is very low, also has excellent distribution network
throughout the country irrespective of rural or urban areas, Lot of famous well
known brands in FMCG sector
▪ Deep routed understanding about the local culture of the consumers and
knowledge about the consumer traits
▪ Favorable government policy. Indian government is trying to attain
international competitiveness to the FMCG companies through lifting
restrictions , reduced excise duty,100 percent export oriented units can be set
up with government approval and use of foreign names etc (Anon., n.d.).

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Weakness of FMCG
▪ Big advertising cost- advertisement is an essential part of these types of products
as high competition prevails in the market, To out boost the nearest competitor
firms have to spend high amounts which will reduce the margin.
▪ Illegal labelled products of established brands narrow the scope of FMCG
products. Counterfeit and pirated products of established brands will negatively
affect the sustainability of branded goods.

Opportunities of FMCG
▪ Changing life style of the society , untapped rural market ,increased purchasing
power due to better personal income of the population, large number of
youngsters in India as the most common users of FMCG products are in the age
group of 17 to 25.
▪ Indian population spends more on consumer goods. Export potential as the
horizons in foreign countries are expanding for our FMCG products.

Threats of FMCG
▪ Cut throat competition from local and MNC’s .The standardization norms for
packaging initiated by the government of India increased the cost of production,
Frequent increase of oil prices steadily leads to hike in the distribution cost .
▪ The frequent declining value of Indian Rupee with other currencies especially
with UD dollar will reduce margin of many companies who imports raw
materials. High bargaining power of consumers is another bottleneck in
increasing margin (Singh, November 2011).

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3. PEST ANALYSIS OF FMCG SECTOR
i) Political

▪ Tax Structure: Complicated tax structure, high in direct tax and changing tax policies
are challenges for this sector.
▪ Infrastructure Issues: Performance of FMCG sector is very much dependent on
government spending on Agricultural, Power, and Transportation Infrastructure.
▪ Regulatory Constraints: Multiplicity permits and licenses for various states, prevailing
outdated labor laws, cumbersome and lengthy export procedures are major constraints.
▪ Policy framework: FDI into Retail sector (single-brand & multi-brand retail),
Licenserules in setting up of Industry, Changes in Statutory Minimum Price of
commodities are barriers for growth of this sector.

ii) Economical

▪ GDP Growth: Growth of FMCG industry is consistent with the Indian economy. It has
grown by 15 % over past 5 years. It shows good scope for this sector in near future.
▪ Inflation: Inflationary pressures alter the purchasing power of consumer which Indian
economy is facing in recent years. But it has not affected much to Indian FMCG sector.
▪ Consumer Income: Over the past few years, India has seen increased economic growth.
The GDP per capita income of India increased from 797.26 US dollars in 2006 to
1262.4 US dollars in 2014 . It resulted in increase of consumer expenditure
▪ Private Consumption: The Indian economy, unlike other economies, has a very high
rate of private consumption (61%).

iii) Social

▪ Change in consumer Profile: Rapid urbanization, increased literacy, increase in nuclear

families and rising per capita income, have all caused rapid growth and change in
demand patterns, leading to an explosion of new opportunities. Around 45 per cent of
the population in India is below 20 years of age and the young population is set to rise
further.
▪ Change in Lifestyle : In past decade changes are taking place in consumption pattern
of Indian consumer with more spending on discretionary ( 52%) than necessities ( eg
food, clothings). In last decade the apparel, footwear and healthcare segments have

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 registered highest growth whereas essentials such as cereals, edible oil, fruits and
vegetables shown decline.
▪ Rural focus: As market is getting saturated, companies are focusing on rural area for
penetration by providing consumers with small sized or single-use packs such as
sachets.

iv) Technology

▪ Effective use of technology is seen only in leading companies like HUL, ITC etc.
▪ E- Commerce will boost FMCG sales in future. More than 150 million consumers
would be influenced by digital by 2020 and they will spend more than $45 billion on
FMCG categories (Bhattacharjee, June 2011).

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 4. NESTLE – GOOD FOOD GOOD LIFE
A leading company in FMCG sector

“We believe we can make an important contribution to society, by

going a step beyond corporate social responsibility to create value through our core business
both for our shareholders and society. We prioritize the areas of nutrition, water and rural
development to create shared value; this requires long term thinking...”
Peter Brabeck-Letmathe, Chairman, Nestlé

Nestlé is the world’s leading nutrition, health and wellness company headquartered in Vevey,
Switzerland. It is ranked 44 in the 2010 Fortune top 500 list of global companies. Its vision of
nutrition, health and wellness involves the concept of 60/40+ whereby the company aims to
make products that achieve at least 60% consumer taste with the added ‘plus’ of nutritional
advantage. Nestlé was founded in 1866 by Henri Nestlé.
Today Nestlé manufactures over 10,000 different products and employs some 250,000 people.
It sells over one billion products every day to people in 130 countries across the world. It also
invests approximately US$1.4 billion in research and development every year. Nestlé is built
on the foundation of several hundred strong brands under its portfolio which range from
categories like bottled water, baby food, and chocolate confectionaries to pet care, nutrition
and health.
Nestlé takes pride in its brand portfolio. Brand management is thus an integral part of the
company’s marketing efforts. The company employs a number of successful brand alliance
concepts

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 5. SWOT ANALYSIS OF NESTLE

• Highly-diversified company operating in many different markets and sectors

• variety of brands gives Nestle a strong ability to weather economics
STRENGT • well-established relationships with other powerful brands
HS • strong research and development capabilities

• vulnerable to any sudden changes in consumer behavior

• high cost for launching new brands to supplement older, less-fashionable food
WEAKNES products.
SES • high marketing costs

• Growth in online retail could open up new distribution channels such as

Amazon Prime
• Growing middle classes in nations such as China and India create larger
OPPORTU markets for Nestle’s products.
NITIES • Increased interest in health and nutrition could increase demand for some
Nestle products, such as energy drinks.

• pressure from large retailers such as Walmart to cut prices.

• possibility of increased government oversight and regulations in some markets
THREATS • Cut throat competition from competitors

6. BCG MATRIX OF NESTLE

BCG Matrix places products according to market share and market growth rate in the four-
celled matrix. companies that dominate their markets tend to be more profitable and businesses
that are in this category are termed “cash cows.” It is followed logically that if companies could
dominate a growing market, they would have both growing profits an assured future.
Companies that are in this category of the four-celled quadrant are classified as “stars”.

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➢ Stars represent business with high market share position and usually represent the best
profit and growth opportunities in the organisation’s portfolio. These are the businesses
that the organisation needs to nurture and groom for the long run. These products
require capital over and above their cash flow to maintain their market share.
➢ Cash Cows represent a high market share in a low growth market. These tend to yield
substantial cash surplus over and above their investment requirements. Now cash cows
are not very attractive for long term investment but they are needed for generating cash
to meet the organizational requirements. Such weak cash cows should be considered
for divestment.
➢ Dogs represent those businesses which have a low market share in low growth market.
These businesses have a very low competitive position and have very low profit
potential as the market itself has a low growth potential.
➢ Question Marks are those type of businesses which are characterized by the low
market share in a growing market. These products are questionable as to whether profit
potential associated with growth can realistically be captured (Jain, n.d.)

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 STAR QUESTION MARK
Nescafe Nestle Milk
Ceralac Bar One
Maggie Noodles Milo

BCG MATRIX

CASH COWS DOGS

Milky bar
Nestea
Crunch
KitKat
Munch

7. PORTER’S FIVE FORCES MODEL OF NESTLE

Porter’s Five Forces Model is a very important tool to analyze the industrial parameters and to
develop business strategy. Here five different factors would be discussed to highlight
the attractiveness and productivity of a market.

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THREAT OF NEW ENTRANTS

If the market is attractive the new entrants would always be a threat for the company but if the
market has been restricted to a limited resource and it has very few areas of improvement so it
becomes difficult for new entrants to get into the market and hence monopolies exist. Although
Nestle has accomplished a strong name in the market but as the food processing industry is
very huge and viable; so there are a lot of companies who already entered in this market and
somehow achieved a place in the market even though they could not cross Nestle in terms of
market share. Every year number of companies attempt to enter the market and strive for their
share of profit and productivity in the market but very few survive. Nestle has been the leader
of market for a century almost so now it has become a very big challenge for the new entrants.

THREAT OF SUBSTITUTE GOODS

Substitutes have always been in line whenever we talk about products market, every kind of
product has a substitute present which leads it to the heights of competition when taken
seriously. As the product is very common and daily use product so the threat of substitutes is
very high here. So Nestle has to innovate its products tremendously to stay in the market and
to work efficiently for removing the threat of substitutes.

BARGAINING POWER OF SUPPLIERS

Bargaining power of suppliers is very important factor to be considered in any industry as they
are the main strength of the company. Nestle is known for strong relations with the suppliers
around the globe due to its immense buying power and also because of the fact that in such
dairy and agricultural products quality is always important. Nestle as always focused over
strong and sturdy business relations to make the ongoing quality stronger.

BARGAINING POWER OF CUSTOMERS

Customers carry huge quantity of bargaining power concerning their utilization of different
Nestlé products. Although a lot of substitute products and competitors Nestle customers have
very influential choices but still the quality that has been maintained by Nestle has made it very

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successful among the users. It is very important to understand the power of the customers and
also their needs so that they can be better satisfied.

COMPETITIVE RIVALRY WITHIN THE INDUSTRY

Competition if healthy would bring huge success but if negative would destroy the whole
industry so it should be critically analysed for better future of the company. Nestle has a very
strong position in the food processing industry but few major rivals do exist in the industry like
Kraft Foods and Groupe Danone (Porter, 2008)

8. FINANCIAL ANALYSIS OF NESTLE- A BRIEF SUMMARY

Nestlé has been in India for over 105 years and has been a part of the societal, economic and
other changes, the country has witnessed. The introduction of the Goods and Services Tax
(GST) marked a historic milestone towards a single economic union for India with a unified
tax structure. The three core principles which NESTLE embrace are “Prepare, Practice and
Partner” to ensure a seamless transition.

It is one of the first companies to announce the transition to GST and pass on the benefits to
consumers. In preparation of the GST roll out, the company rewired several key processes
within the organization, trained over 3500 suppliers and 1600 distributors covering the entire
direct value chain of the Company. These dedicated efforts resulted in an orderly and fairly
smooth transition into an environment, defined by the biggest fiscal change in independent
India.

Thrust on innovation and renovation continued with the launch of MILO, new variants of
GREKYO, MAGGI Nutri-licious Noodles, MILKYBAR and KITKAT Dessert Delight.
Company also focused on creative ways to engage our consumers. MAGGI Masalas of India
engagement with Google was the first-of-its kind in the country where Google allowed to use
the search engine as a platform for voting on which flavours of Masalas of India would
consumers like and want.

Total Sales and Domestic Sales for the year increased by 7.7% and 8.2%, respectively. These
growth rates are adversely impacted due to lower reported sales by the change in structure of
indirect taxes and reduction in realizations to pass on the GST benefits. On a comparable basis

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the domestic sales growth is ‘estimated’ at 11.8% due to increase in volumes including rebuild
of MAGGI Noodles, supplemented by better underlying realizations. Export Sales increased
by 0.9% (Anon., n.d.)

Source: Nestle India Annual Report 2017

Source: Nestle India Annual Report 2017

The Company has created a contingency provision of `1,136.5 million for various
contingencies resulting mainly from matters, which are under litigation/related disputes and
other uncertainties requiring management judgement. The Company has also reversed, utilized/
settled contingency provision of `260 million due to the satisfactory settlement of certain
litigations and settlement of obligations under free replacement warranty for which provision
is no longer required.

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PERFORMANCE IN COMPARISON TO BSE SENSEX

(Anon., n.d.)

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 CONCLUSION
Indian FMCG sector has almost tripled in last decade, much faster than past decades. Even in
the meltdown years of FY 008 and FY 2009 the FMCG industry witnessed sustained growth
rates of 14% and 11% respectively, this sector was relatively recession-proof12. This growth
in FMCG sector is due to increase in demand, developments in supply side and favourable
changes in Government Policy.

Today, Fast Moving consumers goods have become an integral part of human life. This sector
is recession proof and creatd huge employment opportunity in India, hence becoming one of
the key pillars of the Indian economy. FMCG companies should encash opportunities like
increasing consumer income, changing consumer life style, aspiring rural consumer, consistent
economic growth by utilizing its strengths. The competition from unorganized sector can be
overcome by increasing brand awareness and by reducing cost through sharing resources such
as distribution network. Favourable developments happening in demand side, supply side and
systematic drivers shows that this sector has very bright future.

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References
Anon., n.d.
<http://www.domainb.com/companies/companies_n/nestle_india/19990124nestle_india.html>.
[Online].

Anon., n.d. <http://www.domainb.com/companies/companies_m/mcDonald/20020923_froth.html>.

[Online].

Anon., n.d. Nestle India Annual Report, s.l.: s.n.

Anon., n.d. www.bseindia.com. [Online].

Bhattacharjee, A., June 2011. ‘Media Influence on FMCGs- A Comparative Study Among rural and
Urban Households on their Product Purchase Decision’. Indian Journal of Marketing’, Volume 41, p.
22.

Jain, T., n.d. A STUDY OF THE CONSTRUCTION OF BCG MATRIX FOR NESTLE INDIA.

Patil, D. P. H., feb 2016. An Overview of Indian Fmcg Sector. 5(2).

Porter, M. E., 2008. "The Five Competitive Forces that Shape Strategy". Harvard Business Review, pp.
86-104..

Singh, P. N. V., November 2011. FMCG retail will hit $100 billion by 2025: Nielsen The Economic
Times, New Delhi..

U., M. R., June, 2015. Fast Moving Consumer Goods (FMCG) Markets in India. The International
Journal Of Business & Management, 3(6), pp. 31-35.

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