ASSIGNMENT TOPIC

RISK FACTORS INVOLVED IN FMCG SECTOR / IN ANY MANUFACTURING UNIT BY GAURAV DESHWAL MONISH.A. GEORGE

WHAT IS FMCG?
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Products which have a quick turnover, and relatively low cost are known as Fast Moving Consumer Goods (FMCG). FMCG products are those that get replaced within a year. Examples of FMCG generally include a wide range of frequently purchased consumer products such as food that are ready to eat, ready to serve etc.

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Toiletries, soap, cosmetics, tooth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also include pharmaceuticals, consumer electronics, packaged food products, soft drinks, tissue paper, and chocolate bars.

FMCG INDUSTRY IN INDIA

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Present Fourth largest sector in the economy Size - US$13.1 billion Strong MNC Presence Well established distribution network Competition between organized and unorganized sector Low Costs of labour and Easy availability of key raw materials

TOP FMCG COMPANIES IN 2010

S. NO. 1 Companies Hindustan Unilever Ltd.

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3 4 5 6 7 8 9 10

ITC (Indian Tobacco Company)

Nestl India GCMMF (AMUL) Dabur India Asian Paints (India) Cadbury India Britannia Industries Procter & Gamble Hygiene and Health Care Marico Industry

HISTORICAL GROWTH OF FMCG INDUSTRY

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IN INR BILLION
1400

Golden years for FMCG industry GDP growth of 8% rural markets opened up

1300
1160

1200

GDP growth of 5% annually

1000

+17%
1020 860

800

+6%
490 500 540 585

710

600

470

400

200

0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E

STRENGTHS:
Low operational costs

WEAKNESSES:
Lower scope of investing in technology and achieving

Presence of established distribution networks in both economies of scale, especially in small sectors urban and rural areas Presence of well-known brands in FMCG sector Low exports levels "Me-too products, which illegally mimic the labels of the established brands. These products narrow the scope of FMCG products in rural and semi-urban market.

OPPORTUNITIES:
Untapped rural market

THREATS:
Removal of import restrictions resulting in replacing of

Rising income levels, i.e. increase in purchasing power of domestic brands consumers Large domestic market- a population of over one billion. Export potential High consumer goods spending Slowdown in rural demand Tax and regulatory structure

RISK INVOLVED IN FMCG SECTOR

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2.
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Three key areas concern the risk manager production, marketing and distribution. Risk of FMCG products also depends upon the agricultural commodities procured from the farm also and the losses or damage happened in the farm level. Some of the losses or damages are caused due to:Parasitic Diseases Mechanical energy Physiological deterioration

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FMCG sector involves bakery in which biscuit manufacturing is the most fast moving good for consumers to use.
In biscuit manufacturing industry procurement of good material like maida, salt, colour, preservatives, vanaspati, sugar, flavours etc.

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The risk in FMCG companies involve at every level or stages in the market starting from procurement level to consumer level because of these reasons:Heavy competition Durability of the product. Lower cost margin at every level. Perishability of the product especially in food sector. Hedging of the raw material at commodity exchange. Less wastage to reduce cost in manufacturing the product. Supply chain also creates risk. Longer the supply chain greater will be risk and vice-versa.

OTHER RISKS
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1. Tax Structure - Complicated tax structure, high indirect tax, lack of uniformity, high octroi & entry tax and changing tax policies. 2. Infrastructural Bottlenecks - Agriculture infrastructure, power cost, transportation infrastructure and cost of infrastructure. 3. Counterfeits and Pass-offs - Counterfeit products are
another issue for the FMCG sector. Taking advantage of the lack of literacy and consumer knowledge, several small manufacturers churn out spurious products which they label akin to the big brands, Lifeboy or Lax soap or Fivestare chocolate bars, Vicky balm, for instance

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4. Emergence of Private Labels - Apart from the pressure on margins, the biggest fear of FMCG players when facing MR is the introduction of private labels or own brands. The fear is justified because world over, private labels have served to lower the consumers price points. 5. Regulatory Constraints - State borders cause a lot of delays and it is common for 2-3 days of finished goods inventory out of 20 -30 days total stuck on various state borders due to a requirement for multiplicity of permits and licenses. 6. Price of Inputs - Commodity prices fluctuate, which make it difficult to finalize raw material prices, affecting the final price of the product.

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