FMCG
Introduction
Fast moving consumer goods (FMCG) indicate the most demanded type of merchandise in various markets across the world. Some of the important types of products that fall in the above classification include flour, biscuits and toothpaste, among other significant products used in the everyday life. Consumers are therefore forced to invest much in the above commodities as they are required on a daily basis, a feature that makes them a necessity. India is renowned for investing in the FMCG business with some of the leading companies in the industry being HUL, Dabur, AMUL, and Cavin Care among others (Kellner, Otto, and Busch, 2013 p. 173). Entrepreneurs consider the above type of business to play an essential role in economic development and an ideal place for investing.
However, it is worth noting that an efficient distribution network plays a vital role in the success of any business, especially in the FMCG business that requires daily delivery of products to the point of sale. To survive in the current competitive business market, it is important to have an ideal distribution channel that will support the business. Entrepreneurs, therefore, require understanding their consumers regarding what they need and how to adequately meet their respective wants as far as FMCG products are concerned. Setting an excellent infrastructure facility is one strategy through which the above goal can be achieved, as it enhances the quality of the supply chain. The sector in India is likely to grow at a faster rate as compared to the U.S, due to the powerful distribution network in the country, with a goal to enter new marketplaces. The above paper seeks to understand the role of distribution channels to FMC industry, and provide a study of the distribution channels in India and the U.S.
Main Body
Overview of FMCG
Products classified as FMCG include the commodities that consumers purchase from the supermarkets on a regular basis, and these products consume the largest share of consumer income. Such products are renowned to be replaced within a year and often cost a moderate amount of money as compared to other products. FMCG companies are well-known for making massive sales and profit every year but are subjected to intense competition from the new entrants hence have to manage their prices in the most efficient way. However, to maneuver well in the competitive market, the FMCG companies rely on a proper distribution network so as to penetrate various marketplaces with ease. The Indian market is characterized by a lot of players in the FMCG business, which is prone to fighting for space and audience in the market (Mishra, 2008 p. 177). Moreover, different multinational organizations in the Indian market have increased the state of competition in the country. Some of the distinct characteristics that represent FMCG products include low costs, huge sale volumes, and they generate low profits, which cumulatively increase at a fast rate.
Indian FMCG sector
FMCG plays a momentous part in the development of Indian economy and is considered as the fourth largest industry that creates a substantial impact in creating employment opportunities for local people. In India, FMCG receives a lot of competition amid different players from multinational corporations and the local companies. While some companies have established themselves in the rural areas, others settle in the cities. Hindustan Unilever Ltd, ITC, Nestle India, and Dabur India are among some of the powerful companies in the country with a proper distribution channel and an efficient supply chain.
Moreover, the country has experienced a significant presence of multinational corporations with intensified competition, and the market is expected to grow over U.S$ 33.4 million by 2016 (Kellner, Otto, and Busch, 2013 p. 173). Some of the significant parties that play a role in developing the Indian market include the middle class and the rural dwellers, as they are the target market for most companies. The Indian economy has a potential to realize significant growth due to rapid urbanization and to escalate per capita incomes. The country is characterized by many big firms that are continuously experiencing growth, as well as small businesses. However, most top brands in the country are owned by multinational companies, an aspect that indicates the state of competition experienced in the country.
The FMCG sector in India can further be classified into subgroups. Personal care is a good example and has a broad range of products with cigarettes accounting for about 17% of the products. The food category has picked shape in the recent past and experiences faster development rate as compared to the others. In the house care classification, the sector has few players, and herbal care is also gaining popularity in most parts of the country.
The FMCG industry in India has received tremendous growth over the recent past as it has incorporated innovation and efficient processes that meet international standards. The industry is further characterized by diverse products that are less differentiated, and this feature has attracted multinational corporations into the region. As aforementioned, the products are of little value, and for companies to make more profits in the local market, they have to intensify their brand presence and experience a strong distribution network. However, consumer behavior is changing in the area, and people are reluctant to consume products from the new brand. Besides, to meet more customers and increase the extent of distribution of the products, the companies have sought to intensify innovation into the industry. The market has a lot of dynamic features, an aspect that requires the business companies to understand their consumers and needs adequately, and act swiftly towards meeting their satisfaction. The FMCG businesses in India used to rely on traditional approaches to understanding the market, but it was faced with a lot of challenges, as the information used built on assumptions. However, to counter the challenges, the FMCG companies in the country sought to embrace new inventions that will offer them a chance to get direct access to customers.
India is one of the countries with a vast population across the globe; hence, it has an advantage of getting a large market share as far as the purchase of FMCG products is concerned. With globalization, most people have turned to digital commerce due to the tremendous amount of opportunity that comes with the approach that is yet to be fully exploited. The service has led to increased cases of online sales, a channel that has helped the FMCG companies to understand the real market demand and fulfill it through their free channels of distribution. The strategy has been highly appreciated by many people in the country, as it has a lot of benefits to both consumers and companies.
However, the FMCG companies remain with two main approaches, which include the use of third-party e-commerce portal or sell through their websites. There are very many online retails such as Amazon, Flipkart, and LocalBanya, which help the FMCG companies in the sale of their products. The portals offer the respective companies an opportunity to engage in e-commerce at an affordable cost and a chance to enhance their market share as they are well established in the market. The sole disadvantage of using a third party platform is that the FMCG companies often have a limited ability to control their pricing, promotional and stock availability among other important aspects.
Most FMCG businesses in India, therefore, have created their websites through which they engage their customers with order placement, tracking and finally in the distribution of the same to final users. Companies using their websites have a chance to control their pricing, engage in product promotions and manage their stocks in the most efficient ways possible. Through the methods, companies can understand their consumer behavior better and devise effective distribution channels to meet their needs adequately. Currently, FMCG experiences total sales of about 0.3%, which is expected to grow further and will result in more profitability for the business.
Most FMCG companies use the traditional approaches and e-commerce, an aspect that has led to significant development in the distribution network in the country. With e-commerce, the use of B2C is slowly replacing the B2B approach, which is faced with a lot of challenges as one way to experience increased sales. Alternatively, most FMCG companies in India are using different distribution strategies to meet the respective consumer needs as will be explained shortly. The separate online channel is one of the approaches often used by FMCG companies although it requires a lot of resource investment. Another method sought is the use of the existing retail network to engage in e-commerce. Distributors and retailers are mandated with the responsibility of supplying the orders placed online to the consumers. Wholesale distributors indicate another type of platform used in the distribution of the FMCG products in the country (Mishra, 2008 p. 182). It is, therefore, important to appreciate that India is a country that has invested in the FMCG industry based on the nature of the products, and has attracted a well-developed distribution channel as compared to the U.S.
Comparison between the U.S and the Indian FMCG state
As earlier mentioned, the FMCG sector is the fourth largest in the Indian economy with a market size of US$ 13.1 billion and has a strong presence of multinational companies. The industry in India is well established with an efficient distribution channel as compared to the U.S. Additionally, the country experiences a lot of competition in the industry as a result of the vast amount of players and low operational cost as compared to the United States. Some of the competitive advantages found in India include the availability of primary raw materials and cheap labor that enhances the efficiency of the supply chain in the country. However, despite the significant growth experienced in the sector, it is worth noting that India is yet to exploit its market potential fully as penetration of most products into the country is still low. Moreover, the middle class and people in the rural areas stand out as target markets for most companies and are yet to be fully exploited.
The situation in the U.S is different, and according to the 2011 statistics, the country market was worth U.S$ 2.1, which is significantly low as compared to India. Moreover, like in India, the industry plays an essential role in the provision of employment opportunities to citizens, as it employs about 14 million people and contributes to over one trillion U.S dollars each year to the national economy. Globally, the FMCG industry is expected to account for about U.S$ 10 trillion, which accounts for a significant portion of the global economy. Primarily, emerging markets like India are expected to grow further from 7.7% to over 15.2% in 2016 as compared to the U.S, which is experiencing a growth of 4.5% (ITC plans, 2015 p. 34-35).
The history of the growth of FMCG sector in India during the early 1980s and 1990s indicates that almost everyone in the country wished to start the business or at least work in the industry. However, the situation changed shortly after 1990 as the industry started losing due to competition experienced from the introduction of new products that were not offered by the FMCG. The industry picked again in early 2000, experiencing diverse products and new inventions into the industry, such as marketing and sales through both television and the internet. Consumers indicated a willingness to change with innovation and were challenging for value added products from the companies as compared to before.
The situation in the U.S is a bit different as compared to India as it has few players although some of the companies such as P&G are well established globally. Historically, it is believed that FMCG is the fastest growing sector since the 18th century to date, and Colgate-Palmolive was the first company to venture into the business in 1806. The country has other businesses such Reckitt Benckiser that mainly supply healthcare products and P&G, among other products. As in India, the FMCG sector is understood to play a momentous part in the endowment of vital products to people in the country as compared to any other industry.
Innovation in the FMCG sector is vital for survival as it is one of the approaches that are often used by companies from both countries to encourage consumers to try new products released into the market (Jeszka, 2015, p. 227). This includes changing of product tastes, looks and enhancing delivery benefits as ways to convince consumers on the use of the products. Organizations in the industry are turning towards improving service delivery to the people through the introduction of digital commerce to improve on consumer shopping experience among other benefits. However, to meet the changing demands of consumers, the FMCG companies have sought to invest in research and development to be in a position to satisfy the users' needs more efficiently. Some of the challenges experienced by businesses in the industry include the fact that product lifecycle is continuously shrinking with time, new products are released into the market, and the rate of competition in the sector is growing at a fast rate due to the introduction of new players.
Some of the important consumers of FMCG products from the U.S market include UK, Canada, and China while India, on the other hand, has a limited exportation capacity despite the fact that it is among the leading producers of the FMCG products in the world. Most Indian companies have failed as they focus on a limited market such as Bangladesh, Pakistan, and Middle East areas due to the similarity in culture. India has few players in the international trading as compared to the U.S, an aspect that makes the country experience weak export to the global market. When comparing the two countries’ FMCG sector’s contribution to the country GNP, while India suffers a 2.4%, the U.S experiences about 6%, which is significantly high (Singh, 2015 p. 54-68). It is worth appreciating that the Indian rural markets are yet to be fully exploited, yet they account about 70% of the country's total population. Enterprises in the FMCG sector have in the recent past appreciated the need for experiencing product innovation and investing in R&D to boost the business in the industry.
Therefore, eliminating various distribution challenges in the country will impact positively on the growth of the sector significantly. An example in place of a company that received a great challenge in selling products to rural dwellers in the country is Nokia and had to devise effective strategies to penetrate such markets. The company sought to introduce a new pricing strategy to encourage more purchase of mobile phones for people in the country through group purchase.
Most businesses in India have developed an efficient distribution network to effectively meet the needs of their consumer as for the case of Coca-Cola Company in the country. Organizations, therefore, have set in place adequate sales people with a mandate to distribute the products to different parts of the country. Therefore, one of the aspects that give the distribution of the Coca-Cola products a competitive advantage in the market is the fact that distribution guarantee customers to get their distribution in time and at the right place as requested. To achieve the above objective, the company has devised an efficient supply chain from the point of production to the various warehouses, to retail stocks in different parts of the country and finally to the consumers (Singh, 2015 p. 68). Furthermore, the company has classified its users into different categories based on routes and how distribution is to be arranged to reach the customers with necessary products. Companies therefore engage in both direct and indirect distribution with effective merchandising, an aspect that requires consistent communication with the customers to get distribution of the right product, quality and product values.
Conclusion
The above study has achieved its objective of understanding the supply chain of FMCG in both India and the U.S by comparing the extent of distribution in the two countries. However, the study suggests that the FMCG industry plays a significant responsibility in the development of the global economy, and having an efficient distribution network is a tactical strategy to succeeding in the competitive market. India has a lot of companies that have ventured into the sale of FMCG products from both local and international scale, an aspect that has contributed to significant developments in the sector. Although the industry is faced with a lot of challenges that are yet to be fully solved to allow exploitation of the full potential of the country, the distribution network is better than that of the U.S. The U.S has a low investment in developing effective distribution channels as the industry is not as competitive as for the case in India.
Bibliography
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