Fast Moving Consumer Good(FMCG) sector is the 4th largest contributor of Indian economy which is expected to grow to about US$1.03 trillion by this year. The growth of the FMCG sector over the years has been at a very rapid pace. The growth of many FMCG companies has been predominantly because of lifestyle changes and awareness among Indian in various fields. The major chunk of this sector mainly comprises self-care and household aggregating to about 50% of the sectorial contribution. As we talk about lifestyle, the fastest change in the lifestyle has been observed in the urban regions. Urban India generates a massive 55 percent of the total revenue. But given that, we cannot assume that this sector does not depend on the urban and suburban parts of India. Statistics say that in the past few years the FMCG sector has seen tremendous growth in its revenue because of the rural spending as compared to urban India.
There are certain key characteristics of the FMCG sector which have made this industry grow in leaps and bound and continues to increase its market size and these can help understand this sector’s scope.
The booming technology has led to speedy growth in this sector, with major advancements such as ROPO method, research online, purchase offline, quick deliveries and payments. This increase has increased the number of producers and competitors of the same product. The FMCG companies which have walked hand in hand with the technology have been successful with flying colours. These companies have installed the advanced pieces of machinery to give a tough competition to their competitors with their product quality. So, as the technology grows, we can expect this sector to grow, provided the companies to cope with it.
Capital intensity ratio:
The FMCG companies are a major advantage as they have low capital intensity ratio, which shows the low investment or amount of capital required per unit revenue. The turnover of any fully equipped manufacturing FMCG plant is at least 5 times more than the invested capital and can increase to about 8 percent which is an impressive deal for any company. The companies’ investment in fixed assets, equipment, machinery for production is comparatively lower, but the main reason for this ratio’s attenuation over the period is increasing working population and mainly the working women, increase in the family’s income, purchasing capacity, and thus, increasing per capita expenditure. This ratio can have volatility at some tough times of recession but considering for long term, the FMCG products are in demand throughout the year.
Market drive and Launch cost:
The competitors in the FMCG sector are increasing and so are the consumers who critically analyze the quality and quantity of products against the price which makes it tougher for the manufacturers to compromise on quality. Thus, the launch cost of these companies is relatively high for the huge advertising and marketing cost on various platforms. Thus, the FMCG companies which are huge and companies which are best at marketing have a great scope in this sector.