FMCG sector was once considered to be a very lucrative sector. But the scenario has changed now. Fast Moving Consumer Goods have transformed themselves into Slow Moving Consumer Goods. The process of privatization and globalization brought about a number of changes that resulted into a great price war in this sector. This article discusses the reason behind the current sharp fall in FMCG growth and subsequent consequences of price war in India. Modified marketing strategies adopted by consumer goods companies to encounter the great price pressure, has also been discussed in brief.
The FMCG (Fast Moving Consumer Goods) Industry comprises goods, which are mass-use goods directly consumable, having significant demand in low to middle-income strata and characterized as highly price sensitive. Five to seven year ago, FMCG sector was considered as the most lucrative sector for marketers. FMCG giant like HLL, Godrej, P&G, Nirma, Dabur earn a handsome profit by introducing new brands and presenting attractive advertising.
But since last couple of years, the picture has entirely changed and FMCG have become SMCG(Slow Moving Consumer Goods). Except few local small players Marico, Godrej and Dabur, most of multinational giant and local players registered considerable drop in their net profits. Hindustan Lever Limited(HLL) whose performance is the barometer for the entire FMCG sector, has registered very poor performance in the past few years. Even, Nestlé India reported a 9.4% decline in its net profit for the quarter ended September 30, 2004. Only three of the Top 10 FMCG categories in India showed positive growth in the year ended April 2004, and except edible oils, none of them showed double-digit growth rates.
At the beginning of the privatization process in our country, many multinational companies had given priority to FMCG sector expecting handsome profits. Thus, out of the top 10 FMCG companies in India, four are multinationals while the other two have significant MNC shareholdings. It results into a great price war in this sector. Companies have started giving freebies, which curtail the profits of all concerned FMCG Company. The most premium toilet soap brand Dove has decreased its price from around Rs. 49 to just Rs. 25. The price of detergent brands like Arial, Tide, and Surf has decreased significantly. A 500 gm pack of Tide, which was earlier available at Rs. 43, is now available at just Rs. 23; in the same line Surf is available at Rs. 50 instead of Rs. 75. A Similar trend have been observed in Shampoo also, popular brands like Clinic Plus, Rejoice, etc. were forced to sell their products at a low price. Clinic Plus offers one bottle of shampoo free with the purchase of one shampoo bottle, this is an indication of stiff price war in FMCG sector. Adverse impact of uncertain monsoon and price wars in various segments are the two major reasons for the underperformance of the FMCG sector. |
