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By: Aayushi Banotra

Fast-Moving Consumer Goods (FMCG) also called the Consumer-Packaged Goods (CPG) are the
goods that can be categorized as non-durables, or the durable goods classified as per their shelf
life and are traded frequently at low price and high volume because of the repeated purchase by
the consumers. Most of the FMCG goods have a short shelf life due to fast deterioration or the
high consumer demand. These goods are inelastic in nature and have a high turnover rate for the
category of goods like soft drinks, pre-packaged foods, candies and toiletries. FMCG industry as
a whole is quite sensitive to changes in the disposable incomes. The profits generated in this
industry are comparatively low per unit item. It is a high volume and a low margin sector. This
sector is highly competitive which makes it essential for a business to position the products
correctly in the market with imperative packaging and branding. This sector defines the
consumer’s economic status by providing something to which a consumer can relate to in his
everyday life. This industry is considered stable in the countries with no significant fluctuations in
the per capita disposable incomes. Developed countries like US and UK serves as the prominent
target markets for the businesses in this sector. This sector is highly competitive and highly reliable
on the spending capacity of the consumers. As per the risk appetite of the brands, few of them
consider the supplier prices to increase in the coming future. On the contrary, 22% of the risk
averse executives of the brands expect the prices to remain the same. Therefore, the optimistic
ones expect a continuous growth in this industry and strive to launch new products in the market
targeting the niche customers through the enhancement of the manufacturing capabilities by
spending more on the capital goods (Ramanuj Majumdar, 2004). The amount of the money
circulated in this industry is quite high. FMCG industry is increasing rapidly all over the world
with. In India, this industry holds the position of being the 4th largest sector with a total market
size of USD 13.1 billion. IT is considered as the largest sector in New Zealand accounting 5% of
the GDP. The market potentiality of this industry is due to the low operational costs and the strong
distribution networks. High population growth contributes towards the success of this industry.
This industry also supports high employment opportunities by providing stable, challenging and
diverse range of jobs in categories like sales, marketing, supply chain, finance, product
development, operations etc. The increased digitalisation for the distribution and procurement
processes, the growth of the e-commerce and the changing lifestyle of the developing countries
are the key drivers of the FMCG industry.

For many decades, FMCG ruled as one of the highest growing sectors. By 2010, 23 of the world’s
top 100 brands existed in this sector and had the highest performance after the materials industry.
For about 45 years, this industry offered a total return to shareholders (TRS) of almost 15% a year.

The success of this industry was due to the companies who opted value-creation model and
implemented the following:

1. Companies in this sector focussed on product innovation and perfectly executed the mass-
market branding strategy focusing on higher sales and lower prices that made them achieve
sustainable growth by leading up the gross margins of 25% above the other non-branded
2. These companies adopted innovation and built strong relationships with the grocers and
mass retailers thereby increasing their distribution network. Whereas small competitors
couldn’t access up to that extent.
3. The big players in this industry targeted the developing markets and enhanced their
categories as their customers became wealthier.
4. These companies designed their operating models in such a way that they can reduce their
costs and increase volumes.
5. Companies in this sector exploited the M&A opportunities thereby consolidating the
market and generating an organic growth after the acquisition. (mckinsey report)

Pestel Analysis helps in identifying several forces that influence the dynamics of an
For many years, India was a closed economy imposing several restrictions and laws for the
foreign companies in order to securitize the national businesses. Thus, the complicated tax
structure, the changing tax policies and the high indirect tax are the major challenges in the
FMCG. This sector faces some infrastructure issues as the performance is highly dependent
on the government spending on Power, Agriculture and Transportation infrastructure. The
policy framework within the country plays an important role. Licensing, FDI in the Retail
sector, changes in statutory minimum price of commodities are few of the barriers in the
growth of FMCG sector.
FMCG highly relies on the GDP of an economy and it has been observed that the
performance of this sector has been consistent with the growth of the Indian Economy. It
has grown over 15% over the last few years and has observed an increase from 797.26
USD in 2006 to 1262.4 USD in 2014 in the GDP per capita income in the past decade,
resulting in the high consumer expenditure. The Indian economy has a high rate of private
consumption of 61% that is favourable for this sector.
FMCG sector is highly influenced by the social factors like rapid urbanisation, increase in
the nuclear family structure, increase in the literacy rate, change in the demand patterns etc
which creates new opportunities for FMCG companies in India. The change in the
consumption pattern of consumers in India impacts this sector significantly as 52% of the
consumer spending is for the discretionary products than the necessities of food and
clothing. Due to markets getting saturated, more and more companies are moving their
focus from the urban areas to the rural areas by providing the provision to use single - use
packs such as sachets.
By 2020, E-Commerce is expected to boost the sales of FMCG sector. Due to the
technological advancement, it is expected that, around 150 million consumers will be
influenced by the same, spending more than $45 billion (Dr. Pramod H. Patil, 2 Feb 2016)
This sector has a huge impact on the environment as most of the products in the FMCG are
created from the raw materials are a result of the agricultural activities. Thus, companies
are supposed to maintain the preservation and protection of the environment through some
efforts like green house, establishing green buildings, use of herbal waste etc. The
constraints on the use of energy can be reduced using alternative source of energy (Gulati,
2015). Government has introduced some anti-dumping laws that firms have to abide, in
order to restrict the contamination of clean source of water.
Government in India has implemented few changes in the law in order to help both the
consumers and the companies by replacing several indirect taxes with a direct approach of
GST. This has helped companies reduce their costs of production and in turn companies
cannot artificially increase price by making the supply scarce. Various other laws have
been enacted in order to protect the privacy of the customers.

FMCG Market Share

(Source: The Indian FMCG Industry, Dinodia Capital Advisors, September 2012)

Porter suggest that in any industry, there are five forces that influence the activities within an

1. Competition

2. Power of Buyers

3. Power of Suppliers

4. Threat of Substitutes
5. Threat of New Entrants

Competition: FMCG is a highly competitive industry. In order to reduce the rivalry and the threat
of the competition, a company can impart a differentiation strategy by distinguishing its products
through innovation or improved features. A company can also preserve its market share by creating
a brand loyalty amongst its customers by focusing on a unique segment.

Power of Buyers: The businesses in this industry creates value for both the consumer and the
seller. If the buyers are in power, then it can have a great effect on the profitability of a company
in this industry. In FMCG sector, there are three types of customers- distributors, direct customers
and the retail outlets. As this industry is highly competitive with slight differentiation of products
and more standardisation, the switching cost is significantly low, and a buyer finds it easy to switch
from one brand to another making the buyer quite powerful. Thus, the power of buyers is fairly

Power of Suppliers: Companies in the FMCG sector highly rely on the agricultural products and
labour force. As the cost of input affects a company’s profitability significantly, contracts and
strong relationship with the suppliers can manage the uncertainty and the power suppliers have to
a great extent. As the suppliers in this industry are plenty, thus the bargaining power of suppliers
is fairly low in this industry.

Threat of Substitutes: As the switching costs are quite low and the products in this industry are
standardised, thus the threat of substitutes is quite high. Consumers in this industry always get
attracted to the lower prices, which further impacts the competition and consumers can easily
switch from one brand to another.

Threat of New Entrants: FMCG is an industry with a long product life cycle. Any new player
wanting to enter this industry will have to come across all these barriers- capital requirements,
access to inputs and distribution, government policy and regulations, brand identity, economies of
scale etc. The process of starting a business in this industry is capital intensive and thus the threat
of new entrants or the competitors is quite low. As the purchasing trend of the consumers is highly
influenced by the brand, thus it is not easy for a new entrant to establish its brand name at a lower
Hindustan Unilever (HUL) being one of the oldest multinational organization in the world
originated back in the 19th century through a group of independent companies producing soaps and
margarine. It is the subsidiary of Unilever, which is world’s leading supplier for food, personal
care, food and refreshment products with an annual sales turnover of 53.7 billion euros in 2017
and sales in over 190 countries. Unilever’s management believed that the long-term sustainability
of the organization relied largely on the way they addressed the consumer needs by improving the
quality of lives in the countries they had business in.

HUL is India’s fastest stimulating consumer goods brand having over 35 brands outspanning
around 20 categories such as soaps, shampoos, detergents, toothpastes, skin care, tea, coffee,
cosmetics, deodorants, water purifiers and ice creams etc, being a part of everyday life of millions
of consumers in India (“Introduction to HUL,” n.d.). It has leading brands such as Lifebuoy, Lux,
Rin, Wheel, Sunsilk, Axe, Dove, Lakme, Ponds, Bru, Kwality Walls, Surf Excel etc in its portfolio.
With an employee strength of about 18000, HUL has a sales of INR 34619 crores for the financial
year 2017-2018. In fact, 16 of its brands were featured in the ACNielsen Brand Equity list of 100
Most Trusted Brands Annual Survey (2014), taken by Brand Equity, a supplement of Economic

SWOT Analysis:

Analysing the Strengths, Weaknesses, Opportunities and Threats of HUL, an internal analysis is
carried out.

Strength: HUL being the subsidiary of Unilever has a strong brand equity with a reach of over
6.4 million retail outlets. It has two R&D centres in India and has a huge customer base of over
700 million Indians.

Weakness: HUL has a limit market share due to strong competition in this sector. This company
has also been involved in the controversies regarding the pollution, skin lightening creams etc.

Opportunities: India is a huge market and is not yet covered completely. HUL has a great
potential to export its products and the opportunity to boost its revenues and sales.

Threats: Products imported from China at a lower cost poses a threat to HUL’s consumer base.
The changes in the Tax and the regulatory structure of the governments could be a threat. Tough
competition from the local and the international players and the decreasing demand of the products
due to the internal factors within the economy are the threats to this company. Moreover, a lot of
imitation in the industry poses a major threat to the company. Also, due to the rising inflation,
HUL is facing high input costs due to the rising prices of the raw materials.

By 2010, HUL became India’s one of the largest FMCG Company and the largest exporter,
becoming a market leader in personal and home products. HUL has become the largest FMCG
company owning 35 brands across 20 categories with a reach of over 600,000 villages Sharma,
(M. Y., Kumar, M. A., & Chawla, M. J. ,2014). HUL’s biggest competitors are Procter & Gamble
(P&G) India, Godrej Consumer Products Ltd. (GCPL), Dabur India Limited, Colgate Palmolive
(India) Limited and Marico Limited.

The success of HUL has to do a lot with its efficient business strategy that uses the competent
distribution network. It has one of the widest distribution network for the consumer products
wherein the products are distributed through a network of Redistribution Stockist (RS) who further
sell it to the sellers and the shops. Their efficient supply chain makes them reach to thousands of
households well supported by data management systems and the communication systems. (M. Y.,
Kumar, M. A., & Chawla, M. J. ,2014) (Shyle, I., 2012).

HUL soon started realising that in India, the growth of the class of products it dealt with, had
started coming to the bottom of the pyramid. So, it made a strategy to penetrate through the rural
and semi-urban areas. In 1997, HUL launched its operation called ‘Streamline’ in order to enter
the rural areas where it wasn’t possible through vehicles. To which HUL started setting up many
of its manufacturing units in the backward areas further creating several direct and indirect
employment opportunities, which showed that HUL had successfully and consciously executed
the National Policy regarding the development of the backward areas. This effort by HUL, led to
an economic development of these areas through industrialization. This in turn led HUL to put a
profound impact on the market, increasing its reach. Furthermore, HUL believes that development
of an area and reduction of poverty depends on the economic prosperity and acknowledges that
investment and International trade creates new employment opportunities, thereby raising the skill
levels and increasing the economic activity.
HUL adopts and accepts the local market needs and customises its products accordingly by
reinventing its strategies from time to time. HUL became the first company to introduce the
concept of sachets, creating value to its customers through customisation with respect to the target
costs and requirements. HUL scales up its business by outsourcing its manufacturing to the third
parties and through this strategy, it succeeds in meeting up the demand, thereby achieving the
sustainable growth.

On the Corporate Level, HUL’s focus is on its core business. The corporate strategy of HUL has
moved its decision making to its Headquarters. As per Unilever’s global coalition strategy, it is
responsible for the development of brands by streamlining the products across the world and the
subsidiaries are responsible for selling the products. HUL has expanded its portfolio by selecting
400 products and manufacturing the products in the regional networks. HUL’s corporate strategy
has changed its job management structure by reducing the managerial jobs thereby increasing the
scope for subject matter experts. HUL has incorporated the transformation by focusing on the
sustainability through the Unilever Sustainable Living Plan (USLP). Also, Unilever prefers the
Takeover strategy for its rapid expansion in all its businesses.

HUL’s International strategy is highly driven by the technology and the competitive advantage. In
such a competitive environment, the company focuses on its priority portfolio. Unilever has shifted
its focus to the emerging and the developing markets, where it has the competitive advantage. To
promote the cross-border synergies, Unilever has been continuously connecting its various
business units.

One of the major challenges which HUL faces is the tough competition in the market and the high
input costs. Soon after the demonetization in India, the consumer spending reduced along with the
reduced stocks due to the new goods and service tax (GST) implemented by the Indian
government. Due to GST, the prices of crude oil went high, which in turn increased the prices of
some personal care creams and vegetable oils, as these commodities highly rely on crude oil. Both
these reasons co-relatedly affected the market share of HUL.

Thus, to retain its market share and to solve these issues, HUL needs to focus on proliferation of
its portfolio and focus more on the competitive pricing. As Indian consumer needs are shifting
towards the ayurvedic products, HUL must incorporate more herbal products in its portfolio.
Though HUL has introduced “natural” variants in its personal care brands like Lever Ayush, but
with brands like “Patanjali” the market share for HUL is being lost. HUL already has created its
brand value and customer loyalty in the market. Bringing in more products that are ayurvedic, will
help it penetrate through the market further. Moreover, the competitive pricing strategy will make
it hold its place by making other local manufacturers and players come on their feet. HUL needs
to reinvent its strategy by introducing more herbal brands by targeting segments above and below
their positioning matrix. This will let HUL diversify its brand portfolio for Ayurvedic products
with a low cost generating more profits in the long run. HUL must leverage its position in the
market and exploit this opportunity, created due to its customer loyalty by bringing in more herbal
products as per the consumer needs.


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