What are the major determinants of profitability in the global FMCG industry?
How have they changed over time?
Major determinants of profitability in the global FMCG industry:
ising Incomes, Middle-Class Segment/Population Growth:
Most of the organic
growth in the FMCG industry was largely related to the rising personal disposable income
and growth of middle-class segment which tended to spend a lot on personal hygiene
products, cosmetics, and grooming and beauty products. This enabled FMCG firms to
focus on reaping gains in market shares and revenues for their product traditional lines.
Familiarity with local resource and product markets:
The emerging economies were
characterised by the rising prowess of local players. Local players possessed formidable
advantages in their familiarity with local resource markers and product markets combined
with a more nuanced understanding of the local consumer. To gain an advantage in these
markets, firms had to make sure that their products are customized in line with the local
market in line with the consumer expectations.
: FMCG specialists had monopoly over distribution
accesses which typically had been a stumbling block (entry barriers) for the new entrants.
Presence of an effective distribution channel meant smooth unhindered sales for the
company without any threat of competition.
Product innovation and acquisitions:
Most of the battles for the market share in the
developed regions rested squarely on product innovations and acquisitions. Getting hold of
the trending products through acquisition or developing those internally has the potential
to increase the top-line of the company significantly.
Retail Shelf Space
: Traditionally one of the major revenue determinants for the FMCG
companies was the retail shelf space occupied by them. Making sure that their products
occupy the available prime slots would increase the visibility of their products and lead to
CHANGE IN THE MAJOR DETERMINANTS OF PROFITABILITY:
FMCG companies have witnessed major shift in the importance of retail shelf space versus
emerging distribution methods using digital platforms.
Understanding of local customers –
Access to the consumer usage data would play a
critical role would play a crucial role in the determining the profitability in the FMCG
industry. Consumer usage data combined with predictive analysis would enable companies
to better gauge consumer preferences. It could lower the entry barriers for the smaller
firms and the bigger firms would be at a risk of losing their competitive advantage.
Emergence of alternative distribution platforms:
With the emergence of alternative
distribution platforms such as Amazon and an increased willingness of established retailers
such as Walmart to embrace new entrants, new FMCG companies were able to vault over
distribution access limitations that had historically been a stumbling block.