Disadvantages of FMCG
Challenges FMCG
1.High Competition.
As the FMCG sector is a low capital intensive sector and basic technology are easily available, new players can enter easily. For example in India Pepsico is the market leader in Potato Chips category. But in recent years some new small players like Njoy chips, Kishlay chips etc are giving tough competition in different small area. Even within a district or state (Province) there are multiple small players and gaining market share. During last 5 to 7 years , in snacks category there are more than 100 of small players entered in Indian market and giving competition to big brands like Pepsico, Parle , ITC etc. Small players operates in a small geography , so their transportation and labour cost are very low . So they can give more margin to trade channel . Also some brands don’t have proper distribution system , they sell directly to wholesaler, as a result they save cost on distributor margin and CFA cost.
Competition among different player in different geography is main challenge for this sector. Big brand has to compete with big as well as small brand. Big brand spends a big amount of money on publicity while small brand gives more margin to trade channel . Trade channel try to push small brand for their own profit while they are forced to keep big brand due to high consumer demand. In this situation small brand has to face competition from consumer demand side while big brand has to face competition from trade partner’s margin side.
 |
| FMCG COMPETITION IMAGE |
2.Low shelf life .
Whether it is small brand or big shelf life is same for all. Some products are highly perishable like bread ,cake, cold drink etc these products shelf life is less than three months . Some product last for three to six months, like snacks and biscuits . Again some products like toiletries and sanitary products lasts for two to three years. In this situation sales force need keep close observation in trade channel which is very difficult. Otherwise expiry stock need to be taken back from trade channel which is a net loss to the manufacturer. Again if any products expired in retail outlet then all the dead stocks need to bring back to distributor point , which need some cost. Even destroy process of damaged stock need some spending from manufacturer.
Again excess dead stock discourage retailer/wholesaler for repeat purchase. Because they need to count and store all the dead stock and return to the manufacturer or distributor.
3.Stock out shifts consumer to other brand.
Stock out is a situation when company cannot provide adequate stock as per market demand. As I have told already that large numbers of buyers and sellers are engaged in this sector ,shortage of stock shifts consumer into the competitive brand or product. Consumer don’t wait for a particular brand or product, they will purchase competitive brand . If Britannia biscuits are not available in a shop then consumer will go for ITC or Bisk farm. No consumer likes out of stock situation and they shifts to other brand. It affects consumer relationship with shopkeeper , brand reputation and revenue loss to the brand owner .
So manufacturer has to ensure continuous supply to trade channel. Which is not an easy task in different location and market. In a country like India proper sales and distribution plan has to be executed, so that shortage of stock can be avoided.
4.Payment collection from channel is difficult.
Due to large numbers of customer and a huge transaction within trade channel payment realization is another difficult task. It may Manufacturer to distributor or distributor to retailer/wholesaler payment realization is pathetic. Specially for those distributor who are dealing with retail market. In each and every town a big number of retailer asks for credit . Some times distributor has to give credit in small amount like Rs300 to R500 and maintaining proper record of all these small amount are not so easy task. Some times the distributor’s collection boy has to visit multiple time for payment realization. In some cases it has been observed me that after getting credit , the outlet gets shut down and the distributor has to loss his money.
5.Rural distribution is difficult.
In a country like India rural area is backward ,connectivity in this area is very poor. So distribution in rural area is expensive and difficult. Due to bad condition of roads supply of stock becomes very difficult.
Again rural area business volume is also is very low and small quantity dispatch is not cost effective . Also distance from distributor or super stockist point creates extra headache .
In rural area retailer and wholesaler are concerned about their own profit ,they
Don’t think of quality product, as a result good brands face difficulties in distribution in rural area. Even payment realization from rural area is another problem. Trade partner in rural area are in a long distance from distributor or super stockist and collecting payment need extra manpower.
 |
| FMCG-RURAL IMAGE |
Source:-Picture clicked from my mobile.
6.Multi channel working model.
Due to large numbers of buyers and sellers , product has to be visible in different channel like urban market ,rural market, retails market, wholesale market, modern trade and institutional market. In fact the company need to keep a big sales force to service all these channel. Otherwise competitor will take away market share . For different channel different types of discount and promotion need to be designed, if necessary different MRP need to be printed . Also supply to these different types of channel need extra care . Channel wise sales data maintenance and analysis ,sales fore caste preparation and planning accordingly are not so easy task.
7.The goal for marketing remains unchanged but the way marketing keeps changing.
Ultimate goal of any manufacturer is to sell their product and make profit out of it. But the way of selling or process of selling keeps changing. Present day’s selling process is not like the process of 20 years back. For example before 20 years all the brands used to do promotional activity with Television and print media only, but now days online promotion playing a key role . Also third party manufacturing process playing a vital role to reduce logistic cost. Secondly some brands like Pepsico, HUL and Britannia are using hand held device for market order booking. Around 15 to 20 years back sales team used to keep their sales data on paper format ,but in present day all the organization are using MS excel .At the same time use of internet for intra office communication need not be mentioned.
8.Look for new channel .
As all the organization need sales growth every year. But using only existing channel can’t give them growth year on year . So every year all the FMCG company need to look for new channel to give additional business volume. Finding new location ,territory ,new market, appointment of new distributor also additional sales force are common . I have joined in FMCG sector in 15 years back , at that time we used to work only in urban area. But in present days we are looking for rural area development even we looking for micro rural area for sales growth. Rural distributor appointment like block wise and tehsil wise rural distributor appointment is main agenda for all the FMCG brands.
9.Stock supply to different channel is difficult.
As it is a multi channel sector , stock supply to different channel creates extra work load. Logistic team need to arrange for supply to various location, geography etc. Shortage of stock in a particular channel will hamper business for the month . In a highly competitive market, stock supply need to be done properly in all the channel . Otherwise expected business volume and market share will not be achieved.
10.Collecting unsold/expiry stock from channel is pathetic.
As this sector mainly deals with short shelf life product among different channel , all the stock placed in different channel does not get sold. All the unsold /expired stock need to be collected from sales channel. This is the main headache of this sector. Collecting damaged goods from all the channels need time . Because if unsold stock not being collected from market than brand reputation will suffer. Also further transaction with that shopkeeper will not be possible . So it need time, money and effort and this is a net loss to the manufacturer.
To minimize this sales force need to keep observation into different channel . At the time of supply it is recommended that optimum level of stock should be placed in different sales channel. As per the market and types of outlet suitable product need to be placed.
11.Identyfying what to sale at different sale point is difficult.
Depending on the types of market ,outlet or channel it is difficult to decide which product to sell. Before selling once in outlet we can’t decide which will be purchased in by the consumer. Again if a wrong product is being sold to a particular outlet , it will come back as unsold/expired.
Also with the changing time , consumer’s taste , choice and demands are also changing day by day . In this scenario keeping pace with the market demand is not so easy .For example during 1990 to 2000 , Rotomac pen was market leader in India with their Ball pen. But with the changing time market shifted to Gell pen and Rotomac pen could not understand market trend and they are out of market now.
12.Managing effective distribution is very difficult.
Distribution is the lifeline of FMCG sector. Distribution means “Optimum product ,optimum quantity in an optimum outlet”. Throughout the geography , product should be distributed among all the potential outlet. As it is a multi channel and multi intermediaries business , proper distribution of product among various channel and intermediaries is very difficult. Again if product distribution is not proper then expected sales volume will not be achieved . Also to create brand reputation , distribution is a must.
13.Retailers in rural area asks for high margin product .
One thing is common for all the manufacturer that, in rural area traders are concerned about their own profit they almost don’t think of quality product. But all the brands cannot give high margin to the trade channel . So the value player can enter in this market easily and the quality player has to face some difficulties. Also consumers in the rural area are not aware of suitable product ,they depends of retailer’s feedback. Taking this advantage retailers plays a tricky role and push low quality product to consumer. So balancing between high margin and quality is a matter of concern.
14. Modern trade ,adversely affects unorganized trade.
Traditional trade plays a vital role for FMCG sector but day by day growth of modern trade affecting unorganized trade. Modern trade gives some discount offer to consumer, as a result nearby small retailers are losing their business. On the other side modern trade asks a huge discount from manufacturer and due to big volume manufacturer cannot ignore these modern trade. So it is loss for both manufacturer and for small retailer.
 |
| FMCG-MODERN-TRADE |
15.Substanderd products supply from third party manufacturer.
Though third party manufacturer has some benefit for the brand owner but it has some drawback also.
Some time third party manufacturer supplies low quality product to the brand owner or it’s channel partner. Third party manufacturer tries to earn maximum profit by unethical manner, as result low quality product pumps into supply chain. Brand owner cannot check each and every unit and the dishonest manufacturer takes this opportunity.
16. Confusing brand in same category.
In some cases two different brands are looks like identical by colour shape and size . The only difference is the alphabet. In this scenario ordinary consumer cannot differentiate each other. In rural area literacy rate low in comparison to urban area . So these consumer cannot identify the actual product of their desire. May be both the brands are reputed.
 |
| FMCG-SIMILIER-LOOKING-PRODUCT-IMAGE |
E-book on fmcg sales
Thanks for sharing the article with us!
ReplyDeleteKnow about the market share of FMCG Companies in India so that you can invest in FMCG sector.
Nice. Also read about Fast Moving Consumer Goods.
ReplyDelete