Free Essay

Fmcg

In: Business and Management

Submitted By denata
Words 2284
Pages 10
2015
Fast Moving Consumer Goods:
IN AFRICA
NAME: DENATA BALYAGATI
STUDENT NO: 213570712

INTRODUCTION
This paper aims at firstly creating an overview of what constitutes as a fast moving consumer goods industry, from which we conduct an analysis for such goods within the African continent in attribution to Unilever; one of the leading fast moving consumer goods companies.
Fast moving consumer goods (FMCG) also known as consumer packaged goods (CPG) form one of the biggest industries in the world, there are many facts for this; 1.) Strong companies are behind this industry, they gain dominance through the big brands they establish i.e. products that are recognised and preferred by consumers 2.) The FMCG industry is characterised by fast changes and evolution, this is evident in the pace at which products move in the shelves of retail shops and innovative changes in products themselves 3.) The resilience of the FMCG industry during the recession whilst other company’s weathered is because consumers still need their products for their daily activities 4.) The FMCG industry is focused with offering what consumers want and need these are demands that can never be fully fulfilled because of changing preferences. This guarantees business. (Reckitt Benckiser Group plc, 2015)
The rise in the presence of FMCG companies in Africa can be attributed to the fact that nine of the 20 fast growing economies are from the African continent; Mozambique, Zambia, Nigeria to mention but a few. Despite the growth being attributed to the increased demand of oil and minerals, other economic activities have begun to take steady hold. The middle class has gradually grown due to urbanization which has positively impacted purchasing power of consumer goods/services. (Deloitte, 2013).
UNDERSTANDING THE MARKET OPPORTUNITY
It’s key to understand the market and its consumers. It is through this that a company can fully and effectively identify and define the factors that influence; industry changes and competitive forces (for the company and its rivals).
THE MARKET
Our focus market is Nigeria; it is seen as one of the potential markets for fast moving consumer goods. Why Nigeria?
Jude Uzonwanne (2011) identifies four key drivers that place Nigeria in this favourable position, these include: * Fast Growing Economy: The international monetary fund (IMF) identified Nigeria’s gross domestic growth for 2010 – 2011 as 7 percent to 7.3 percent. This economic boom is attractive to many investment companies as there is a positive expectance of profits. * Large Consumer Market: Nigeria’s population is more than 140 million people. This dwarfs some African countries populations like that of South Africa which is about 58 million (Source: World Bank, 2013). 72 percent of the 140 million is under the age of 30. This suggests a healthy consumer market. * Brand Consciousness: The Nigerian market has is very brand conscious, they therefore tend to be loyal to brands that have offerings that meet their needs and at the same time experimental with new ones. It is this combination of customers that when products are able to establish a positive perception in the minds of the consumer can they then begin to attract customer loyalty. * Business Climate: Despite its political instabilities the government has continued to work on reforms to enable economic diversity beyond its petroleum-dominated economy. This is a promising start and gives reason for optimism.

THE CONSUMER
D.K.S Smith (2008) discusses with Mr. Felix Ohiwerei, former chairman of Unilever Nigeria PLC of the company’s definition of the consumers’ perspective to fast moving consumer goods. * Quality: consumers are very quality conscious; this becomes a challenge for manufactures as the Nigerian market is flooded with top quality products from all over the world; the focus of Unilever Nigeria is to offer the same world–class quality as other imported products. * Low Disposable income: this means that consumers look for affordability and value. It’s every manufactures challenge i.e. offering affordable products without compromising quality. Mr Felix Ohiwerei describes Unilever’s approach to this which is through innovation in pack sizes. “We sell in packages that are small enough to be affordable yet do provide consumers the world-class quality they expect”. (DKS. Smith, 2008) * Advertising: customers need to be aware of the products available to them. It’s important that the firm creates a lasting image in the minds of the consumers through its advertising to attract and ensure repeated purchases. For example through radio, billboards etch * Fakes: it’s a major problem in Africa and is faced by Unilever too through product imitations done by unscrupulous organisations/individuals. Ways to combat this may be through strongly pushing brand names to reduce confusion or encouraging regular innovations of products so as to stay a step ahead. * Access to Products: distribution is key but with presence of poor infrastructure (roads, utilities) distribution faces several setbacks, considerations never-the less are vital for a wider availability and to be very visible to customers.
CRAFTING A MARKET ENTRY STRATEGY AND ITS ANALYSIS
Having understood the environment we assess how the company’s (Unilever) strategies are applied to gain competitive advantages over its rivals.
Unilever uses different entry means for different countries i.e. Greenfield Investment (going into market alone), Acquisition or Joint Venture (the most commonly used in Africa which requires partnering with an African partner due to country regulations). Ultimately the strategy undertaken must reflect the company’s priorities, the state of the local market developments and State regulations. (Hatch .G. 2011 et al,) Unilever’s strategy encompasses two main objectives; to make sustainable living commonplace i.e. create a better future through brands and services that help people feel good and to achieve winning brands and innovations, winning the market place and winning the people. (Unilever.com). Analysis can begin with examining the five (5) forces in relation to the industry from which we will see Unilever’s position in each force. These five forces as discussed by Hough .J. et al (2012) are; * Threat of new entrants – this threat is low as entrants are faced with high capital barriers resulting from costs for R&D, advertising and establishing brand equity. * Buyer power – buyers relatively have higher power because of low switching costs and their purchase importance to sellers. * Threats of substitutes – the products bear little differentiation thus customer loyalty is low as the cost of switching is low. This calls for investment in promotions and advertising * Supplier power – consumption of suppler goods is high and so are suppliers thus moderate power and most opt for suppler- seller collaboration relationships. * Competitive rivalry – the main competitors are P&G (Procter &Gamble).
Unilever has sought out strategies for a competitive edge, Issaoui Roukaya (2014) discusses; * New marketing channels: strongly pushing marketing and advertising efforts, Unilever is exploiting new media opportunities resulting from the growth of the technological age for example direct selling, interactive marketing, e-commerce etch * Innovation: Issaoui Roukaya (2014) identifies the three forms of innovation used by Unilever; 1.) Science and technology through bettering processes in manufacturing and distribution 2.) Open innovation which is working with outside partners to find better solutions to consumer needs 3.) New business unit where collaborations are done to develop better business models to stretch Unilever beyond the company’s core capabilities. * SWOT Analysis: is a means of measuring both internal and external conditions of the company.
Strengths – 1.) Operational cost efficiency achieved through developing a good distribution network and cost reduction through outsourcing 2.) Offering a superior brand value to customers i.e. its sustainable living focuses on environmental impact of the company’s product and its affordability 3.) Unilever offers diversity in its range of products making it able to tap into the ever changing preferences of the consumer 4.) Consumer connectivity achieved through its social responsibility programs all with the aim of penetrating into the consumer market and gain insight of consumer needs
Weaknesses – 1.) Unilever’s organisational structure has two main branches the Unilever NV (Netherlands) and Unilever PLC (UK) both of which are one however this can restrict flexibility 2.) Its focus on developing countries may yield slow returns due to their unpredictable economic and political stability.
Opportunities – 1.) Demographics offer a appeal for a broader range of products 2.) New technology emerging supports digital business thus wider markets reach and better communication opportunities 3.) The increased environmental awareness campaigns that call of green products, this is in line with Unilever’s strategy and purpose.
Threats – 1.) Ventures in developing countries are jointly owned thus reduced profits and the costs of up scaling the local partner to meet Unilever’s standards 2.) The ongoing economic instability that has reduced disposable income thus to negatively affect consumer spending power thus in the long-run may dent the company’s revenue
STRATEGIC COMPARISON WITH TOP RIVAL
Unilever’s number one competitor is Proctor & Gamble (P&G). These two companies own hundreds of popular brands yet they differ not only in size but also business models and strategies. These differences are discussed by David Forward (2013) as follows; * Emerging markets: the battle to conquer developing markets has long existed between these two giants, however Unilever has played a more active role in entering such markets more so than P&G. Even though P&G’s recent efforts to engage Unilever has established long and fruitful relationships and still takes the lead role. * Product Offering: Unilever’s products are centred more into food and beverage despite having other product variants like beauty and personal care. Meanwhile P&G has a strong presence in household products but it too has a variety of other products in health, beauty etches. But globally P&G possess a larger market share with their presence strongly in Europe. * Innovation: P&G is one of the most innovative companies with superior brands like White strips, febreze order fresheners however these innovations are over a decade ago, evidence in the decline in R&D innovations, Unilever have 20,000 patents to show for their innovation efforts. * Financial Position: David Schauber Jr. (2013) makes a comparison between the two companies on their financial positions whereas; information on P&G was obtained through P&G 2014 Annual report and Unilever’s financial position was obtained from Unilever, 2012 full year and fourth quarter results * Current Ratio – show’s whether company’s assets are able to meet shot-term financial obligations. Favourable ratio is 1:0, P&G is 0:98 while Unilever is 0:77 which is less desirable. * Quick Ratio – takes accountability of uncertainty in conversion of inventory to cash. Ideal ratio is 1:0, P&G is 0:70 while Unilever is 0:49 where as both are undesirable. * Return on Equity – helps give an idea on managements efficiency with company assets in relation to profit returns to stockholders. Ideally the higher the figure the better. P&G is 8.49% while Unilever is 32.9% * Debt-to-Equity – is company’s ability to cover debt using shareholders equity. The lower the number the better. P&G has a ratio of 1:08 while Unilever is 2:01. A company with a competitive advantage is that which can finance most of its operations by earnings and not by debt. * Inventory – inventory fluctuations like an increase should reflect on a company’s revenue otherwise it could mean the firm is simply replacing its obsolete products. Schauber .D. (2013) compared P&G’s 2012 inventory to find it as 7.2 billion slightly less than the 7.4 billion of the previous year, Unilever had an inventory worth 5.90 billion in 2012 which is less than the year prior that was 6.17 billion.
Drawing from David Schauber’s (2013) analysis of the two company’s financial position these quantitative measures clearly show P&G as having more liquidity and asset security than Unilever. This by assumption may be due to P&G’s dominance in Europe which bears more profitable markets than Unilever’s major focus in emerging markets where they still struggle with the 3rd world setbacks.
CONCLUSION
In my own view I have witnessed the success of various companies who have ventured in the FMCG industry and more so in the African continent. The entry strategies implemented vary as some were discussed however suggestions contributed to this analysis by author to guarantee long-term profitable growth for the country and venturing company include; * Adapting of the company’s products to suite the distinctive needs and behaviours of consumers of the particular market. * Applying a well sought out approach to entry with a well-defined systematic processes to avoid misconceptions by consumers of the products offered. * Involvement within the community as the community forms a strong element of the African culture thus calling to reflect these values in the brands the company plans to offer.
REFERENCES
1. Jude Uzonwanne, 2011, Investing in Nigeria: A Brief Strategy Guide, Publisher: Monitor. 2. D.K.S Smith, Volume 9 Issue 2, 2008 Journal of African Business: Executive Opinion. 3. World Bank, 2013, Data: Population Total. 4. Deloitte, 2013, Africa: Tapping into Growth Opportunities, Challenges and Strategies for Consumer Products. 5. Grant Hatch, Pieter Becker and Michelle Van Zyl, 2011, Africa Market Entry: Strategies for consideration, Publisher: Accenture. 6. David Forward, 2013, Procter and Gamble Vs Unilever: Comparing Two Consumer Staples Giants. 7. David Schauber Jr. Feb. 12 2013, Procter and Gamble Vs Unilever: Who has the Better Balance Sheet? 8. Unilever, 2012, Full Year and Fourth Quarter Results 9. Procter and Gamble, 2014, Annual Report. 10. Issaoui Roukaya, 2014, Strategic Analysis of Unilever. 11. Unilever, (No date), Our Strategy, http://www.unilever.com/sustainable-living-2014/our-approach-to-sustainability/our-strategy/ [Accessed: 23.03.2015] 12. Reckitt Benckiser Group Plc, 2015, About FMCG: The Facts About The FMCG Industry

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