Learn about the key PESTLE factors affecting the FMCG industry with this brief introduction. Discover how political, economic, sociocultural, technological, legal, and environmental factors can impact companies operating in this fast-paced and competitive industry.
Stay ahead of the curve and adapt to changes in the macro-environment by conducting a PESTLE analysis of FMCG industry.
Background and Introduction
Fast-moving consumer goods (FMCG) is a term used to describe a category of products that are consumed regularly by households and are typically sold at a low price point. The FMCG industry includes a wide range of products such as packaged foods, beverages, personal care products, household cleaning products, and over-the-counter drugs.
The FMCG industry is known for its fast-paced nature and its ability to quickly respond to changing consumer preferences. Companies in this industry must constantly innovate and adapt to remain competitive. They also face the challenge of managing complex supply chains and distribution networks to ensure their products reach customers in a timely and efficient manner.
The FMCG industry is one of the largest and most important industries in the world, with billions of dollars in annual revenue. Some of the biggest players in the industry include Procter & Gamble, Unilever, Nestle, Coca-Cola, PepsiCo, and Johnson & Johnson. The industry is also characterized by intense competition and consolidation, with many mergers and acquisitions taking place over the years.
Industry Information
| Category | Description |
|---|---|
| Products | Consumable goods such as packaged foods, beverages, personal care products, household cleaning products, and over-the-counter drugs |
| Market size | Approximately $4 trillion globally |
| Major players | Procter & Gamble, Unilever, Nestle, Coca-Cola, PepsiCo, Johnson & Johnson, Kraft Heinz, Colgate-Palmolive, Danone, Mondelez, Mars, Kellogg’s, General Mills, Reckitt Benckiser, L’Oreal, Estee Lauder, and many more |
| Growth rate | Varies by region, but is generally steady with some markets experiencing rapid growth, particularly in emerging economies |
| Distribution channels | Retail stores, online retailers, and direct sales through company websites and other channels |
| Challenges | Intense competition, changing consumer preferences, complex supply chains, and pressure to innovate and reduce costs |
| Trends | Growing demand for organic and natural products, increased focus on sustainability and ethical sourcing, and growth in e-commerce sales |
Political Factors
The supply chain in the FMCG industry is dependent on the maintenance of political equilibrium. Any disruption in the political stability can lead to hindrance and delays to the supply operations. For example, Russia and Ukraine war had a significant impact on the supply of corn to China which is a core ingredient for some of the FMCG items.
Moreover, the prices of goods such as wheat and palm oil increased due to the conflict. The turbulent political situation also lead to price hike of packaging materials (D’Souza, 2022).Due to the price increase the FMCG manufacturers had to make adjustments to the price structure of their products.
Government policies related to tax and trading are also some of the key factors that influence the industry. Favorable political environment encourages the investors to make input, which can in turn develop the FMCG sector. Therefore, high FDI is a key factor in the growth of the industry, which is connected to the level of stability and positive policies a country can provide.
Economic Factors
Recession negatively impacts the overall economic condition of a country, which has a significant effect on the purchasing power and decisions of the consumers. A poor economy leads to higher inflation which makes it difficult for the people to purchase even the necessary goods. This reduced spending from the consumers has a negative effect on the country’s GDP.
Inflation effects the operational cost of FMCG firms, which causes price increase of the products. Prices of goods determine whether people would purchase the types of products in the FMCG domain. Lower cost alternatives would be considered when the economy is weak as people have lower disposable income to spend on their household.
Another economic indicator that causes lower sales and revenue for the FMCG industry is high rate of unemployment. Moreover, high job loss arising out of COVID carried negative implications for the industry. The businesses had to deal with financial pressure through cost cutting measures, while rising unemployment reduced the disposable income of the consumers (Sun et al., 2021).
Social Factors
The rising population indicates an opportunity for the FMCG industry as the increasing number of people shows a higher demand for the goods and products. Concern towards obesity has created another segment reflected through healthy alternatives. Consumer trends towards organic food also drives the development of the items that are aligned with this preference.
Younger generation has a strong preference for new brands. The well established brands are required to re-invent themselves and offer some innovative products to capture this market segment. Another way millennial consumer behavior is different from the older generation is the difference in the inflation rate and income, which makes them opt for lower price products (Kelly et al., 2018).
An evident effect of pandemic was on the consumer buying trends as there was an increase in the demand of health and hygiene related products. Furthermore, people were stocking up grocery items to reduce the trips to the market. Another impact of COVID was that people became more focused on purchasing lower cost items.
Technological Factors
The pandemic and evolving technology have created a need for using digital medium to facilitate the consumers. FMCG industry has also benefited from the social media presence and apps which allowed the people to use online portals to make purchases. Technology also enables the companies to manage their available stock and all of the supply chain processes (Samsukha, 2023).
Social distancing rules also pushed companies to create online presence. Even those organizations that were not engaged in digital medium previously recognized the importance of using social media and technology to connect with the market. In addition, the digital payment solutions further assisted the FMCG segment to offer ease of shopping to the buyers.
Another major development in the industry is the use of big data which enables the organizations to gain insight into the market trends. The companies can then plan product supply chain decisions accordingly. Artificial Intelligence supports the FMCG companies in making decisions pertaining to product placement, stock management and even pricing structure.
Legal Factors
The food quality laws have to be followed by the FMCG sector in order to continue with the operations and maintain accountability within the industry. If the food being processed, packed and sold by these companies is adulterated, they are required to remove the items from the shelf. Some of the product domains are regulated under specific departments.
For example, meat products are examined and approved by USDA, while the Meat Inspection Act provides guidance about the expected standards of the products marketed and sold (Schweizer, 2022). The underlying assumption of the food laws is that the food is safe for consumption, thus creating the foundation for consumer laws.
The FMCG companies are also expected to follow the licensing and permit requisites to be able to operate in the retail segment. Furthermore, relevant employment laws and regulations. The management has to focus on occupational health and safety standards, along with adhering to the labor laws being practiced in the region.
Environmental Factors
The environmental factors for FMCG industry range from the use of recyclable material for packing of the products to implementation of renewable energy solutions in the companies. The organizations in the industry are also required to disclose their environmental protection initiatives and carbon reporting (Julin & Farbstein, 2022).
Another way that the environment protection regulations have affected the FMCG industry is the sourcing practices of the organizations. The management tries to select those suppliers that are engaged in sustainable business practices, thus including environment friendly processes as a part of the procurement phase as well.
Conclusion
The environment of the FMCG industry is significantly vulnerable to the political and social changes. The economic condition can facilitate or inhibit the growth of the industry, while the technological developments help the FMCG companies to increase the efficiency of their operations.
References
- D’Souza, S. (2022). Russia-Ukraine war: FMCG firms prepare to take steep price hikes. Business Standard. Retrieved from: https://www.business-standard.com/article/companies/russia-ukraine-war-fmcg-firms-prepare-to-take-steep-price-hikes-122032300011_1.html
- Julin C., & Farbstein, E. (2022). Carbon management is the FMCG sector’s most valuable and under-used asset. Normative. Retrieved from: https://normative.io/insight/fmcg-sector/
- Kelly, G., Kopka, U., Küpper, J., & Moulton, J. (2018). The new model for consumer goods. McKinsey & Company. Retrieved from: https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-new-model-for-consumer-goods
- Schweizer, E. (2022). Why Accountability May Be The Next Big Meat Industry Trend. Forbes. Retrieved from: https://www.forbes.com/sites/errolschweizer/2022/06/08/why-accountability-may-be-the-next-big-meat-industry-trend/?sh=6ab1a0a41867
- Sun, Y., Li, Y., Wang, Y., Jiang, D., & Liu, X. (2021). A Future Forecasting for FMCG Firm Performance in Covid-19: An Investigation of Consumer and Business Survival. Frontiers in Public Health, 1366.