What FMCG is

The idea

FMCG means fast-moving consumer goods: things people buy every week and use up — biscuits, soap, tea, detergent, toothpaste, cooking oil. Each packet earns the stockist only a few paise. The money is made by selling a very large number of packets, very fast, again and again. We call this pennies, fast.

At the counter

Compare two businesses on the same street.

A TV dealer sells one TV for ₹30,000 and keeps ₹3,000. That is a 10% margin. But a TV sits in the showroom for weeks, and the dealer may sell forty TVs in a month.

A stockist sells a ₹10 biscuit packet to Ravi Stores and keeps about 40 paise. That is about 4%. But the packet left the godown nine days after it came in, and the stockist sold 40,000 of them this month — plus soap, tea and detergent from three other companies.

The stockist's whole business is one sum:

Profit = margin per packet × packets sold − cost of selling them

The margin per packet is fixed by the company (chapter 3.6). The stockist cannot change it much. What the stockist can change is how many packets move, how fast the money comes back, and what it costs to deliver them.

Why speed matters more than margin

Take a stockist who sells ₹20,00,000 a month (before GST) and keeps 4%.

Same sales, same margin. The only difference is that stock sits twice as long. The slow stockist needs ₹9,60,000 more of his own money (or a bank loan with interest) to earn exactly the same rupees. That is why everyone in this trade talks about rotation — how many times the money goes round in a year — more than about margin.

Rotation also has a second side: retailer credit. A packet sold on 21 days' credit has not finished its journey until the cash is in hand (chapter 2.1). Slow collection does the same damage as slow stock.

What makes a product FMCG

• Bought often. Every week or every day, not once in years.
• Low price per unit. ₹5, ₹10, ₹20 packs; a shopper does not think long before buying.
• Short shelf life for many items. Biscuits, bread, milk products and some snacks expire in weeks or months (chapter 2.3).
• Easy to switch. If Ravi Stores doesn't have one brand of soap, the shopper buys another. So being on the shelf every day matters more than anything.
• Sold everywhere. Lakhs of small shops, not a few showrooms. That is why a long chain of hands is needed to reach them (chapter 3.2).

Common mistake

Chasing the highest margin. A new stockist takes a brand that offers 8% because it looks twice as good as a 4% brand. But the 8% product moves once a month, needs a salesman to push it, and the company is slow to settle claims. At the end of the year the 4% brand that rotates every ten days has made more money on less capital. Always ask "how fast does it move, and how fast is the money back?" before asking "what is the margin?"

Where you'll use this

Every chapter in this part comes back to pennies, fast. The price ladder (3.6) sets the pennies. Ordering (3.11) and collection on the beat (3.15) set the speed. In Part 4, the daily reports on stock age and outstanding age are how you watch rotation without a calculator.

Check yourself

1. A stockist keeps 4% and holds 15 days of stock. If stock days double, what happens to the margin earned per month?
2. Why does an FMCG company care so much that its product is on the shelf every day?
3. Name two ways a stockist can raise profit without any change in margin.

Answers

1. Nothing — the monthly margin stays the same. But the money invested goes up, so the return on that money falls.
2. Because shoppers switch easily. If the packet is missing, the sale goes to another brand and may not come back.
3. Sell more packets (more outlets, more lines per bill), and turn money faster (less stock days, quicker collection). Cutting delivery cost also helps.