Performance Indicators-FMCG industry

Tons of technical analysis is available online on ways to pick a stock. I considered few and got confused. Why investment decisions are supported with too many technical analysis and forecasts? Interesting thing is that the rules of the game are variable and so it is not so simple. Still I dare to find some simple ways and try to understand rules of the game. To start with I’ve taken one of the largest industries, the FMCG industry. The basic question I tried to answer about the variables affecting the industry performance. Stock pick would be automatically in place if the performance indicators are known.
First and foremost is changing market dynamics with fluctuating crude oil prices and inflation. Last few months were terrible. On one side input prices are increasing resulting in thinner margin to manufacturers. On the other side the share of wallet of consumer is decreasing. Overall decrease in category demand is now become visible. Companies with better brand equity are successful in transferring this burden to consumers. However with high competition already in place every time price increase will not be a viable solution.
Second emerging market dynamics is the emergence of organized retail. In this new format, relatively weaker brands also get equal opportunity to place their products and offerings along side a stronger brand. Two things will distinctly visible in such situation. Either exclusively differentiated product or the most cost effective product will get lead in the battle. In high inflationary situation consumer would tend to choose second option in order to control the outflow from their wallets. So brand loyalty earned by various major players will be at stake. Product with very high brand equity could maintain their position till the situation improves. Weaker or moderate brands will be the target of new cost effective products or brands.
Third is the cost leadership. A company’s pro activeness towards innovation, rationalization of cost structure, capabilities in manufacturing and in outsourcing gives a long term perspective of their approach towards cost leadership.Take the example of shampoo in which a crude oil derivative is used in packaging shampoos, while PET, a petroleum-based plastic product, is employed in manufacturing hair oil bottles and packaged water bottles. Crude oil derivatives account for almost 17 per cent of the total cost of corrugated boxes. Which company is working towards other innovative solutions? Another cost iscost of distribution which is very high in FMCG sector. So efficiency of supply chain and logistics adds significant value to cost leadership.
Fourth is competition with unorganized sector and regional players. Their overhead costs are much lower than a company with national presence. Being ‘local’ gives them a very cost effective advantage of distribution and logistics. Their presence can be felt at remote rural level. But since they are small the effect of inflation are even bigger for them. Poor management and poor cash flows are other prominent concerns. So a comprehensive consolidation can also be seen in next 2 to 5 years. The companies with better cash will take this.
Let me summaries the performance indicators to address health of a FMCG company in following parameters:
1. Brand equity with competitive advantage
2. Operating profit margin to understand cost advantage
3. Distribution efficiency by evaluating rural presence
4. Proportion of outsourced manufacturing
5. Cash in hand


Let us anounce “war against terrorism”

Serial blasts are attacks on democratic structure. And I feel the solution lies in our strong democracy itself. None of such malicious activity is possible without the support or involvement of general public directly or indirectly. Terrorist are in our society itself. They are using all the government infrastructure for their plans. They are traveling in same buses or trains. They are using same banking system to transfer money from one hand to another as we do. And somehow they are successful in using us also.

The labors transporting materials from one place to another do not know what is inside the box. They are doing it for their daily living. The person at check post clears all the materials for the want of very small money. Knowingly or unknowingly he is also involve and responsible. The police can not check all the luggage arriving in a city. But they can randomly check. They can use information technology to identify a suspect. I do not know how effectively they are doing their jobs.

These terrorist get shelter in our society. Knowingly or unknowingly they are using us. They could be in my very neighborhood. They are buying a pressure cooker or a bicycle or a bike from the same places where we also buy. Somewhere somehow they must be leaving a scope for a suspicion. At that time tell me honestly how many of will take pain to inform police? I am sure few of us will be daring enough to do. I am using word dare as I feel police has lost its credibility. Many of us will agree that helping police is inviting them to harass yourself.

Another issue is the insensitivity we have developed towards our society and so nation. Very recently a lady got accident on the roads of Mumbai and no one come to her rescue as it is only the responsibility of police. This loss of sensitivity is making us selfish. Most of us think that all the calamities are just a news as long as it not happening with me. Directly or indirectly these attitudes are also helping enemies of democracy.

Before designing a comprehensive solution to the problem of terrorism. We must fill all these gaps already existing in our society.

Serial Blasts. What is the value human life in India?

It happens only in developing countries like India where one after another terrorist attacks keeps government busy in counting causalities. Bangalore, Jaipur, Ahmedabad and Delhi, I do’t know how many more to come. The worst part is inactivity of government to change anything at ground level. Our politicians are expert in blame game. State vs. Center. Or our politicians are even more busy in solving bigger issues than terrorism like Hindi vs. Marathi.

What would have been the sequence of actions if it was happened in developed countries like USA? We have one example in recent history. A 9/11 and then government responds with serial attacks on Afghanistan. At least government there understand value of human life (of course of their own country only) and assures its citizens that they will do anything to secure them. What are we doing? Why our government do nothing attacks after attacks? Is human life value in India is nothing?

This is basically a failure of system. And we all are responsible for that. It can be proved very easily. Let me ask few questions.

Do you think it’s a result of only religious fundamentalism? If yes, think again. Are all the people involved in transportation of RDX, weapons or any other explosives belong to one religion? Are the people clearing the tonnages at various check post doing their job honestly? Are the people supporting these fundamentalist during their stay, travel or anything a society can do with a stranger, not Indians?

As per as government policies are concerned, do we have any comprehensive database on identities of citizen of India? How the government tackles corruption in various government departments? Even in anti corruption department? Why government do not have a common and comprehensive policy on terrorism?

There are infinite number of such burning question. And if we feel that we carry some value of our life, we must seek the answers to these questions.

Brand Managers! What are you building, a category or a brand?

One distribution channel is setting up the rules of game in today’s environment is multi franchise organized retail. Now a days the only distribution channel is prominent for the most of the consumer durable and FMCG product is organized retail. This multi franchise model is redefining challenges of branding and product management.
The older brand building activities now become category building activity. For example, imagine a manufacturer of refrigerator who successfully builds a brand and in turn customers turn up to the retail store. But inside the store, story is different. The need trigger or decision to have a refrigerator could have been augmented by the said manufacturer, but inside the store customer is open to buy any brand. For a walk in customer inside a store there are lot of variables available to take a purchase decision. It may or may not be dependent on the branding of the company which prompted the customer to consider the product.
This case implies that the older way of advertising and branding are basically building more of a category than a brand. At this point positioning of product plays a key role. The brand managers should think of which gap or problem they are solving by making a positioning of a product. Because a slight differentiation if exploited properly could play a major role in making purchase decision. These gaps or points of differentiation are available everywhere. It could be price point, product features, point of entry in customer home, geography, channel or even variables like buying need of customer, perceived value of product by the customers etc.
While positioning a product one should be very clear on competitive strategy. As in multi franchise sales network a wrong strategy will give opportunity to competition to win and set the direction of game. It’s a zero sum game. Its like a game of cards where you keep guessing of available cards with the opponents. You check your strong and weak cards along with setting trump card. You make a plan with a sequence of moves. And if your sequence of moves are ideal you can even win with your weaker cards, because you are setting the direction and opponents have to react to your move. But there is one flaw. The whole strategy is based on few real things ( strong and weak cards, trump etc) and more guess work like who are the opponents having cards stronger than your weaker cards. And an assumption that all the best cards are not in one opponents basket. So it is risky. And so it is challenging. When you put a wrong move someone else wins and then he starts setting directions to the game. Since guess work and risk are still on the table, you’ll have to wait for next opportunity to win a move and take the commands of the game back in your folds. Strong and weak cards can be replaced by competitive strengths and weaknesses of any organization.