27 March 2014

FMCG SEGMENT

Slow moving goods in FMCG segment: A study

Faculty Contributor : Nagasimha Balakrishna Kanagal, Associate Professor
Student Contributors : Ramya Mohan and Kalaivani S.
The FMCG market in India which is expected to almost treble by 2015 still has certain goods that are not “moving” at the same rate as that of other products in the same category segment. This article investigates the reasons behind the slow movement of goods in any form of retail outlet and analyses representative examples in various product categories of FMCG. The conclusion of this article is marked with clear recommendations to retailers and the company for managing slow moving goods.
The FMCG market in the India is poised for a high growth era which is indicated by a CAGR of 11.2% over the past decade and annual volume growth of approximately 8.5%1The growth potential of the industry is high because of low penetration rates currently, rising consumer incomes and demand-supply gap. Yet, there are a few products in every sector which perform badly compared to the others in terms of sales and movement. For example, the sales of the Fiama Di Wills shampoo is not comparable with the sales of competing brands like Dove or Pantene. One can quote similar examples in the house hold and food & beverages category as well. These goods are identified as slow moving goods. There could be numerous reasons for the slow movement of these products like, ineffective advertising, lack of consumer loyalty to brands, inadequate retailer shelf space, improper brand positioning, presence of stiff competition etc,.
In this scenario it would be interesting to recognize and assess these reasons. Our methodology involved secondary data collection and primary interviews with the stakeholders namely the retailers, company, experts and the end consumers followed by analysis of the data collected. This article firstly, looks at what slow moving goods are. Secondly, explores the cause for this relative difference in the sales of the various items in different product categories in each segment. Thirdly, identifies vertical and horizontal commonalities for the slow movement of goods across the various categories. And finally looks at the way forward for the retailers and company to manage and tackle slow movement of goods.

What are Slow Moving Goods?

The definition of slow moving goods changes from organization to organization and it depends on the nature of product. According to Humming et al. “These products can comprise a relatively large percentage of a firm’s items yet provide only a small percentage of the firm’s revenue”. A common method for indentifying slow moving goods is based on the determination of demand, periodic inventory review, demand and forecast studies. The items that have demand of less than 6 months in the preceding 12 months are classified as slow moving goods.2Sometimes the definition of slow moving goods is not based on the sales value in the year of that particular item but based on the movement / number of transactions per annum3.
In a typical retail store a weekly / monthly / quarterly audit is conducted and the stock and inventory are noted down. The bottom products in terms of sales which neither contributes to profit nor to margin but is stocked up for long time is treated as slow moving goods. In case of Kirana stores this methodology is rarely adopted; identification and elimination of slow moving goods predominantly comes from experience.
Generally the 3D approach4 (distress sale, donation, destructions) is used to push the slow moving goods. Other actions that are commonly taken by retailers are turning off replenishment of identified item, increasing visibility of the items, trade back agreements, grouping of items and improvement of inventory control for slow moving goods.

Reasons for Slow Movement of Goods

Mrs.Banupriya, Director of a market research firm says, “It is very difficult to classify slow moving goods in the FMCG sector. Generally, interest in another category product can lead to a brand becoming slow moving since the category on the whole is substitutable. For example soap vs. body wash is being used interchangeably now-a-days by people, which has resulted in the decline in the sale of soaps. Second, the category itself may be declining and people might not want to use that category anymore. For example, tooth powder is one category which has been steadily declining since people prefer tooth paste to tooth powder. Another factor is that the company may themselves have led to the natural death of their product in case they are launching a new product for building brand image and bringing a change.”5
One of the factors that could affect buying behavior in a retail store is consumer profile. For example, personal care products are driven by the fact that it needs to be consumed for long term and hence switchers are very low and very less. Apart from that, the goods that constitute part of the monthly basket sells well and these can be typically categorized as large packs, high value items which are essential for day-to-day family life. In modern trade, the assortment of products is huge and hence few products sell really well in big shops; so a comprehensive coverage of brand is very important.
The second factor is price point, which is the retail price of the product when viewed in line with its competitors. The price sensitiveness of the consumer and the price of the product also affect the consumer buying pattern.
The third is product type, for example people generally prefer to buy health related products like tablets, baby oil, antiseptics, hand wash, etc., from chemists rather than in a retail store. This means that the growth or sales of these products might appear to be slow moving from retailer perspective but in reality that might not be the case.
Goods can become slow moving because of the wrong market positioning, placement in the retail outlet, number of units of the product that is kept on display in the outlet, awareness of the product in the right direction, quality and finally packaging. When it comes to slow moving goods, the nature of response of the company depends a lot on bargaining and negotiating power of the retailer which in turn depends of the scale of operation, life of the product and promotion combination.

Observing Commonalities across Categories and Brands

Various vertical and horizontal commonalities exist for the slow movement of goods across the various categories and brands. In order to identify these trends a study of various brands was conducted involving the views of the consumers and retailers. Two different classifications were adopted for the study - one based on product category and the other based on consumption pattern. In the product category, the subdivision of slow moving goods could be based on slow growth of categories or slow movement of the brand. As shown in Exhibit 1, the following brands were adopted in our study.

Exhibit 1 Classification of brands under study based on product category
On the basis of consumption pattern the following products (Exhibit 2) were studied in each of the classifications made.
 Exhibit 2 Classification of brands under study based on consumption pattern
It was observed that promotions and effective communication are two important factors in the sales of the FMCG sector irrespective of the nature of categories. However when it comes to hygiene aspects in the personal care segment, consumers are conscious about the brand – for example, when it comes to hand wash, they prefer brands like Dettol which is known for its antiseptic property.
In the food and beverage (F&B) segment, the brand name is perceived to be very important. Brand name is one of the major confidence builders when it comes to food products as good brands are directly perceived to be associated with good quality. The second important factor is the communication of the brand value and product positioning effectively to consumers.
In case of personal care segment, the buying behavior is predominantly same across all categories except for hygiene categories. People are brand loyal and perceive it to be risky to move another brand and only communication pulls them.
In addition there is a vertical trend among the various product categories (personal, F&B and household) and horizontal trends across the categories. Vertical trends suggest that in-store attractiveness, brand preference and availability are the drivers for fast moving goods in a particular category. Across the category (horizontal trends) when the brand preference is low various pull (promotions highlighting value for money, etc.) and push (in-store attractiveness) strategies help increase the sale of slow moving goods. On the other hand when the brand preference is high pricing, word of mouth publicity and bundling could be used as a strategy to push slow moving goods. The retailers also observed that the company must ensure the availability of product at the store to avoid it becoming obsolete. The company must also keep in mind the regional preferences while marketing and positioning the product. Thus the horizontal trends that were observed across different categories colluded with the perceptions of the consumer.

Tackling slow movement of goods

It was observed that irrespective of the magnitude of the retail stores all organized retails follow a three pronged strategy of giving it back to the company, discounted sale and disposal of goods for clearing of slow moving goods. The kind of strategy that the retailer is adopting right now seems reasonable and just. However, the retailer can also concentrate on better demand estimation, inventory management and trade-back agreements. The retailers can collaborate with the company to have better in-store advertisement, in-store company salesman and bundling of goods to push the products.
One of the major push strategies that is required to eliminate / avoid slow moving goods is from the company side. When launching a new product the company can avoid slow movement by identifying clear gaps in demand and consumer requirement, establish good relationships / tie ups with the retailers to ensure that their brands are on display, effective marketing involving correct targeting and positioning and finally establish a proper sales and distribution channel to ensure the availability of goods at the various retail stores.
Once the product is launched and is in sales or if it is an already existing product the company must collect periodic feedback to identify slow moving goods, check whether this trend exists across regions and if it is so, increase the advertising and marketing of the product if the same is not being allocated adequate expenditure. In case the above has already been done, have promotional offers for the products and push the retailers to promote your product. Finally if all the above fails the major reason can be brand perception and product quality which has to be reworked for the product to become fast moving.

Conclusion

This study has assisted in identifying some of the reasons for slow movement of certain products and recommended measures to ensure faster movement of these products. It was observed that product positioning, catering to correct target segment, effective communication, advertisement and promotion are the major factors which will ensure better movement of slow moving goods. A set of recommendation to the retailers and the company has been provided to ensure faster movement of these slow moving goods.

Keywords

Consumer Goods, FMCG, Retail, Strategy, Marketing, Brand, Pricing, Positioning

Contributors

Nagasimha Balakrishna Kanagal is a Professor in the Marketing Area at IIM Bangalore. He can be reached at kanagal@iimb.ernet.in.
S Kalaivani (PGP 2010-12) holds a B.Tech from National Institute of Technology, Trichy. She can be reached at kalaivani.s10@iimb.ernet.in.
Ramya Mohan (PGP 2010-12) holds a B.Tech from National Institute of Technology, Trichy. She can be reached at ramya.mohan10@iimb.ernet.in

References

  1. Champions of Growth, HSBC India Investors Conference, February 2011, Mumbai http://www.dabur.com/en/investors1/DIL-Inv.%20Presentation-HSBC%20India%20Inv.%20Conf.-7th%20Feb.,%2011.pdf. Last accessed on 4th Jan, 2012
  2.  John W. Hummel and Richard R. Jesse, “A spread sheet heuristic approach for the stocking and retention of slow-moving, obsolescent items”, Computers and Industrial Engineering, Volume 18 Issue 2, 1990
  3. F R Johnston, J E Boylan and E A Shale, “An examination of the size of orders from customers, their characterisation and the implications for inventory control of slow moving items”, The Journal of the Operational Research Society, Aug 2003
  4. The 3 D’s of Slow Moving Inventory”, June 2009, http://deadstocknet.com/2009/06/24/slow-moving-inventory-deadstoc/. Last accessed on 4th Jan, 2012
  5. Based on Interviews with Mrs.BanuPriya Sudhakar and Mr.Govindhan
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