What are Consumer Packaged Goods?

Consumer packaged goods (CPG) are the most common household products. Also known as fast-moving consumer goods (FMCG), these include non-durable items like cosmetics, toiletries, beverages, packaged foods etc. 

Durable goods are products that are used for a long time, such as appliances, automobiles, furniture. FMCG industry is a crucial industry in an economy and manufactures essential and daily-use items for the people of a country. 

The distinctive feature of these products is they need to be immediate consumed. Low priced consumer electronics like mobile phone, earphones, data cables, portable speakers are also considered under the fast-moving consumer goods market. FMCG also includes highly perishable items like meat, vegetables, fruits, meat products, dairy products, grain mill products, spirits, wines, soft drinks, mineral products, tobacco products, bakery products, dairy products, sugar, etc. 

The size of the consumer-packaged goods industry also depends on the population of the country, for example, a country like China, with the largest population will certainly have a broader market than Australia. 

Fast-moving consumer goods have numerous retail counters, they are sold in supermarkets, small shops, as well as online. Over the years, the growing penetration of smartphones has perhaps ignited the demand from consumers that want to shop FMCG through mobile phone applications. 

What are the characteristics of a CPG business?

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Essential products and stability 

During the course of a day, a person utilises items from FMCG industry on multiples occasions starting from brushing teeth, eating breakfast to cooking lunch. As the goods are essential, the businesses in the sector largely remain unscathed from cyclical upsides and downsides. 

Consumer behaviour may change towards lower-priced substitutes during hardships or cyclical downside, but consumption continues. As a result, the industry largely remains stable, and growth is mainly dependent on changes in the underlying demographics like population. 

Large wallet share

As consumer products largely include items needed to survive, the spending on consumer products has a lion wallet share. For an average consumer household, the month starts with budgeting and spending on essential items.

Low-priced product and quick decision-making  

The application of consumer products is widespread during the course of a day; therefore, they are available in all shapes and sizes. For instance, when someone is on a trip for a week, the market has to offer a compact size of toothpaste. 

In today’s world, for any high end, famous, and essential products, there are low-priced variants available. The consumer does not spend significant time while shopping fast-moving consumer goods, although a buyer may evaluate prospective purchase with various alternatives before buying a car etc.

Low Capital Intensive industry

The products to be manufactured belonging to FMCG sector do not require heavy financial investment in machinery, plant etc. Since the investment in this sector is not that high, it also avoids supply issues.

High launching costs

Even though the initial capital investment is not that high, but due to increased competition, launching a new consumer product requires a large upfront investment. An entrepreneur has to spend time and money in product development, market research, testing and launch. Awareness is the key point here. People need to be aware and educated about the new product to be launched.

Money spent while launching a CPG is basically for registering the product in the consumers mind. Even though consumers may not buy the product, they should at least be aware of the launch, which will instigate a response when they come across the product anywhere. Moreover, an entrepreneur is also bided to spend for the advertisement and marketing of the product. 

What contributes to the success of a CPG business?

Brand Equity 

A CPG company operates across a range of product, and each product has a different name, logo and packaging. Brand equity is something which allows the consumer to identify the product quickly among many similar products. 

It essentially refers to the intangible assets of a firm, which are in the form of brand names, logos etc. The consumers tend to develop brand loyalty over time after using and gradually hesitate to try a substitute product. 

Developing brand loyalty among customers is only possible when the product has a strong logo, catchy name, moreover brand equity. Although FMCG products are largely identical with similar utility, a brand provides a reason for a customer to purchase it over others. 

It is the power, reach and acceptance of a brand across various products that help a consumer product company to generate strong free cash flows. With strong free cash flows, the company has the room to reinvest in brand, consumer and marketing to maintain a market position or even grow. 

Brand and its utility to the consumer also helps the firm to achieve the pricing power – a competitive advantage. When consumers are loyal to a brand, they are likely to buy the same irrespective of the increase in price. 

Supply chains 

A strong and continuously improving distribution network is a precursor for achieving superiority for a consumer product company. It is the responsibility of a company and the effectiveness of its supply chains to ensure that consumers don’t pick substitute products just because the retailer ran out of the produce.

A firm always tries to ensure that products are available to consumers. It requires wider penetration of goods. Building robust supply chains and distribution network requires maintaining relationships with retailers, dealers, wholesalers etc. 

When a new product enters the market, the demand for the product is relatively lower, thus distributors are less inclined to allocate resources. Sometimes established players enter into exclusive contracts with distributors to the fend-off competition. 

Consumer behaviour

Consumer behaviour continues to evolve continuously constantly with changes in society, networking effects, demographic changes, taste and preference etc. A consumer-packaged goods firm has to ensure that products are evolved with changes in consumer preferences. 

Companies undertake research and continuously monitor changes in consumer behaviour. For maintaining market share, it becomes imperative for companies to incorporate enhancements in products according to changing behaviour.