FMCG complexities and contradictions
FMCGs refer to goods which are consumed regularly such that stock turnover is generally high. There are also services which can be characterised as fast moving consumer services. For instance services such as those provided by barber shops, restaurants and hair salons can be seen as fast moving to the extent that their consumption is routine.
The world of fast moving consumer goods (FMCG) is full of complexities. It is a world in which competition is beyond cutthroat. Margins are thin and there are seemingly endless competing products both direct and indirect. The consumer is spoilt for choice and the entrepreneur is swamped by
unrelenting competition. It is a sea of chaos where both small and big fish compete for space.
When one is thinking of opening a business in the FMCG sector, a lot of considerations need to be undertaken. However, the often low barriers to entry make many businesspeople enter in a hurry. Unfortunately this is one business someone can do for many years without making much progress. Think about people who run small shops how many are able to expand into wholesale and even supermarkets.
Small dreams small endings
During the many times I have conducted entrepreneurship trainings on small and medium enterprises (SMEs), in this sector it appears to me that there is almost a chronic small mindedness that afflicts the players. Whether one is manufacturing or even retailing, you find that people face a daunting inability to think big. Instead of seeing themselves as a small version of the big enterprise, they view their immediate situation as the ultimate destination.
The key challenges that limit growth are mostly related to cash flow issues. Wealth creation is a game of numbers whereby those who sow in scarcity have no option but to reap in scarcity. However, ploughing back profits is the only way to grow in the absence of external sources of finances.
The multiplier impact of reinvested profits provides a sustainable and stable approach to growth. On the other hand depending on debts for growth may result in fast growth
which is however not sustainable.
The power of simplicity
We all know those timeless shops in downtown run by Asians. The dukawallah
approach employs simple business principles which yield great impact. This approach among other issues employs tight control of the business whereby the owner is in touch with day to day happenings. It also involves running a single business consistently until such a time when the cash flows support expansion or diversification into other enterprises.
While micromanaging an enterprise may seem a negative thing and may slow down growth, it is an important tradeoff when one has little sources of funds for expansion. It allows one to perfect the trade while at the same time ensuring prudent utilization of resources. On the contrary, you will find that many entrepreneurs in the FMCG environment today fail to appreciate how seemingly simple business practices can help them move forward. Practices such as stringent recordkeeping, befriending clients and reinvesting surplus to grow the enterprise are time proven tactics that can help the business move faster towards its destiny.
Trading on tight margins
Most FMCGs trade on very tight margins. For instance, selling a crate of soda may
yield a gross profit equal to just one bottle. Thus if the shopkeeper decides to reward him with one bottle on a hot afternoon that crate will yield him nothing. If you are selling airtime and getting even 5% gross profit how much airtime do you need to sell in a day? Selling airtime worth KShs 1,000 only gets you KShs 50 in profit so you really need serious volumes for the business to make sense.
Salvation for FMCGs therefore lies in volumes. One needs to push huge volumes for meaningful progress to be made. Failure to do so results in a dull and routine effort whereby you open shop in the morning and by the time you close it in the evening, there is nothing to show for it – if anything you could be deep in debts. This is a routine that can drag into perpetuity.Of course not all FMCG businesses have low margins but even where margins are better, the cost of operations are high and they can easily wipe out any gross profit made.
Debt trap and FMCG stalemate
Due to the low margins, businesses often have to seek cash flow financing solutions such as bank overdrafts to bridge their gaps. Such solutions can however turn into a trap sustaining the business but not helping it to grow. In the end, only the bank benefits from the relationship while the entrepreneur toils daily to service the overdraft whose
interest is brutally punishing.
That is the situation you find someone in an FMCG environment who may seem to
be doing big business yet that does not reflect in their financial fortunes. The only way out would be to plough back profits or restructure the business and bring in new shareholders who can inject capital to fund growth. However, most entrepreneurs in this environment often prefer running a one-man show whereby they shoulder the entire burden of losses selfishly hoping to reap alone when breakthrough finally comes.
Marketing tips in FMCG Setup
One key challenge facing FMCG entrepreneurs is the crisis of differentiation. To thrive in a world characterized by serious competition requires creativity. You can’t do business like everyone else and expect to stay ahead of them. There is need to up your game by ensuring you do things differently. Branding of both goods and services is a key step towards differentiation. Yet this is an area that is often ignored and when tried is undermined by copycat mentality and underinvestment. Designing the business premises to make it more appealing and comfortable can bring great gains especially for a service business. This is evident in many service enterprises such as entertainment joints and restaurants where nothing is being spared in creating an ambience that sets the business far apart
from the rest.
The second issue is location and distribution. Location for services such as retail, beauty services among others is key as high human traffic brings some relief for an otherwise challenging business. As for manufacturing, enterprise distribution is critical and unless you get it right, success will be long in coming if at all it will do so. Even big businesses in FMCG environment face serious headaches in coming up with the best route to market strategies.
Thirdly, communicating the product offering better than competition is a great way of breaking forth from the pack. It is often frustrating to see a situation where some businesses deem spending money in awareness creation as wasteful. As I have always postulated, big firms do not advertise because they are a big they are big because they advertise. In as much as you are selling the same thing as the other person, clients will trust a familiar seller asopposed to a stranger. If you are a stranger to your target market, success will as well
be a stranger to you. It is a painful reality.
Opportunities for all
Most FMCG type of enterprises present many entry points providing nearly
everyone with a chance to start somewhere and to rise to the apex of industrial might.
With the right attitude and discipline combined with the necessary marketing
mix, success need not be such a big deal. We therefore need to be true to ourselves and realize that applying simple principles to everyday business situations is more
important than dreaming big dreams. A successful outcome will be the product of applying mundane procedures that make big businesses tick while stunted businesses see such as a nuisance which ought to be avoided. It is a choice we all have to make.