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Fast-moving consumer goods (FMCGs) are products that sell quickly at relatively low cost. FMCGs have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).
They are bought often, consumed rapidly, priced low, and sold in large quantities. They also have a high turnover on store shelves. The largest FMCG companies by revenue are among the best known, such as Nestle SA. (NSRGY) ($99.32 billion in 2023 earnings) and PepsiCo Inc. (PEP) ($91.47 billion). From the 1980s up to the early 2010s, the FMCG sector was a paradigm of stable and impressive growth; annual revenue was consistently around 9% in the first decade of this century, with returns on invested capital (ROIC) at 22%.
The industry's success has been attributed to its tried-and-true formula of building strong brands, expanding into and with new markets and consumer channels, and avidly managing costs while cultivating worldwide brands. The past few years have seen the first declines in memory in the sector's sales growth—a contraction blamed (depending on the source) on post-pandemic supply-chain issues, inflation, competitive pressures (including online retail), the rise of private labels, and, perhaps most long-term, changes in consumer tastes. In 2023, for example, American consumers spent 10% more on groceries but bought 4% fewer items. That said, the industry still posted a remarkable 27% average ROIC. Below we take you through this most recognizable of industries, how it works, and who the big players are.
To understand FMCGs, it's worth setting out terms that can be confusing to those from outside these industries. FMCG's are products with relatively low cost and high turnover rate. They are within the category of consumer packaged goods (durable and nondurable), which is a part of all consumer goods. Consumer nondurable goods are FMCGs plus gasoline, clothing, shoes, etc. Here's a table differentiating terms commonly heard when discussing FMCGs. Heads up: there is some overlap among these classifications:
| The Characteristics of Different Kinds of Goods | |||||
|---|---|---|---|---|---|
| Characteristic | Fast-Moving Consumer Goods (FMCG) | Slow-Moving Consumer Goods (SMCG) | Consumer Packaged Goods (CPG) | Consumer Durables | Consumer Nondurables |
| Life span | Short (days, weeks) | Varies (longer than FMCG) | Varies (days to years) | Long (3+ years) | Short (under 3 years) |
| Purchase Frequency | High | Low | Medium-High | Low | Medium |
| Prices | Low | Varies (often higher than FMCG) | Varies | High | Varies |
| Profit Margin per Unit | Low | May be higher to compensate for slower sales | Varies | High | Varies |
| Sales Volume | High | Low | Medium-High | Low | Medium |
| Examples | Packaged foods, beverages, toiletries | Specialty food items, luxury goods, furniture, seasonal items | Appliances, electronics, clothing | Furniture, cars, appliances | Food, clothing, gasoline |
Durable goods have a shelf life of three years or more, while nondurable goods have a shelf life of less than three years. Fast-moving consumer goods are the largest segment of consumer goods. They fall into the nondurable category, as they are consumed immediately and have a short shelf life.
Everyone uses FMCGs daily. They are the small-scale consumer purchases we make at the produce stand, grocery store, supermarket, or the local CVS on the way home. Examples include milk, gum, fruit and vegetables, toilet paper, soda, beer, and over-the-counter medications like aspirin.
Nondurable goods, including FMCGs, account for more than half of all consumer spending but tend to be low-involvement purchases. Consumers are more likely to show off a durable good such as a new car or beautifully designed smartphone than a new energy drink they picked up for $2.50 at the convenience store.
FMCGs include several subcategories:
Slow-moving consumer goods, which have a longer shelf life and are purchased over time, include items like furniture and appliances.
The 10 largest FMCG companies in the world are the following (all figures in U.S. dollars, as of mid-2024):
In the past, popular goods for online purchase were related to travel, entertainment, or durable goods, such as fashion and electronics. However, the online market for groceries and other consumable products is growing as companies redefine delivery logistics efficiency and shorten delivery times. Thus, the FMCG industry has been significantly influenced by the rapid growth of ecommerce and evolving consumer habits. The widespread adoption of online shopping has transformed how consumers buy their daily necessities, leading to a shift in the traditional retail landscape. Ecommerce platforms have supplied consumers with the convenience of 24/7 shopping, vast product choices, and competitive prices, forcing FMCG companies to adapt their strategies.
While nonconsumable categories will likely continue to lead consumable products in sheer volume for online shopping, efficiency gains in logistics have increased the use of ecommerce channels to buy FMCGs. The continuing rise in online shopping has prompted FMCG companies to invest heavily in their digital presence, including developing user-friendly websites, mobile apps, and partnerships with leading ecommerce platforms. FMCG companies have also had to rethink their supply chain and logistics networks to ensure prompt delivery of products to consumers via the main online retailers.
In addition, changing consumer habits have driven FMCG companies to diversify their products. Today's consumers are increasingly health-conscious, environmentally aware, and socially responsible, leading to a growing demand for organic, natural, and sustainable products. In response, FMCG companies have launched new product lines that cater to these preferences, such as plant-based alternatives and eco-friendly packaging.
As ecommerce continues to grow and consumer habits evolve, FMCG companies must remain agile to stay competitive in the market. This involves investing in digital technologies, such as AI and big data analytics, so that companies can dig deeper into consumer behavior and preferences. Further, companies are at least advertising how they prioritize sustainability and social responsibility to align with the values of their customers. Here are some other challenges in this area of the economy:
Consumer packaged goods are the same as fast-moving consumer goods. They are items with high turnover rates, low prices, or short shelf lives. Fast-moving consumer goods are characterized by low profit margins and large sales quantities. Some products that fall within this group include soft drinks, toilet paper, and dairy products.
The three main consumer goods categories are durable goods, nondurable goods, and services. Durable goods, such as furniture or cars, last at least three years. Often, economists watch durable goods spending to track the economy's health. Nondurable goods are items with a shelf life of under three years and are consumed rapidly. Fast-moving consumer goods fall within this category. Finally, services include intangible services or products, such as haircuts or car washes.
It's a financial metric used to assess how effectively a company uses its funds to generate profits. It measures the returns earned on the total capital invested in the business, which includes both equity and debt.
A high ROIC indicates that the company is efficiently using its resources to produce profits, which can signal strong management and a potentially profitable investment. Meanwhile, a low ROIC may suggest inefficiencies and a weaker ability to create value.
FMCG are products that are sold quickly, consumed regularly, and typically have a short shelf life. These products are the staples of our daily lives, including food, beverages, toiletries, over-the-counter drugs, and cleaning products. FMCG are generally low-cost, high-volume products sold through various retail channels, such as supermarkets, convenience stores, and online platforms. The FMCG industry is characterized by fierce competition. Companies in this sector invest heavily in marketing and product development to build strong brand recognition and foster customer loyalty.
The sector has faced challenges in recent years because of shifting consumer preferences, market consolidation, and pandemic-era disruptions. The industry's traditional recipe for success—building strong brands, expanding with growing markets, and managing costs—has been tested by slowing population growth, changing consumer behaviors, and inflation. Yet, it maintains standout ROIC, which is why the industry has long been an investor favorite.
