Decoding FMCG Jargon: A Comprehensive Guide to Industry Terminology

The Fast-Moving Consumer Goods (FMCG) industry is a dynamic and competitive sector that revolves around high-volume, low-margin products. Whether you’re a professional in the field, an aspiring entrepreneur, or simply curious about how the industry operates, understanding its jargon is crucial.

From sales strategies to supply chain intricacies, FMCG professionals use a vast array of terms to streamline operations and communicate efficiently. In this article, we’ll break down the most common FMCG terms across various categories, explaining their significance and impact.

Sales & Distribution

Primary Sales:

This term refers to the initial sale of goods from the manufacturer or producer directly to the distributor or wholesaler. It establishes the foundational movement of products into the distribution network. Strong primary sales indicate effective production output and initial market demand signaling product viability. Example: A large food manufacturer sells a bulk order of packaged goods to a regional distribution center.

Secondary Sales:

Secondary sales track the flow of goods from distributors or wholesalers to retail outlets. It is a critical metric for evaluating distributor performance and the overall health of the retail network. Efficient secondary sales ensure that products reach store shelves efficiently. Example: A beverage distributor delivers cases of soft drinks to a variety of local supermarkets and convenience stores.

Tertiary Sales: 

Tertiary sales represent the final stage of the sales process, where retailers sell products to end consumers. This metric ultimately determines product success and drives future production and distribution decisions. Accurate tracking of tertiary sales provides insights into consumer purchasing habits. Example: A grocery store records the number of units of a specific product sold to individual customers.

Sell-In:

Sell-in describes the process by which a company encourages distributors and retailers to stock and display its products. It involves various promotional and incentive strategies to ensure product availability throughout the distribution channel. Excessive sell-in without corresponding sell-out can lead to inventory build-up. Example: A company offers promotional discounts to distributors who place large initial orders for a new product.

Sell-Out:

Sell-out measures the actual sales of products from retailers to consumers. It provides a direct reflection of consumer demand and is crucial for adjusting inventory levels and marketing strategies. Monitoring sell-out helps companies understand consumer preferences and identify potential issues. Example: A retail chain uses point-of-sale data to track the daily sales of specific product lines.

OTC (Over the Counter):

In the context of pharmaceuticals and certain consumer goods, OTC refers to products sold directly to consumers without requiring a prescription. It emphasizes the importance of retail placement and accessibility. Example: Pain relievers and cold remedies sold directly in pharmacies and supermarkets.

Rural Penetration:

Rural penetration measures a company's ability to distribute and sell products in rural or less urbanized areas. It often requires specialized distribution strategies due to infrastructural and logistical challenges. Success in rural markets can significantly expand a company's reach. Example: A personal care company utilizes mobile vans to reach remote villages with essential hygiene products.

Van Sales: 

Van sales involve selling products directly from delivery vans to retailers, particularly effective for perishable goods or direct-to-retail distribution. It allows for immediate delivery and builds strong relationships with smaller retailers. Example: A bakery delivers fresh bread and pastries directly to local stores from its delivery vans.

Numerical Distribution: 

Numerical distribution indicates the percentage of retail outlets within a target market that stock a specific product. It provides a straightforward measure of product availability. A low numerical distribution can limit sales potential. Example: A new snack product is available in 60% of the grocery stores within a region.

Weighted Distribution: 

Weighted distribution takes into account the size and sales potential of each retail outlet. It provides a more accurate representation of product availability, as it considers the importance of larger, higher-volume stores. Example: A product has a weighted distribution of 75%, indicating strong availability in major retail chains, even if its numerical distribution is lower.

Direct Coverage: 

Direct coverage involves a company supplying products directly to retailers, bypassing traditional distributors or wholesalers. It allows for greater control over product placement and merchandising but requires substantial investment in logistics. Example: A large beverage company delivers its products directly to major supermarket chains.

Indirect Coverage: 

Indirect coverage utilizes distributors or wholesalers to reach retailers, expanding market reach but potentially reducing control over distribution processes. It is often used by smaller companies to achieve broader distribution. Example: A small food manufacturer distributes its products through a regional wholesaler.

Distributor Stock Holding: 

Distributor stock holding refers to the inventory maintained by distributors to ensure a continuous supply of products to retailers. Adequate stock holding prevents stockouts but requires careful inventory management to avoid excess. Example: A distributor maintains a two-week supply of a popular household cleaning product.

Beat Plan:

A beat plan is a structured route plan for sales representatives, outlining their daily or weekly schedules for visiting retail outlets. It optimizes sales force management and maximizes retailer visits. Example: A sales representative follows a daily route to visit 10 assigned retail stores.

Order Fulfillment Rate:

Order fulfillment rate measures the percentage of customer orders that are delivered in full and on time. High fulfillment rates build customer trust and loyalty. Example: A company achieves a 98% order fulfillment rate, indicating efficient delivery processes.

Fill Rate: 

Fill rate represents the proportion of customer demand that can be met from available stock. It indicates the effectiveness of inventory management in preventing stockouts. Example: A warehouse maintains sufficient stock to fulfill 95% of retailer orders.

Dumping: 

Dumping is an unethical practice where a company pushes excess stock to distributors or retailers, often at significantly discounted prices. It can disrupt market pricing and harm brand reputation. Example: A company floods the market with deeply discounted products to clear excess inventory.

Credit Period: 

Credit period refers to the time retailers or distributors are given to pay suppliers for delivered goods. It impacts cash flow management for both suppliers and retailers. Example: A company provides retailers with a 30-day credit period for payments.

Retail & Merchandising

Planogram:

A planogram is a visual diagram that illustrates how products should be arranged on shelves to maximize sales and optimize shelf space. Consistent planogram implementation enhances brand presentation and customer navigation. Example: A detailed diagram showing the placement of various product sizes and flavors on a retail shelf.

Shelf Facing: 

Shelf facing refers to the number of identical product units placed front-facing on a shelf to increase visibility and attract customer attention. Optimal shelf facing requires strategic product placement to maximize impact. Example: Several bottles of a popular beverage lined up front-facing on a shelf to catch the customer's eye.

SKU (Stock Keeping Unit):

An SKU (Stock Keeping Unit) is a unique identifier for each product variant, including size, color, and packaging, used for inventory management and tracking. Accurate SKU management ensures proper inventory control and order fulfillment. Example: A specific type of cereal in a 12-ounce box has a unique SKU.

FIFO (First In, First Out): 

FIFO (First In, First Out) is a stock rotation method where the oldest inventory is sold first, ensuring product freshness and minimizing spoilage. It is particularly crucial for perishable goods. Example: Rotating milk cartons so that the ones with the earliest expiration dates are placed at the front of the shelf.

LIFO (Last In, First Out): 

LIFO (Last In, First Out) is a stock rotation method where the newest inventory is sold first. While less common in FMCG due to perishability, it is used in specific industries or for accounting purposes. Example: Selling the most recently acquired batch of raw materials first.

Out of Stock (OOS):

Out of Stock (OOS) refers to a situation where a retailer or distributor runs out of inventory for a particular product, leading to lost sales and customer dissatisfaction. Effective inventory management minimizes OOS situations. Example: A popular snack item is unavailable on store shelves due to stock depletion.

Stock Turnover Ratio: 

The stock turnover ratio is a financial metric that measures how quickly inventory is sold and replaced, indicating the efficiency of inventory management. High turnover ratios suggest strong sales and efficient inventory control. Example: A retail store sells its entire inventory of a product line ten times a year.

Mystery Shopping: 

Mystery shopping is an evaluation process where an anonymous shopper assesses a store's performance based on predefined criteria, providing feedback on customer service, store conditions, and product availability. Example: An anonymous shopper evaluates the cleanliness and staff friendliness of a retail store.

Eye-Level Placement: 

Eye-level placement involves placing products at eye level on shelves to increase visibility and encourage impulse purchases. It is a strategic placement to maximize product exposure. Example: Placing high-margin items at eye level to capture customer attention.

Dump Bin: 

A dump bin is a large bin placed in stores for promotional items or discounted products, attracting attention and driving sales. It is often used for clearance or special offer items. Example: A large bin filled with discounted snacks near the checkout.

Shelf Share: 

Shelf share represents the percentage of shelf space occupied by a particular brand or product category, indicating its visibility and importance to the retailer. Increased shelf share can lead to higher sales. Example: A beverage brand occupies 40% of the shelf space in the soft drink section.

Out-of-Stock Loss: 

Out-of-stock loss is the estimated sales lost due to product unavailability, highlighting the impact of poor inventory management. It quantifies the financial consequences of stockouts. Example: Estimating the lost revenue due to a popular product being out of stock for a day.

Product Assortment: 

Product assortment refers to the variety of products available at a retail outlet, catering to different customer preferences and needs. It reflects the range of choices offered to customers. Example: A grocery store offers a wide variety of flavors and sizes for a specific product.

Category Captain: 

A category captain is a leading brand in a product category that influences retail shelving and stocking decisions, often due to its market share and expertise. It leverages a brand’s knowledge to optimize category performance. Example: A leading snack brand advises retailers on optimal shelf placement for related products.

Trade Load: 

Trade load involves pushing excess stock to retailers or distributors before financial closing to inflate sales figures, often an unethical practice. It can distort sales records and lead to inventory management issues. Example: A manufacturer pushes a large volume of products to retailers to meet quarterly sales targets.

On-Premise Sales: 

On-premise sales refer to products consumed where they are purchased, such as in restaurants, bars, or cafes. It requires tailored marketing and distribution strategies specific to these environments. Example: Selling beverages at a restaurant or bar.

Off-Premise Sales: 

Off-premise sales involve products purchased for later consumption at home or elsewhere, such as in grocery stores or supermarkets. It is a significant sales channel for many FMCG products. Example: Selling packaged food items at a grocery store.

Reorder Point:

The reorder point is the inventory level at which a new order must be placed to avoid stockouts, ensuring continuous product availability. It triggers automated or manual reordering processes. Example: Automatically reordering a product when inventory levels fall below a specific threshold.

Trade & Marketing 

Trade Promotion:

Trade promotions encompass discounts, incentives, or special offers given to distributors or retailers to encourage them to stock, display, and sell more of a product. These promotions incentivize retailers to push products. Example: Volume discounts or display allowances offered to retailers for promoting specific products.

Consumer Promotion: 

Consumer promotions involve offers, discounts, or incentives given directly to end consumers to stimulate demand and drive sales. These include tactics like "buy one, get one free" deals, coupons, and samples. Example: Offering a free sample of a new product to customers in-store.

BTL (Below the Line Marketing):

Below the Line (BTL) marketing includes direct marketing activities that target specific customer segments. Examples include in-store demonstrations, direct mail campaigns, and sponsorship of local events. BTL activities build direct customer relationships and drive immediate sales. Example: Hosting an in-store tasting event to promote a new food product.

ATL (Above the Line Marketing): 

Above the Line (ATL) marketing focuses on broad brand awareness through traditional media channels like TV, radio, and newspapers. These campaigns aim to build long-term brand recognition and influence consumer perception. Example: Running a television commercial to promote a beverage brand.

POP (Point of Purchase):

Point of Purchase (POP) promotions or displays are strategically placed near the checkout area to encourage impulse purchases. These promotions capture customer attention at the point of decision. Example: Placing eye-catching displays of snacks near the cash register.

POSM (Point of Sale Materials): 

Point of Sale Materials (POSM) are promotional materials like posters, banners, and stands used at retail points to attract customer attention and promote products. These materials enhance product visibility and drive sales. Example: Using a branded display stand to showcase a new product in a retail store.

Planogram Compliance: 

Planogram compliance ensures that retail displays adhere to brand guidelines and planograms. It maintains a consistent brand image and optimizes shelf space across retail locations. Example: Ensuring that products are arranged on shelves according to the brand's specified layout.

Marketing & Promotions

Visibility Agreement: 

Visibility agreements are contracts between brands and retailers to ensure prominent in-store visibility for products. These agreements secure prime shelf placement and promotional space. Example: Contracting for eye-level shelf placement and end-cap displays.

Brand Pull:

Brand pull refers to consumer demand driven by brand loyalty and recognition. Customers actively seek out a specific brand, reducing the need for extensive promotions. Example: Customers specifically requesting a particular brand of coffee.

Trade Spend: 

Trade spend represents the money spent on promotions and incentives for distributors and retailers to encourage them to push sales of a product. Efficient trade spend management maximizes return on investment. Example: Allocating funds for retailer display contests and volume discounts.

Seasonal SKU: 

Seasonal SKUs are limited-time product variations or special editions designed for specific festive seasons or holidays. These products capitalize on seasonal trends and drive sales during peak periods. Example: Limited-edition holiday-themed packaging for chocolates.

Hero SKU: 

Hero SKUs represent a brand's best-selling product in a particular category, often driving a significant portion of the brand's sales. Effective management of hero SKUs is critical for overall brand success. Example: A brand's flagship product that accounts for a large percentage of its sales.

Share of Voice (SOV): 

Share of Voice (SOV) measures a brand's advertising presence compared to its competitors, measured by the percentage of advertising spending or media exposure. Higher SOV indicates greater brand visibility. Example: A brand's advertising spending accounting for 20% of the total category ad spend.

Cross Merchandising: 

Cross merchandising involves placing complementary products together on shelves or displays to encourage customers to purchase multiple items. This strategy increases basket size and overall sales. Example: Placing chips and salsa together in the snack aisle.

Slotting Fee: 

Slotting fees are payments made by brands to retailers for premium shelf placement or display space. These fees ensure product visibility in competitive retail environments. Example: Paying a retailer for prime shelf space at the front of the store.

Consumer Trial Rate: 

Consumer trial rates measure the percentage of customers who try a new product for the first time. High trial rates indicate successful product launches and effective marketing. Example: Tracking the percentage of customers who purchase a new product within the first month of its launch.

Loyalty Program: 

Loyalty programs are rewards systems designed to encourage repeat purchases and build customer loyalty. These programs offer incentives like points, discounts, and exclusive offers. Example: A rewards program that offers points for each purchase, redeemable for discounts.

Finance & Performance Metrics

MSP (Maximum Selling Price): 

Maximum Selling Price (MSP) sets the highest price at which a product is allowed to be sold. It ensures affordability and competitiveness in the market. Example: Setting a maximum price for a product to prevent price gouging.

MRP (Maximum Retail Price): 

Maximum Retail Price (MRP) is the legally set maximum price at which a product can be sold to consumers. It ensures fair pricing and protects consumers from excessive markups. Example: A legally mandated price limit printed on product packaging.

Trade Margin: 

Trade margins represent the profit earned by distributors or retailers on a product. Adequate trade margins incentivize product distribution and sales. Example: The difference between the wholesale price and the retail price of a product.

Net Realized Price (NRP): 

Net Realized Price (NRP) is the price received by the manufacturer after deducting discounts, promotions, and other costs. Accurate NRP calculation is critical for profitability analysis. Example: Calculating the revenue received after accounting for all promotional discounts.

Gross Margin: 

Gross margins reflect the difference between sales revenue and the cost of goods sold. Higher gross margins indicate efficient cost management and product profitability. Example: The profit margin calculated before operating expenses are deducted.

Market Share:

Market share indicates the percentage of total industry sales controlled by a company or brand. It reflects a brand's competitive position within the industry. Example: A brand holding 30% of the market share in a specific product category.

TAT (Turnaround Time): 

Turnaround Time (TAT) measures the time taken to complete a specific process, such as delivery or order fulfillment. Reduced TAT improves customer satisfaction and reduces costs. Example: Measuring the time it takes to process and ship an order.

Cash Discount: 

Cash discounts encourage prompt payment and improve cash flow management. These discounts incentivize customers to pay invoices quickly. Example: Offering a discount for payments made within 10 days.

Promotional Lift: 

Promotional lift measures the percentage increase in sales due to a specific promotion. It quantifies the effectiveness of promotional campaigns. Example: A 20% increase in sales during a promotional period.

Stock Keeping Cost: 

Stock keeping costs include expenses related to inventory storage and handling. Efficient stock keeping cost management reduces operational expenses. Example: Costs associated with warehousing, insurance, and handling inventory.

Sell-Through Rate: 

Sell-through rates measure the percentage of stock sold within a given period. High sell-through rates indicate strong product demand and efficient inventory management. Example: Selling 80% of inventory within a month.

Trade Discount: 

Trade discounts are price reductions given to distributors or retailers. These discounts incentivize bulk purchases and promote product distribution. Example: Offering a discount to retailers for large volume orders.

GMROI (Gross Margin Return on Investment): 

Gross Margin Return on Investment (GMROI) measures the profitability of inventory investments. High GMROI indicates efficient inventory management and profitability. Example: Calculating the return on investment for inventory based on gross margin.

Customer Lifetime Value (CLV): 

Customer Lifetime Value (CLV) represents the total revenue expected from a single customer over their relationship with a brand. It informs customer retention strategies. Example: Estimating the total revenue a customer will generate over their lifetime.

Breakage:

Breakage refers to products lost due to damage during handling or transport. Minimizing breakage reduces financial losses and improves efficiency. Example: Losses due to damaged goods during shipping.

Shrinkage: 

Shrinkage represents the loss of inventory due to theft, damage, or mismanagement. Effective shrinkage management minimizes inventory discrepancies and financial losses. Example: Losses due to theft or unaccounted inventory.

Bill Backs:

Bill backs are discounts or reimbursements given to retailers for running promotions or providing specific services. They influence retailer participation in marketing campaigns. Example: Reimbursements to retailers for in-store promotional displays.

Supply Chain & Logistics

Lead Time: 

Lead time is the total time taken from when a customer places an order until they receive the product. Efficient lead time management is crucial for maintaining product availability and customer satisfaction. Example: Reducing lead time from order to delivery from 7 days to 3 days.

Pipeline Inventory:

Pipeline inventory refers to stock that is currently in transit from the supplier to the warehouse or retailer. Optimal management of pipeline inventory prevents stockouts and reduces holding costs. Example: Tracking the amount of stock in transit between manufacturing plants and distribution centers.

Just-in-Time (JIT): 

Just-in-time (JIT) is a supply chain strategy that aims to minimize inventory by receiving goods only when they are needed. It reduces inventory holding costs but requires a highly efficient supply chain. Example: A company receives raw materials just in time for production.

Reverse Logistics:

Reverse logistics involves managing product returns, unsold inventory, or damaged goods back through the supply chain. Effective reverse logistics minimizes losses and supports sustainability efforts. Example: Implementing a system for recycling returned packaging.

Route Optimization: 

Route optimization involves planning the most efficient delivery paths for vehicles to minimize costs and delivery times. Efficient route planning enhances timely deliveries and customer satisfaction. Example: Using software to plan the most efficient delivery routes for a fleet of delivery trucks.

Dead Stock: 

Dead stock refers to inventory that is outdated, damaged, or unsellable and must be written off. Effective inventory management minimizes dead stock. Example: Expired food products that must be discarded.

Demand Forecasting: 

Demand forecasting uses historical data and market trends to predict future sales and ensure adequate inventory levels. Accurate forecasting prevents stockouts and overstocking. Example: Using sales data from the previous year to predict sales for the next quarter.

Safety Stock:

Safety stock is extra inventory held to prevent stockouts due to unexpected demand fluctuations or supply chain disruptions. Example: Maintaining an extra week's worth of inventory to buffer against unexpected demand.

Stock Aging: 

Stock aging involves tracking how long inventory has been stored to identify slow-moving or obsolete items. Effective stock aging management reduces losses. Example: Tracking the length of time products have been stored in a warehouse to identify slow-moving items.

Dropshipping:

Dropshipping is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. Example: An online retailer partners with a supplier who ships products directly to customers.

Modern Retail & E-commerce

MT (Modern Trade): 

Modern Trade (MT) refers to large, organized retail formats like supermarkets, hypermarkets, and department stores. These formats offer standardized operations and a wide product assortment. Example: Large supermarket chains and hypermarket stores.

GT (General Trade): 

General Trade (GT) encompasses traditional mom-and-pop stores, kirana shops, and local retailers. These outlets cater to specific community needs and preferences. Example: Small, independent grocery stores and local shops.

D2C (Direct-to-Consumer): 

Direct-to-Consumer (D2C) involves brands selling products directly to consumers through online platforms, bypassing traditional retail channels. This model provides greater control over brand messaging and customer relationships. Example: Brands selling products through their own e-commerce websites.

End Cap Display: 

End cap displays are special shelf displays located at the end of aisles to attract customer attention and promote specific products. They maximize product visibility and drive impulse purchases. Example: Displays at the end of aisles featuring promotional items.

Click-and-Collect: 

Click-and-collect allows customers to order products online and pick them up at a physical store. This method combines the convenience of online shopping with in-store pickup, offering flexibility. Example: Customers ordering groceries online and picking them up at a local store.

Omnichannel Strategy: 

Omnichannel strategies provide a seamless shopping experience across online and offline channels, ensuring consistent brand interactions and purchase options. They enhance customer engagement and loyalty. Example: Customers being able to buy online, return in store, and having consistent information across all platforms.

Basket Size: 

Basket size measures the number of products purchased in a single transaction. Increasing basket size boosts sales revenue. Example: Tracking the average number of items purchased per customer visit.

Churn Rate:

Churn rates indicate the percentage of customers who stop buying products or using services over a specific period. Reducing churn rate improves customer retention and long-term profitability. Example: Tracking the percentage of customers who stop making purchases within a year.

Auto Replenishment: 

Auto replenishment automates the reordering of products based on demand forecasts and inventory levels. This ensures continuous product availability and minimizes stockouts. Example: Automatically reordering inventory when stock levels fall below a predetermined threshold.

Dynamic Pricing: 

Dynamic pricing adjusts product prices based on real-time market conditions, such as demand, competition, or stock levels. This strategy optimizes revenue and profitability. Example: Adjusting prices based on real time sales data and competitor pricing.

Key Takeaways: Language of FMCG Success

Understanding the specific jargon used within the FMCG industry is more than just a matter of semantics; it’s a critical component of effective communication, strategic planning, and operational efficiency. The terms outlined in this glossary provide a foundation for navigating the intricacies of sales, distribution, retail, marketing, finance, and the modern retail landscape. By familiarizing yourself with these concepts, you gain a deeper appreciation for the complex interplay between various facets of the FMCG sector.

From optimizing shelf space with planograms to leveraging trade promotions and analyzing crucial metrics like market share and customer lifetime value, each term represents a tool for driving growth and profitability. Moreover, as the industry continues to evolve with the rise of e-commerce and omnichannel strategies, understanding the latest terminology becomes even more vital.