A Birds Eye View Of FMCG Commerce Essay

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Here, the broad problem issue directly is related to the IFRS 8 requirements about the segment's reporting of entities and this research covers the important segment of the market FMCG known as fast moving consumer's goods which will be analyzed using IFRS8. The FMCG has prime importance in today life as the daily life necessities belongs to this sector. So the performance management analysis of two companies that cover FMCG criteria will be worthwhile not only with the customer's point of view but also with the investment point of view…discussing more about the FMCG, firstly it is important to know about the requirements of IFRS8 about operating segments of the enterprise. So here is a brief introduction regarding requirements on IFRS8:

IFRS 8 requires:

Disclosing the information for the activities of the business in terms of financial aspects of its segments

Disclosing of information about the environment, product, services etc. in which the entity prospers, etc.

So, the work which is going to be carried on is to compare the differences in performance management of the FMCG (fast moving consumer goods) segments. The evaluation of its products, services and goals for the set objectives and its relevant efficiency regarding those set goals.

IFRS 8 also:

Requires information about segments of an entity in relation to the income you get from your products and services, the countries in which it operates, as well as customers, regardless of the problem that this information can be used by management for decision-making.

• Require an entity to provide an assessment of the liabilities and particular items of income and expenses when such measures are planned regularly by the operating decision maker

• Requires the company to provide descriptive knowledge about the method the operating segments were allocated

• Relevant products and services provided by the segments of the company

• Possible differences among the performance measurements that were utilized in reporting segment information and also which were used in the financial statements

• Changes in the measurement of segment performance from period to period

So this is the problem area in which the research is to be carried on.

The above mentioned requirements will be used later on in the chapter 4 for the operating segments comparison and analysis purposes and also meeting the requirements of IFRS8 the detail analysis will be conducted between Nestle and Unilever.

A bird's eye view of FMCG

Fast Moving Consumer Goods (FMCG) or (CPG) are products that are sold suddenly at low cost. Examples of such product may include non-durable goods like soft drinks, toiletries and food products. Though, the profit obtained from FMCG products is less, but they are usually sold in large quantities, so, the cumulative profit of such products can be substantial. Procter & Gamble and Unilever are the two largest management companies of consumer goods worldwide, having the quality products also in Pakistan. Examples are tea, butter, cheese, coffee, bread, biscuits, soaps, detergents and other miscellaneous products every day. Cosmetics used processed foods, beverages, home accessories, toiletries, beauty products, home products.


Basically, "The objective of IFRS 8 is to disclose relevant information about the company's segments that makes its users capable to read and understand the financial statements to evaluate the nature and financial impacts of the business, segment wise and the company environment in which it operates"

So, the main objective of this research is to define the company's performance management by using the IFRS 8 requirement criteria for operating segment in context of performance by the provided data of various segments of the two different companies according to their respective segments with relevancy.

It will provide not only the information about a company segment operating capabilities and a deep performance analysis but also the differential analysis of two companies and comparative base for their performance and efficiency providing the information that which is doing well regarding achieving its objectives and goals. It also provides:

• Better understanding of the functioning of the enterprise;

• Better assessment of the risks and returns of the company, and

• More informed decisions about the enterprise as a whole


For those who do not know.... Dabur in India started to produce what is now known as consumer goods, fast moving (FMCG) industry. It 'been about 115 years ago, long before Hindustan Lever (HLL) came on the scene, Dabur that could reach the depth products of HLL i.e. Hindustan Lever (HLL), however, it is a completely different story. Not surprisingly, our curiosity refuses to go beyond HLL.

Although multinational companies (MNC ") were allowed to do business in India, HLL had only the productivity base at the time of India's Independence Day. Secondly, for the global MNC, the domestic market was too small think and worry about. Colgate and Nestle were there, but they were majorly in the starting business. In 1960s, many MNC were building their productive base of the country, and have a clear concept about fast moving consumer goods on the market.

In 1978, it was then that the new government assigned various categories of products for the small sector. The MNC's then were asked to choose between cutting its stake to 40 percent, or to forget India. IBM and Coca-Cola chose the latter and leave the India. Unilever just decided to be there and to keep on with HLL after all. Unilever had to manage to keep 51 percent of foreign participation in the fulfillment of the government requirements that were about minimum10 percent of the export turnover and 60 per cent of the import turnover of the priority areas.

Things began to change, however, after the post-reforms in the nineties. The doors opened and new things rushed in. MNC's with saturating markets of small scale, were eagerly looking for to rush in before other scale markets such as small scale and medium scale enterprises, categories and different classes were created in further categories and classes, products such as hair oil and skin care, and many new product categories were created.

Today, the FMCG industry is widely spread around the globe providing the products for the optimum satisfaction of their consumers with their best effort. The FMCG industry is leading now in the market with a plenty of goods and products produced for the customers and these industries have also provided a good opportunity for the employment factor of the society. So, regarding FMCG, it is important to have a check on different leading FMCG companies regarding their performance of the segments generally, and especially regarding the investment point of view.


Nestle 18's

Nestlé came into existence in 1867the time when separate two Swiss companies were created from which later form the base for nestle. In the following decades, the two competing expanded their businesses very rapidly in United States and Europe. In August 1867 there were Charles and George Page, two brothers named as Lee County and Illinois, from United States of America, established the Anglo-Swiss Condensed Milk in Cham in Switzerland. Its operation was opened by the British firstly in Chippenham, Wiltshire in 1873.

In September 1867, Henri Nestle in Vevey developed a food for babies and children with mixing of milk, and then he marketed that formula. The following year, Daniel Peter started seven years of work perfecting his wonderful invention, the production process of chocolate milk. Nestle was essential that cooperation Peter needed to solve the problem of eliminating all water from the milk added to chocolate and the product thus preventing the development of mold. Henri Nestle retired in 1875, but the company with a new ownership name retains its name as Nestle.

In 1877, Anglo-Swiss added foods for children and babies with milk of their products and the next year the Nestlé Company added condensed milk for companies became direct rivals.

In 1905, those companies was merged to create the company with the name Nestlé and Anglo-Swiss Condensed Milk Company, and it retaining that name until 1947, when Nestle name was taken following the acquisition of Maggi SA (founded in 1884) and its Alimentana Holding SA, Switzerland. Maggi is a major manufacturer of soup mixes and things food-related. Present name of the Company was selected in 1977.

Nestle 19's

In early 1900, the company was operating factories in the Germany, Spain United States, and the United Kingdom. The First World War created a requirement of milk and dairy products in the form of government commitments, and at the end of this war, Nestlé's production had more than doubled. Government contracts dried up after the war and consumers turned back to fresh milk. However, the management of Nestlé answered quickly, smoothing operations and reducing debt. The 1920s saw the first wide expansion of Nestlé's products, with the creation of the chocolate company to become the second most important operational activity.

After war, government commitments and contracts shrined, and consumers turned back to fresh milk. However, the management of Nestlé answered quickly, smoothing the operations and making the debt less. The 1920s saw the first expansion of Nestlé's new products, with the production of the chocolate company to become the second most important activity. Louis Dapples served as CEO until 1937, when he succeeded Edward Muller until his death in 1948. Nestlé felt the effects and consequences of World War II and suddenly immediately.

Factories were established in developing countries, especially in America Latin, the war gave the introduction of the new company product, Nescafé ("Nestlé's Coffee"), which became a favorite drink of the U.S. military. Nestlé sales and productivity were increased in the war economy in those conditions. The last period of the World War II was the starting of a dynamic phase for Nestlé. Company enhanced growth and many companies were purchased. In 1947 Nestlé merged with Maggi, a well-known production company of soups. Diversion was produced with a shareholding in L'Oreal in 1974.

In 1984, the bottom line improvement has allowed Nestlé to launch and produced a new cycle of acquisitions, notably the company American food giant Carnation and other company British confectionery company Rowntree Mackintosh company in 1988, which brought the Willy Wonka brand with others for Nestlé.

Nestle 20's

The first half of the 1990s proved to be favorable for Nestlé. Trade barriers crumbled, and the world markets were enhanced and were promoted into less or more integrated trading areas. Since 1996, there have been a series of acquisitions, including), Ralston Purina (2002), San Pellegrino (1997), Spillers Pet foods (1998). There were two big and large acquisitions in North America, 2002 Nestlé merged its operations and activities with American ice cream Dreyer, whereas in August a U.S. $ 2.6 billion acquiring of the business was spoken of Chef America, the inventor of hot pockets. At the same time, Nestlé has acquired almost iconic American company Hershey's, one of the fiercest competitor's pastries. A recent purchase included the Jenny Craig program, for U.S. $ 600 million.

• In 2005, Nestlé purchased Delta Ice Cream for 240 million. In 2006, it took full ownership of Dreyer's, and in such a way becoming the world's biggest producer of ice cream, with a market share of 17.5%

• In November 2006, Nestlé purchased the Medical Nutrition division of Novartis Pharmaceutical for $ 2.5 billion, including product known as Oval flavored milk tooth.

• In April of 2007, returning to its roots, Nestlé bought U.S. Gerber baby food maker for $ 5.5 billion

• Nestlé has agreed to sell its controlling stake in Alcon to Novartis January 4, 2010. The sale is part of a broader U.S. $ 39.3 billion offer, by Novartis, for full acquisition of the largest companies in the world of eye care

• On March 1, 2010, Nestlé concluded the purchase of Kraft Foods North of frozen pizza business for U.S. $ 3.7 billion.

• In July 2011, Nestlé has agreed to buy 60 percent of Hsu Fu Chi International Ltd. for about $ 1.7 billion. On 23 April 2012, Nestlé has agreed to buy baby Pfizer Inc.'s unit of malnutrition for $ 11.9 million.

Unilever a brief background

Unilever 19's

Unilever came into existence on January 1, 1930 by the man named as Antonius Johannes Jurgens and Samuel van den Bergh lever Hulme William, second Viscount Leverhulme.The merger of the operations of the company "(BSMLP) and margarine producer "(MU) Margarine unie" created adequate commercial sense, as palm oil is an important raw material for both margarines, soaps, and could be more efficient imported in large quantities.

The palm oil collection was from British West Africa, wherefrom the news seen in England showed the workers abroad in favorable conditions. In 1911 the company received a concession of 750,000 hectares of forest in the Belgian Congo, where a system of forced labor in operation. The subsidiary of Lever Brothers was named "Hillarie's du Belgian Congo." During the Great Depression of the thirties, here the rates were fallen for Hillarie's nuts oil crops, while the government of Belgian Congo sharp increased taxes. This has led to economic and social unrest in 1931, which is known as the Revolution of the Pende, in which people were killed at the end more than 400 people those were members of the Pende tribe.

In 1930, the company was grown and Unilever new initiatives had been launched in Africa and Latin America. In 1980, the fat soap and food contributed only 40% of profits, compared with a real90% profits. In 1984, the company purchased the brand Brooke Bond.

In 1987 Unilever strengthened its position in the global market for skin care with the acquisition of Chesebrough-Ponds, the maker of Ragu, Pond, Aqua-Net, CUTEX enamel and Vaseline. In 1989 Unilever bought Calvin Klein Faberge, and Elizabeth Arden Cosmetics, but the former was later sold (in 2000) to FFI Fragrances. In 1996 Unilever purchased the Helene Curtis Industries, giving that company "a strong presence in the United States deodorant and shampoo market".

In 1997, Unilever sold the specialty chemical company Unichema, cross-filed and National Starch & Chemical, Quest, to ICI for the U.S. $ 8 million. The American Lever Brothers took its name until 1990, when it adopted the parent company. This is the American group which is based in New Jersey, and no longer has existence at Lever House. Unilever has established a sustainable agriculture program in 1998.

Unilever 20's

In 2000, the company absorbed the American business better food, making and strengthening its existence in North America and expanding its portfolio of food brands. In April 2000, he bought those both Ben & Jerry's and slim Fast's companies. In May 2007, Unilever became the first major and big company to commit to provide all its tea in a sustainable manner, an NGO with the certification of its tea plantations in East Africa, as well as suppliers of other third parties in Africa and in other places. The Commission announced that time its aim to have all Lipton Yellow Label sold in Western Europe, which were focused by Lipton tea bags globally in 2015.

Covalence then placed Unilever at the top and superior of the classification based on the coverage of negative news than positive for 2007.In 2007, Unilever video for "Evolution" that ran only online was named the first non-winning television program for the prize Lion at the Cannes Advertising Festival. And in 2008, the company Unilever named as "Digital Marketer of the Year" by Advertising Age.

In 2008, Unilever was given respect and was honored at 59th " The Annual Technology & Engineering Emmy Awards" those for "Outstanding Achievement in the invention of media distribution and advanced technology for trade Interactive Advertising distributed through digital decoders" for its program Axe, known as boost you ESP.

On 25 September 2009, Unilever finally, acquired the personal care business of Sara Lee Corporation and also brands such as Duschdas Radox, Badedas strengthening its leadership in the category of skin cleansing and deodorants.

On 9 August 2010, Unilever made asset purchase agreement with the Norway dairy group ARMS, to make the acquisition of the activities of Diplom-E 'in Denmark.

On 24 September 2010, Unilever told that it has signed a special agreement for the sale of its consumer products of tomatoes in Brazil to Cargill.

On 27 September 2010, Unilever purchased Alberto-Culver which was a manufacturer of personal care and other many household products for $ US3.7 billion.

On 28 September 2010, Unilever and EVGA announced that it has made agreement to acquire brand Unilever ice cream could EVGA (amongst others, Scandal, Variete and Kara ball) and the distribution network in Greece, for the undisclosed amount.

On 23 March 2011 it was told that Unilever had entered into an agreement to sell the acquisition of Sanex brand to Colgate-Palmolive Company for € 672 million, and can acquire Unilever brands of Colgate-Palmolive in Colombia detergents for U.S. $ 215 million.

On 24 August 2011, it was told that Unilever has finally agreed to sell the Alberto brand in the United States

On 14 October 2011, it was announced that Unilever has agreed to acquire 82% of the companies

On 22 May 2012, it was announced that Unilever reached the top ten companies and was among the first 2012 Gartner Supply Chain 25, resulting in good performance of the company and always in the index and the creation of Unilever as global supply chains.


Whenever the comparison is made, it gives some values and decision bases for the researcher. Here, the comparison among the different relevant segments will brighten the concept of the reader of the research about the operational performance of the company with the relevant segments with more relevancy and comprehensively. The operating segments are to disclose the information according to IFRS 8 and hence the information is provided for better choice of company's products and for investors, to invest in. The performance analysis and comparison enable the reader to distinguish the companies according to their efficiencies and working regarding their separate segments. Moreover it helps:

For an enterprise "through the eyes of management", thereby increasing the user's capability to predict and understand the actions and the responses of management that can prominently affect the prospects of the entity's future cash flows

Elimination of the confusion caused by different interpretations of what constitutes up to an industry segment

The Consistency with components of an entity elsewhere, namely the entity's annual report, MD & A and press releases on its website.

The information is provided by this is easier to understand

Comparison of the segments is the most realistic way to define the company that is doing a better job in terms of performance and

Comparatively, more information on the segments of the companies, and the other, etc.





An assessment of a process, equipment, an employee or other factor to test the progress toward predetermined goals and objectives.


For the under discussion research, the assessment of the organization operations with respect to its separate segments is going to be carried on in order to know the performance management of the companies separately and comparatively.


How do you assess the performance management in different countries is what to be said in the context of review. In the sense, the application of IFRS 8 in different countries can vary depending on the scenario of the rules and regulations, terms and conditions of that particular country. As in Spanish companies, the results show that the operating segments are primarily based on business lines, geographic areas but are associated with greater dissimilarities. Under IFRS 8, a small portion of the sample companies are single segment and a significant number do not meet the mandatory rules as a whole and not separately disclose most of the requirements and information in accordance with IFRS 8. The size and profitability are, respectively, the positive and negative factors associated with higher disclosure practices.

Almost 79% of Spanish listed companies' operating segments are based on business lines. Because of this fact, the information entities are mainly based on geographical areas. However, when the segments are based on the geographic segmentation then a set of segments is described individually, usually because the disclosure from country to country varies. A small proportion of companies (7, 6%) showed no segment information and some said they were a single business segment.

The Financial Reporting Group Review (FRRP) has expressed concern about the application of IFRS 8 Operating Segments and asked a number of UK companies to provide more information. In operating decision maker Decision of the United Kingdom has been identified as the executive directors and the executive director's review about the Group's internal reporting in order to assess performance and allocate resources is given. Operating segments are UK and international presented in a manner consistent with the internal communication managers.

The United Kingdom is made up of the retail sector in the United Kingdom and the British operations of the franchise. The International segment consists of Marks & Spencer owned businesses in the Republic of Ireland, Europe and Asia, with international franchise operations. The executive directors assess the performance of operating segments on the basis of an assessment of profit from operations. This criterion excludes the impact of special elements of the operating segments, as well as the gains or losses on asset sales. Central costs are all classified as UK costs and presented in operating income in the United Kingdom. Administrators also monitor revenue within the segments. To increase transparency, the Group has decided to include a description of additional voluntary analyzing revenue within the reportable segments.


Before the starting of the technology and information age in the 20th century, companies sometimes bothered to collect hard data from non-automated sources. It did not have the computing services and resources to accurately analyze the data that time.

As businesses and companies started using the automating systems more and more, then more and more data were available. However, the collection remains often difficult because of the lack of infrastructure facilities for the transfer of data or because of the incompatibility between systems. Reports on data collected sometimes took months to generate. These reports enable their long-term strategic decisions. However, the short-term tactical decisions often continued to rely on intuition.

In 1989 Howard Dresdner, who was a research analyst at Gartner, popularized "business intelligence" (BI) as a key terminology to describe a set of concepts and methods to improve business decision making by using fact-based systems support, performance management is based on a foundation of BI, but collaborate with the planning and control cycle of the company - with the entrepreneurial skills of planning, consolidation and modeling.

Increasing standards, automation and technologies have resulted in large amounts of data that are available. Data storage technologies are allowed for the construction of tanks for storing of data. Improved tools and enterprise application integration have increased the capacity of timely collection of data. Advance reporting technologies now have made faster generation of new reports and analyzing the data. As of 2010, business intelligence has become the art of shifting through large amounts of data, extracting useful information and converts that information into actionable knowledge.


Basically there are two different concepts regarding the performance management of the company. Actually, the performance of the company depends upon the employee's hard work, the right objectives and goals and the right direction to move on. So, regarding the research purpose the following two theories seem to be more relevant for a company performance development. These are mentioned here:

the goal-setting theory and

Expectancy theory

1. Goal setting theory was proposed by Edwin Locke in 1968. This theory suggests that the individual targets set by an employee plays an important role in motivating him to get better performance and the performance as a whole is the companies' performance. This is because, the employees continue to follow their goals and if these goals are not achieved; they improve performance or modify the objectives and goals and make them more realistic. So, in each case, the goal is improved and this is what the management wants.

2. Expectancy theory had been proposed by Victor Vroom in 1964. This theory is based on the hypothesis that individuals or the employees set their behavior in the organization on the basis of valued goals set by them. The individuals modify and change their behavior in a way which is very likely to lead them to get those goals. This theory explains the concept of performance management as "it is believed that performance is affected by the feelings and expectations concerning future events". There are also other theories in context of a proper management of a company that help to increase performance.


Different methodologies are used for the performance management of a company. The performance appraisal of a company describes the strengths of its management regarding its operations. Some methods that are used by researchers are

Rank based

In this method, a company performance is compared with others who do the same job and have been ranked as the like companies. This method is very useful to select the best performance and it also compares the best comparable firms. Its main disadvantage is that it can trigger the rivalry between companies, which could compromise the entire marketplace.

Objective based

This method is known as Management by Objectives (MBO). Specific goals and objectives set by the employer after arguing with employees. Company's performance shall be that either the set goals by the directors and top management have been obtained or not, if yes then to which extent, they meet the set objective, if not, then to which extent they are diverted. When there is a specific set of objectives, then to work on and to check the results is easy. This method often helps to achieve higher levels of company performance.

Performance ratios

Performance ratios are used to describe the operational performance of an enterprise. These relationships are derived from items in a financial statement. For the financial comparison one variable is divided by another. These ratios illustrate the relationship between two financial variables. A financial report is an important tool for companies of small businesses and managers to measure progress towards the achievement of specific objectives. Some of the important performance ratios that a company would like to discuss:

Liquidity ratios

Liquidity ratio describes the current company's ability to meet short-term obligations. These indicate the measure of the availability of cash in an organization.

Current ratio = Current assets / Current liabilities

Current assets include assets that can be converted into cash within a year. This ratio measures the company short-term solvency.

Current Ratio = Current Liabilities- active stock / current assets

Also known as the Acid Test ratio

Cash Ratio = Cash + marketable securities / current liabilities

This ratio shows the need of some quick cash to meet short-term obligations.

Asset Turnover Ratios

The following ratios tell how efficiently assets of a firm are used to generate sales.

• Receivables Turnover=Annual Credit Sales/Accounts Receivables

• Debtor Collection Period=365/Debtors Turnover

• Inventory Turnover =Cost of Goods Sold/Average Inventory

• Inventory Turnover Period= 365/Inventory Turnover

Financial Leverage Ratios

Debt Ratio= Total Debt /Capital Employed

Debt-Equity Ratio=Total Debt/Net Worth

Profitability Ratios

Gross Profit Margin= G.P/Sales

Net Profit Margin=PAT/Sales

Return on Equity=PAT/Net worth

Performance check ratios are meaningful when used to examine the trend, industry standard and rival comparison group. They help to analyze business operations and the understanding of the securities market. Current operations can be compared with previous results by applying trend analysis. Industrial relations can be compared to the relationship of the company to know where the company is located in their respective fields. Analysis of the relationship is a process to identify the weaknesses and strengths of an enterprise. It helps to determine the financial position of a company.





As it has already been mentioned in detail that the follow research is going to be carried for comparison and analysis purposes of performance management of two companies for the performance requirements of IFRS 8, moreover, for the better information about the companies individually as well as collectively. This segment reporting session will provide the information about the performance especially, and overall scenario that how the company is doing against its rivals and with what strengths!

It is all about the purpose of the study.


Data collection method is to use the internet from statistical data or obtaining the hard copy of annual accounts of the companies. Data is to be taken from the primary sources. For this research, the data has been taken from the annual reports of the Coca Cola and PepsiCo companies as secondary data. The obtained data then will be used to calculate the ratios for the performance and management analysis purposes. So, the primary resources have been used as data collection resources.


The technique to be used is Quantitative technique. The data which is to be taken is quantitative data as well as interpretations of the outcomes of segments that would be analyzed for research purposes.