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In the partial fulfillment of the Master of Business Administration Programme

Proposal For

The Comprehensive Study On

The Fast Moving Consumers Goods (FMCG) Industry in India

PREPARED BY:

Bhogayta Ketan 09F19 Semester-lll

Sondarva Piyush 09M 27 MBA

Dhameliya Rakesh 09M72 Batch: 2009-11

Gohel Chetan 09F11

PROJECT GUIDE:

Dr. Yogesh C. Joshi

(Faculty-GHPIBM)

Submitted To:

GHPIBM
CHAPTER-1

INTRODUCTION:

Indian economy is one of the most prominent economies of the world. It is growing at an unusual rate
of 8 per cent per annum since 2004. The growth of the economy is mostly thankful to the economic
reforms introduced in 1991 by Dr. Manmohan Singh, Finance Minister of India then. One of the
major sectors responsible for the tremendous growth is Fast Moving Consumer Goods (FMCG).

The sector includes a large number of players in it. Many of the major players are foreign companies.
For example, Proctor and Gamble, Nestle, Coca-cola, and Pepsico and so on. These companies
together account for a major portion of the total industry size. Whereas there are also many
established players in the market which are domestic. For instance, GCMMF, Britannia, Parle,
Hindustan Unilever, Tata Salt and so on. Though there is a huge competition in the market the growth
potential attracts all the investors and companies to invest more and more in the sector. Probably this
is the only field in which in spite of the cut throat competition, companies are willing to invest.
However, it has a very widespread portfolio of the products. This is, for sure, a valid reason for
massive investment in the field.

WHAT DO WE MEAN BY FMCG?

Products which have a quick turnover, and relatively low cost are known as Fast Moving Consumer
Goods (FMCG). FMCG products are those that get replaced within a year. Examples of FMCG
generally include a wide range of frequently purchased consumer products such as toiletries, soap,
cosmetics, tooth cleaning products, shaving products and detergents, as well as other non-durables
such as glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also include
pharmaceuticals, consumer electronics, packaged food products, soft drinks, tissue paper, and
chocolate bars.

The FMCGs also have another category named Fast Moving Consumer Electronics which include
innovative electronic products such as mobile phones, MP3 players, digital cameras, GPS Systems
and Laptops. These are replaced more frequently than other electronic products. However, they might
not be changed or replaced in a year time. So, based on time criteria of the FMCG products the above
products cannot be qualified. Some of the goods in the sector are also called the White goods. White
goods in FMCG refer to household electronic items such as Refrigerators, T.Vs, Music Systems, etc.

In 2005, the Rs. 48,000 Crores FMCG segment was one of the fast growing industries in India.
According to the AC Nielsen India study, the industry grew 5.3% in value between 2004 and 2005. In
2008-09, the sector turnover was estimated at Rs. 65,300 Crores. The current growth rate is around
6.9 %. This change is thankful to many factors including the increase in the population and the
purchasing power of the middle class. Also, the rural areas in India contribute a significant portion.

FMCG CATEGORY AND PRODUCTS


Category Products

Household Care Fabric wash (laundry soaps and synthetic


detergents); household cleaners (dish/utensil
cleaners, floor cleaners, toilet cleaners, air
fresheners, insecticides and mosquito repellents,
metal polish and furniture polish).

Food and Health beverages soft drinks; staples/cereals;


Beverages bakery products (biscuits, bread, cakes);
food; chocolates; ice cream; tea; coffee; soft
drinks; processed fruits, vegetables; dairy
products; bottled water; branded flour; branded
rice; branded sugar; juices etc.

Personal Care Oral care, hair care, skin care, personal wash
(soaps); cosmetics and toiletries; deodorants;
Perfumes; feminine hygiene; paper products.

WHY INDIA?

Large Domestic Market

The Indian FMCG sector is the fourth largest in the economy and has a market size of US$13.1
billion. Well-established distribution networks, as well as intense competition between the organized
and unorganized segments are the characteristics of this sector. FMCG in India has a strong and
competitive MNC presence across the entire value chain. It has been predicted that the FMCG market
will reach to US$ 33.4 billion in 2015 from US $ billion 11.6 in 2003. The middle class and the rural
segments of the Indian population are the most promising market for FMCG, and give brand makers
the opportunity to convert them to branded products. Most of the product categories like jams,
toothpaste, skin care, shampoos, etc, in India, have low per capita consumption as well as low
penetration level, but the potential for growth is huge.

India: A Large Consumer Goods Spender

An average Indian spends around 40 per cent of his income on grocery and 8 per cent on personal
care products. The large share of fast moving consumer goods (FMCG) in total individual spending
along with the large population base is another factor that makes India one of the largest FMCG
markets.

Change in the Indian Consumer Profile

Consumer Profile
1999 2001 2006
Populations (in millions) 846 1,012 1,087
Population < 25 years of Age 480 546 565
Urbanization (%) 26 28 31
Sour
ce: Statistical Outline of India (2002-03).

Rapid urbanization, increased literacy and rising per capita income, have all caused rapid growth and
change in demand patterns, leading to an explosion of new opportunities. Around 45 per cent of the
population in India is below 20 years of age and the young population is set to rise further.

Aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent
demand with more money and a new mindset.

Strengths Weaknesses

Low Operational Costs Lower scope of investing in technology and


achieving economies of scale, especially in
Presence of established distribution networks small sectors
in both urban and rural areas
Low exports levels
Presence of well-known brands in FMCG
sector “Me-too” products, which illegally mimic the
labels of the established brands

These products narrow the scope of FMCG


products in rural and semi-urban market

Opportunities Threats

Flourishing rural market Removal of import restrictions resulting in


replacing of domestic brands
Rising income levels, i.e. increase in
purchasing power of consumers Slowdown in rural demand

Large domestic market- a population of over Tax and regulatory structure


one billion

Export potential

High consumer goods spending

By studying FMCG industry we will come across their leading players and we will try to study what
is their growth in this particular sector. We will try to understand how one is different from the other
in the same industry. We will be studying various strategy used by each player for their growth.

The contribution of FMCG industry in Indian economy will also be a part of our study. We will be
analyzing how FMCG industry contributed in upcoming of Indian economy. The various products are
daily consumed and hence its contribution in vast.
Next objective will be the growth potential of this industry in various fields. The study will also be
based on various areas of growth and how it established its position in India

We will be considering various trends and challenges faced by this industry. In upcoming of this
industry what was the situation prevailing and how this industry adjusted with the prevailing trends
and various other factors

Our study will also be based on various types of products of FMCG industry like soap, toothpaste,
hair oil etc. and various leading players of the same product like Hindustan Unilever and various
others.

As FMCG is a fast moving industry, the taste and preference of people also keep changing very fast.
As there is lots of industry prevailing in this unit which compete each other in one way or the other.
So our study will be also focusing on what are the leading players and how they compete with each
other.

The economic reform of 1991 had a large impact on this industry. So our study will be based on what
are the changes that took place after economic reform of 1991. We will be focusing on what change
took place in this industry after recession and what is its major impact on FMCG industry.

OBJECTIVES OF STUDY:

The main objective of this study is to understand core aspects of the FMCG industry in India. Further
the information regarding various famous FMCG companies and their brands will be knowledge
boosting. Let us see main objectives of the comprehensive study as under:

1) To study the FMCG industry and its major players in India.


2) To analyze the FMCG industry’s contribution towards Indian economy.
3) To know the growth potential of the FMCG industry in India.
4) To study the trends of the FMCG industry in India.
5) To know the key FMCG products and various famous brands in India.
6) To study the level of competition in the FMCG industry in India.
7) To study the effects of the Economic Reforms-1991 and Recession-2008 on the FMCG
industry in India.

METHODOLOGY:

Secondary Data:
During the study of the FMCG industry in India, we will use the data collected from the secondary
sources. We will collect the data from various sources like magazines, government publications,
reference books, news papers, articles and internet.

LIMITATION OF STUDY:

1) Time Period: We will be restricted to devote full time for the comprehensive study on the
FMCG industry in India. So that we cannot come out with all the details of the FMCG industry
lying years back.

2) Collection of Data: Collection of data is limited from the national and international magazines,
news papers, government publications and other secondary sources. The use of internet is also
very significant in this research study. As we will collect secondary data, we have to rely upon it.

3) Our Knowledge: We have done the research and interpretation of the data collected as per our
knowledge. As we are not totally aware of the whole scenario of the FMCG industry in India,
our interpretation and analysis of the data might not be perfect.

4) Cost: As we have the limited scarce resources like money, we cannot spend much money after
gathering many obscured information which might play an important role in our comprehensive
study.

SECTOR OPPORTUINITIES AND SCOPES:

According to the Ministry of Food Processing, with 200 million people will expected to shift to
processed and packaged food by 2010, India needs around US$ 28 billion of investment to raise food
processing levels by 8-10 per cent. In the personal care segment, the lower penetration rates also
present an untapped potential. Key sector opportunities are mentioned below:

Staple: Branded and Unbranded: Investment in branded staples is likely to rise with the popularity of
branded rice and flour among urban population.

Dairy Based Products: Investment opportunities exist in value-added products like desserts,
puddings etc. The organized liquid milk business is in its infancy and also has large long-term growth
potential.

Packaged Food: Growth of dual income households, where both spouses are earning, has given rise
to demand for instant foods, especially in urban areas. Increased health consciousness and abundant
production of quality soya-bean also indicates a growing demand for soya food segment.

Personal Care and Hygiene: Rapid urbanization is expected to propel the demand for cosmetics to
100,000 metric tons by 2011-12, with an annual growth rate of 10 per cent.

Beverages: According to CIER, demand for coffee is expected to rise to 535,000 metric
Tones by 2012, with an annual growth rate of 5 per cent between 2006 and 2012.

Edible Oil: The demand for edible oil in India, according to CIER, is expected to rise to
21 million tons by 2011-12 with an annual growth rate of 7 per cent per annum.

Confectionary: The explosion of the young age population in India will trigger a spurt in
confectionary products. In the long run the industry is slated to grow at 8 to 10 per cent annually to
870,000 metric tons by 2011-12.

IMPORTANCE OF THE STUDY:

The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess
of $13.1 billion. It has a strong MNC presence and is characterized by a well established distribution
network, intense competition between the organized and unorganized segments and low operational
cost. Availability of key raw materials, cheaper labor costs and presence across the entire value chain
gives India a competitive advantage. The FMCG market is set to treble from $11.6 billion in 2003 to
$33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories
like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential.
Burgeoning Indian population, particularly the middle class and the rural segments, presents an
opportunity to makers of branded products to convert consumers to branded products. Growth is also
likely to come from consumer 'upgrading' in the matured product categories. With 200 million people
expected to shift to processed and packaged food by 2010, India needs around $28 billion of
investment in the food-processing industry.

MARKET OVERVIEW

Total Market Size

• The Indian FMCG sector is the fourth largest sector in the economy with a total market size of
US$18 billion as of 2007.

• By 2015, the sector is predicted to scale up to US$33.4 billion.

• The sector generates 5% of total factory employment in the country and is creating employment for
three million people, especially in small towns and rural India.

India’s FMCG Market Size (In USD Billion)


Sources: Naukri Hub, IBEF, Chennai Online

POLICY:

India has enacted policies aimed at attaining international competitiveness through lifting of the
quantitative restrictions, reduced excise duties, automatic foreign investment and food laws resulting
in an environment that fosters growth. Cent per cent export oriented units can be set up by
government approval and use of foreign brand names is now freely permitted.

Automatic investment approval (including foreign technology agreements within specified norms), up
to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs)
investment, is allowed for most of the food processing sector except malted food, alcoholic beverages
and those reserved for small scale industries (SSI). 24 per cent foreign equity is permitted in the
small-scale sector. Temporary approvals for imports for test marketing can also be obtained from the
Director General of Foreign Trade. The evolution of a more liberal FDI policy environment in India
is clearly supported by the successful operation of some of the global majors like PepsiCo in India.

The Indian government has abolished licensing for almost all food and agro-processing industries
except for some items like alcohol, cane sugar, hydrogenated animal fats and oils etc., and items
reserved for the exclusive manufacture in the SSI sector. Quantitative restrictions were removed in
2001 and Union Budget 2004-05 further identified 85 items that would be taken out of the reserved
list. This has resulted in a boom in the FMCG market through market expansion and greater product
opportunities.
CHAPTER-2

GROWTH AND EVOLUTION OF FMCG SECTOR:

By the early nineties FMCG marketers had figured out two things:

❖Rural markets are vital for survival since the urban markets were getting saturated.

❖Rural markets are extremely price-sensitive.

Thus, a number of companies followed the strategy of launching a wide range of package sizes and prices
to suit the purchasing preferences of India's varied consumer segments. Hindustan Lever, a subsidiary of
Unilever, coined the term nano marketing in the early nineties, when it introduced its products in small
sachets. Small sachets were introduced in almost all the FMCG segments from oil, shampoo, and
detergents to beverages. Cola major, Coke, brought down the average price of its products from around
twenty cents to ten cents, bridging the gap between soft drinks and other local options like tea, butter milk
or lemon juice. It also doubled the number of outlets in rural areas from 80,000 during 2001 to 160,000
the next year almost doubling its market penetration from 13 per cent to 25 per cent. This along with
greater marketing, led to the rural market accounting for 80 per cent of new Coke drinkers and 30 per cent
of its total volumes.

India has always been a country with a big chunk of world population, be it the 1950’s or the twenty first
century. In that sense, the FMCG market potential has always been very big. However, from the 1950’s to
the 80’s investments in the FMCG industry was very limited due to low purchasing power and the
government’s favoring of the small-scale sector. Hindustan Lever Limited (HLL) was probably the only
MNC Company that stuck around and had its manufacturing base in India.

At the time, the focus of the organized players like HLL was largely urbane. There too, the consumers had
limited choices. However, Nirma’s entry changed the whole Indian FMCG scene. The company focused
on the ‘value for money’ plank and made FMCG products like detergents very affordable even to the
lower strata of the society. Nirma became a great success story and laid the roadmap for others to follow.

Private consumption expenditure trends


CAGR Food,beverages, Personal
(%) tobacco care
FY81 11.0% 13.4%
FY91 11.7% 11.9%
FY01 11.9% 14.8%

Source: Statistical Outline of India (2002-03)

CAGR over a decade

MNC’s like HLL, which were sitting pretty till then, woke up to new market realities and noticed the
latent rural potential of India. The government’s relaxation of norms also encouraged these companies to
go out for economies of scale in order to make FMCG products more affordable. Consequently, today
soaps and detergents have almost 90% penetration in India.

Post liberalization not only saw higher number of domestic choices, but also imported products. The
lowering of the trade barriers encouraged MNC’s to come and invest in India to cater to 1bn Indians’
needs. Rising standards of living urban areas coupled with the purchasing power of rural India saw
companies introduce everything from a low-end detergent to a high-end sanitary napkin. Their strategy
has become two-pronged in the last decade. One, invest in expanding the distribution reach far and wide
across India to enable market expansion of FMCG products. Secondly, upgrade existing consumers to
value added premium products and increase usage of existing product ranges.

So you could see all companies be it HLL, Godrej Consumer, Marico, Henkel, Reckitt Benckiser and
Colgate, trying to outdo each other in getting to the rural consumer first. Each of them has seen a
significant expansion in the retail reach in mid-sized towns and villages. Some who could not do it on
their own, have piggy backed on other FMCG major’s distribution network (P&G-Marico). Consequently,
companies that have taken to rural India like chalk to cheese have seen their sales and profits expanding.
For example, currently 50% of all HLL sales come from rural India, and consequently, it is one the biggest
beneficiaries of this (see table).

CAGR growth in last 10 years:

Company Sales Net profit


Cadbury 16.6% 53.0%
Colgate 9.9% 4.2%
HLL 19.1% 33.5%
Marico 12.3% 25.7%
Nestle 16.4% 25.3%
P&G Hygiene 9.0% 19.9%
Reckitt & Benckiser 13.3% 2.7%

Source: Statistical Outline of India (2002-03)

There are others, like Nestle, which have till date catered mostly to urban India but have still seen good
growth in the last decade. The company’s focus in the last decade has largely been on value added
products for the upper strata of society. However, in the last couple of years, even these companies have
looked to reach consumers at the slightly lower end.

One of the biggest changes to hit the FMCG industry was the ‘sachet’ bug. In the last 3 years, detergent
companies, shampoo companies, hair oil companies, biscuit companies, chocolate companies and a host of
others, have introduced products in smaller package sizes, at lower price points. This is the single big
innovation to reach new users and expand market share for value added products in urban India, and for
general FMCG products like detergents, soaps and oral care in rural India.

Another interesting phenomenon to have hit the FMCG industry is the mushrooming of regional
companies, which are posing a threat to bigger FMCG companies like HLL. For example, the rise of
Jyothi Laboratories, which has given sleepless nights to Reckitt Benckiser, the ‘Ghari’ detergent, that has
slowly but surely built itself to take on Nirma and HLL in detergents, and finally, the rise of ‘Anchor’ in
oral care, which has become synonymous with ‘cat’, which walks away with spoils when two monkeys
fight (HLL and Colgate). There are numerous other examples of this.

What does all this mean for the future of FMCG industry in India? Undoubtedly, all this is good for the
consumers, who can now choose a variety of products, from a number of companies, at different price
points. But for the players who cater to the Indian consumer, the future brings a lot more competition. In
this environment, only the innovators will survive. Focus will be the key to profitability (ala HLL). From
an investor’s point of view, Indian FMCG companies do offer long-term growth opportunities given the
low penetration and usage in most product categories. To choose the best investment opportunities look at
the shapers (i.e. innovators) that have been constantly proactive to market needs and have built strong,
efficient and intelligent distribution channels. Management vision to growth is the key, as consumers
going forward are likely to become even more sophisticated in their demand.

DISTINGUISHING FEATURES OF INDIAN FMCG BUSINESS:

FMCG companies sell their products directly to consumers. Major features that distinguish this sector
from the others include the following:

1. Design and Manufacturing

• Low Capital Intensity - Most product categories in FMCG


Require relatively minor investment in plant and machinery and other fixed assets. Also, the business
has low working capital intensity as bulk of sales from manufacturing take place on a cash basis.

• Technology

Basic technology for manufacturing is easily available. Also, technology for most products had been
fairly stable. Modifications and improvements rarely change the basic process.

• Third-party Manufacturing

Manufacturing of products by third party vendors is quite common. Benefits associated with third
party manufacturing include

(1) Flexibility in production and inventory planning;

(2) Flexibility in controlling labor costs; and

(3) Logistics - sometimes it’s essential to get certain products manufactured near the market.

2. Marketing and Distribution marketing function is sacrosanct in case of FMCG companies.


Major features of the marketing function include the following:

(1) High Initial Launch Cost - New products require a large front-ended investment in product
development, market research, test marketing and launch. Creating awareness and develop franchise
for a new brand requires enormous initial expenditure on launch advertisements, free samples and
product promotions. Launch costs are as high as 50-100% of revenue in the first year.

For established brands, advertisement expenditure varies from 5 - 12% depending on the categories.

(2) Limited Mass Media Options –

The challenge associated with the launch and/or brand-building initiatives is that few no mass media
options. TV reaches 67% of urban consumers and 35% of rural consumers. Alternatives like wall
paintings, theatres, video vehicles, special packaging and consumer promotions become an expensive
but required activity associated with a successful FMCG.

3. Huge Distribution Network - India is home to six million retail outlets, including 2 million in
5,160 towns and four million in 627,000 villages. Super markets virtually do not exist in India. This
makes logistics particularly for new players extremely difficult. It also makes new product launches
difficult since retailers are reluctant to allocate resources and time to slow moving products. Critical
factors for success are the ability to build, develop, and maintain a robust distribution network

4. Competition:

Significant Presence of Unorganized Sector - Factors that enable small, unorganized players with
local presence to flourish include the following:

Basic technology for most products is fairly simple and easily available.

The small-scale sector in India enjoys exemption/ lower rates of excise duty, sales tax etc. This makes
them more price competitive vis-à-vis the organized sector.
A highly scattered market and poor transport infrastructure limits the ability of MNCs and national
players to reach out to remote rural areas and small towns.

Low brand awareness enables local players to market their spurious look-alike brands.

Retail & FMCG Industry:

By the turn of the 20th century, the face of the Indian retailing industry had changed significantly. The
retailing industry, which, until the early 1990s, was dominated by the unorganized sector, witnessed a
rapid growth in the organized sector with the entry of corporate groups such as Tata, RPG, ITC and
Bennett Coleman & Company into the retailing market.

With the liberalization and growth of the Indian economy since the early 1990s, the Indian customer
witnessed an increasing exposure to new domestic and foreign products through different media, such as
television and the Internet.

Apart from this, social changes such as increase in the number of nuclear families and the growing
number of working couples resulting in increased spending power also contributed to the increase in the
Indian consumers’ personal consumption.

These changes had a positive impact, leading to the rapid growth in the retailing industry. Increased
availability of retail space, rapid urbanization, and qualified manpower also boosted the growth of the
organized retailing sector. Food retailing was a key area that saw some action at the national level, with
players like Food world and Subhiksha, establishing stores all over India. While supermarket and
departmental chains replaced traditional grocery and general store formats, introduction of fast foods
(McDonalds), packaged foods (MTR, Namma MTR), vending machines and specialty beverage parlors
(Nescafe, Tata Tea, Café Coffee and Barista) brought about significant changes in the eating habits of
Indian consumers.

However, it was the non-food sector that saw tremendous action, with the introduction of new
product segments. These segments mainly comprised lifestyle/apparel/ fashion/accessories (e.g.
Shoppers Stop, Westside, Lifestyle, Pantaloons, and Reebok), books/music (Landmark and
Crosswords), drugs and pharmacy and beauty (Health & Glow, CavinKare and Shahnaz Husain and
items for day to day usage.

TRENDS AND PLAYERS

The structure

The Indian FMCG sector is the fourth largest sector in the economy and creates employment for three
million people in downstream activities. Within the FMCG sector, the Indian food processing
industry represented 6.3 per cent of GDP and accounted for 13 per cent of the country's exports in
2003-04.
A distinct feature of the FMCG industry is the presence of most global players through their
subsidiaries (HLL, P&G, Nestle), which ensures new product launches in the Indian market from the
parent's portfolio.

Critical operating rules in Indian FMCG sector

• Heavy launch costs on new products on launch advertisements, free samples and product
promotions.

• Majority of the product classes require very low investment in fixed assets

• Existence of contract manufacturing

• Marketing assumes a significant place in the brand building process

• Extensive distribution networks and logistics are keys to achieving a high level of penetration in
both the urban and rural markets

• Factors like low entry barriers in terms of low capital investment, fiscal incentives from government
and low brand awareness in rural areas have led to the mushrooming of the unorganized sector

• Providing good price points is the key to success

RURAL MARKETS: SMALL IS BEAUTIFUL

By the early nineties FMCG marketers had figured out two things

• Rural markets are vital for survival since the urban markets were getting saturated

• Rural markets are extremely price-sensitive

Thus, a number of companies followed the strategy of launching a wide range of package sizes and
prices to suit the purchasing preferences of India's varied consumer segments. Hindustan
Lever, a subsidiary of Unilever, coined the term nano-marketing in the early nineties, when it
introduced its products in small sachets. Small sachets were introduced in almost all the FMCG
segments from oil, shampoo, and detergents to beverages.

Cola major, Coke, brought down the average price of its products from around twenty cents to ten
cents, thereby bridging the gap between soft drinks and other local options like tea, butter milk or
lemon juice. It also doubled the number of outlets in rural areas from 80,000 during 2001 to 160,000
the next year, thereby almost doubling its market penetration from 13 per cent to 25 per cent. This
along with greater marketing, led to the rural market accounting for 80 per cent of new Coke drinkers
and 30 per cent of its total volumes.

The rural market for colas grew at 37 per cent in 2002, against a 24 per cent growth in urban areas.
The per capita consumption in rural areas also doubled during 2000-02.

Exports

India is one of the world's largest producers for a number of FMCG products but its exports are a very
small proportion of the overall production. Total exports of food processing industry were US$ 2.9
billion in 2001-02 and marine products accounted for 40 per cent of the total exports. Though the
Indian companies are going global, they are focusing more on the overseas markets like Bangladesh,
Pakistan, Nepal, Middle East and the CIS countries because of the similar lifestyle and consumption
habits between these countries and India. HLL, Godrej Consumer, Marico, Dabur and Vicco
laboratories are amongst the top exporting companies.

Investment in the FMCG sector

The FMCG sector accounts for around 3 per cent of the total FDI inflow and roughly 7.3 per cent of
the total sectoral investment. The food-processing sector attracts the highest FDI, while the vegetable
oils and vanaspati sector accounts for the highest domestic investment in the FMCG sector.

Source: SIA Newsletter, DIPP

ADVANTAGES TO THE SECTOR:


Governmental Policy

Indian Government has enacted policies aimed at attaining international competitiveness through
lifting of the quantitative restrictions, reducing excise duties, and automatic foreign in-vestment and
food laws resulting in an environment that fosters growth. 100 per cent ex-port oriented units can be
set up by government approval and use of foreign brand names is now freely permitted.
FMCG SECTOR
Central & State Initiatives

Recently Government has announced a cut of 4 per cent in excise duty to fight with the slowdown of
the Economy. This announcement has a positive impact on the industry.

But the benefit from the 4 per cent reduction in excise duty is not likely to be uniform across FMCG
categories or players. The changes in excise duty do not impact cigarettes (ITC, Godfrey Phillips),
biscuits (Britannia Industries, ITC) or ready-to-eat foods, as these products are either subject to
specific duty or are exempt from excise. Even players with manufacturing facilities located mainly in
tax-free zones will also not see material excise duty savings. Only large FMCG-makers may be the
key ones to bet and gain on excise cut.

Foreign Direct Investment (FDI)

Automatic investment approval (including foreign technology agreements within specified norms), up
to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs)
investment, is allowed for most of the food processing sector except malted food, alcoholic beverages
and those reserved for small scale industries (SSI).

There is a continuous growth in net FDI Inflow. There is an increase of about 150 per cent in Net
Inflow for Vegetable Oils & Vanaspati for the year 2008.

Policy Issues

Tax reforms:
The government has gradually removed the restrictions on imports of consumer goods in the country
and also significantly reduced custom duties. The domestic tax structure of these products, however,
has not been rationalized to provide level playing field for competition. This is adversely affecting the
growth of the FMCG industry and could have far reaching adverse impact. The following taxation
issues need urgent attention of the government:

1) Extremely high incidence of tax on certain product categories Some FMCG products such as
shampoos, processed food, soft drinks and toiletries containing alcohol attract high rates of excise
duty and sales tax. The total tax incidence in some cases is more than 60 per cent of the cost or more
than 30 per cent of MRP. Such high tax incidence hampers growth of these product categories besides
encouraging manufacture of spurious products and smuggling. It is recommended that the total excise
incidence of FMCG products should not exceed 16 per cent in the case of non food items and eight
per cent in the case of processed foods. Similarly, the marginal rates of sales tax, which is currently in
the range of 10 to 25 per cent, should not exceed 12 per cent.

2) Irrational domestic tax structure encouraging imports significant reduction in custom duty rates of
consumer goods has made imported product cheaper as compared to indigenously manufactured
products, due to irrational domestic tax structure. For instance, goods manufactured in India suffer
from cascading effects of taxes on inputs as additional cost compared to imports.

The cascading effect of sales tax and local levies on inputs used in domestic manufacture should be
eliminated by providing either MODVAT credit or by introducing notional VAT covering both
central and state taxes on an urgent basis.

Moreover, MRP-based excise duty is levied on a large number of FMCG products. Countervailing
duty on the same product when imported is charged on CIF value. The MRP based assessable value
for excise duty does not allow abatement for post manufacturing costs such as advertising and selling
expenses whereas CIF value considered for the purpose of import duty does not include costs of these
elements incurred subsequently by importers. This differential basis creates unfair competition as tax
incidence on domestic manufacture could be considerably higher in case of those products which
incur significant marketing and distribution cost. There is a need to bring parity in tax incidence
between domestic manufacture and imports by including all such elements of post manufacturing
costs while deciding the abatement percentage of MRP based duty.

3) Inverted Duty structure for selected inputs Duty on certain raw materials is higher or the same as
compared to finished products in which these materials are used. Such raw materials include oils and
chemicals like Soda ash, caustic soda and LAB. In addition to customs duty, raw materials are also
subject to SAD/sales tax and octroi and therefore total tax incidence and cost of indigenous
manufacture goes up. The import duty on raw materials needs to be rationalized so that it does not
exceed 60 to 70 per cent of the duty on finished goods.

4) Need for rationalization of taxes on processed foods processed food industry, with its vertical
integration with the agricultural sector has significant potential for employment generation and
economic growth. The existing tax structure and its high overall incidence, however, has been
hampering the growth of the processed industry. The increase in excise duty in last year’s budget
from eight per cent to 16 per cent has adversely affected the growth of processed foods industry. It is
recommended that marginal rate of excise duty on processed foods should not be more than eight per
cent and the sales tax should be levied at four per cent.

5) Cascading effect of Special Excise Duty The special excise duty introduced last year is not
"CENVATable’’ except in the case of selected products. Most FMCG products covered by tariff such
as shampoos, ice creams and cosmetics are subject to SED. This tariff also contains very wide
definition of the term "manufacture’’ which includes labeling, relabeling or conversion of large packs
into small packs. The levy of SED on such products therefore leads to double taxation when goods
are labeled or converted into small packs after manufacture. It is recommended that SED should be
made "CENVATable’’; alternatively the term "manufacture’’ needs modification, at least for the
purpose of SED by excluding labeling, relabeling or conversion into small packs.

FDI Policy Automatic investment approval (including foreign technology agreements within
specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate
Bodies (OCBs) investment, is allowed for most of the food processing sector except malted food,
alcoholic beverages and those reserved for small scale industries (SSI). 24 per cent foreign equity is
permitted in the small scale sector. Temporary approvals for imports for test marketing can also be
obtained from the Director General of Foreign Trade. The evolution of a more liberal FDI policy
environment in India is clearly supported by the successful operation of some of the global majors
like PepsiCo in India.

CHAPTER-3:

DEMAND DYNAMICS

The general factors driving the growth of the FMCG sector are increase in disposable income, rural
areas and companies’ aggressive promotion of product awareness.

Rise in Disposable Income

• With increasing disposable income and subsequent rise in quality of living and hygiene concerns,
the average Indian’s spending on grocery and personal care products will likely increase.

• Currently, the average Indian spends about 48%, also the majority, of his total income on groceries
(~40%) and personal care products (~8%).

Rise in Disposable Income (In USD Thousands)

Sources: Euro Monitor, Goldman Sachs’ BRICS Report

Higher Penetration of the Rural Population:


Many companies are deepening their penetration in the rural areas as:

• The FMCG sector in the urban areas is becoming quite saturated (though it will continue to
dominate in the next 8 – 10 years4) while the penetration in the rural areas are only about 1%.
• The rural areas have and will continue to make up more than 50% (153 million) of India’s
total households and accounting for more than its current 66% contribution to total FMCG
consumption.
• Rural India has a large consuming class with 41 per cent of India's middle-class and 58 per
cent of the total disposable income.
• Currently, nearly 34% of the off take of FMCG companies come from rural areas. Companies
like HUL, ITC and Colgate have already established good distribution networks in these
regions. Other companies would start catering to these regions in near future.
• Between 2005 and 2010, the FMCG sector in the rural and semi-urban areas will experience
some 50% growth, at a CAGR of 10% and increase its market size to nearly US$ 23 billion
from the 2005 level of US$11.4 billion.

Rural Vs. Urban Households Growth

Category Rural Urban

2001-02 135 53

2009-10 153 69

Sources: Statistical Outline of India (2001-02), NCAER

Aggressive Promotion of Product Awareness


• In a volume driven and competitively intense environment, FMCG players are aggressively
promoting their brands to gain product awareness, customer base, and their shares of the customers’
wallets.

• Promotions include innovative BTL and ATL advertisements that sometimes have education and
social responsibility slants and even extend to highly organized distribution networks in rural areas.

• In 2007 alone, some FMCG companies scaled up their promotion spending to as much as 50% and
even 120%.

Company 2007 Promotion Spending Increase

ITC Foods Increased by 120%

Godrej Consumer Products Increased by 30%, with subsequent


increase of 11%- 12% of sales p.a.

GCMMF Increased by 20%


(Gujarat Co-operative Milk Marketing Federation Ltd)
Parle Argo Increased budget by 50%

Source: The Financial Express

Product Promotion Strategies in Rural Areas

Combination of Media & Personalized Marketing:

Companies relies less on outdoor advertising and more on radio or TV and one-to-one contact
programmes in rural areas.

Social Initiatives

Hindustan Unilever's whitening brand Fair & Lovely marketing program provides rural women micro
credit and basics of entrepreneurships and informs villagers about the company's product through
contests, paper chart presentations, live product demonstrations and usage basics.

Source: Red Orbit News

SECTORAL OPPORTUNITIES:

According to the Ministry of Food Processing, since 200 million people expected to shift to processed
and packaged food by 2010, India needs around US$ 28 billion of investment to raise food processing
levels by 8-10 per cent. In the personal care segment, the lower penetration rate also presents an
untapped potential. Key sectoral opportunities are mentioned below:
• Staple: branded and unbranded: While the expenditure on mass based, high volume, low margin
basic foods such as wheat, wheat flour and homogenized milk is expected to increase substantially
with the rise in population, there is also a market for branded staples is also expected to emerge.
Investment in branded staples is likely to rise with the popularity of branded rice and flour among
urban population.

• Dairy based products: India is the largest milk producer in the world, yet only 15 per cent of the
milk is processed. The US$ 2.4 billion organized dairy industry requires huge investment for
conversion and growth. Investment opportunities exist in value-added products like desserts,
puddings etc. The organized liquid milk business is in its infancy and also has large long-term growth
potential.

• Packaged food: Only about 8-10 per cent of output is processed and consumed in packaged form,
thus highlighting the huge potential for expansion of this industry. Currently, the semi processed and
ready to eat packaged food segment has a size of over US$ 70 billion and is growing at 15 per cent
per annum. Growth of dual income households, where both spouses are earning, has given rise to
demand for instant foods, especially in urban areas. Increased health consciousness and abundant
production of quality soya bean also indicates a growing demand for soya food segment.

• Personal care and hygiene: The oral care industry, especially toothpastes, remains under
penetrated in India with penetration rates below 45 per cent. With rise in per capita incomes and
awareness of oral hygiene, the growth potential is huge. Lower price and smaller packs are also likely
to drive potential up trading. In the personal care segment, according to forecasts made by the Centre
for Industrial and Economic Research (CIER), detergent demand is likely to rise to 4,180, 000 metric
tonnes by 2011-12 with an annual growth rate of 7 per cent between 2006 and 2012. The demand for
toilet soap is expected to grow at an annual rate of 4 per cent between 2006 and 2012 870,000 metric
tonnes by 2011-12. Rapid urbanization is expected to propel the demand for cosmetics to 100,000
metric tonnes by 2011-12, with an annual growth rate of 10 per cent.

• Beverages: The US$ 2 billion Indian tea market has been growing at 1.5 to 2 per cent annually and
is likely to see a further rise as Indian consumers convert from loose tea to branded tea products. In
the aerated drinks segment, the per capita consumption of soft drinks in India is 6 bottles compared to
Pakistan's 17 bottles, Sri Lanka's 21, Thailand's 73, the Philippines 173 and Mexico's 605. The
demand for soft drink in India is expected to grow at an annual rate of 10 per cent per annum between
2006 and 2012 with demand at 805 million cases by 2011-12. Per capita coffee consumption in India
is being promoted by the coffee chains and by the emergence of instant cold coffee. According to
CIER, demand for coffee is expected to rise to 535,000 metric tonnes by 2012, with an annual growth
rate of 5 per cent between 2006 and 2012.

• Edible oil: The demand for edible oil in India, according to CIER, is expected to rise to 21 million
tonnes by 2011-12 with an annual growth rate of 7 per cent per annum.

• Confectionary: The explosion of the young age population in India will trigger a spurt in
confectionary products. In the long run the industry is slated to grow at 8 to 10 per cent annually to
870,000 metric tonnes by 2011-12.
CHAPTER- :

MARKETING AND STRATEGIES

Marketing and Strategy:

With market liberalization, increasing consumerism and the entry of more foreign players, Indian
markets are exhibiting revolutionary changes. The Indian consumer is rapidly evolving and the
market is exposing the consumer to a host of new choices by international brands selling their
products at competitive prices.

According to a study by the McKinsey Global Institute (MGI), released in May 2007, India's middle
class will swell by more than ten times, from 50 million in 2007 to 583 million people by 2025. By
2025, India will also become the 5th largest consumer market, surpassing Germany, moving up from
the 12th position it occupied in 2007.

Moreover, for the fourth time in five years, India has been ranked as the most attractive nation for
retail investment among 30 emerging markets by the US-based global management consulting firm,
A T Kearney in its eighth annual Global Retail Development Index (GRDI) 2009 published in June
2009.

Rural Market: The Next Big Opportunity:

The rural consumer market, which grew 25 per cent in 2008, is expected to reach US$ 425 billion in
2010-11 with 720-790 million customers, according to a white paper prepared by CII-Technopak.
According to the study, the rural market is seeing a 15 per cent growth rate.

According to the figures released by market researcher Nielsen, demand for personal care products
grew faster in rural than urban areas during the period January-May 2010.
In shampoos, rural demand grew by 10.7 per cent in value terms, while in urban markets, it rose by
6.8 per cent. Similarly, toothpaste sales grew by 9.1 per cent in rural India and by 4.4 per cent in
urban markets.

Hindustan Unilever (HUL) is planning to significantly increase its rural reach. Currently, the HUL
products reach is approximately 250,000 rural retail outlets and the company intends to scale it up to
nearly 750,000 outlets in a span of two years.

Swiss FMCG giant, Nestle plans to make further inroads into the rural markets. The company has
asked its sales team to deliver “6,000 new sales points every month in rural areas” to expand presence
in Indian villages, according to Antonio Helio Waszyk, Chairman and Managing Director, Nestle
India.

Car makers are foraying into rural markets with industry majors reporting 50-100 per cent rise in
sales in such regions in 2009-10.

Further, Mahindra & Mahindra (M&M) is now selling more Scorpios in rural and semi-urban
markets. The rural footprint for the super utility vehicle (SUV), Scorpio sales have increased from 35
per cent to nearly 50 per cent in the last two years.

Yamaha is planning a major initiative in rural India by launching more models in the affordable price
range in 2010. “"We are very strong in Tier 1 and Tier II cities. Now onwards, our focus will be rural
India (Tier III towns). We will launch more models in the affordable price range to dominate the rural
market," according to Pankaj Dubey, National Business Head, India Yamaha Motor. At present,
around 15 per cent of its sales come from the rural market and Dubey sees this demand increasing
substantially in 2010.

Advertising:

According to the latest survey by Nielsen, advertising spend in India surged by 32 per cent, the
highest in the Asia-Pacific region in the first quarter of 2010 compared to the corresponding quarter
in 2009.

"Economic prospects are improving rapidly and consumers' spending intentions are turning into
actual spending reality. This is a sign that marketers, manufacturers and retailers have been eagerly
waiting for and is seen translating into advertising spends," said Piyush Mathur, President, Nielsen
Company (India). On a year-on-year (y-o-y) basis in India, the main media advertisement spend grew
26 per cent in the first quarter of 2010 as against the same quarter in 2009. The newspaper segment
emerged as the leading advertisement spend sector, which grew by30 per cent followed by television
at 26 per cent and magazines by 7 per cent on a y-o-y basis.

Digital Media:

With over 49 million Internet users, India’s online advertising market is expected to rise to Rs 1,100
crores (US$ 244.84 million) in 2010 registering a growth rate of almost 50 per cent, according to
estimates provided by Google. "Keeping in view the rapid changes in technology, the trend obviously
is moving towards the digital media. It is an alarm for advertisers to explore this wide platform and
reach specific target audiences. A boom in Internet advertising is just waiting to happen as
connectivity improves with the wider use of broadband," said Narasimha Jayakumar, Business Head,
Google India.
• Microsoft India is spending around 40 per cent of its total marketing budget for gaming
console Xbox on the digital media. "The density of Internet usage is highest in the 14-20 years
age group which is also our target group.
• We have decided that digital media will be the biggest vehicle of our marketing activities for
this year and even the next," said Ashim Mathur, Director Marketing (Entertainment and
Devices Division), Microsoft Corp India
• General Motors India is aggressively focusing on Internet advertising for its premium range of
cars such as Captiva, Optra and Chevrolet Cruze

Media and Communication Channels:

A new study released in April 2010 by media agency Zenith Optimedia, part of the French
advertising conglomerate Publicis Groupe SA, has forecast 9 per cent growth for India's advertising
industry for 2010.

The agency projected the total advertisement expenditure for India is likely to touch Rs. 23,631.9
crore (US$ 5.33 billion) in 2010 as compared to Rs. 21,602.5 crore (US$ 4.87 billion) in the previous
year.

Newspaper advertising, which grew at an annual growth of 5 per cent in 2009, is likely to rise to 7-8
per cent in 2010. Rising literacy levels and better distribution in the regions are gradually improving
the reach of newspapers. The survey also predicts a healthy 11-12 per cent growth for television in
India riding on the digital wave and advertising opportunities offered by the new “larger than life”
entertainment formats.

The survey pegs Internet advertising in India to grow at an annual growth rate of 25 per cent in the
coming three years.

HUL:

Distribution Network

Hindustan Unilever's distribution network is recognized as one of its key strengths. Its focus is not
only to enable easy access to their brands, but also to touch consumers with a three-way convergence
of

• Product availability, • brand communication, • higher levels of brand experience.

HUL's products, manufactured across the country, are distributed through a network of about 7,000
redistribution stockiest covering about one million retail outlets. The distribution network directly
covers the entire urban population. The general trade comprises grocery stores, chemists, wholesale,
kiosks and general stores. Hindustan Unilever services each with a tailor-made mix of services. The
emphasis is equally on using stores for direct contact with consumers, as much as is possible through
in store facilitators.

The distribution network in general trade is as follows:-

FACTORY

JUST IN TIME DEPOT

REDISTRIBUTION STOCKIST
MARKET (CHANNEL WISE)

CONSUMER

The products that are manufactured are first brought to the JIT (Just In Time) Depot from the factory.
Then these products are delivered to the Redistribution Stockiest according to the order placed by
them, this is done through Permanent Dispatch Plan. Then this stock is send to either retailers or
wholesalers, according to the channel followed by them. From there it reaches to the consumers.

At the supermarkets

Self-service stores and supermarkets are fast emerging in metros and large towns. To service modern
retailing outlets in the metros, HUL has set up a full-scale sales organization, exclusively for this
channel. The business system delivers excellent customer service, while driving growth for the
company and the store. At the same time, innovative marketing initiatives are taken to provide
consumers with experience of our brands at the store itself, through product tests and in-store
sampling. This is termed as Modern Trade. It has got different distribution network and work
differently. It is fast gaining pace as more and more people are turning to malls for shopping. Today
shoppers don’t just want to buy their daily groceries but they also want a shopping experience. They
want to spend time in air conditioned store; no more they are ready to sweat for spending money.
These big box retailers provide them a platform where they can roam around, pick, compare and
choose their products. These stores provide them a whole new experience of shopping without
shedding any drop of sweat.

Dabur:

Distribution Network

In 2001, Dabur decided to tackle its extended supply chain of over 30 factories, six key warehouses,
and 52 stocking points distributing over 1,000 SKUs to 10,000 stockiest countrywide. The company
needed a system to accurately control distribution and sales forecasting to reduce inventory in the
pipeline. Dabur went ahead and built a system using Visual Basic and ASP with SQL Server 2000 as
the database. It decided not to use a packaged SCM solution due to the high cost and relative lack of
complications in its supply chain.

Initiative

An in-house developed, easy-to-use, Intranet based data-warehouse displays as-of-


yesterday sales, stock, receivables, banking, and other MIS. Over 5,000 ASP pages meet
almost all reporting requirements and make this a single source of MIS for all levels of
decision makers. This success paved the ground for the company's supply chain
initiative. Fifty-five Ku Band TDMA VSATs were used to link primary distributors to the
system. Factories were hooked up using PAMA (Permanent Assigned Multiple Access)
VSATs. At some locations VPNs had to be used because it was not possible to set up a
dish. The zonal offices in Mumbai were hooked up in a similar manner. The hardware is
mostly owned by the primary CFA (Carry and Forward Agent) except for the networking
equipment, which is owned by Dabur. In the case of the secondary systems, stockiest
wholly own the hardware. The primary rollout began in April 2001 and took 16 months.
The first six months were used to create a business model common to all divisions
(family products, healthcare, ayurvedic products, and pharmaceuticals), and testin and
piloting the same.

Innovation

The integrated primary and secondary system has a number of unique features. The features like tight
integration of schemes, stockiest credit limit control, automated banking of cheques, and online
cheque reconciliation has obvious advantages in the primary distribution. These are basically
extensions to the MFG/PRO ERP system and not core customizations. Dabur's stocks supply to 1.5
million retailers. Seventy percent of the sales are accounted for by the top 500 stockiest. The
incorporation of these top stockiest into its supply chain is a first for any FMCG company in India.
The average sale of each stockiest and the current stock are the two parameters. A 'My Page' allows
the stockiest to see the 'as-of-yesterday' details pertaining to the in-transit shipments, transporter
details, back-orders, account statement, cheque status, credit notes, and claim settlements. Details are
collected from stockiest on a weekly basis. In case of primary distribution points, an incremental
backup is sent to the central location when the CFA closes operations for the day. These are
computed at night in a process called ‘cubing’. And when managers come into office in the morning
the information is ready for them. The integrated system allows each Area Manager to plan for the
month's sales forecasts, stockiest performance, and sales officers' performance. The integration allows
better control on pipelines in primaries and secondary’s, brings down inventories, and offers better
control on production and sales against a confirmed forecast. “The company has added an SMS
interface that lets authorized phones query the system for aspects like stock status, credit limits, and
current outstanding and division-wide sales. A control list of mobile phone numbers is used to restrict
access to the system. Salespeople can get responses to their queries in a minute with this system," said
Gopal Shukla, Chief Information Officer, Dabur India Limited.

EMAMI:

GROWTH STRATEGY:

• Strong branding through celebrity endorsements has been one of the oldest and successful
marketing strategies adopted by the company.

Emami continues to use this strategy to build existing brands and launch new products.

• It is aggressively foraying into the hair care segment with a bouquet of products comprising hair
packs, dyes, colorants and shampoos.

•Baby care is yet another segment being targeted by Emami, with products like oil, soap, talc and
cream.

• Besides launching new products, Emami is introducing product extensions.

For example, in the case of chyawanprash, it has launched summer and chocoflavoured variants.
Likewise, it is introducing a ‘spoon version’ of chyawanprash for impulsive shoppers.

UNILEVER:

• UNILEVER positioned to create values.


• Skin care per capita consumption in India 0.3% and in Germany 36%.
• Skin cream low unit packs. 55% market share in skin care products.
• Launch project shakti.

P&G:

BRAND STRATEGIES:

• Low Cost Leadership


– Concentrated Growth
– Market Development

• Differentiation
– Product Development
– Innovation

Success factors:

– Positive brand image


– Availability of products
– The ease of access
– Superior technology
– Product variety and diversification
– Line of shaving /grooming products
– Supply chain technology

Penetration in India:

• Underpenetrated markets, low per capita consumption and well established brands will translate into
high growth rates for Procter & Gamble

• In a recent move, the company tied up with National Rural Health Mission, Rajasthan, to educate
the rural women about hygiene issues.

• During FY06-08, the company invested nearly Rs 60 crore towards capacity creation
(Rs 10 crore was invested in its Goa plant for hygiene products and Rs 26.7 crore in other plants)

Strategy of Organization to manage diversity of Portfolio

Formal 3-tiered governance structure:

Board of Directors:
 Comprising executive (4) and non-executive directors (8)
 Strategic supervision
Corporate Management Committee:
 Comprising executive directors and senior managers
 Strategic management
Divisional Chief Executive & Divisional Management Committee:
 Executive management

Corporate Strategies

Sustain multiple drivers of growth, matching internal capabilities with emerging market opportunities
Pursue World class competitiveness in all businesses and across the entire value chain
Best-in-class in terms of:
 Internal Vitality
 Market Standing
 Profitability
Strategy of Organization and Governance processes geared to manage multiple businesses
Blend core competencies and leverage ITC umbrella strengths to create new avenues of growth

E-CHOUPAL: STRATEGIC THRUST

Procurement: cost & quality optimization


• Strategic sourcing support to the Foods business (support creation of verticals in
wheat, soya, corn, potato etc.)
• cost-effective sourcing for exports/domestic external business

Rural Distribution
• ‘last mile connectivity’: 100 partnering companies
• Diverse range of goods/services: FMCG, consumer durables, agri-inputs, paid
extension services etc.
Financial Services
• insurance (focus: weather)
• credit (focus: Kisan credit card scheme)
Rural retail
• 18 Choupal Saagars operational
• Rapid expansion planned in identified rural markets and Tier 3 & 4 towns (pop 2.5 to
10 lacs)

Strategic Rationale

Blend multiple competencies residing within the ITC Group to create new avenues of growth
Best fit between internal capabilities and emerging market opportunities
Each segment enhances the depth and width of ITC’s FMCG distribution capability
Business model retains critical elements of value chains within ITC with other elements
outsourced
Contributing to the competitiveness of SMEs

MARGINS SCENARIO LIKELY TO CHANGE:

We expected to see an increase in margins. The primary reason for our upgrade is that we expect the
margin scenario to turn around. Crude prices have dropped drastically over the last quarter, driving a
sharp decrease in cost of key inputs for soaps, detergents and packing material. HUL increases the
prices of soaps and detergents to partially pass on rising costs, when crude rose from US$70–80/bbl
to US$140/bbl. Now, Crude prices are down to ~25 per cent from its peak.

HUL Segment Results

Emami Segment Results:

Nirma Segment Results:


P & G Segment Results:

Dabur Segment Results:

Godrej Segment Results:


Porter's Five Forces Model:
Rivalry among Competing Firms:

In the Fast Moving Consumer Goods (FMCG) Industry, rivalry among competitors is very fierce.
There are scarce customers because the industry is highly saturated and the competitors try to snatch
their share of market. Market Players use all sorts of tactics and activities from intensive
advertisement campaigns to promotional stuff and price wars etc. Hence the intensity of rivalry is
very high.

The intensity of rivalry is very high among the competitor of FMCG Industry.

Potential Entry of New Competitors:

FMCG Industry does not have any measures which can control the entry of new firms. The resistance
is very low and the structure of the industry is so complex that new firms can easily enter and also
offer tough competition due to cost effectiveness. Hence potential entry of new firms is highly viable.

There is a threat for new entrants as well as for substitute.

Potential Development of Substitute Products:

There are complex and never ending consumer needs and no firm can satisfy all sorts of needs alone.
There are plenty of substitute goods available in the market that can be re-placed if consumers are not
satisfied with one. The wide range of choices and needs give a sufficient room for new product
development that can replace existing goods. Every other day there is some short of new product,
variants and design. This leads to higher consumer’s expectation.

Bargaining Power of Suppliers:

The bargaining power of suppliers of raw materials and intermediate goods is not very high. There is
ample number of substitute suppliers available and the raw materials are also readily available and
most of the raw materials are homogeneous. There is no monopoly situation in the supplier side
because the suppliers are also competing among themselves.

Even there is high bargaining power for Suppliers as well as for Buyers.

Bargaining Power of Consumers:

Bargaining power of consumers is also very high. This is because in FMCG industry the switching
costs of most of the goods is very low and there is no threat of buying one product over other.
Customers are never reluctant to buy or try new things off the shelf.