Competitive Strategies Followed by FMCG Sector in India

Related to Two Companies HUL & ITC Introduction Competitive Strategy consists of move of companies in order to attract customers. With stand competitive pressures and strengthen an organizations market position. The main objective of Competitive Strategy is to generate a competitive advantage, increase the loyalty of customers and to beat competitors. Five main competitive strategies are:
y y y y y

Overall low cost leadership strategy Best cost providers strategy Broad differentiation strategy Focused low cost strategy Focused differentiation strategy

Here competitive strategy varies from sector to sector and company to company. Thus, it is not easy to predict a single or to find a single strategy for the whole sector. When we come on to FMCG Sector main strategies lay behind market strategies, cost, and quality strategies. Here in this report you are going to get information about such type of strategies of FMCG giants. What are HUL and ITC Ltd.? HUL (Hindustan Unilever Ltd.) This Company is earlier known as Hindustan Lever Ltd. This is Indias largest FMCG sector company with all type of household products available with it. It has Home & Personal Care products, and also food and Water Purifier available with it. According to Brand Equity, HUL has largest no of brands in most trusted brands list. 16 of HULs brands featured in AC-Nielson Brand Equity list of 100 most trusted brands in 2008 in an annual survey. For the entire year ending March - 2009 net turnover of company is Rs. 20239.33 Crore which is 47.99% higher than 31st December 2007s Rs. 13675.43 Crore driven mainly by dom estic FMCGs with net profit stood at Rs. 2496.45 Crore. Products of HUL are: Annapurna; Ayush; Axe; Breeze; Bru; Brooke bond; Clinic; Dove; Fair & Lovely; Hamam; Liril; Lux; Pears; Ponds; Pepsodent; Pureit; Rexona; Rin; Sunlight; Surfexcel; Vaseline; Wheel. ITC Limited This Company was earlier known as Imperial Tobacco Company of India Ltd. It is Currently headed by Yogesh Chander Deveshwar. Company mainly operates in the industry like Tobacco, Foods, Hotels, Stationary and Greeting Cards with the major products constitutes Cigarettes, packed foods, hotels, and apparels. For the entire year ending Mar-2009 the turnover of company is at Rs. 15388 Crore which is 10.3% higher than previous years Rs. 13947.53 Crore, driven mainly by robust 20% growth in non cigarette FMCG business with net profit stood at Rs. 3324 Crore. Analysis of Both Companies HUL & ITC are major companies in FMCG market in India. When we compare both companies on the basis of their strategies i.e. , their competitive strategies in the present market. When we look at the

present segment breakup for both of the companies then we came to know that their different products vary too much in the market.

HUL Segment Breakup

ITC Segment Breakup Now let us take a comparative analysis of both the companies under some heads: HUL Hindustan Unilever (HUL) is the largest pureplay FMCG company in the country and has one of the widest portfolio of products sold via a strong distribution channel. It owns and markets some of the most popular brands in the country across various categories, including soaps, detergents, shampoos, tea and face creams. Performance After stagnating between 1999 and 04, the company is back on the growth track. In the ITC ITC is not a pure-play FMCG company, since cigarettes is its primary business. It is diversifying into non-tobacco. FMCG segments like foods, personal care, paper products, hotels and agri-business to reduce its exposure to cigarettes. Performance Despite diversification, ITCs reliance on cigarettes is still huge. The tobacco business

past three years, till 2008 HULs net sales have contributes 40% to its revenues, and accounts witnessed a CAGR of 11%, while net profit has for over 80% of its profit. This cash-generating posted a CAGR of 17%. business has enabled it to take ambitious, but expensive bets in new segments and deliver modest profit growth. Overall Strategy Overall Strategy HUL always believes in customer friendly TC is focusing on delivering value at products with major emphasis on low cost competitive prices. Its tremendous reach overall without compromising on the quality of through extensive distribution chain has been a the product. They are leveraging the competitive advantage. Additionally, the capabilities and scale of the parent company companys e-choupal model for direct and focusing on the value of execution. The procurement is well known under which ITC entire product product portfolio is also being partners with over 100,000 farmers for spices tweaked to include premium offerings such as and wheat procurement and an even larger Ponds Age Miracle and dove shampoo in skin number for oilseeds. This kind of rural pedigree and hair care. is hard to beat. Growth Drivers Growth Drivers The Company has been launching new ITCs backward integration to ensure that its products and brand extensions, with products pass efficiently from the farms to investments being made towards brand-building consumers has helped it to cut down supply and increasing its market share. HUL is also and procurement costs. ITCs non-cigarette streamlining its various business operations, in FMCG business leverages the large distribution line with the One Unilever philosophy adopted network the company has developed by selling by the Unilever group worldwide. Introduction of cigarettes over the years. A rich product mix, premium products and addition of new along with ramp-up of investments in its new consumers via market expansion will be HULs sectors, will be instrumental in charting ITCs growth drivers. growth path. Risk for both the companies For HUL Being an MNC operating in India, HUL is more conservative in its strategies than its Indian counterparts. Moreover, given increasing competition, it faces the risk of being overtaken by domestic players in various categories. Prolonged inflation may lead to margin contraction, in case HUL is not able to pass on this burden to consumers. The companys large size also poses a problem, since it does not give HUL the agility to address the competition it faces from national and regional players. For ITC Increased regulatory clamps on tobacco, along with rising tax burden, pose a business risk for ITC. So, it has started an ambitious diversification plan, which has its own set of risks. With its foray into the conventional FMCG space, ITC has entered the high-clutter branded products market. This will burden its resources in terms of ad spend and brand-building. Creating brand recall and building market share in new products are ITCs key challenges. Export ban and rising crop prices pose a threat for its agri-business, taxing its margins. Conclusion HULs up-and-running business model is a treat for investors seeking exposure in the FMCG segment. The company has delivered in the past and has the potential to do better in future. In the small and medium term. ITCs growth story is still evolving. ITC is eyeing the pie which HUL and other FMCG players currently enjoy. Though risky, the companys business model will pay off in the long run. ITC has proved its expertise in the cigarettes, hotels, paper and agri-businesses. Investors who want to bank on its execution ability in FMCG can consider the stock with a long-term horizon.

Recommendations According to us the companies should continue with their CSR and also continue with their strategies. The thing that need to be changed is that, ITC should go for more diversification in Non cigarette segment (FMCG) while HUL should come up with the new strategies that could take the new product forward to create a new segment. A common recommendation for both is that they should focus on rural area more. Bibliography
y y y y y y y y y y y y y y

Investopedia.com Msn Encarta Economic Times Financial Express 4Ps Magazine Business today Competitive Strategy by Michael Porter Wikipedia.com Mega essays.com Lots of essays.com Times of India Itcportal.com Hul.co.in Livemint.com