TERM PAPER

Of

MARKETING

On the topic of

ECONOMICS PROBLEMS FACED BY FMCG COMPANIES (SUPPORTED

BY DATA) WITH THE LIKELY SOLUTION AND BUSINESS STRATEGY TO

OVER COME THESE PROBLEM

SUBMITTED TO SUBMITTED BY

MR. CHANDRASHEKHAR DOGRA RAJNISH SINGH

MBA (regular)

SEC- RR1902

ROLL NO.-RR1902A11

REG. NO-10901327

ACKNOWLEDGEMENT I am thankful to MR. CHANDRASHEKAR DOGRA for providing me the task

of preparing the term paper on ECONOMIC PROBLEMS FACED BY FMCG

COMPANIES (SUPPORTED BY DATA) WITH THE LIKELY SOLUTIONS

AND BUSINESS STRATEGIES TO OVER COME THESE PROBLEMS. We at

lovely in taking challenges and term paper provided me the opportunity to tackle a

practical challenge in the subject of ECONOMICS. This term paper tested my

patience at every step of preparation but the courage provided by my teacher

helped me to swim against the tide and move against the wind.

I am also thankful to my friends and parents for providing me help at every step of

the preparation of the term paper.

RAJNISH SINGH

INDEX

INTRODUCTION1FAST MOVING CONSUMER GOODS (FMCG)

HISTORY OF FMCG COMPANIES IN INDIACURENT SITUATIONOVER VIEW OF INDIAN FMCG MARKETPROBLEM OF FMCG COMPANISANALYSIS OF FMCG SECTORS

1 STRENGTHS2 WEAKNESSES3 OPPORTUNITIES4 THREATS

STRUCTURAL ANALYSIS OF FMCG INDUSTRY1DESIGN AND MANUFACTURING2MARKETING AND DISTRIBUTION

FORCOSTING OF FMCG COMPANIESSTRATEGY OF FMCG COMPANIES

1COMPETITIVE STRATEGIES ALLOWED BY FMCG COMPANIS IN INDIA2POWER BRANDS THE NEW FMCG MANTRA

TOP 10 FMCG COMPANIES IN INDIASOLUTION OF FMCG COMPANIES

1WHAT SHOULD THE FMCG PLAYERS DO NOW2DISTRIBUTION BRAND MANAGERS TO BUSINESS MANAGERS

REFRENCE

INTRODUCTION

Fast Moving Consumer Goods ( FMCG )

FMCG are products that have a quick shelf turnover, at relatively low cost and

don't require a lot of thought, time and financial investment to purchase. The

margin of profit on every individual FMCG product is less. However the huge

number of goods sold is what makes the difference. Hence profit in FMCG goods

always translates to number of goods sold. Fast Moving Consumer Goods is a

classification that refers to a wide range of frequently purchased consumer

products including: toiletries, soaps, cosmetics, teeth cleaning products, shaving

products, detergents, and other non-durables such as glassware, bulbs, batteries,

paper products and plastic goods, such as buckets.’ Fast Moving’ is in opposition

to consumer durables such as kitchen appliances that are generally replaced less

than once a year. The category may include pharmaceuticals, consumer electronics

and packaged food products and drinks, although these are often categorized

separately. The term Consumer Packaged Goods (CPG) is used interchangeably

with Fast Moving Consumer Goods (FMCG).Three of the largest and best known

examples of Fast Moving Consumer Goods companies are NESTLÉ, UNILEVER

AND PROCTER & GAMBLE. Examples of FMCGs are soft drinks, tissue paper,

and chocolate bars. Examples of FMCG brands are Coca-Cola, Kleenex, Pepsi and

Believe. The FMCG sector represents consumer goods required for daily or

frequent use. The main segments of this sector are personal care (oral care, hair

care, soaps, cosmetics, and toiletries), household care (fabric wash and household

cleaners), branded and packaged food, beverages (health beverages, soft drinks,

staples, cereals, dairy products, chocolates, bakery products) and tobacco.

The Indian FMCG sector is an important contributor to the country's GDP. It is the

fourth largest sector in the economy and is responsible for 5% of the total factory

employment in India. The industry also creates employment for 3 m people in

downstream activities, much of which is disbursed in small towns and rural India.

This industry has witnessed strong growth in the past decade. This has been due to

liberalization, urbanization, increase in the disposable incomes and altered

lifestyle. Furthermore, the boom has also been fuelled by the reduction in excise

duties, de-reservation from the small-scale sector and the concerted efforts of

personal care companies to attract the burgeoning affluent segment in the middle-

class through product and packaging innovations.

Unlike the perception that the FMCG sector is a producer of luxury items targeted

at the elite, in reality, the sector meets the every day needs of the masses. The

lower-middle income group accounts for over 60% of the sector's sales. Rural

markets account for 56% of the total domestic FMCG demand. Many of the global

FMCG majors have been present in the country for many decades. But in the last

ten years, many of the smaller rung Indian FMCG companies have gained in scale.

As a result, the unorganized and regional players have witnessed erosion in market

share.

HISTORY OF FMCG COMPANIES IN INDIA

In India, companies like ITC, HLL, Colgate, Cadbury and Nestle have been a

dominant force in the FMCG sector well supported by relatively less competition

and high entry barriers (import duty was high). These companies were, therefore,

able to charge a premium for their products. In this context, the margins were also

on the higher side. With the gradual opening up of the economy over the last

decade, FMCG companies have been forced to fight for a market share. In the

process, margins have been compromised, more so in the last six years (FMCG

sector witnessed decline in demand).

CURRENT SITUATION

The growth potential for FMCG companies looks promising over the long-term

horizon, as the per-capita consumption of almost all products in the country is

amongst the lowest in the world. As per the Consumer Survey by KSA-Technopak,

of the total consumption expenditure, almost 40% and 8% was accounted by

groceries and personal care products respectively. Rapid urbanization, increased

literacy and rising per capita income are the key growth drivers for the sector.

Around 45% of the population in India is below 20 years of age and the proportion

of the young population is expected to increase in the next five years. Aspiration

levels in this age group have been fuelled by greater media exposure, unleashing a

latent demand with more money and a new mindset. In this backdrop, industry

estimates suggest that the industry could triple in value by 2015 (by some

estimates, the industry could double in size by 2010).

In our view, testing times for the FMCG sector are over and driving rural

penetration will be the key going forward. Due to infrastructure constraints (this

influences the cost-effectiveness of the supply chain), companies were unable to

grow faster. Although companies like HLL and ITC have dedicated initiatives

targeted at the rural market, these are still at a relatively nascent stage. The

bottlenecks of the conventional distribution system are likely to be removed once

organized retailing gains in scale. Currently, organized retailing accounts for just

3% of total retail sales and is likely to touch 10% over the next 3-5 years. In our

view, organized retailing results in discounted prices, forced-buying by offering

many choices and also opens up new avenues for growth for the FMCG sector.

Given the aggressive expansion plans of players like Pantaloon, Trent, Shopper’s

Stop and Shoprite, we are confident that the FMCG sector has a bright future.

APR-SEP 2009 A&P/SALES%

COMPANY SALES RS

CR

A&P

SPENDRSCR

APR-SEP

2009

3YRS

AGO

HINDUSTANUNILEVER

DABUR INDIA

MARICO

GLAXOSMITHKLINE

CONSUMER

COLGATE POLMOLIVE

INDIA

GODREJCONSUMER

EMAMI

ARGO TECH FOODS

JYOTHY LABS

8703

1591

1389

964

955

1014

400

305

250

1132

234

176

156

141

94

75

31

14

13.0

14.7

12.7

16.2

14.7

9.3

18.7

10.1

5.5

8.9

11.9

12.1

13.1

17.5

10.3

2.5

1.3

8.0

OVER VIEW OF INDIAN FMCG MARKET

India offers a large and growing market of 1 billion people of which 300 million

are middle class consumers. India offers a vibrant market of youth and vigor with

54% of population below the age of 25 years. These young people work harder,

earn more, spend more and demand more from the market, making India a

dynamic and inspirational society. Domestic demand is expected to double over

the ten-year period from 1998 to 2007. The number of households with "high

income" is expected to increase by 60% in the next four years to 44 million

households. India is rated as the fifth most attractive emerging retail market. It has

been ranked second in a Global Retail Development Index of 30 developing

countries drawn up by A T Kearney. A.T. Kearney has estimated India's total retail

market at $202.6 billion, is expected to grow at a compounded 30 per cent over the

next five years. The share of modern retail is likely to grow from its current 2 per

cent to 15-20 percent over the next decade, analysts feel.

The Indian FMCG sector is the fourth largest sector in the economy with a total

market size in excess of US$ 13.1 billion. The FMCG market is set to treble from

US$ 11.6 billion in 2003 to US$ 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. India is one of the world’s largest producers for a number of FMCG

products but its FMCG exports are languishing at around Rs 1,000 crore only.

There is significant potential for increasing exports but there are certain factors

inhibiting this. Small-scale sector reservations limit ability to invest in technology

and quality up gradation to achieve economies of scale. Moreover, lower volume

of higher value added products reduce scope for export to developing countries.

The FMCG sector has traditionally grown at a very fast rate and has generally out

performed the rest of the industry. Over the last one year, however the rate of

growth has slowed down and the sector has recorded sales growth of just five per

cent in the last four quarters. The outlook in the short term does not appear to be

very positive for the sector. Rural demand is on the decline and the Centre for

Monitoring Indian Economy (CMIE) has already downs called its projection for

agriculture growth in the current fiscal. Poor monsoon in some states, too, is

unlikely to help matters. Moreover, the general slowdown in the economy is also

likely to have an adverse impact on disposable income and purchasing power as a

whole. The growth of imports constitutes another problem area and while so far

imports in this sector have been confined to the premium segment, FMCG

companies estimate they have already cornered a four to six per cent market share.

The high burden of local taxes is another reason attributed for the slowdown in the

industry At the same time, the long term outlook for revenue growth is positive.

Give the large market and the requirement for continuous repurchase of these

products, FMCG companies should continue to do well in the long run. Moreover,

most of the companies are concentrating on cost reduction and supply chain

management. This should yield positive results for them. The profile of major

leading FMCG Market Players is as follows:

PROBLEM OF FMCG COMPANIES

The fast-moving consumer goods (FMCG) companies are faced with a peculiar

challenge of maintaining profitable growths in the backdrop of a low inflation rate.

As against the high inflation of the early 90s — the peak growth season for all

FMCG companies — the ensuing period of a lower inflation rate dares companies

to now play the volume game. As against a growth in profitability, which came

with price increase in line with the rising inflation, the FMCG industry will now

have to do without this critical factor which has been contributing to almost half of

the industry’s growth. “Volumes will play a critical role now. The number of units

sold will be an important metric, as there is very little avenue to drive price

growth,” said MS Banga, chairman, Hindustan Lever Ltd (HLL), in his keynote

address at the 2nd National FMCG Conclave organized by the Confederation of

Indian Industry (CII). Since volume will be the key determinant of growth, the

industry will be forced to push volume growth. Hence, for those companies which

hitherto relied on price increase as an easy way to enhance profitability, there

could be a pressure on margins. To tackle the problem there needs to be a

relentless focus on cost-cutting. “Many companies, which have understood that

volumes will be critical, will benefit,” added Mr. Banga. According to Mahesh

Vyas, executive director, the Centre for Monitoring Indian Economy (CMIE), the

year holds a lot of promise, if growth is good and inflation is lower. “Volume

growth and no price reduction is good for FMCG,” said Mr. Vyas. He, however,

said fresh investments were critical for sustained growth in the economy. Another

serious challenge which the industry is faced with, said Mr. Banga, is consumer

promotions where freebies are threatening to lead to the commoditization of the

industry. “I believe that the industry must take a serious note of it. It is threatening

the very premise on which the FMCG industry stands today (i.e. branding),” Mr.

Banga added. As to how HLL, which is a leading FMCG company, would boost its

volumes and maintain its margins, Mr. Banga said the only way out was branding.

He denied that HLL was cutting down upon its advertising spends, which he said,

was only on a quarter-on-quarter basis. The total advertising expenditure for HLL

declined to Rs 182.74 crore during the third quarter ended September 30, 2003,

from Rs 217.80 crore.

One of the reasons is the fact that the Conditional Cash Transfer scheme (CCT) is

gathering support as a replacement for myriad welfare schemes. Along with the

rural employment guarantee scheme, loan waivers and increase in prices at which

agricultural products are bought, the CCT could solve the FMCG’s problem of

unpredictability of agricultural income and the associated fall in market demand.

The mainstay of the rural thrust of FMCG companies is based on the hope that

there are ‘disposable incomes’ lying untapped in the hinterland: if the rural

population spends some of this, it will certainly boost demand in the current

recession. With urban consumption in decline or stagnating because of the

economic slowdown, FMCG companies have been hit hard. The idea is to give a

‘choice’ to the rural customer to shift to branded products, from traditional,

unbranded merchandise from the nonorganised sector. “The growth is in rural,”

says India’s top marketing head, Rama Bijapurkar. Rural India constitutes over 60

percent of the country’s total consumer base. It’s estimated that rural markets hold

55 percent of total LIC policies, 50 percent of the market for televisions, fans,

bicycles and wristwatches — and a massive 70 percent of the market for toilet soap

consumption. The Rs 65,000 crore debt waivers announced last year helped 3.6

million farmers and made them eligible to fund the next crop. The Centre

continued to provide short-term crop loans at 7 percent interest up to Rs 3 lakh. An

upturn in agriculture was seen in the UPA’s interim budget of 2009-10, where the

annual growth rate of agriculture was posted at 3.7 percent. Added to this was the

election-inspired increase in minimum support prices (MSP) in 2008-09.

Announced in the season ahead of the general election, the MSP for paddy (Rs 550

per quintal in 2003-04) rose to Rs 900; for wheat, the MSP, which was Rs 630 per

quintal, rose to Rs 1,080. It also led to massive procurement of food grains this

year.

Factors like this, according to analysts, have created ‘disposable incomes’ which

the rural consumers should be, ideally, keen on spending on consumer goods. THE

ECONOMIC SURVEY 2007-08 says rural India spends, on average, 55 percent on

food and 45 percent on non-food items like clothing, consumer durables, education

and health. And its spend on urban costs of living such as electricity, commuting,

fuel and rent is negligible. That level of spending on regular consumables is good

news for FMCG manufacturers. Add to that the fact that, unlike their urban

counterparts, rural citizens’ incomes are relatively better preserved from market

fluctuations and real estate shocks. For corporate, the rural hinterland had earlier

meant high investment because of poor infrastructure, absence of storage services,

no electricity, water or finance facilities. In times of recession, the problems appear

surmountable. It’s expected that catching the villages’ fancy should be far easier

than that of the info-fatigued urban buyer. The rural market already accounts for 50

percent of FMCG products like pressure cookers, tea, branded salt and tooth

powder. Companies expect to increase market share and to add products to the

rural portfolio. According to ASSOCHAM, which announced early this year that

the FMCG sector is pegged to grow at 40 percent in the rural market, “rising rural

incomes, healthy agricultural growth, boost in demand, rising consumerism and

better penetration of FMCG products,’’ are the reasons for this projection. Agrees

Deepak Jolly, a director with Coca-Cola India: “The rural thrust in India today is

huge. In many ways, I would say it is the main driver for the markets.” Among the

few things that the FMCG companies are seeking from this budget is that the taxes

and duties that have been reduced by the government to promote the sector should

not be revoked. If only they could have the same impact on the monsoon: any

weakening or failure there will considerably affect the purchasing power of

villagers and volumes of FMCG products. It’s in this context that the gathering

support for the conditional cash transfers (CCT) scheme should be seen — it

proposes that the government deposit an amount in the account of beneficiaries

identified according to poverty criteria. The amount is deposited in the name of the

woman member of the household and accessed only if children go to school or

attend the health centre. Farmers are spending more than ever to cultivate; villagers

are spending more than ever to buy food. The government hopes to bring the

National Food Security Bill that provides monthly 25kg to BPL families at Rs 3

per kg. It would be interesting to watch if the ‘disposable income’ left after such

subsidies will be used for consumption.

ANALYSIS OF FMCG SECTOR

STRENGTHS:

1. Low operational costs

2. Presence of established distribution networks in both urban and rural areas

3. Presence of well-known brands in FMCG sector

WEAKNESSES:

1. Lower scope of investing in technology and achieving economies of scale,

especially in small sectors

2. Low exports levels

3. "Me-too" products, which illegally mimic the labels of the established brands,

narrow the scope of FMCG products in rural and semi-urban market.

OPPORTUNITIES:

1. Untapped rural market

2. Rising income levels i.e. increase in purchasing power of consumers

3. Large domestic market - a population of over one billion

4. Export potential 5. High consumer goods spending

THREATS :

1. Removal of import restrictions resulting in replacing of domestic brands

2. Slowdown in rural demand.

3. Tax and regulatory structure

STRUCTURAL ANALYSIS OF FMCG INDUSTRY

Typically, a consumer buys these goods at least once a month. The sector covers a

wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos,

creams, powders, food products, confectioneries, beverages, and cigarettes.

Typical characteristics of FMCG products are: -

1. The products often cater to 3 very distinct but usually wanted for aspects -

necessity, comfort, luxury. They meet the demands of the entire cross

section of population. Price and income elasticity of demand varies across

products and consumers.

2. Individual items are of small value (small SKU's) although all FMCG

products put together account for a significant part of the consumer's budget.

3. The consumer spends little time on the purchase decision. He seldom ever

looks at the technical specifications. Brand loyalties or recommendations of

reliable retailer/ dealer drive purchase decisions.

4. Limited inventory of these products (many of which are perishable) are kept

by consumer and prefers to purchase them frequently, as and when required.

5. Brand switching is often induced by heavy advertisement, recommendation

of the retailer or word of mouth.

DESIGN AND MANUFACTURING

1. Low Capital Intensity - Most product categories in FMCG require

relatively minor investment in plan 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.

2. Technology - Basic technology for manufacturing is easily available. Also,

technology for most products has been fairly stable. Modifications and

improvements rarely change the basic process.

3. 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.

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.

FORCOSTING OF FMCG COMPANIES

Markets all over the world have been on a roll in 2003 and the Indian bourses are

no exception having gained almost 60% in 2003. During this period, while there

are sectors that have outperformed this benchmark index, there are also sectors that

have under performed. FMCG registered gains of just 33% on the BSE FMCG

Index last year. At the macro level, Indian economy is poised to remained buoyant

and grow at more than 7%. The economic growth would impact large proportions

of the population thus leading to more money in the hands of the consumer.

Changes in demographic composition of the population and thus the market would

also continue to impact the FMCG industry. Recent survey conducted by a leading

business weekly, approximately 47 per cent of India's 1 + billion people were

under the age of 20, and teenagers among them numbered about 160 million.

Together, they wielded INR 14000 Cr worth of discretionary income, and their

families spent an additional INR 18500 Cr on them every year. By 2015, Indians

under 20 are estimated to make up 55% of the population - and wield

proportionately higher spending power. Means, companies that are able to

influence and excite such consumers would be those that win in the market place.

The Indian FMCG market has been divided for a long time between the organized

sector and the unorganized sector. While the latter has been crowded by a large

number of local players, competing on margins, the former has varied between a

two-player-scenario to a multi-player one.

Unlike the U.S. market for fast moving consumer goods (FMCG), which is

dominated by a handful of global players, India's Rs.460 billion FMCG market

remains highly fragmented with roughly half the market going to unbranded,

unpackaged home made products. This presents a tremendous opportunity for

makers of branded products who can convert consumers to branded products.

However, successfully launching and growing market share around a branded

product in India presents tremendous challenges. Take distribution as an example.

India is home to six million retail outlets and super markets virtually do not exist.

This makes logistics particularly for new players extremely difficult. Other

challenges of similar magnitude exist across the FMCG supply chain. The fact is

that FMCG is a structurally unattractive industry in which to participate. Even so,

the opportunity keeps FMCG makers trying.

STRATEGY OF FMCG COMPANIES

COMPETITIVE STRATEGIES FOLLOWED BY FMCG COMPANIES IN

INDIA

Competitive Strategy consists of move of companies in order to attract customers.

With stand competitive pressures and strengthen an organization’s 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:

Overall low cost leadership strategy

Best cost provider’s 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.

RELATED TO TWO COMPANIES HUL & ITC

HUL (Hindustan Unilever Ltd.)

This Company is earlier known as Hindustan Lever Ltd.

This is India’s 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 HUL’s 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. 20’239.33 Crore which

is 47.99% higher than 31st December 2007’s Rs. 13675.43 Crore driven mainly by

dom estic FMCG’s with net profit stood at Rs. 2’496.45 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

year’s 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 ITC

Hindustan Unilever (HUL) is the

largest pure-play FMCG company in

the country and has one of the widest

portfolios 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.

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 Performance

After stagnating between 1999 and

’04, the company is back on the

growth track. In the past three years,

till 2008 HUL’s net sales have

witnessed a CAGR of 11%, while net

Despite diversification, ITC’s reliance

on cigarettes is still huge. The tobacco

business contributes 40% to its

revenues, and accounts for over 80%

of its profit. This cash-generating

profit has posted a CAGR of 17%.

business has enabled it to take

ambitious, but expensive bets in new

segments and deliver modest profit

growth.

ITC Segment Breakup

HUL SEGMENT BREAKUP

POWER BRANDS, THE NEW FMCG MANTRA

Three men, one voice. Indian fast moving consumer goods companies like HLL,

Godrej Consumer Products Limited and Marico Industries are completely sold on

the concept of "power brands".

But in their rush to put their best brands forward, are these big companies in

danger of overlooking the potential offered by some of the also-ran brands?

It's been almost five years since these three FMCG giants opted to manage their

brand portfolios on the basis of the power brand strategy. How have they fared?

And what does the future hold?

TOP 10 FMCG COMPANIES IN INDIA

1. Hindustan Unilever Ltd.

2. ITC (Indian Tobacco Company)

3. Nestlé India

4. GCMMF (AMUL)

5. Dabur India

6. Asian Paints (India)

7. Cadbury India

8. Britannia Industries

9. Procter & Gamble Hygiene and Health Care

10. Marico Industries

SALUTION OF FMCG COMPANIES

WHAT SHOULD THE FMCG PLAYERS DO NOW?

They should not only price their products competitively, but also offer their rural

prospects maximum value for money spent. Certainly, reaching out to 3.33 million

retail outlets is an uphill task. The only way out for Indian FMCG players: put in

place an aggressive cost structure that would enable them to offer low-price and

value-for-money products. But then, FMCG is a low-margin business with a high

cost of raw materials. Consider the case of Marico: its material cost works out to a

high of 59 per cent on sales. Therein lays the rural marketing paradox.

However, customer-centric and market-savvy FMCG companies have always

chased prospects when they perceive there is a latent demand. For instance,

Hindustan Lever's Rin, Surf and Lux are available even in India's most obscure

villages. Hindustan Lever had given shape to its rural strategy a few years ago

when it perceived that its urban market was shrinking due to an industrial

slowdown. It’s Operation Bharat that focused on personal care products made the

most out of surging rural incomes. The result was there for all to see. The company

has been able to clock in double-digit profits every three years and log in double-

digit revenues every four years. Britannia with its Tiger brand of biscuits and

Colgate-Palmolive with its low-priced and conveniently-packaged products

designed for the rural masses have been other pioneers in rural marketing.

DISTRIBUTION

One of the age-old problems that FMCG has been facing not only in India but

globally is that of distribution. Integrating operations with your distributors and

channel partners is a Herculean task. Few ways to reduce pain involved in this link:

Reducing supply chain costs by reducing intermediaries - Organized

retail chains have set up systems for inventory management and quick

servicing, thereby offering the opportunity for a company/supplier to reduce

distribution cost by reducing intermediaries such as wholesalers/distributors

and supplying directly to the warehouse of retail chain.

Increasing sales by driving channel width - The relative share of grocers

to FMCG sales has dropped from over 50% in the early 90's to 35% in the

late 90's. On the other hand the contribution of chemist outlets and paan

outlets has been increasing. This has been a result of both SKU's (sachets)

and hardware (mini dispensers) being specifically designed to facilitate entry

to these outlets and increase consumer interface.

BRAND MANAGERS TO BUSINESS MANAGERS

Tough market situations and a more aware and savvier demanding consumer have

necessitated that yesterday's Brand Managers be transformed into Business

Managers who understand consumers and can innovate and be flexible to move

with the consumer. Gone are the days when brands could be made to gallop with a

big budget media plan, a generous dose of below-the-line and above-the-line

activities and constant promotions and schemes in the market. Consumers who

have become demanding yet inscrutable in terms of attitudes, outlook, moods and

behavior have rendered conventional Brand Management tools obsolete.

REFERENCE

http://www.coolavenues.com/know/mktg/competitive-strategies-2.php

http://www.rediff.com/money/2005/nov/15spec.htm

www.hll.com

www.itc.com

www.insightory.com

www.oppapers.com

http://www.indianmba.com/Faculty_Column/FC448/fc448.html