FMCG Industry

Introduction

India is a consumer driven market, with consumer spending in the country projected to

more than double by 2025. These days, the Indian consumer segment, broadly categorized into

urban and rural markets, is attracting marketers from across the globe.

Global corporations see India as a key market for the future. The growth in the country's

consumer market is largely driven by a young demographic and rising disposable income. If

India sustains its current pace of growth for the foreseeable future, average household incomes

will likely triple over the next twenty years and the country will become the world's fifth largest

consumer economy by 2025, as per a study by the McKinsey Global Institute (MGI).

The Government of India has also played a significant role in the growth of the Indian consumer

segment. It has brought about policies which have attracted foreign direct investment (FDI) and

consequently boosted economic growth.

Market size

India has the potential to become the world's largest middle class consumer market with an

aggregated consumer spend of nearly US$ 13 trillion by 2030, as per a report by Deloitte titled

'India matters: Winning in growth markets'.

Driven by growing incomes and increasing affordability, the consumer durables market is

projected to expand at a compound annual growth rate (CAGR) of 14.8 per cent, from US$ 7.3

billion in FY12 to US$ 12.5 billion in FY15.

Online retailing, both direct and via marketplaces, will grow threefold to become a Rs 50,000

crore (US$ 8.26 billion) industry by 2016, driven by a 50-55 per cent per year growth over the

next three years, as per rating agency Crisil. The growth of internet retail is also expected to

boost offline retail stores.

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Investments

The following are some of the major investments and developments in the Indian

consumer market sector: The high penetration of internet and the growing use of smartphones

have helped top e-commerce firms leading to a rapid rise in their valuations, as per experts. This

rapid growth of internet-based companies comes at a time when Flipkart is valued at an around

US$ 4-5 billion and Justdial has market capitalisation of Rs 11,000 crore (US$ 1.81 billion).

Finland-based smartphone company, Jolla, has signed an agreement with Snapdeal.com to

launch its handsets in India. "India is the rising smartphone market of the world and we look

forward to welcoming many new Jolla fans across the country. Since late 2011 when we

established the company Jolla, we have received a tremendous amount of interest from India to

enter this great market," as per Mr Sami Pienimäki, Co-founder and CMO, Jolla.

Ethnic apparel brand Soch will soon launch its own online retail store via which it will offer

specialised services to bring in customers. "We want to bridge the gap between online and

offline. I believe it is only a matter of time before these channels merge," as per Mr Vinay

Chatlani, SEO, Soch.

Bharti Enterprises has agreed to sell a majority stake in its group company, Beetel Teletech to a

unit of US-based Brightstar Corp. The deal could allow Brightstar to test India's fast growing

mobile phones industry. "The new mobile business and related technologies that Brightstar is

bringing to Beetel will help drive significant growth by leveraging our deep distribution

strength," as per Mr Rakesh Bharti Mittal, Vice-Chairman, Bharti Enterprises.

Finnish packaging major Huhtamaki has entered into an agreement to buy Positive Packaging

which is known for producing packaging materials, for a transaction worth US$ 336 million.

"The transaction enhances our position in India and provides us with much improved access to

the fast growing markets of Africa and Middle East," as per Mr Jukka Moisio, CEO, Huhtamaki

Oyj.

Google has tied up with Indian handset-makers Karbonn, Micromax, and Spice to develop sub-

US$ 100 smartphones, some of which be in the market as early as September 2014. The initiative

could help propel the Indian brands' image globally and as well as bring in greater competition in

India's entry-level smartphone market, as per experts.

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Government Initiatives

The Government of India has allowed 100 per cent FDI in the electronics hardware-

manufacturing sector via the automatic route. The government has also allowed 51 per cent FDI

in multi-brand retail trading and 100 per cent in single-brand retail trading in an effort to bring

more foreign investment into India.

Hyderabad will soon have a Rs 100 crore (US$ 16.52 million) National Institute for Footwear

Design and Development. The Government of Andhra Pradesh has allocated the required land at

Gachibowli in Cyberabad. Funds for the centre have already been sanctioned by the Ministry of

Commerce.

With the growing demand for skilled labour among Indian industries, the Indian government

aims to train 500 million people by 2022, and is seeking participation of private players and

entrepreneurs for the purpose. Several corporate, government, and educational organizations are

putting in the effort to train, educate and generate skilled workers.

Road Ahead

India is set to become a key market for wearable technology such as smart watches and

fitness monitors, on the back of consumer interests in these latest gadgets and growing spending

on consumer durables. Respondents from India were most interested in purchasing fitness

monitors (80%), smart watches (76%) and internet-enabled eyeglasses (74%), as per Accenture's

Digital Consumer Tech Survey 2014.

American measurement company Nielsen projects that rural India's FMCG market will top the

US$ 100 billion mark by 2025. Online portals are anticipated to play a significant role for

companies trying to break into these markets. The Internet is also allowing for a cheaper and

more convenient means to increase a company's reach by overcoming geographical barriers.

Urban trends  With rise in disposable incomes, mid- and high-income consumers in urban areas have shifted their purchasing trend from essential to premium products. In response, firms have started enhancing their premium products portfolio. Indian and multinational FMCG players are leveraging India as a strategic sourcing hub for cost-competitive product development and manufacturing to cater to international markets.

 

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Top Companies  According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by MNCs, and the balance by Indian companies. Fifteen companies own these 62 brands, and 27 of these are owned by Hindustan Unilever. The Top Ten India FMCG brands are:

1. Hindustan Unilever Ltd. 2. ITC (Indian Tobacco Company) 3. Nestle 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

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Five Forces for FMCG Industry analysis:

Rivalry among Competing Firms:

In the 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.

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.

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. 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.

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.

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Hindustan Unilever Limited

Making Sustainable leaving commonplace

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of over 80 years in India and touches the lives of two out of three Indians. HUL works to create a better future every day and helps people feel good, look good and get more out of life with brands and services that are good for them and good for others. With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the Company is a part of the everyday life of millions of consumers across India. Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit.The Company has over 16,000 employees and has an annual turnover of INR 27408 crores (financial year 2013-2014). HUL is a subsidiary of Unilever, one of the world’s leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe with annual sales of €49.8 billion in 2013. Unilever has 67.25% shareholding in HUL.

Company vision

We meet every day needs for nutrition, hygiene and personal care with brands that help people feel good, look good and get more out of life.Sustainability is at the heart of our business, and through our brands, we seek to inspire people to take small everyday actions that can add up to a big difference for the world. Our deep roots in local cultures and markets around the world give us our strong relationship with consumers and are the foundation for our future growth. We will bring our wealth of knowledge and international expertise to the service of local consumers a truly multi-local multinational.

Our long-term success requires a total commitment to exceptional standards of performance and productivity, to working together effectively, and to a willingness to embrace new ideas and learn continuously. To succeed also requires, we believe, the highest standards of corporate behaviour towards everyone we work with, the communities we touch, and the environment on which we have an impact. This is our road to sustainable, profitable growth, creating long-term value for our shareholders, our people, and our business partners.

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Purpose & principles

Our corporate purpose states that to succeed requires "the highest standards of corporate behavior towards everyone we work with, the communities we touch, and the environment on which we have an impact."

Always working with integrity

Conducting our operations with integrity and with respect for the many people, organizations and environments our business touches has always been at the heart of our corporate responsibility.

Positive impact

We aim to make a positive impact in many ways: through our brands, our commercial operations and relationships, through voluntary contributions, and through the various other ways in which we engage with society.

Continuous commitment

We're also committed to continuously improving the way we manage our environmental impacts and are working towards our longer-term goal of developing a sustainable business.

Setting out our aspirations

Our corporate purpose sets out our aspirations in running our business. It's underpinned by our code of business Principles which describes the operational standards that everyone at Unilever follows, wherever they are in the world. The code also supports our approach to governance and corporate responsibility.

Working with others

We want to work with suppliers who have values similar to our own and work to the same standards we do. Our Business partner code, aligned to our own Code of business principles, comprises ten principles covering business integrity and responsibilities relating to employees, consumers and the environment.

Unilever Sustainable Living Plan

In an uncertain and volatile world, we cannot achieve our vision to double our size without also reducing our environmental footprint and increasing our positive social impact. Launched in 2010, the Unilever Sustainable Living Plan is our blueprint for sustainable growth. The Plan is helping to drive profitable growth for our brands, save costs and fuel innovation. Our Plan sets out three big goals

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Underpinning these goals are nine commitments supported by targets spanning our social, environmental and economic performance.

HUL Businesses

Home Care

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Personal Care

Foods & Beverages

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Water Purifier

HUL Group of CompaniesHUL Group CompaniesSubsidiaries Unilever India Exports Limited India

Unilever Nepal Limited NepalDaverashola Estates Private Limited IndiaPond’s Exports Limited IndiaLevers Associated Trust Limited IndiaLevindra Trust Limited IndiaHindlever Trust Limited IndiaJamnagar Properties Private Limited IndiaBrooke Bond Real Estates Private Limited IndiaLakme Lever Private Limited IndiaAquagel Chemicals Private Limited

Trust HUL Securitization of Retirement Benefit Trust

Joint Venture Kimberly Clark Lever Private Limited

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Indian Tobacco Company Limited

Creating enduring Value for India

Indian Tobacco Company (ITC) is one of India's foremost private sector companies with a market capitalisation of US $ 45 billion and a turnover of US $ 7 billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine and among India's Most Valuable Companies by Business Today. ITC ranks among India's '10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week.

Company Vision

Sustain ITC's position as one of India's most valuable corporations through world class performance, creating growing value for the Indian economy and the Company's stakeholders Core Principles.

Purpose & Principles

ITC's Corporate Governance initiative is based on two core principles. These are:

Management must have the executive freedom to drive the enterprise forward without undue restraints; and this freedom of management should be exercised within a framework of effective accountability.

ITC believes that any meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company, and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only not misused, but is used with care and responsibility to meet stakeholder aspirations and societal expectations.

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Multiple Drivers of Growth

ITC’s aspiration to create enduring value for the nation and its stakeholders is manifest in its robust portfolio of traditional and greenfield businesses encompassing Fast Moving Consumer Goods (FMCG), Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, and Information Technology. This diversified presence in the businesses of tomorrow is powered by a strategy to pursue multiple drivers of growth based on its proven competencies, enterprise strengths and strong synergies between its businesses.

The competitiveness of ITC’s diverse businesses rest on the strong foundations of institutional strengths derived from its deep consumer insights, cutting-edge Research & Development, differentiated product development capacity, brand-building capability, world-class manufacturing infrastructure, extensive rural linkages, efficient trade marketing and distribution network and dedicated human resources. ITC’s ability to leverage internal synergies residing across its diverse businesses lends a unique source of competitive advantage to its products and services.

Within a relatively short span of time, ITC has established vital brands like Aashirvaad, Sunfeast, Dark Fantasy, Delishus, Bingo!, Yippee!, Candyman, mint-o, Kitchens of India in the Branded Foods space; Essenza Di Wills, Fiama Di Wills, Vivel, Vivel Cell Renew, Engage and Superia in the Personal Care products segment; Classmate and Paperkraft in Education & Stationery products; Wills Lifestyle and John Players in the Lifestyle Apparel business; Mangaldeep in Agarbattis and Aim in the Safety Matches segment. This growth has been rated by a Nielsen Report to be the fastest among the consumer goods companies operating in India. Today ITC is the country's leading FMCG marketer, the clear market leader in the Indian Paperboard and Packaging industry, a globally acknowledged pioneer in farmer empowerment through its wide-reaching Agri Business, the second largest Hotel Chain in India and a trailblazer in 'green hoteliering'. This portfolio of rapidly growing businesses considerably enhances ITC's capacity to generate growing value for the Indian economy.

ITC's Agri-Business is one of India's largest exporters of agricultural products. The ITC Group’s contribution to foreign exchange earnings over the last ten years amounted to nearly US$ 6.0 billion, of which agri exports constituted 57%. The Company's 'e-Choupal' initiative has enabled Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy has already become the subject matter of a case study at Harvard Business School apart from receiving widespread global acclaim.

As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part." 

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Global Exemplar in Sustainability

Acknowledged as a global exemplar in sustainability, ITC is the only enterprise in the world, of comparable dimensions to be carbon-positive, water-positive, and solid waste recycling positive. A testimony to its commitment to a low carbon growth path - over 41 % of the total energy requirements of ITC is met from renewable sources. All ITC's premium luxury hotels are LEED (Leadership in Energy and Environmental Design) Platinum certified making it the "greenest luxury hotel chain" in the world. ITC's Paperboards and Paper business is an icon of environmental stewardship.

ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating.

The Company continuously endeavours to enhance its wealth generating capabilities in a globalising environment to consistently reward more than 4,71,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations.

ITC Businesses

It is ITC's strategic intent to secure long-term growth by synergising and blending the diverse pool of competencies residing in its various businesses to exploit emerging opportunities in the FMCG sector.

The Company's institutional strength deep understanding of Indian consumer, strong trademarks, deep and wide distribution network, agri-sourcing skills, packaging know-how and cuisine expertise continue to be effectively leveraged to rapidly grow the new FMCG businesses.

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ITC has rapidly scaled up presence in its newer FMCG businesses comprising Branded Packaged Foods, Lifestyle Retailing, Education and Stationery products, Personal Care products, Safety Matches and Incense Sticks (Agarbatti), at an impressive pace over the last several years, crossing Rs. 7000 crore mark in 2013. Its FMCG portfolio consists of 7 portfolios:

ITC Group of CompaniesITC Group CompaniesSubsidiaries ITC Infotech

Surya Nepal Private LimitedLandbase India LimitedKing Maker Marketing Inc. USATechnico Pty Limited. AustraliaRussell Credit LimitedWimco LimitedSrinivasa Resort LimitedFortune Park Hotels LimitedBay Islands Hotels LimitedGold Flake Corporation Limited

Joint Venture Maharaja Heritage Resorts LtdITC Essentra Limited

Associate Companies Gujarat Hotels LimitedInternational Travel House

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Research Methodology

The objective of the project is to investigate the current strategy employed by HUL and ITC and why it works for them. Fundamentally HUL and ITC are different business models as HUL is a pure play FMCG Company whereas ITC is a conglomerate where FMCG happens to be one small portion of the entire business.

Research comprises defining the problem statement, formulating hypothesis, probable solutions, collecting, organizing and evaluating solutions and assessing the impact of the solutions proposed.

Research Problem

HUL and ITC are two major players in FMCG industry. HUL happens to be a pure play FMCG whereas ITC is a conglomerate. The objective of this report is to analyze and compare the overall performance of these two companies. This performance comparison further boils down to analyze their financial performance, market performance and supply chain performance. These three sub angles together will fulfill and make the research comprehensive enough.

Sources of Data

As highlighted above most of the analysis would primarily be based on data points or facts gathered through secondary research. The approach for each of the sub analysis is as follows:

1. Financial performance – Since both the company happens to be a public listed company, we have good set of information available through some of the major financial websites. The challenge is more in terms of refining the data and brining them on the same ground for comparison. Also since they are public listed company there websites have their past annual reports which can be mined to get first hand information about the company financials.

2. Strategy performance – This analysis is more has to do with overall strategy analysis which calls for a analyzing the company vision analysis, growth mindset, and overall Risk which these companies have complied with to support their respective business models. Again this analysis is primarily on secondary research which involves their official websites, news websites, financial databases and discussion forums. I have also gone ahead and contacted few officials from these two companies to get first hand perception about the company as such.

3. Market performance – The set of analysis was more to understand the positioning of these two players in the market. Also how does consumer related to HUL and ITC Company as a whole. This indirectly determines the lingering psyche of consumers about each of the products of these companies. The main source of information for this taken through secondary research which was done across set of 35 consumers picked up in general.

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4. Supply chain performance – This was again primarily on the basis of secondary research performed to understand the supply chain configuration of each of these companies and how do they differ from each other.

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Financial Performance Analysis Latest Shareholding Pattern

Hindustan Unilever Limited

Others (14.5)Promoter (42.25)Flls (14.10)Dlls (4.12)

ITC Limited

Others (45.8)Promoter (0)Flls (19.26)Dlls (34..67)

Stock Comparison

CompanyCurrent Price BSE

MarketCapilization

FaceValue EPS (TTM) P/E No of shares

ITC 355.85 283079.26 Rs. 1 Rs. 9.31 38.22 7955016340

HUL 757 163747.26 Rs. 1 Rs. 17.56 43.11 2163107800

Ratio Analysis

Company (in Rs Cr) ITC Limited Hindustan Unilever LimitedParticulars FY 2014 FY 2014Operating Profit Margin Ratio 36.96 16.22Net Profit Margin Ratio 25.46 13.53ROCE 47.43 132.89ROE / RONW 32.64 111.54Price to Earnings 31.06 31.85

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Key Financial Figures

Company (in Rs Cr) ITC LimitedHindustan Unilever Ltd

Particulars FY 2014 FY 2014Total Income from Operations 35,317.08 29,233.28Expenses 22,265.19 24,491.60

Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)

13,051.89 4,741.68

Depreciation 964.92 295.54Finance Costs 6.37 40.68Other income 970.95 570.98PBT 13,051.55 5,215.18Tax 4,060.93 1,259.44PAT (before Minority Interest and share of Associates)

8,990.62 3,955.74

Profit/ (loss) attributable to Minority Interest

109.81 10.17

Share of profit / (loss) of Associates -10.57

Consolidated Profit / (Loss) for the year 8,891.38 3,945.57

Key Balance Sheet Figures

Company (in Rs Cr) ITC LimitedHindustan Unilever Limited

Particulars FY 2014 FY 2014Share Capital 795.32 216.27Reserves & Surplus 26,441.64 3,321.02Net worth (shareholders funds) 27,236.96 3,537.29Minority Interest 203.03 22.28Long term borrowings 76.4 8.44

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Financial Ratio Comparison

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Overall Strategy Comparison

Category HUL ITCOverview Hindustan Unilever (HUL) is the

largest pure-play 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.

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 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 profit has posted a CAGR of 17%.

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 business has enabled it to take ambitious, but expensive bets in new segments and deliver modest profit growth.

Overall Strategy

HUL always believes in customer friendly products with major emphasis on low cost overall without compromising on the quality of the product. They are leveraging the capabilities and scale of the parent company and focusing on the value of execution. The entire product product portfolio is also being tweaked to include premium offerings such as Pond’s Age Miracle and dove shampoo in skin and hair care.

ITC is focusing on delivering value at competitive prices. Its tremendous reach through extensive distribution chain has been a competitive advantage. Additionally, the company’s e-choupal model for direct procurement is well known under which ITC partners with over 100,000 farmers for spices and wheat procurement and an even larger number for oilseeds. This kind of rural pedigree is hard to beat.

Growth Drivers The Company has been launching new products and brand extensions, with investments being made towards brand-building and increasing its market share. HUL is also streamlining its various business operations, in line with the ‘One Unilever’ philosophy adopted by the Unilever group worldwide. Introduction of premium products

ITC’s backward integration to ensure that its products pass efficiently from the farms to consumers has helped it to cut down supply and procurement costs. ITC’s non-cigarette FMCG business leverages the large distribution network the company has developed by selling cigarettes over the years. A rich product mix, along with ramp-up of investments in its

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and addition of new consumers via market expansion will be HUL’s growth drivers.

new sectors, will be instrumental in charting ITC’s growth path.

Risk 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 company’s 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.

Increased regulatory clamps on tobacco, along with rising tax burden. 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 ITC’s key challenges. Export ban rising crop prices pose a threat for its agri-business, taxing its margins.

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Supply Chain performance Analysis

Supply chain management plays a crucial role in building the competitive strategy of the organization. It helps in enhancing the productivity and profitability of the organization. For a successful supply chain management it is necessary that every organization measures its supply chain performance using relevant metrics. The supply chain performance of any company can be measured by analyzing the financial reports of the company. The performance measures used for this purpose are as follows.

Financial Ratios

Total Length of the Chain

HINDUSTAN UNILEVER LIMITED (HUL)

HUL formerly known as Hindustan Lever Limited (HLL) is India’s largest FMCG Company. HUL’s distribution network is its key strength that has helped HUL reaches the top in the list. Their focus is on ease of product availability, brand communication and high levels of brand experience.HUL has a network of about 7000 redistribution stockiest covering almost one million retail outlets.

They are simultaneously creating new channels like Project Shakti:- HUL’s partnership with self help rural women, Hindustan Unilever Network:- direct selling channel, Out of Home:- providing vending machines for hot beverages and Health and Beauty Services:- Lakme salons and Ayush Therapy Centers.

As per the Annual report of 2008-2009 of HUL, India the company had done fairly good in its supply chain efficacy. Excellent customer service performance was achieved at a significantly lower cost through operational efficiencies and cost reduction measures. Eliminating waste and hidden costs of various operations helped business in tackling inflationary pressures. Significant reduction in procurement costs helped in leveraging the benefits of scale in the buying function. Appropriate capital expenditure investments created capacity for future growth and proper management of existing assets in accordance with the principle of TPM- Total Productive Maintenance resulted in greater asset productivity.

Towards the end of 2008 the company took measures to improve its rural distribution system. Changing scenario of rural customer demand and improved infrastructure enables the company to offer new categories and product assortments in rural market.

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Deployment of advanced IT solutions on the back of a strong suite of SAP application systems led to significant improvements in planning and logistics.[2] In the changing face of modern retail trade formats, the Company has committed resources to understand the changing shopping habits and to deliver appropriate solutions to grow the business across categories. Many initiatives were undertaken in customer service, category management and merchandising to win at the point-of-purchase with shoppers and deliver highest quality service to Modern customers.

INDIAN TOBACCO COMPANY (ITC)

One of the toughest competitors for any other FMCG organization in India is Imperial Tobacco Company (ITC). It has diverse categories of different products. The warehousing capacity of ITC is more than 3.5 million Sqft over 55 locations. ITC follows direct distribution from factories to distributors.

The distribution Network of ITC is given below:-

According to the Annual Report of ITC, the company has made significant investments to scale up its trade marketing and distribution. Excellence in channel management, state-of-the-art technology solutions and considerable investments in training and development of the sales team has enhanced its competitive abilities.

The biscuit business (Sunfeast) focused on supply chain efficiencies to increase the product freshness and improve logistic costs. Till requisite scale is achieved, the business will have to bear a high cost base in the interim, as the benefits of distributed manufacture to service proximal markets are yet to be fully exploited.

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To develop quality differentiation across the value chain, they have developed farm-to-factory spices supply chain that guarantee superior specifications and quality attributes. Some impairment occurred in cigarette production in the Simra factory of the Terrain region owing to frequent strikes and blockades. But it was minimized by the company’s pro-active resource and supply chain management. In the Agro-forestry mission of the company they have created a source of long term sustainable supply of critical raw materials. In the paper and paperboard business, the conventional nursery system was replaced by a novel technology that ensures significant time reduction in raising eucalyptus saplings with improves survival rates. This has positively impacted the fibre supply chain in the paper and paperboard business.

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Inventory turnover ratio:

The inventory ratio measures how fast the inventory is moving through the firm and

generating sales.

Inventory turnover ratio = Cost of goods sold/ Average inventory

Year ITC HUL

2011 3.76 8.29

2012 5.51 7.20

2013 5.26 9.26

The company having higher inventory turnover ratio indicates it has a better inventory

management system. But sometime a higher inventory ratio can be caused by a low level of

inventory which means frequent stock outs and loss of sales. HUL has recorded an increase in

sales by 15.5% and also its operating margin increased by 0.5%. This indicates the above counter

argument is not applicable for HUL .

Innovative supply chain and channel management practice by HUL has led to lower operating

cost increasing operating profit from 2964.94 crore rupees to 4076.43 crore rupees in 2009. HUL

was successful in decreasing its transportation and distribution cost and meeting the customers

demand.HUL also received the 2008-Express logistics & Supply chain Award in the category

FMCG Manufacturing Supply Chain Excellence.

ITC has the lowest average inventory turnover ratio among the three companies .But is seems

that ITC has a very well maintained distribution system. The Company size is very high with a

very long product line. The lower inventory turnover ratio can also be caused by ITD (Indian

tobacco department) strategically holding its inventory and creating artificial shortage in the

market. Its operating profit has increased from 4449.5 crore rupees to 4944.95 crore rupees this

year.

Fixed asset turnover/Activity ratio:

This ratio measures the sales per rupee of investment in fixed asset

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Fixed asset turnover ratio = Net sales/Average net fixed assets

Year ITC HUL

2011 2.42 9.30

2012 1.59 9.80

2013 1.84 7.81

A companies having a high activity ratio has a high efficiency .HUL has a high fixed asset

turnover ratio because of its highly managed raw material procurement system which implies its

fixed asset utilization is effective. The fixed asset ratio for ITC is significantly low. This can

occur when there are bottlenecks in the company’s raw material procurement chain .But there are

no direct data available to support this argument. Another reason for HUL’s high fixed asset

turnover ratio can be the companies fixed assets are old and are highly depreciated.

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Profitability ratio:

The profit margin ratio helps in finding the relationship between sales and profit. It shows the margin left over after meeting all the expenses and manufacturing cost.

Gross Profit margin (in%) = Gross profit/Net sales

Year ITC HUL

2011 30.03 27.96

2012 28.44 25.86

2013 29.18 24.96

Net profit margin (in%) = Profit after Tax/Net sales

Year ITC HUL

2011 21.46 16.21

2012 21.50 19.89

2013 21.18 22.03

The one reason for lower gross profit for all the companies for last two years can be the

Inflationary trend experienced in the market. The cost of raw material procurement was high

during the period. But HUL’s increasing net profit can cause from the cutting down of operating

cost.

Return on Asset (ROA) = Profit after tax/Average total assets

Year ITC HUL

2011 0.27 0.72

2012 0.27 0.81

2013 0.25 1.24

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Total length of supply chain (in days)

Inventory days of supply = 365/Inventory turnover ratio

Year ITC HUL

2011 69.39 39.41

2012 66.24 50.69

2013 97.07 44.30

The total length of supply chain is arrived by calculating the days of total inventory for supply.

Here again we can see that ITC has the maximum length of supply chain among the two

companies .The one cause can be ITC artificially holding the inventory. Lower the length of

supply chain more effective is the companies supply chain performance.

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Growth Strategy Of HUL vs ITC

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.

Competitive strategies employed by HUL and ITC

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. Now let us take a comparative analysis of both the companies under some heads:

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 profit has posted a CAGR of 17%. 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 business has enabled it to take ambitious, but expensive bets in new segments and deliver modest profit growth.

Overall Strategy

HUL always believes in customer friendly products with major emphasis on low cost overall without compromising on the quality of the product. They are leveraging the capabilities and scale of the parent company and focusing on the value of execution. The entire product portfolio is also being tweaked to include premium offerings such as Pond's Age Miracle and dove shampoo in skin and hair care. HUL introduced Project Shakti to penetrate the rural market. ITC is focusing on delivering value at competitive prices. Its tremendous reach through extensive distribution chain has been a competitive advantage. Additionally, the company's e-choupal model for direct. Procurement is well known under which ITC partners with over 100,000

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farmers for spices and wheat procurement and an even larger number for oilseeds. This kind of rural pedigree is hard to beat.

Growth Drivers

HUL has been launching new products and brand extensions, with investments being made towards brand-building and increasing its market share. HUL is also streamlining its various business operations, in line with the ‘One Unilever' philosophy adopted by the Unilever group worldwide. Introduction of premium products and addition of new consumers via market expansion will be HUL's growth drivers. ITC's backward integration to ensure that its products pass efficiently from the farms to consumers has helped it to cut down supply and procurement costs. ITC's non-cigarette FMCG business leverages the large distribution network the company has developed by selling cigarettes over the years. A rich product mix, along with ramp-up of investments in its new sectors, will be instrumental in charting ITC's growth path.

Strategic Growth summary of HUL

HUL prioritized opportunities which build upon the existing assets and capabilities. It avoided spreading their management thinly. For example: HUL first made its sales and distribution channel & supply chain management in manufacturing and selling wheat flour and utilized it into the selling breads produced by wheat flour.

HUL is more focused on the innovations Example: In 1995 launched KISSAN ANNAPURNA staple foods with the message “staple food including iodized salt”

Serving Rural population: In 2000 the 32% of the sales were from rural sector but in 2010 it is more than 50%.

It follows direct communication from the customers.

It believes in expanding the portfolio.

Each category has a different set of supply chain, production and consumer decision making process issuing associated with it.

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Primary research – Sample Input format

The questionnaire used for collecting information is as follows:

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Data Analysis & Findings

1) According to our survey of 20 customers we found out that HUL is the most company heard of among all others (i.e. 26%)

26%

19%22%

23%

10%

Company Heard of

HUL Dadur ITC P&G Nestle

2) According to our survey of 20 customers these are the 3 following products:-

Three Popular products of HUL

1) Fair and Lovely2) Pepsodent3) Surf Excel

Three Popular products of ITC

1) Bingo2) Vivel3) Dark Fantasy Choco Biscuits

Three Popular products of P&G

1) Olay2) Tide3) Head & Shoulder

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3) One advertisement of each of the companies is as follows:-

Pepsodent25%

Fair & Lovely55%

Lakme10%

Others10%

Ads Heard of

Classmate47%

Bingo33%

Dark Fantasy13%

Others7%

Ads heard of

4) Which of the following sentence is correct:-

1) HUL makes Water Purifiers 2) ITC deals in baby napkins3) None of these any company has any dealing with Tobacco business

According to our survey of 20 customers

People said the 1st statement is correct (i.e., HUL makes Water Purifiers)

5) According to our survey of 20 customers these are the Information:-

Top 5 Favorite Brands

1) Dove2) Wheel 3) Pepseodent4) Lux 5) Fair & Lovely 

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6) According to the survey 43% of the people would like to invest in HUL. While others are quite behind HUL in terms of investment preference. ITC has 20% of investment preference. While Dabur has 19% of Investment preference.

HUL ITC P&G L'Oreal Dabur

Investment PrefrenceInvestment PreferenceColumn2

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Recommendations

Hindustan Unilever Limited

Overall HUL's strategy on focusing on mass category with well thought out brands seems to be working at present. While this is a good strategy for a sustainable business, it needs to get its grip better and firm in premium zed segment as that would help this company to improve its cash flow also deal better with competition.

Recommended Actions

1. Grow portfolio in premium zed product category to improve gross profit margin at company level

2. Improve footprint in Foods and Beverages category as current marketing campaigns does not seem to be working good enough

ITC Limited

ITC has a huge reliance on Tobacco business which makes it susceptible to any future health related regulations which if came in effect might prove to be a big hindrance on the sustainability of the company. Hence emphasis should be on reducing dependency on Tobacco business and growing other businesses.

Recommended Actions

1. Reduce dependency on Tobacco business by growing other non-tobacco businesses2. Marketing campaign needs to be brought on par with other FMCG companies3. Supply chain efficiency needs to be improved so as to free up capital from inventory and

invest it in marketing and advertising campaign

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Appendix

http://www.hul.co.in/

http://www.itcportal.com/

http://www.hul.co.in/mediacentre/newsandfeatures/2014/HUL-recognised-at-Asia-Marketing-Effectiveness-and-Strategy-Awards-and-Goafest.aspx

http://www.sanasecurities.com/compare-financial-analysis/itc-vs-hindustan-unilever

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