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

INTRODUCTION
1FAST MOVING CONSUMER GOODS (FMCG)
HISTORY OF FMCG COMPANIES IN INDIA
CURENT SITUATION
OVER VIEW OF INDIAN FMCG MARKET
PROBLEM OF FMCG COMPANIS
ANALYSIS OF FMCG SECTORS
1 STRENGTHS
2 WEAKNESSES
3 OPPORTUNITIES
4 THREATS
STRUCTURAL ANALYSIS OF FMCG INDUSTRY
1DESIGN AND MANUFACTURING
2MARKETING AND DISTRIBUTION
FORCOSTING OF FMCG COMPANIES
STRATEGY OF FMCG COMPANIES
1COMPETITIVE STRATEGIES ALLOWED BY FMCG COMPANIS IN
INDIA
2POWER BRANDS THE NEW FMCG MANTRA
TOP 10 FMCG COMPANIES IN INDIA
SOLUTION OF FMCG COMPANIES
1WHAT SHOULD THE FMCG PLAYERS DO NOW
2DISTRIBUTION 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 A&P APR-SEP 3YRS

CR SPENDRSCR 2009 AGO
HINDUSTANUNILEVER 8703 1132 13.0 8.9
DABUR INDIA 1591 234 14.7 11.9
MARICO 1389 176 12.7 12.1
GLAXOSMITHKLINE 964 156 16.2 13.1
CONSUMER
COLGATE POLMOLIVE 955 141 14.7 17.5
INDIA
GODREJCONSUMER 1014 94 9.3 10.3
EMAMI 400 75 18.7 2.5
ARGO TECH FOODS 305 31 10.1 1.3
JYOTHY LABS 250 14 5.5 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 ITC is not a pure-play FMCG
the country and has one of the widest company, since cigarettes is its primary
portfolios of products sold via a strong business. It is diversifying into non-
distribution channel. It owns and tobacco. FMCG segments like foods,
markets some of the most popular personal care, paper products, hotels
brands in the country across various and agri-business to reduce its
categories, including soaps, detergents, exposure to cigarettes.
shampoos, tea and face creams.
Performance Performance
After stagnating between 1999 and ’04, Despite diversification, ITC’s reliance
the company is back on the growth on cigarettes is still huge. The tobacco
track. In the past three years, till 2008 business contributes 40% to its
HUL’s net sales have witnessed a revenues, and accounts for over 80% of
CAGR of 11%, while net profit has its profit. This cash-generating business
posted a CAGR of 17%. 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