Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

Introduction:
This essay would study the effectiveness of the merger between Proctor and Gamble and
Unilever and its effects on the Indian market. Thus merger between the two giant market leaders
in the world is seemingly seen as a strategy to hold a long lasting market share although it
involves giving up the short term benefits. Mergers are thus used as a technique to expand and to
capture new and upcoming markets. This kind of inorganic growth would lead to lower unit cost
of production over a period of time in turn leading to the firms benefitting from economies of
scale. Thus P&G and Unilever should consider merging as a powerful technique for their long
term survival and diversification in the later stages especially in the developing countries like
India.
Background:
Proctor and Gamble, one of the largest fast moving consumer goods manufacturing company
was founded in 1837 with its head-quarters in Ohio, Cincinnati by William Proctor and James
Gamble1. It has nearly 300 brands included in the business segments of beauty and grooming,
health care, household care, snacks and pet care and baby care operating in 180 countries
currently and it is the second largest fast moving consumer goods (FMCG) company in India. It
has been successful in building leading brands like Pampers, Tide, Ariel, Olay, Pantene, Bounty
and in registering for strong and rapid business growth. Increased investment in research and
development lead to high development of markets share recently in North America (net sale
contribution of 41%) and developing countries like India, China (net sale contribution of 32%)
and western Europe with contribution of 21%2. Building a best in class organization with
sustained marketing efforts to defend market share makes P&G a successful corporate citizen
with a turnover of $1 billion in India and with a consistent growth of 20% year after year in the
Indian market.3
Unilever is a British-Dutch Multinational Corporation known for its consumer product brands
founded in 1930 with its head-quarters in Unilever House, London, United Kingdom and
Rotterdam, Netherlands. Hindustan Unilever was formed in 1933 although it came into being in
1956 with the merger of Unilever brothers. The dual listed companys product portfolio ranges
from food, beverages, cleaning and personal care products with its headquarters in Mumbai,
1

http://en.wikipedia.org/wiki/Procter_%26_Gamble

http://www.trefis.com/company?hm=PG.trefis&from=widget%3Aslideshow&ovd_urlid=526771#

http://articles.economictimes.indiatimes.com/2011-06-29/news/29717263_1_p-g-home-products-p-g-s-indialargest-consumer-products

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

India. It owns more than 400 brands out of which 13 brands are known as billion dollar brands
which earn around 1 billion with its major share from India for it being the largest FMCG
Company accounting for 80% of retailing outlets in the Indian market and the other top 25
brands accounting for a major proportion of sales around 65%. Its leading brands in India include
Lux, Rexona, Dove, Knorr, Lipton, Sunsilk, Brooke-bond, Lakme, Axe, Vim, Wheel, Pears,
Kissan, Ponds, Lifebuoy, Hamam and Pepsodent. Around 50% of Unilevers belong to
agriculture thus having a major stake of 52% in India. Hindustan Unilever also has effective
supply chain to reach a large group of consumers by catering the changing needs and preferences
of consumers from time to time in the Indian scenario in turn capturing major market even today.
Problem Background:
P&G was lining up for a $62 billion bid for Unilever as given in the Daily Mail story. With
mergers and acquisitions becoming popular, it seen to have a large scope for great success as the
two firms are one of the largest leading consumer product producing companies with large
market shares and them being each other competitors for market leadership globally. The idea of
centralized decision making of P&G and the idea of involving local management of Unilever
would lean to an integrated approach for appropriate human resource management.
A combined entity would result in the companies reaching their long standing goal of having the
highest market share where India would play a significant role due to the key availability raw
materials and highly skilled and unskilled labor thus giving it a competitive advantage. They
would be achieving their goal by making one-third of the total market in some of the product
segments like that of personal care and household care especially India due to its large customer
base. Such a merger would benefit both the companies from the merit of synergy as they would
pool in their resources to develop new technologies, distribution channels human resources in
India. This would also lead to cost reductions due to the benefits from economies of scale which
can be passed on to the consumers in the form of price cuts thus trying to create a monopoly in
the market creating threat to the other competitors in the industry like that of Dabur India,
Colgate-Palmolive, Amul, ITC (Indian Tobacco Company), Nestle India, Cadbury India and
Marico industries.
Amalgamation would further strengthen the position of the two businesses by laying a strong
foundation to face the competitive global market and also as a speedy technique to diversify the
product mix in a developing country like India.

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

Case definition:
P&G and Unilever, the two consumer goods producers merging is seen a giant leap in the world
market. This seems to be a great prospectus for the large producers to compete with LOreal,
Johnson & Johnson, Kimberly Clark, Colgate Palmolive, Reckitt Benckiser (RB) and Marico in a
global level by optimum utilization of resources in India and also becoming the largest holding
market share companies in FMCG sector. This essay would thus study the market conditions of
India due to the merger between the two FMCG giants.
How will the merger between Unilever and Proctor & Gamble affect the Indian Market?
Significance of the research:
Due to the increasing Indian population especially the middle class and rural consumers being
the targeted group of consumers makes the situation favorable for Hindustan Unilever and P&G
India being the largest FMCG rivals to completely capture the markets. Research also shows that
the that there with increase in the income of consumers at urban and rural level along with
increased awareness and reduced income savings, the combined entity is expected to capture this
potential market in turn helping them reach their goal.
Indian market also creates new opportunities to innovate and venture in thus market due to
rapidly increasing literacy rate and disposable income. The changing needs and preferences of
the customers can be very well catered by the new entity due to pooling of resources by both the
firms.
This research would lead to better understanding of the condition of the rivals survival in the
near future along with analysis of the consumers and the suppliers bargaining power. The
creation of one large entity increases the probability of having a monopoly in the consumer
goods segment thus affecting various stakeholders which might lead to price setting by the single
market leaders bringing about a drastic change in the present scenario in the Indian market.
Objectives:
1. Analyze the situation of P&G and Unilever before the merger
2. Evaluating the situation of P&G and Unilever after the merger
3. The implication of the merger on various stakeholders and departments in the combined
entity in India.
4. The effect of this merger in the Indian market
5. Recommendations for the betterment of the combined entity

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

Syllabus area covered:

SWOT Analysis
Pest Analysis
Five force Analysis
Ansoff matrix

Methodology:
Primary research:

This was conducted by the distribution of questionnaires to various consumers in order to

evaluate as to the number of consumers using different products of Proctor and Gamble
as well as that of Hindustan Unilever.
The interviews conducted

Secondary research: The secondary research consists of articles from magazines and other
information from that of various websites.

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

Findings:
Effect of the merger on producers in the supermarkets:

Figure 1: Percentages of brands in More Supermarket

23%

Hindustan
Unilever
46%

Proctor and
Gamble
Other Brands
Slice 4

31%

It is seen that in all the stores the market share is the maximum when compared to the other
brands. More supermarket having 130 brands in total has 46.15% of Hindustan Unilever brands
and 30.77% of P&G brands thus comprising of more than 50% of brands in the store4. It was also
predicted that the merger might lead to the increase in prices of the products for they hold the
major market share. It was also said that the sales mostly would not be affected for the customers
would not shift to the other brands due to the goodwill of these giants.

Figure 2: Percentages of brands in Sadhna General Stores

Hindustan Unilever

46.67%

33.33%

Proctor & Gamble

Other Bramds

20%
4th Qtr

Refer to Appendix1

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

From the figure 2, HUL and P&G makes up almost 66% of the stock in Sadhna stores which
mostly caters to the lower middle income group of customers. According to the owner, the
consumers income seems to be increasing due to which he says that he is gradually changing the
pattern of the goods for the better ones. He also predicted that in case of increase in prices due to
the merger, the competitors like Colgate Palmolive and Nestle would give a tough competition
due to which he would increase the number of brands of the competitors instead of HUL or
P&G5.

Figure 3: Percentages of brands in Spencers Supermarket

35.71%
41.62%

Hindustan Unilever
Proctor & Gamble
Other Brands
Slice 4

16.67%

Spencers supermarket has around 420 brands where HUL accounts for 150 brands and 70 is
accounted by P&G. The rest 200 brands comprise of other brands of which around 50% to 60%
include products of Spencers itself which seems to cater to local tastes of consumers. In spite of
the availability of brands from Spencer itself, HUL and P&G together make up major chunk of
brands available in the store due to which the salesperson is of a view that merger would lead to
price war where HUL and P&G can easily undercut the price and still be the market leaders thus
least effecting the sales of the supermarket6.

5
6

Refer to Appendix2
Refer to Appendix3

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

Figure 4: Percentages of brands in Reliance Supermarket

17.54%

50.88%

Hindustan
Unilever
Proctor &
Gamble
Other Brands
Slice 4

31.58%

The sales manager of Reliance Supermarket strategy was to have half the total brands comprising
of HULs brands. This he said may not due to the merger as he believes that the merger would
lead drastic fall in the prices of the products belonging to these firms trying to create a monopoly
in the market trying to set the prices. His views also forecasted the future sales of the
supermarket where in he said that there would be an increase in sales of 10% to 15% due to the
monopoly and in turn leading to change in his stocking pattern.

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

Figure 1: Sales turnover of Proctor & Gamble and

Unilever (in $ billion)
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0

81,748

79,029 78,920

74,832
55,292

66,724

54,843

56,557

58,697 60,808

63,148
58,401

Proctor and
Gamble
Unilever

2005 2006 2007 2008 2009 2010

It is seen that P&Gs revenue has been increasing over the period of five years with an annual
average revenue growth rate of 8.2%. In the year 2008, the revenue was at its maximum with
$81.748 billion with the boom in the economy. Later it is observed that there is decrease in the
revenue earned in the year 2009 due to the economic difficulties and divestitures. In the year
2010 the company seems to do better with recovery from the economic recession. There is a 13%
growth in total earnings of the company although there is 1% decrease in the revenue of the
previous year 2009.
The graph shows that Unilever was at competition with P&G in the year 2005 but later there is
rapid growth in sales revenue of P&G unlike Unilever with a gradual growth in the revenue over
a period of time. Unilevers performance for the year 2010 was exceptionally good as it earned
$63,148 billion with an annual revenue growth rate of 5.2%. It is estimated that there would be
8% increase in the revenue in the coming years due to the recovery in the economic downturn.
P&G and Unilever would thus be able to drive volume growth with the merger in the near future
and also see steady and sustainable growth rate.

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

Figure 3: Net Earnings of Proctor & Gamble and

Unilever (in $ billion)
14,000

13,436
12,075

12,000
10,340

10,000
8,000
6,000

12,736

Proctor and
Gamble

8,684
7,563

6,923

6,564
5,847

4,705

5,277

Unilever

5,280

4,000
2,000
0
2005 2006 2007 2008 2009 2010

Net earnings of P&G are twice the earnings of Unilever approximately. It is also seen that there
was 11% growth rate from the year 2008 to year 2009 although it restored back to its previous
position. The expenses were well managed due to which there are good net earnings in the
company. Taking Unilever into consideration, the net earnings have been gradually increasing
with a peak in the year 2008 with maximum dividend pay and retained profit for the expansion
plans. It is also estimated that future of Unilever would be appropriately good with its merger
with P&G and favorable economic conditions.

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

Methodology:

SWOT Analysis:

SWOT Analysis of P&G in the Indian market:

Strengths
Economies of scale and economies of
scope creating effective community
partnerships.
Excellent brand management and is a well
-recognized brand.
Good promotion of planning process
making it a good work place.
Committed management with constant
focus for creating innovative products.
Caters the major market segments
Employee network and development
systems known for staff recruitment and
retention of talent.
Best supply chains with skilled human
resources.

Weaknesses
Deals with mature market segments
making it difficult to increase the life cycle
for a product.
Maintenance of large customer
concentrations and market segmentation
is difficult
Contributes to the increased
concentrations of green -house gases7.

Opportunities
Reach the rural areas thus creating
potential developments for domestic
retailers.
Meet the environmental requirements and
increase its sales.
Venturing out to newer product lines with
advancements in IT sector.

Threats
Increase in the prices energy and raw
material thus leading to price competition
among the large competitors.
Change in the taste of consumers can
affect the demand.
Internal competition between the
products of the same firm.

http://info.umuc.edu/mba/ep/Presentation/EP_Olp/data/GSA.pdf

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

SWOT Analysis of Unilever in India:

Strengths
Good brand recognition and brand value.
Reduced the average costs of production.
Largest market share and a very strong
portfolio with best distribution networks.
Optimum utilization of resources which
are abundant in supply
Highly skilled human resources.

Weaknesses
Intense competition making it difficult to
maintain the market share.
Spends huge amounts in the form of
advertising expenditures.
Changing consumption patterns in various
market segments.

Opportunities
Large domestic market with untapped
rural market.
Changing lifestyles leads to product
innovation.
Diversify in food sector industry which
remains largely untapped.

Threats
Increasing costs of raw materials leads to
competitive prices.
Entry of ITC is a great threat to the
company to due to its large scale
operations.
Tax and regulatory structure is strict.

The merged entity would thus benefit from various capabilities of these market giants and thus
create synergy through capitalization of their strengths. The large scale operations of the firms
play a major role in leading to purchasing, technical, managerial, marketing and financial
economies of scale. India being the one of the emerging world markets with potential growth and
excellent factors of production also leads to a favorable market conditions for the merger.
Opportunities in the Indian market being unused seems to a great merit as this would lead to first
movers advantage especially in food sector and diversification in the present sectors with better
marketing techniques and product development strategies.
Due to this strong market standing the entity would easily overcome its weaknesses and threats
in the present market also helping it to assess the future stance of the business required to
maintain the success and the growth rate.
PEST analysis for FMCG industry in India:

Political:
1. Government reduced excise duties and import rates substantially.

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

2. Food industry has large scope for growth as automatic foreign investment is
allowed up to 100 foreign equity.
3. There is allowance for the usage of foreign brand names.
4. Advancement in transportation and infrastructure is leading to better development
in distribution networks8.
Economic:
1. There is increase in the personal disposable income leading to increased demand
for the products.
2. There was growth of about 12% in the FMCG sector in the year 2009 eventually
followed by the year 2010 with growth rate of 15% due to increase in the world
prices.
3. The Indian income which is spent on household and personal care products is
nearly 2/3rd of their income.
4. The Indian FMCG market is the fourth largest market in this sector with market
size of US$13.1 billion.
Social:
1. There is increased spending by Indian customers for daily household thus
increasing the sales in the FMCG sector.
2. Increased nuclear family is another factor leading to increased growth rate in the
market every consecutive year.
3. Increased awareness in health and hygiene is boosting the sales in personal care
industry where 71% of Indians are going for products which are nutritional9.
4. There are greater number of customers going for quality product which are
premium products thus leading to greater production and sale of premium priced
products.
Technological:
1. Imports from foreign markets for better equipment are leading to higher and
efficient productivity.
2. Development in infrastructural facilities is helping the industry to produce better
and innovative products.

The analysis of the possible effects on the merger issue in terms of political, economic, social
and technological seems to be favorable due to the less stringent government rules and
regulations. The economic and political reforms play an important role for the flexibility of the
operations in the combined entity. The rise in consumers disposable income has a major role to
play for they might still cling to the products produced by the two market leaders due to their
brand image and reputation.

8
9

http://www.scribd.com/doc/53441243/Hul-final-Integrated-Ppt
http://www.scribd.com/doc/53441243/Hul-final-Integrated-Ppt

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde

The technology does not seem to be much of an issue as there is rapid development in the Indian
market in case of infrastructure and advancement in equipment.
The overall market situation will mostly have positive effects on the combined entity.
Five Forces Analysis:

10

Threat of new entrants:

The new entity would have large control over the entry of new firms as these market
leaders have already penetrated into the market with major chunk of market share. They
also benefit from the advantage of product differentiation and they making products
available to people at low prices than the newly established firms as the situation might
be monopolistic. Ruchi Soya Industries11 with closely matching turnover of HUL might
enter the Indian market with brands like Ruchi Gold, Nutrela and Mahakosh. It is also
planning to produce commodities relating to pulses, rice and soap Ruchi No1 which
will soon join Indian FMCG although it would not pose a great threat due to lack of
experience and specialization.
Threat of Substitutes:

10

http://www.google.co.in/imgres?q=porters+five+forces+ppt&um=1&hl=en&sa=N&tbm=isch&tbnid=SzCppDf8MNalM:&imgrefurl=http://www.planware.org/salebi.htm&docid=Fn8yka6hqhchWM&w=443&h=306&ei
=2uxKToGDBfDJmAX5_MTkBw&zoom=1&iact=hc&vpx=435&vpy=305&dur=8269&hovh=186&hovw=270&tx=137&
ty=116&page=1&tbnh=150&tbnw=217&start=0&ndsp=15&ved=1t:429,r:6,s:0&biw=1366&bih=667
11

http://articles.timesofindia.indiatimes.com/2011-07-11/india-business/29760949_1_breed-of-fmcg-companiesruchi-no1-soap-brand

Candidate session number: 003528-004

Candidate number: DKG 261

12

Pooja Walde

The never ending needs and changing consumer preferences lead to high consumer
expectations in turn leading to the risk of consumers switching from one brand to
another. As the major market share is held by these firms, the risk of consumers
switching brands is very less due to the costs involved and also due to the recognized
brand value of these existing firms. But it is also seen that the availability of large
number of brands within one roof itself might lead to internal competition within the
products of the entity.
Bargaining power of suppliers:
The raw materials mostly being homogenous reduces the costs to the new entity along
with better benefits of large number of substitute suppliers at competitive prices in order
to supply necessary materials to consumer goods firms. The suppliers of HUL like
Hindustan Unilever network, Geo Transport, Rohan Builders (India) Pvt.Ltd and
suppliers of P&G India like Three Ace Overseas, Oat Systems Ltd, VIN Wong Trading
Co Pte Ltd and Shan Traders are some of the major suppliers of these companies which
may later together be able to acquire better facilities from them12.
Bargaining power of consumers:
As the products are competitively priced in the industry, the costs of switching from one
brand to another would be quite low thus increasing the bargaining power of consumers.
However, most of the substitutes are manufactured by these firms due to which the
consumers switching brands belonging to the firm have decreased bargaining power
comparatively.

http://www.alibaba.com/countrysearch/IN/p%2526g.html

Candidate session number: 003528-004

Candidate number: DKG 261

Pooja Walde