Log Process 1 Brand Wills Lifestyle (ITC) Industry FMCG, Personal Care

-By, FMG-1, Group 5: Jigyasa Gauba Gargi Gupta Jaspreet Kaur Sourabh Das

TABLE OF CONTENTS

1. Overview of ITC 2. Overview of the FMCG sector 3. Growth history 4. Personal care sector 5. Supply and demand scenario 6. Export and import overview 7. Factors effecting cost 8. SWOT analysis of the FMCG sector 9. Recent trends in the industry Technology Price Product differentiation 10. Trends and problem faced by the industry in the near future

Overview of the company:

ITC is one of India's foremost private sectors. Market capitalization of nearly US $ 19 billion and a turnover of over US $ 5.1 Billion. Rated among the World's Best Big Companies, Asia's 'Fab 50. ITC ranks among India's `10 Most Valuable (Company) .

ITC India Limited Type Founded Public (BSE:ITC) 24 August 1910, Radha Bazar Lane, Kolkata, India Headquart Kolkata, India ers Key people Yogesh Chander Deveshwar, Chairman, K. Vaidyanath, Director, Partho Chatterjee, CFO Industry Tobacco, foods, hotels, stationery, greeting cards ,Products Cigarettes, packaged food, hotels, apparel $4.75 billion USD (2006) www.itcportal.com

Revenue Website

Employees 21,000 (2007)

In line with ITC's aspiration to be India's premier FMCG company, recognised for its world-class quality and enduring consumer trust, ITC forayed into the Personal Care business in July 2005. In the short period since its entry, ITC has already launched an array of brands, each of which offers a unique and superior value proposition to discerning consumers. Anchored on extensive consumer research and product development, ITC's personal care portfolio brings world-class products with clearly differentiated benefits to quality-seeking consumers.

ITC's Personal Care portfolio under the 'Essenza Di Wills', 'Fiama Di Wills', 'Vivel Di Wills' 'Vivel UltraPro', 'Vivel' and 'Superia' brands has received encouraging consumer response and is being progressively extended nationally.

ITC's state-of-the-art manufacturing facility meets stringent requirements of hygiene and benchmarked manufacturing practices. Contemporary technology and the latest manufacturing processes have combined to produce distinctly superior products which rank high on quality and consumer appeal. Extensive insights gained by ITC through its numerous consumer engagements have provided the platform for its R&D and Product Development teams to develop superior, differentiated products that meet the consumer's stated and innate needs. The product formulations use internationally recognised safe ingredients, subjected to the highest standards of safety and performance.

Competition:
ITC Ltd. faces competition from various other companies producing a varied line of FMCGs. In relation to Personal Care products ITC or Fiama Di Wills line of products (and the likes) faces competition from companies like HUL, P&G, LOreal, Marico etc. HUL Ltd. Hindustan Uni Lever Ltd. with its large amount of brands under soaps and hair care products is the biggest competitor to ITC Ltd. Soaps market HUL presently owns around 60% market share with JUST its soaps. With Dove directly competing with the Fiama Di Wills line of products as both of them do not cater to the mass market but the higher middle class or high income class of the consumers in India. Hair Care market Sunsilk &Clinic all clear are the major market capturing hair care products under HUL. They are proving to be a

competition with ITC for the hair care products under Fiama Di Wills brand.

P&G P&G also owns a relatively modest share of market with its hair care products. Pantene and Head & Shoulders have been in the market for a longer time than Fiama Di Wills and thus have more popularity amongst consumers. Like Fiama Di Wills, Pantene & Head & Shoulders have variants suiting the different needs of different consumers. LOreal LOreal is a leading international company which entered Indian market a few years back. LOreal has the Garnier Fructis line of shampoos and conditioners which like Fiama Di Wills have used technology to increase the quality and also come up with a number of variants.

Marico Marico, as can be seen, is a major competitor to ITC. Marico also has hair care products. Though these products are targeted to the mass market and low priced, it steals away a large market from ITC.

Overview of industry: FMCG:

Fast Moving Consumer Goods (FMCG), are the products that are sold quickly at relatively low cost. Though the absolute profit made on FMCG products is relatively small, they generally sell in large quantities, so the cumulative profit on such products can be large. Examples of FMCG generally include a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, teeth cleaning products, shaving products and detergents. Leading FMCG companies - Some of the well known FMCG companies are Sara Lee, Nestl, Reckitt Benckiser, Unilever, Procter & Gamble, ITC Ltd., Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi and Mars etc.

INDIAN FMCG OVERVIEW The FMCG sector seems to have finally joined India Inc's growth party by posting surprising double-digit growth in sales in the past couple of years. Annual revenues of Rs 72,000 crore. It is the one of the largest sectors in the Indian economy. Considering the average spending by the urban markets all over India (as given below), the future of the sector looks bright and promising.

Source India Today - R K Swamy BBDO Guide to Urban Markets Average 1 Chandigarh Chandigarh Monthly Spending on FMCG Products* in Rs.

2 Greater Mumbai Maharashtra 3 Chennai Tamil Nadu 4 Ahmedabad Gujarat 5 Vadodara Gujarat 6 Pune Maharashtra 7 Coimbatore Tamil Nadu 8 Ludhiana Punjab 9 Faridabad Haryana

THE TOP 10 COMPANIES IN FMCG SECTOR S. Top companies of India NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Hindustan Unilever Ltd. ITC (Indian Tobacco Company) Nestl India GCMMF (AMUL) Dabur India Asian Paints (India) Cadbury India Britannia Industries Procter & Gamble Hygiene and Health Care Marico Industries

Industry Segments:
The main segments of the FMCG sector are:

Personal Care: oral care; hair care; skin care; personal wash (soaps); cosmetics and toiletries; deodorants; perfumes; paper products (tissues, diapers, sanitary); shoe care.

Major companies active in this segment include Hindustan Lever; ITC Ltd., Godrej Soaps, Colgate- Palmolive, Marico, Dabur and Procter & Gamble.

Household Care: Fabric wash (laundry soaps and synthetic detergents); household cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellants, metal polish and furniture polish). Major companies active in this segment include Hindustan Lever, Nirma and Reckitt & Colman.

Branded and Packaged Food and Beverages: Health beverages; soft drinks; staples/cereals; bakery products (biscuits, bread, cakes); snack food; chocolates; ice cream; tea; coffee; processed fruits, vegetables and meat; dairy products; bottled water; branded flour; branded rice; branded sugar; juices etc. Major companies active in this segment include Hindustan Lever, Nestle, Cadbury and Dabur.

Spirits and Tobacco: Major companies active in this segment include ITC, Godfrey Philips, UB and Shaw Wallace.

History Of The FMCG Industry Growth:

Main Drivers for Growth in FMCG:1. Higher Consumer spending The per capita disposable income of people in both urban as well as rural areas has seen a good rise in the past few years. Differential pricing has helped consumers from all economic demographics experiment with new products based on their needs and abilities. A prominent shift has been seen from consumer electronics to other consumer goods such as cosmetics, soaps & detergents, etc. Most FMCG players have been targeting the consumers needs and converting these into strategies and final products.

2. Benefits of Organization in Retail FMCG Organised retail has been a boon for both the consumers as well as suppliers. This is evident from the success of recent retail players that have entered the market such as Reliance Fresh, Big Bazaar, More, etc. For suppliers, especially farmers, organised retail allows them to receive better prices for their produce. For consumers, the benefits include ease of shopping, better comparison of products, good ambience, etc. But the most important factor is that consumers spend more on a products value and less is wasted in services such as distribution. 3. Penetration FMCG majors have been looking to penetrate the mostly untapped rural as well as semi-urban areas of India. To achieve this, they have planned to implement better distribution networks. According to Asschom, FMCG will witness more than 50% of its growth in the rural and semi-urban segments by 2010. In the urban regions, due to cut throat competition FMCG players have gone in for other promotional strategies such as branding, product differentiation, package innovation, highlighting the functional aspect of foods, etc. The development of better and faster means of transport will increase FMCG penetration in the long term. 4. Indian competitiveness and global market India has an advantage over other nations in FMCG due to certain reasons, such as a) Easy and cheap availability of various raw materials b) Cheap labour c) Spread of Indian companies across the complete value chain

5. Shift of demand from unbranded to branded goods Consumers have become more aware of the benefits of branded commodities in foods. 12 percent in 2006-07 14.5 percent in 2007-08 India FMCG sector is all set for 16% growth during 2008-09

Personal Care: Personal care category in India is valued at Rs 54.6 billion. An average Indian spends 8% of his income on personal care products. Personal care mainly consists of Hair Care, Skin Care, Oral Care, Personal Wash (Soaps), Cosmetic and Toiletries, Feminine Hygiene. Till 2002-2003, Personal care products, except those in oral care category, were regarded as luxury items, and attracted a high excise duty of 120%. But the taxation reforms in India after 1991 have lowered the excise duty rates that make these products more affordable. It is divided into two segments:

The premium segment

The popular segment The premium segment caters mainly to urban high class and upper middle class, and is more brand conscious and less price sensitive. The popular segment caters to mass segments in urban and rural markets; prices here are around 40% of the premium segment prices.

Shampoos The shampoo market is valued at Rs 4.5 billions and has the penetration level of only 13% in India. The market is expected to increase due to increased marketing by players, lower duties, and availability of shampoos in affordable sachets. Sachet makes up to 40% of the total shampoo sale. The Indian shampoo market is divided in two parts Cosmetic Anti-dandruff This is primarily a middle class product because more than 50% of the population uses toilet soaps to wash hair. The penetration level is only 30% in metros. The major players are HLL, and Procter & Gamble. Growth With the increase in rural income and improvement in distribution network (i.e. road development projects), the penetration levels are set to increase. Since the consumption level in urban areas is already high in most of the categories, the growth can come only from deeper penetration and higher consumption in rural areas. In the year 2005-06, the sector witnessed growth because of the increase in consumer demand from urban and rural areas. In addition to demand, prices also went up. Also, with the increase in disposable income, some consumers have moved up in the value chain. The growth for FMCG products in February 2006 was the highest in 5 years, on YoY (year over year) basis. Prospects The proportion of the consuming class to total households will touch 46% by FY07 from 17.4% in FY95, estimated by National Council for Applied Economic Research (NCAER). As the native companies are expanding in international market, the MNC subsidiaries are looking for greater leverage of the parent strengths. Also, big MNCs cannot afford to avoid India because of its potential market. The market size and the major players are:

Source:CII Category Market share (In billions) Major Players

Skin Care Personal Wash Hair care Oral care

13 46 28 23

HLL HLL Marico Colgate

In India, the per capita consumption of almost all the products is amongst the lowest in the world. For example, the average consumption of toothpastes is around 320 gms in the world but in India it is 107 gms. In Thailand, Mexico, and USA it is 262 gms, 376 gms, and 518 gms respectively.

History Of The FMCG Industry Growth:

12 percent in 2006-07 14.5 percent in 2007-08 India FMCG sector is all set for 16% growth during 2008-09

An increase in disposable income, across rural and urban consumers, has led many rural consumers to shift from traditional unorganized unbranded products to branded FMCG products and urban fraternity to splurge on value added and lifestyle products. This is supported by improving reach to remote markets, organized retailing and favorable Indian economy & demographics.

Supply and demand scenario:

The FMCG Industry is on a high growth trajectory with the overall demand expected to rise manifolds such as changing customer

preferences, emergence of modern retail formats, and growing rural spend propensity. As discussed before, the various factors that affect demand of personal care products are: Increasing awareness about brands Consumers are more aware about the benefits of branded products and thus demand quality products. FMCG products are so closely connected to each other that their buying decisions depend on the information a consumer has on each brand and the perception of each product. Therefore, an increasing awareness makes a consumer more prompt and effective in his decision which results in more buying. Increased disposable income As shown above, the disposable income of both rural and urban markets has considerably increased thus increasing the purchase power of the consumers. More purchasing power means more demand.

New brands coming up With new brands being launched, customers have a wide range of choice and thus can choose products which best suit their needs. The companies also, launch brands which fulfill the needs of the customers which werent identified previously thus making the needs tangible and allowing them to be satisfied. Competition With so much competition and companies participating in the industry, there is always a neck-to-neck competition that the companies face. Any unfavourable change in their strategy, the

consumer has a wide range of choices and thus can change his preferences easily and quickly. Fear of losing out on market share Due to inflation and such close competition, the industry players are in a constant fear of losing out on their customers as nowadays consumers are not loyal to any brand. Down trading Down trading means shifting to less expensive products. Consumers, also affected by inflation and thus low purchasing power, can shift their preferences to cheaper products. This would lead to an increase in demand for mass market affordable products and an opposite effect on expensive goods.

Supply of FMCG products depends on the following factors: Increased number of suppliers As the number of companies getting into FMCG products has multiplied; the number of suppliers increased proportionately and thus increased the supply. Technological advancements In this time of advanced technological advancements, production has become easier, faster and cheaper. Thus, producers are at an advantage and thus supply more.

Input costs Any change in the costs of inputs leads to a change in the supply of the FMCG products. An increase in the input costs would make production more expensive thus the producers would have to cut down on the production and thus decrease supply. The vice-versa holds true as well.

Export and Import Overview:

Exports India is one of the worlds 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 upgradation to achieve economies of scale. Moreover, lower volume of higher value added products reduce scope for export to developing countries. Import Besides intense competition amongst various producers, Government has removed the quantitative restrictions on more than 700 items under the EXIM Policy2000 and on the balance 720 odd items, restrictions were lifted from April 2001, since India is a signatory to WTO on QR (quantitative restrictions). Though the grey market always existed, the liberalisation of imports has resulted in increase in organised imports. Importers and large distributors are now focusing on having arrangements with overseas manufacturers and currently they are making efforts to increase their distribution network. From our interaction with couple of traders, we learn importers are offering higher trade margins and incentives to promote their products vis--vis local producers. The imported products are available in metros and the penetration is being made into towns and rural areas. Though there are no official statistics available on the extent of consumer products being imported into India, the amount is likely to be small compared with the overall size of the market. However, these imports only can increase the competition amongst the existing domestic companies, consequently dampening the earnings growth momentum. The threat from imports can have more negative impact on the household and personal care categories and it will be less severe on food and beverage products.

Generally consumers have reservations to try out newer range of products, which could help the Indian multi-nationals.

Factors Effecting Cost:

The FMCG industry has been majorly affected by inflation due to recession in the economy. This inflation has brought up other considerations and factors that affect cost n price of FMCG products. Market leader leads the group The market leader, in this case HUL Ltd., leads the way other players in the industry would move. Even with inflation HUL did not increase the prices and thus, none of the other players did. Input cost pressures HUL Ltd. is a big enough company to absorb the raised cost of inputs and keep their prices constant but other companies may not be so lucky. Therefore, they would have to increase the prices of their products to absorb the increased input prices. Location of producing unit - FMCG companies have found another way to reduce costs shift the manufacturing base to tax-free locations such as Baddi in Himachal and Jammu for tax and excise duty savings. Therefore, location of the production place affects the cost to a large extent. Location would also mean transportation costs. Carrying goods from the place of production to the place of distribution involves costs. If the distance is relatively longer it would mean more costs and vice-versa. Also, if the location or city of production unit has cheap and easy transportation available or not would also play a factor. Government regulations The government regulations and laws has a major bearing on the cost setting on the FMCG products. Duties and taxes have to be duly paid to the Government otherwise it would invite more costs in form of fines and legal fees and expenses.

Recent trends in the industry regarding product differentiation:

Product differentiation (also known simply as "differentiation") is the process of distinguishing the differences of a product or offering from others, to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as one's own product offerings. Most of the FMCG products differentiate each other through either there target market or if they are targeting the same market they differentiate each other through their ads which convinces the unique of the their products for example LOreal: Because youre worth it. Pantene: You can shine Dove: With one quarter cleansing cream Fiama Di Wills: Beautiful you Today, Tomorrow

SWOT analysis of FMCG industry:

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. These products narrow the scope of FMCG products in rural and semi-urban market. Opportunities: 1. 2. 3. 4. 5. Untapped rural market Rising income levels i.e. increase in purchasing power of consumers Large domestic market- a population of over one billion. Export potential 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

Trends that may be expected in FMCG over next few years:

1. Inclination towards environment-friendly goods Consumers are expected to appreciate socially responsible trade. This shall lead to a move towards products with ingredients that can be replenished and more natural/herbal cosmetics and skin care products. 2. Use of more technology The coming years will see a greater amount of e-marketing and blogging for promotion of goods. IT is expected to help in consumer-tracking as well as Supply Chain Management. 3. More goods catering to the youth With the increase in youth population in India, the FMCG sector is trying to come up with more products which appeal to this class of consumers. This will include more branding of commodities such as clothing, cosmetics and other accessories. 4. Health food categories This mainly targets the health-conscious, rich urban Indian. Some goods already existent in this segment are skimmed milk, diet soft drinks, multigrain bread, sugar-free, etc. 5. Inflation impacts FMCG majors are coming up with various measures to combat the double digit inflation. These measures include repositioning of product lines, variant packaging, strengthening distribution and logistics, etc.

Problems that this Industry may face in the near future:

i. Stiff competition among domestic and foreign entrantsPlayers from the organised as well as unorganised sector continue to grab at each others market shares. The entry of existing players in new segments has resulted in high pressure on margins. This has been tackled by more expenses on promotion and advertising.

ii. Poor transport facilities The highly scattered market basket is difficult to cater to with inadequate infrastructure. Rural and semi-urban penetration in such conditions becomes a great challenge. iii. Low Brand-Awareness The lack of knowledge of branded, genuine commodities among people in small towns allows local dealers to sell spurious products. iv. Increase in factor prices The sustained inflationary market has put a major dent in the FMCG industry. It has led to higher costs of raw materials as well as packaging and distribution. Most companies try to transfer the burden to consumers to some extent by price hikes and smaller SKUs.

REFERENCES

Marketing management by Philip Kotler

Google Scribe.com ITC annual report. Wikipedia Indiatimes.com Economictimes.com Fundoodata.com

Provide Intext citations (Its compulsory, follow Harvard referencing style. The document is given in the course website). Also provide Bibliography Add Introduction Provide evidences in the SWOT analysis ( Back up with the data ) Also give diagrams (Supply and demand curves)
Work on the aspects of technology, price, product differentiation Do Proper Formatting Provide Introduction
Do more indepth analysis of cost factors