Upload
shaktigupta07
View
254
Download
1
Embed Size (px)
Citation preview
INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
STRATEGIC MARKET MANAGEMENT FMCG INDUSTRY IN INDIA
GROUP PROJECT: INDUSTRY EVALUATION
IIPM NEW DELHI
Submitted To: Submitted By:
Prof. Jayant Bose Shakti Gupta
Section-F7PGP\FW\2008-10
Strategic Market Management
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Contents
Introduction
Profile of the Company (ITC)
FMCG market in India
Sustainable competitive advantage
Competitors Analysis (ITC vs. HUL)
Over view of Indian steel industry
Customer base of industry
Strategies of competitors
SWOT analysis of industry & competitors
BCG /Mckinsey portfolio analysis
1INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
STRATEGIC MARKET MANAGEMENT
Profile of the Company (ITC)
ITC is one of India's foremost private sector companies with a market capitalization of nearly US
$ 19 billion* and a turnover of over US $ 5.1 Billion. ITC is rated among the World's Best Big
Companies, Asia's 'Fob. 50' and the World's Most Reputable Companies by Forbes magazine,
among India's Most Respected Companies by Business World 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.ITC has a diversified
presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business,
Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care,
Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market
leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-
Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods &
Confectionery, Branded Apparel, Personal Care and Stationery.
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."ITC's diversified status originates from its corporate
strategy aimed at creating multiple drivers of growth anchored on its time-tested core
competencies: unmatched distribution reach, superior brand-building capabilities, effective
supply chain management and acknowledged service skills in hoteliering. Over time, the
strategic forays into new businesses are expected to garner a significant share of these emerging
high-growth markets in India. ITC's Agri-Business is one of India's largest exporters of
agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 3.2
billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture
2INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
significantly enhance its competitiveness by empowering Indian farmers through the power of
the Internet. This transformational strategy, which has already become the subject matter of a
case study at Harvard Business School, is expected to progressively create for ITC a huge rural
distribution infrastructure, significantly enhancing the Company's marketing reach.
ITC's wholly owned Information Technology subsidiary, ITC InfoTech India Limited, is
aggressively pursuing emerging opportunities in providing end-to-end IT solutions, including e-
enabled services and business process outsourcing. 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. ITC employs over 25,000 people at more than 60 locations across
India. The Company continuously endeavors to enhance its wealth generating capabilities in a
globalizing environment to consistently reward more than 3, 67,000 shareholders, fulfill the
aspirations of its stakeholders and meet societal expectations. This over-arching vision of the
Company is expressively captured in its corporate positioning statement: "Enduring Value. For
the nation, for the Shareholder."
3INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
HISTORY AND EVOLUTION
ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of
India Limited'. Its beginnings were humble. A leased office on Radha Bazar Lane, Kolkata, was
the centre of the Company's existence. The Company celebrated its 16th birthday on August 24,
1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru
Road) Kolkata, for the sum of Rs 310,000. This decision of the Company was historic in more
ways than one. It was to mark the beginning of a long and eventful journey into India's future.
The Company's headquarter building, 'Virginia House', which came up on that plot of land two
years later, would go on to become one of Kolkata's most venerated landmarks. The Company's
ownership progressively indianised, and the name of the Company was changed to I.T.C.
Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide
range of businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging,
Paperboards & Specialty Papers, Agri-Exports, Foods, Lifestyle Retailing and Greeting Gifting
& Stationery - the full stops in the Company's name were removed effective September 18,
2001. The Company now stands rechristened 'ITC Limited'. Though the first six decades of the
Company's existence were primarily devoted to the growth and consolidation of the Cigarettes
and Leaf Tobacco businesses, the Seventies witnessed the beginnings of a corporate
transformation that would usher in momentous changes in the life of the Company. ITC's
Packaging & Printing Business was set up in 1925 as a strategic backward integration for ITC's
Cigarettes business. It is today India's most sophisticated packaging house.
In 1975 the Company launched its Hotels business with the acquisition of a hotel in Chennai
which was rechristened 'ITC-Welcomgroup Hotel Chola'. The objective of ITC's entry into the
hotels business was rooted in the concept of creating value for the nation. ITC chose the hotels
business for its potential to earn high levels of foreign exchange, create tourism infrastructure
and generate large scale direct and indirect employment. Since then ITC's Hotels business has
grown to occupy a position of leadership, with over 100 owned and managed properties spread
across India. In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam
Paperboards Limited, which today has become the market leader in India. Bhadrachalam
Paperboards amalgamated with the Company effective March 13, 2002 and became a Division
of the Company, Bhadrachalam Paperboards Division. In November 2002, this division merged
4INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
with the Company's Tribeni Tissues Division to form the Paperboards & Specialty Papers
Division. ITC's paperboards' technology, productivity, quality and manufacturing processes are
comparable to the best in the world. It has also made an immense contribution to the
development of Sarapaka, an economically backward area in the state of Andhra Pradesh. It is
directly involved in education, environmental protection and community development. In 2004,
ITC acquired the paperboard manufacturing facility of BILT Industrial Packaging Co. Ltd
(BIPCO), near Coimbatore, Tamil Nadu. The Kovai Unit allows ITC to improve customer
service with reduced lead time and a wider product range.
In 1985, ITC set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British joint venture.
Since inception, its shares have been held by ITC, British American Tobacco and various
independent shareholders in Nepal. In August 2002, Surya Tobacco became a subsidiary of ITC
Limited and its name was changed to Surya Nepal Private Limited (Surya Nepal).
In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing Company and a
major supplier of tissue paper to the cigarette industry. The merged entity was named the Tribeni
Tissues Division (TTD). To harness strategic and operational synergies, TTD was merged with
the Bhadrachalam Paperboards Division to form the Paperboards & Specialty Papers Division
in November 2002. Also in 1990, leveraging its agri-sourcing competency, ITC set up the Agri
Business Division for export of agri-commodities. The Division is today one of India's largest
exporters. ITC's unique and now widely acknowledged e-Choupal initiative began in 2000 with
soya farmers in Madhya Pradesh. Now it extends to 10 states covering over 4 million farmers.
ITC's first rural mall, christened 'Choupal Saagar' was inaugurated in August 2004 at Sehore. On
the rural retail front, 24 'Choupal Saagars' are now operatonal in the 3 states of Madhya Pradesh,
Maharashtra and Uttar Pradesh.
In 2000, ITC launched a line of high quality greeting cards under the brand name
'Expressions'. In 2002, the product range was enlarged with the introduction of Gift wrappers,
Autograph books and Slam books. In the same year, ITC also launched 'Expressions
Matrubhasha', a vernacular range of greeting cards in eight languages and 'Expressions
Paperkraft', a range of premium stationery products. In 2003, the Company rolled out
'Classmate', a range of notebooks in the school stationery segment.
5INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
ITC also entered the Lifestyle Retailing business with the Wills Sport range of international
quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of exclusive stores
later expanded its range to include Wills Classic formal wear (2002) and Wills Clublife
evening wear (2003). ITC also initiated a foray into the popular segment with its men's wear
brand, John Players, in 2002. In 2006, Wills Lifestyle became title partner of the country's most
premier fashion event - Wills Lifestyle India Fashion Week - that has gained recognition from
buyers and retailers as the single largest B-2-B platform for the Fashion Design industry. To
mark the occasion, ITC launched a special 'Celebration Series', taking the event forward to
consumers. In 2007, the Company introduced 'Miss Players'- a fashion brand in the popular
segment for the young woman.
In 2000, ITC spun off its information technology business into a wholly owned subsidiary, ITC
Infotech India Limited, to more aggressively pursue emerging opportunities in this area. Today
ITC Infotech is one of India’s fastest growing global IT and IT-enabled services companies and
has established itself as a key player in offshore outsourcing, providing outsourced IT solutions
and services to leading global customers across key focus verticals - Manufacturing, BFSI
(Banking, Financial Services & Insurance), CPG&R (Consumer Packaged Goods & Retail),
THT (Travel, Hospitality and Transportation) and Media & Entertainment.
ITC's foray into the Foods business is an outstanding example of successfully blending multiple
internal competencies to create a new driver of business growth. It began in August 2001 with
the introduction of 'Kitchens of India' ready-to-eat Indian gourmet dishes. In 2002, ITC entered
the confectionery and staples segments with the launch of the brands mint-o and Candyman
confectionery and Aashirvaad atta (wheat flour). 2003 witnessed the introduction of Sunfeast
as the Company entered the biscuits segment. ITC's entered the fast growing branded snacks
category with Bingo! in 2007. In just seven years, the Foods business has grown to a significant
size with over 200 differentiated products under six distinctive brands, with an enviable
distribution reach, a rapidly growing market share and a solid market standing. In 2002, ITC's
philosophy of contributing to enhancing the competitiveness of the entire value chain found yet
another expression in the Safety Matches initiative. ITC now markets popular safety matches
brands like iKno, Mangaldeep, Aim, Aim Mega and Aim Metro.ITC's foray into the marketing
of Agarbattis (incense sticks) in 2003 marked the manifestation of its partnership with the
6INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
cottage sector. ITC's popular agarbattis brands include Spriha and Mangaldeep across a range
of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa.
ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath & body care
products for men and women in July 2005. Inizio, the signature range under Essenza Di Wills
provides a comprehensive grooming regimen with distinct lines for men (Inizio Homme) and
women (Inizio Femme). Continuing with its tradition of bringing world class products to Indian
consumers the Company launched 'Fiama Di Wills', a premium range of Shampoos, Shower
Gels and Soaps in September, October and December 2007 respectively. The Company also
launched the 'Superia' range of Soaps and Shampoos in the mass-market segment at select
markets in October 2007 and Vivel De Wills & Vivel range of soaps in February and Vivel
range of shampoos in June 2008.
7INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
THE ITC WAY
ITC is a board-managed professional Company, committed to creating enduring value for the
shareholder and for the nation. It has a rich organizational culture rooted in its core values of
respect for people and belief in empowerment. Its philosophy of all-round value creation is
backed by strong corporate governance policies and systems.
ITC’S CORPORATE STRATEGIES ARE:
Create multiple drivers of growth by developing a portfolio of world class businesses that
best matches organizational capability with opportunities in domestic and export markets.
Continue to focus on the chosen portfolio of FMCG, Hotels, Paper, Paperboards &
Packaging,
Agri Business and Information Technology.
Benchmark the health of each business comprehensively across the criteria of Market
Standing,
Profitability and Internal Vitality.
Ensure that each of its businesses is world class and internationally competitive.
Enhance the competitive power of the portfolio through synergies derived by blending
the diverse skills and a capability residing in ITC’s various businesses.
Create distributed leadership within the organization by nurturing talented and focused
top management teams for each of the businesses.
Continuously strengthen and refine Corporate Governance processes and systems to
catalyze the entrepreneurial energies of management by striking the golden balance
between executive freedom and the need for effective control and accountability.
ITC 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
8INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
ITC Mission
To enhance the wealth generating capability of the enterprise in a globalizing environment,
delivering superior and sustainable stakeholder value.
ITC Leadership
Flowing from the concept and principles of Corporate Governance dopted by the Company,
leadership within ITC is exercised at three levels. The Board of Directors at the apex, as trustee
of shareholders, carries the responsibility for strategic supervision of the Company. The strategic
management of the Company rests with the Corporate Management Committee comprising the
whole time Directors and members drawn from senior management. The executive management
of each business division is vested with the Divisional Management Committee (DMC), headed
by the Chief Executive. Each DMC is responsible for and totally focused on the management of
its assigned business. This three-tiered interlinked leadership process creates a wholesome
balance between the need for focus and executive freedom, and the need for supervision and
control.
9INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
FMCG IN INDIA
The Indian FMCG sector having a market size of US$13.1 billion is the fourth largest sector in
the economy. A well-established distribution network, intense competition between the
organized and unorganized segments, characterizes FMCG sector. FMCG in India has strong
MNC presence. FMCG in India has gained a competitive, presence across the entire value chain.
It has been expected that FMCG market will reach to US$ 33.4 billion in 2015 from US $ billion
11.6 in 2003. Most of the product categories like jams, toothpaste, skin care, hair wash etc in
India has low per capita consumption as well as low penetration level that is a sign of untapped
market potential. The middle class and the rural segments of Indian population give the
opportunity to brand makers to convert consumers to branded products. Now gradually people
are shifting to processed and packaged food and the figures are expected to 200 million people
by 2010. This left India with the requirement of US $28 million in the food processing Industry.
India is one of the largest emerging markets in FMCG sector because of large domestic market
India – an extravagant spender on consumer goods Demand-supply gap Rapid urbanization,
increased literacy and rising per capita income. Fast Moving Consumer Goods (FMCG), are
products that have a quick turnover, and relatively low cost. FMCG products, which are
generally replaced less than once a year (e.g. kitchen appliances).
The Fast Moving Consumer Goods Sector is the fourth largest sector of Indian economy
with total market size of more than 60000 crore.
The FMCG sector in India is expected to grow at a compounded annual growth rate
(CAGR) of 9% to a size of Rs 1, 43,000 crore by 2010 from Rs 93,000 crore at present.
With a growth of 52.5%, the BSE FMCG Index has, during the last one year,
outperformed the Sensex, which could manage a growth of 41% only.
A well-established distribution network, intense competition between the organized and
unorganized segments, low operating cost, strong branding characterizes the sector.
Examples of FMCG generally includes a wide range of frequently purchased consumer products
such as toiletries, soap, cosmetics, teeth cleaning products, shaving products and detergents, as
well as other non-durables such as glassware, bulbs, batteries, paper products and plastic goods.
FMCG may also include pharmaceuticals, consumer electronics, packaged food products and
10INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
drinks, although these are often categorized separately. Examples of FMCGs are soft drinks,
tissue paper, and chocolate bars.
Trends in FMCG Sector
The FMCG sector has been registering double-digit growth in sales since the last couple
of years. Currently, with annual revenues of US$ 14. 74 billion, it is the one of the most
promising sectors.
The FMCG sector is witnessing rapid growth in rural areas and is estimated to grow by
40 per cent compared to the growth of 25 per cent in urban areas.
PepsiCo has announced a US$ 500 million investment in India over the next three years.
FMCG companies have acquired about 15 companies and have spread their presence in
more than a dozen countries.
Indian FMCG Market Size (In US $ Billion).
(Source: IBEF FMCG Analysis)
Rise in Disposable Income
With increasing disposable income and subsequent rise in quality of living and hygiene
concerns, the average Indian’s spending on grocery and personal care products will likely
increase.
Currently, the average Indian spends about 48%, also the majority, of his total income
on groceries (40%) and personal care products (8%).
11INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Rise In Disposable Income (In USD Thousand)
(Source: Euro Monitor Goldman Sachs BRIC Report)
Competition
Significant Presence of Unorganized Sector –
Basic technology for most products is fairly simple and easily available.
The small-scale sector in India enjoys exemption/ lower rates of excise duty, sales tax
etc. This makes them more prices competitive.
A highly scattered market and poor transport infrastructure limits the ability of MNCs
and national players to reach rural areas and small towns.
Low brand awareness enables local players to market their fake look-alike brands.
Major players in FMCG sector
12INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
13INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Leading competitor of ITC & their business
Hindustan Unilever Limited is India's largest Fast Moving Consumer Goods (FMCG) Company.
It is present in Home & Personal Care and Foods & Beverages categories. HUL and Group
companies have about 15,000 employees, including 1200 managers. HUL’s brands are spread
across 20 distinct consumer categories and touches the lives of two out of three Indians. They
endow the Company with a scale of combined volumes of about 4 million tonnes and sales of
Rs.10, 000 crores.
The fundamental principle determining the organization structure is to infuse speed and
flexibility in decision-making and implementation, with empowered managers across the
Company’s nationwide operations.
Mission Statement
Unilever's mission is to add Vitality to life. We meet everyday needs for nutrition, hygiene, and
personal care with brands that help people feel good, look good and get more out of life.
Code of Business Principles
Unilever has earned a reputation for conducting its business with integrity and with respect for
all those whom our activities affect. This reputation is an asset, just as valuable as our people and
our brands.To maintain this reputation requires the highest standards of behavior – consistently
observed by all of us. Unilever’s Code of Business Principles sets out these standards and we
expect all our employees to adhere to them.Being a successful business does not just mean
investing for growth and balancing short and long term interests. It also means caring about our
consumers, employees and shareholders, our business partners and the world in which we
live.We therefore want this Code to be more than a collection of high sounding statements. It
must have practical value in our day-to-day business lives and each of us must follow these
principles both in the spirit and the letter.If we do so, Unilever’s reputation will be enhanced, our
business will perform better and our professional lives will be all the more fulfilling.
14INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Standard of Conduct
We conduct our operations with honesty, integrity and openness, and with respect for the human
rights and interests of our employees. We shall similarly respect the legitimate interests of those
with whom we have relationships.
Obeying the Law
Unilever companies and our employees are required to comply with the laws and regulations of
the countries in which we operate.
Employees
Unilever is committed to diversity in a working environment where there is mutual trust and
respect and where everyone feels responsible for the performance and reputation of our
Company. We will recruit, employ and promote employees on the sole basis of the qualifications
and abilities needed for the work to be performed. We are committed to safe and healthy
working conditions for all employees. We will not use any form of forced, compulsory or child
labour. We are committed to working with employees to develop and enhance each individual's
skills and capabilities. We respect the dignity of the individual and the right of employees to
freedom of association. We will maintain good communications with employees through
Company based information and consultation procedures.
Consumers
Unilever is committed to providing branded products and services which consistently offer value
in terms of price and quality, and which are safe for their intended use. Products and services
will be accurately and properly labelled, advertised and communicated.
Shareholders
Unilever will conduct its operations in accordance with internationally accepted principles of
good corporate governance. We will provide timely, regular and reliable information on our
activities, structure, financial situation and performance to all shareholders.
15INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Business Partners
Unilever is committed to establishing mutually beneficial relations with our suppliers, customers
and business partners. In our business dealings we expect our business partners to adhere to
business principles consistent with our own.
Community Involvement
Unilever strives to be a trusted corporate citizen and, as an integral part of society, to fulfill our
responsibilities to the societies and communities in which we operate.
Public Activities
Unilever companies are encouraged to promote and defend their legitimate business interests.
Unilever will co-operate with governments and other organizations, both directly and through
bodies such as trade associations, in the development of proposed legislation and other
regulations which may affect legitimate business interests. Unilever neither supports political
parties nor contributes to the funds of groups whose activities are calculated to promote party
interests.
The Environment
Unilever is committed to making continuous improvements in the management of our
environmental impact and to the longer-term goal of developing a sustainable business. Unilever
will work in partnership with others to promote environmental care, increase understanding of
environmental issues and disseminate good practice.
Innovation
In our scientific innovation to meet consumer needs we will respect the concerns of our
consumers and of society. We will work on the basis of sound science applying rigorous
standards of product safety.
Competition
Unilever believes in vigorous yet fair competition and supports the development of appropriate
16INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
competition laws. Unilever companies and employees will conduct their operations in
accordance with the principles of fair competition and all applicable regulations.
Business Integrity
Unilever does not give or receive whether directly or indirectly bribes or other improper
advantages for business or financial gain. No employee may offer give or receive any gift or
payment which is, or may be construed as being, a bribe. Any demand for, or offer of, a bribe
must be rejected immediately and reported to management. Unilever accounting records and
supporting documents must accurately describe and reflect the nature of the underlying
transactions. No undisclosed or unrecorded account, fund or asset will be established or
maintained.
Activities
Hindustan Lever provides Home & Personal Care products like Soaps (Lux, Lifebuoy,etc.),
Washing powders (Surl Excel, Rin,etc.), Deodorants, Cosmetics,Skin Care products and hair
care products. The food products provided by Hindustan Unilever are Tea (Brooke Bond,
Lipton), Coffee (Brooke Bond Bru), Foods (Kissan, Annapurna, Knorr) and Ice Cream (Kwality
Wall's).
Hindustan Unilever limited has launched Pureit, the most advanced in-home water purifier in
the world. It is the only purifier that gives water that is ‘as safe as boiled water ' without boiling,
and without needing electricity or continuous tap water supply. That why it is considered as the
most advanced in-home water purifier in the world. Several HUL factories are situated in
backward areas. HUL has consciously responded to the national policy of development of
backward areas by setting up manufacturing units in these places, which provide several direct
and indirect employment opportunities for these areas, and leads to general economic
development of these regions through industrialization. HUL acknowledges that development
and poverty reduction depend on economic prosperity, and that International trade and
investment creates new employment, raises skill levels and increases economic activity. Indeed,
the very business of ‘doing businesses extends prosperity and creates new opportunities.
17INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Today, HUL is India's largest exporter of branded Fast Moving Consumer Goods. It has been
recognized by the Government of India as a Golden Super Star Trading House.
18INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Performance Key Statistics:
Figures in Rs. Crores
ACCOUNT ITEM 2007 2006
Net Sales 3,184.32 2,798.05
Domestic FMCG HPC 2,251.69 2,046.70
Domestic FMCG Foods
(including Ice cream)
531.18 432.13
Domestic FMCG Total 2,782.87 2,478.83
Exports 351.93 275.53
Profit Before Interest and
Taxation
378.80 333.19
Profit After Taxation, Before
Exceptional Items
333.86 293.98
Net Profit 392.89 442.86
Hindustan Unilever limited (HUL) announced its results for March Quarter 2007. Total Sales
grew by 13.8%, while growth in continuing businesses, i.e., after eliminating impact of disposals
was higher at 14.7%. Domestic FMCG business grew by 12.3%.
Comparison of two FMCG majors; HUL & ITC
This week, ETIG presents a comparison between two FMCG majors, HUL and ITC. Risk-averse
investors interested in stable business & steady dividend income can consider HUL, while ITC is
19INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
suited for adventurous investors who are hungry for growth, rather than stability.
Hindustan Unilever Lever
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.
PERFORMANCE: After stagnating between 1999 and ’04, the Company is back on the growth
track. In the past three years, HUL’s net sales have witnessed a CAGR of 11%, while net profit
has posted a CAGR of 17%. The Company is set to gain further momentum, given the revival of
consumer spending. HUL sells products at different price points straddled between the entire
value chains. In the past few years, it has diversified into processed foods, ice-creams, water
purifiers and specialized chemicals. But home and personal care (HPC) continues to remain the
bread & butter segment for the Company. This division accounted for 72% of HUL’s revenue
20INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
and 91% of its profit (before interest and tax) during the year ended December ’07. So, it won’t
be wrong to call HUL a personal care major.
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 and addition of
new consumers via market expansion will be HUL’s growth drivers.
FINANCIALS: HUL’s net sales have recorded a CAGR of more than 11% over the past three
years, while its net profit has posted a CAGR of 17% during the same period. While its sales
have maintained a secular growth trend, profit margins have shown an erratic trend during the
period. High dividend yield, steady growth and strong market standing in its product categories
have enabled HUL to command premium valuations, compared to other FMCG companies.
RISKS: 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.
TO SUM IT UP: HUL’s up-and-running business model is a treat for investors seeking
exposure in the FMCG segment. The Company has delivered in the past and has the potential to
do better in future. In the small and medium term, HUL is a better bet than ITC.
21INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
ITC
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: 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. ITC’s non-cigarette FMCG business — which contributes
15% of its revenues — eroded close to 8% of ITC’s profit last year. Its other businesses like
hotels and paper together account for over 20% of ITC’s profit. Agri-business, which is its
second-largest revenue earner, contributes one fourth to its revenues, but only 3-4 % to its PBIT.
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.
FINANCIALS: During the past three fiscals, ITC’s consolidated revenue has seen a CAGR of
22%. Its profit has grown at just 12% during the same period. ITC’s sales and profits have
displayed a secular growth trend. But the pressure of sustaining its new businesses, as well as
22INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
higher tax burden on the cigarette business, is straining its profits. After undeterred growth
spanning eight quarters, ITC witnessed a marginal de-growth in net profit for the trailing four
quarters ended June ’08.
RISKS: Increased regulatory clamps on tobacco, along with rising tax burden, pose a business
risk for ITC. 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 and rising crop prices pose a threat for its agri-business, taxing its margins.
23INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Sustainable Competitive Advantage
Sustainable competitive advantage is the focal point of your corporate strategy. It allows the
maintenance and improvement of your enterprise's competitive position in the market.
It is an advantage that enables business to survive against its competition over a long period of
time.
Today’s' Era of Hyper competition
Hyper competition is a key feature of the new economy. New customers want it quicker,
cheaper, and they want it their way. The fundamental quantitative and qualitative shift in
competition requires organizational change on an unprecedented scale. Today, your sustainable
competitive advantage should be built upon your corporate capabilities and must constantly be
reinvented.
Distinctive Capabilities
Distinctive capabilities are the basis of your competitive advantage. According to the new
resource-based view of the Company, sustainable competitive advantage is achieved by
continuously developing existing and creating new resources and capabilities in response to
rapidly changing market conditions. Among these resources and capabilities, in the new
economy, knowledge represents the most important value-creating asset. The opportunity for
your Company to sustain your competitive advantage is determined by your capabilities of two
kinds – distinctive capabilities and reproducible capabilities - and their unique combination you
create to achieve synergy. Your distinctive capabilities - the characteristics of your Company
which cannot be replicated by competitors, or can only be replicated with great difficulty - are
the basis of your sustainable competitive advantage. Distinctive capabilities can be of many
kinds: patents, exclusive licenses, strong brands, effective leadership, teamwork, or tacit
knowledge. Reproducible capabilities are those that can be bought or created by your
competitors and thus by themselves cannot be a source of competitive advantage.
ITC Limited is planning to aggressively scale up its FMCG business and expand the portfolio by
staging an entry into the home and personal care market, in an attempt to be the leading FMCG
player in the country. According to the 2006-07 directors' report in the Company’s annual
report, this would be achieved through a combination of synergistic investments in brand
building and further enhancement of supply chain and sales and distribution capabilities. These
interventions combined with information technology enabled transaction backbone and the e-
24INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
choupal rural distribution network, are expected to provide the basis for a low cost distribution
capability for consumer products. Over the medium to long term, these initiatives are expected
to provide the basis for sustainable growth in shareholder value by establishing ITC as the
leading FMCG player in India, the directors said in their report. While ITC sources refused to
comment ahead of the Company’s AGM, the personal care business was reportedly set for
launch as the Company had recruited scientific staff for the division. The business unit for
personal care was however yet to be launched and announcements relating to its reporting
structure, the launch date and the CEO or divisional chief executive to manage the business, are
awaited. The ITC board had approved the Company’s foray into the personal care business
some weeks ago and the Company had informed stock exchanges about it then. The ITC basket
of non-cigarette FMCG goods included branded packaged foods, lifestyle retailing, greeting,
gifting and stationery, safety matches and incense sticks (agarbattis). ITC's FMCG sales grew
by 68 per cent during 2007-06 over 2005-06 to touch Rs 1704 crore during the year. The
branded packaged foods business, which saw sales rising 51 per cent over the previous year, is
expected to accelerate growth through cheaper agri-sourcing using e-Choupal, in-house cuisine
expertise, product development capabilities and branding, sales and distribution competencies.
The vision for this business group was to establish itself as the 'most trusted provider of food
products in the Indian market'. The present range comprised more than 150 food products under
six brands. According to ITC, it planned deeper penetration into grocery and modern format
stores in towns and would use e-choupals for distribution and sourcing in rural areas. ITC would
follow up its salty snacks range under the Bingo brand through robust product development and
would use its farm linkages to ensure access to high quality raw materials to build it into a
sustainable competitive advantage, said sources. The Company’s biscuits unit aimed launch of
value added products to help neutralize as far as possible the impact of increase in input costs.
ITC's lifestyle retailing business would expand its retail footprint through new stores in
upcoming malls and invest in enhancing capability in design and product engineering. ITC's
stationery business aimed to tap the increased budgetary allocation under the government's
'Sarva Shiksha Abhiyan' programme to scale up its notebooks business significantly by offering
a superior and differentiated product range, leveraging the investments in incremental paper
manufacturing capacity currently underway and a strong distribution network in the coming
months. In a parallel move, the 'Mangaldeep' brand of incense sticks (agarbattis) would further
25INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
develop its partnership with small and medium enterprises to help them raise quality and process
standards,
The Sustainable Competitive Advantage (SCA) the involved firms were “born” with &
which “they” developed.
26INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Role of Each Member
Factories – Supply to 18 godowns
Godowns & Branches
Manage by C&F agents getting monthly remuneration
No rent paid by ITC
one branch – 60 WDs , 5 AMs and 20 Area Executives
Wholesale Distributors(WDs)
Margin – 2% of sales
27INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Appoints secondary Wholesalers
TERMS & CONDITIONS
WDs – Zero overnight credit basis
WD appointed supervisor monitor the performance of sales force
Primary expectation – no pilferage of cigarettes
MARKETING DECISIONS
Two Levels
National level
Brand Managers in consultation with branch managers.
National promotion plans- sponsorships & event organizations
Branch Level ( Two Decisions)
Local Promotions
Small Level Promotions
28INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
PHYSICAL DISTRIBUTION
Demand Estimation – collaborative forecasting( Sales force with dealers)
Forecast based on last month sales
Production plan made according to forecast
Delivery to C & F agents within 7 days
CFAs deliver goods to dealers on the basis of the branch office route plan
Factory--------------CFAs- Trucks
CFAs --------Dealers – Small Vehicles
Flow of Information in the Distribution Network
Promotion flows
No volume discounts to channel members
No scope for cash discounts
Information Flow
Main information source- Wholesalers
ITC ERP system
FINANCIAL TRANSACTIONS
Zero day credit policy
Supplies are frozen till clearance of dues
Strict regime due to millions of retailers
Strong bargaining power for the Company
29INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
PROBLEMS FACED by ITC CHAIN
1. Shortages in supply system
Hoarding due to anticipation of a rise in excise duties on cigarettes
Creates artificial shortage
Can be solved by stricter monitoring policy during the time close to the budget
Pilferage of stock during transportation
Due to improper action of WDs
Can be solved by timely reporting
As part of its strategic initiative to create multiple drivers of growth in the FMCG sector, ITC
commenced marketing safety matches sourced from the small-scale sector. The Matches
business leverages the core strengths of ITC in marketing and distribution, brand building,
supply chain management and paperboard & packaging to offer Indian consumers high quality
safety matches. ITC’s range of Safety matches include popular brands like i Kno, Mangaldeep,
Aim, Aim Mega and Aim Metro. With differentiated product features and innovative value
additions, these brands effectively address the needs of different consumer segments. The Aim
brand is the largest selling brand of Safety Matches in India. ITC also exports regular and
premium safety matches brands to markets such as Middle East, Africa and the USA. The
successful acquisition of Wimco Ltd. by Russell Credit Ltd., a wholly owned subsidiary of ITC
has consolidated the market standing of the Company's Matches business through synergy
benefits derived through combined portfolio of offerings, improved servicing of proximal
markets and freight optimization. Through its participation, ITC aims to enhance the
competitiveness of the small and medium scale sectors through its complementary R&D based
product development and marketing strengths, especially the breadth and depth of the
Company's trade marketing and distribution. Taking stock of the FMCG block is tobacco and
hotels giant ITC Ltd. A few years ago it climbed onto the retail bandwagon, leveraging existing
strengths to diversify into areas from greetings and gifts to lifestyle retail. While it's got a long
way to go to challenge Hindustan Lever, ITC is banking on the two mainstays of consumer
goods that it does possess - a strong brand equity and a wide distribution network. The game
30INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
plan is all about strategic synergy. A year ago the Company's newest division, Bangalore-based
ITC Foods, moved into the branded packaged foods market and is leveraging the parent
Company's agricultural products division for sourcing, as well as ITC Welcomgroup's specialist
cuisine knowledge and its packaging division.
The ace up ITC's sleeve, however, is the Company's established distribution network that
includes the e-Choupal system - a two-way sourcing and distribution system for farmers in
remote villages, as well as its cigarette and pan network. With this infrastructure in place ITC
Foods has launched into four branded foods areas - ready-to-eat, staples, snacks and
confectionery. Its Kitchens of India brand sells packaged gourmet Indian cuisine, which offers
recipes from ITC Welcomgroup Hotels. "We picked up popular recipes and put them into cans",
says CEO Ravi Naware. "This is five-star food prepared by our chefs and targeted at
connoisseurs of good food". The brand is marketed through up market retail chains in Delhi,
Mumbai, Bangalore, Chennai, and Ahmadabad, and select clubs in Kolkata. The selling point is
that no preservatives are added, and through 'retorting' technology the shelf life of these foods is
close to one year. ITC Foods has a contract manufacturing facility, where quality is supervised
with focus on ingredients and recipe. A panel tastes it and approves it before processing takes
place. The canned Kitchens are present in 48 towns (of over 500,000 population) and the group
plans to export its products after is has established the brand nationally. The group sees high
growth potential in the staples segment. "The consumption of aata is 45 million tonnes in India",
says Naware. "Only 2 per cent of this is branded". ITC's branded aata is customised to cater to
different tastes, to suit markets in the north, west, and south. To differentiate each type, the
package is colour-coded - the main variant in each area is coded red, while its Ashirwad Select is
coded orange. Essentially an urban phenomenon, it covers 27 cities in India. The Company plans
to have its staples available all over India by March this year - and next on the agenda is branded
rice and salt. "There's a need to consolidate, to establish the business and the brand, and then fill
up the portfolio", says Naware. Gopal G.V.R., a supervisor at Foodworld in Bangalore, notes:
"You just can't compete with Lever's Annapurna or Godrej's Pillsbury". However, he does point
out that the awareness and demand is picking up for ITC's aata. Kitchens of India, on the other
hand, is doing well with an elite segment of consumers, while the orange Minto confection is
taking off. Minto helped to generate quick volumes in four months, says Naware. Acquired from
Candico in March 2002, Minto was reengineered and the flavour variant - orange - introduced.
31INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
"We got into the untapped potential of the mint market", says Naware. "We brought novelty to
this segment - orange mint is 50 per cent of consumption". ITC Foods' product development
centre in Bangalore is working at bringing added-value products across segments. The bid to be
different "to create a buzz in the market", says Naware, also led to the wild banana variant in the
Candyman range of sweets. The flavour was one of the two (the other being mango) chosen after
a sampling of six flavours by 3,600 schoolchildren. Here the distribution makes use of the
tobacco network: ITC services 1.1 million outlets at average frequency of three days down to
villages of population 2,000, and has 1,000 wholesale dealers. "ITC's distribution philosophy is
that of channel-tailored support. ITC and its distributors use different sales forces to cater to the
separate channels of convenience outlets, grocers, and supermarkets", says Naware. "ITC
services trade channels and not specifically one kind of outlet alone. Thus for impulse purchases
like confectionery, the bulk of our sales come from convenience outlets. However, categories
like aata, ready-to-eat foods, and snack foods are directly distributed to grocers and key
accounts, in addition to some convenience outlets". ITC directly services more than a million
outlets all over India. It has depots in key states and the depots are geographically dispersed to
optimise logistics costs, according to Naware. He points out that for high-bulk, low-weight items
(such as the most recent launch of snack brand I Bischips), specific retail stocking and display
solutions use floor and air space for ease of placement and high visibility.
The other advantage is ITC's backward integration with the parent Company's $155 million
international business division (IBD), which markets agricultural products abroad. IBD's e-
choupal system, which sources directly from the farmers through 1,286 kiosks across 9,000
villages, also helps to develop markets and brands for ITC's consumer goods. As a distribution
channel, the two-way-functioning e-choupal is cost effective, with the added scope of increasing
in range as more kiosks and more farmers are tagged on to the sourcing network. The e-choupals
and the storage hubs - the Company has a strategically located hub in each state - function as
centres where ITC and the firms it partners can market FMCG goods that range from agricultural
products to household items. The Company also uses local paanwalla networks to help to boost
its brands. Cash-rich and networked, the Company is cashing in on the potential of a 2.5 million-
strong force of such retailers. The group's experience in cigarettes has sensitised the system to
fine-tune stock control mainly because cigarettes are a high-value product with high inventory
carrying costs. At an individual retail outlet level the Company has a supervision process that
32INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
ensures stockouts/overstocking do not take place. ITC's frequency of retail servicing is one of the
highest in the consumer-goods business. Consequently it does not need to resort to dumping of
stocks at an outlet as an insurance against stockout situations but can sell only as much as the
retailer can dispose of and top up stocks whenever and wherever necessary. This also makes the
group manage its working capital better.
Timing and data-gathering regarding stocks is crucial. "We have a fully online ERP-based
logistics system linking our distributors, godowns, and marketing branches to head office and
factories, continuously feeding in data of sales and stock positions across the entire supply
chain", says Naware. "This enables us to track pipelines and sales in real time and keep control
over all elements of the supply chain, be it raw material, packaging material, work-in-process
inventory, or finished goods." To leverage its network and distribution reach, and to centralize
the data flow between various divisions, ITC has installed Project Infobahn, a Companywide
hybrid network using a virtual private network (VPN) through an Internet service provider. This
comprises 69 leased lines, 103 ISDN lines, 10 radio frequency devices, and four new VSAT
links. This lets staff, wholesale dealers, and partner companies access data and transact business
over the Internet. It also leverages the existing network to 'cross-sell' and 'up-sell' the Company's
own business offering and enables it to market offers from other business houses through a
secured distribution network. The network spans 110 locations and all ITC divisions. ITC
complements its distribution effort with consumer research. According to Naware, it spends
Rs12 crore on consumer research. He says that a study showed that 48 per cent of annual
household expenditure goes on buying food. Branded food comprises 5 per cent of this and the
percentage will increase as the economy improves. Naware believes expenditure on food will
touch Rs100 crore in five years' time. Meanwhile, how is ITC gearing up to take on Hindustan
Lever, Nestle, and others in the foods business? Says Naware: "Competitive advantage will
come from distribution strength, servicing of outlets, product quality, relevance, and
differentiation. These constitute the mainstay of our business strategy. We hope to leverage our
brand development capabilities and establish ourselves in the market place." Naware also points
to ITC's abilities in "building consumer brands, in distribution, in unmatched servicing of retail
in India to even villages of 2,000 population as well as its ability to deal with agricultural
products". Clearly, with branded packaged foods emerging as a focus area of growth for
companies like Hindustan Lever, well-equipped ITC still has a tough battle ahead. it's become a
33INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
huge FMCG and lifestyle brand that, even though you buy it (perhaps unknowingly,
unconsciously), still surprises you with the breadth of its spread. Shirts and skirts. Pasta and
paper. Biscuits and candy. Soaps and perfumes. Cigarettes too, of course. All ITC products.
India Tobacco Company? Yes, it still drives the business - there wouldn't be an ITC without the
filter tip that earns the Company 87 per cent of its revenue. But now, three years after it was set
up, ITC Foods is nudging up the ladder. It might be a distant fourth (it contributes over 5 per
cent of the turnover) in terms of revenue to tobacco, agri-business, and paperboards but it has
already surpassed revenues from hotels in the last quarter. And it is certainly a formidable force
in the country's organised food biz. Ravi Naware is the dapper divisional chief executive of ITC
Foods and he doesn't believe in mincing words. "We want to become the number one foods
Company in India within the next five years" he says. Wishful thinking? You couldn't be faulted
for thinking so - after all there's tough competition entrenched into the trade by big boys
Unilever, Nestle and Britannia whose distribution prowess and popularity (some of the key
brands are virtually household names) have to be matched, exceeded even, if it's to succeed.
But ITC Foods isn't balking at the challenge. Already, customer loyalty is being built up for its
buffet of food products - from biscuits, pasta, spices, confectionery and ready-to-eat foods to
branded commodity products like flour, salt and spices. The conglomerate has begun to grab
slices of the market share from its rivals in the game. Aashirwad atta, for instance, is already the
number one flour brand with a 40 per cent market share, virtually forcing Unilever to slow down
its Annapurna atta. Five months after its ready-to-eat pasta under the Sunfeast brand was pitted
against kiddie favourite Maggi noodles, it has established its presence with 6 per cent in volumes
of the branded noodles market.
Its Sunfeast biscuits are at number three position (after Britannia and Parle) with an overall 10
per cent share of the branded market. And in ready-to-eat foods, it's a close number two behind
MTR Foods. A slow starter in the confectionery segment (at number four position), its Mint-O
has managed to grab a 40 per cent market share in its category. The sales figures reflect this
market thrust. This year, ITC Foods hopes to do sales in excess of Rs 800 crore, and analysts
reckon this as a growth of over 90 per cent over the previous year.
At this point, it's already 50 per cent of sales for both Hindustan Lever and Britannia, and a third
those of Nestle. And its target for 2006? To double sales once again, to Rs 1,600 crore. Overall,
34INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
ITC Foods has managed a 10 per cent market share in segments in which the others are operating
- biscuits (Rs 4,500 crore), confectionery (Rs 2,000 crore), atta and salt (over Rs 1,000 crore)
among others. Says Naware: "For the next year or two, our strategy will be to consolidate and
offer a greater range in the existing categories and grow these markets." Strategically, the
Company has kept away from those markets where it does not have the back-end or does not see
value additions. So it is unlikely to make forays into tea and coffee ("highly commoditised") or
dairy products ("needs a very large infrastructure to source milk"). In both cases too, giants in
the business (Unilever, Tata Tea, local brands and a huge unbranded tea market on the one hand,
Nestle, NDDB and state-owned dairy corporations on the other) would make any headway in the
trade extremely difficult Juices? Potato chips? Nothing is being ruled out yet, but ITC Foods is
all set to invest Rs 450 crore in the next three years (apart from the Rs 150 crore it has already
put in) as part of its long-term strategy of ruling the branded food market in India. Industry
analysts are suggesting it has earmarked a hefty 20 per cent of its sales for advertising and sales
promotion, which should grab a good deal of media space. What's ITC doing that's different
from its competitors? Well, it is working on a different model from them, but Naware says the
market is too big for anyone to worry about competition. For instance, branded and packaged
foods is only 8 per cent of a total food market worth a staggering Rs 5, 00,000 crore. This is
expected to increase to 15-20 per cent in the next six years. Should that happen, there are more
than enough room, and then some more, for everyone to coexist? What is different at ITC though
is its ability to leverage its e-Choupal as a pragmatic rural supply chain system. For the
uninitiated, ITC's trading arm, the International Business Division (IBD), has set up over 5,000
e-Choupals covering 31,000 villages across the country where farmers can sell their produce
directly sans middlemen or having to go to a mandi at a fair price, and also get information
relevant to farming, weather and prices at other mandis, all on the net. The "sanchalaks"
(supervisors) in some areas also sell products manufactured by the Company, and in some cases
the Company has started hypermarkets (Choupal Sagar) in rural locations to cater to rural
needs.This backward integration is at the heart of the enterprise. For instance, the entire wheat
for Aashirwad atta is procured from e-Choupals.
The advantage, says Naware is twofold: by cutting the middlemen out, it saves 2 per cent on cost
of wheat, which is significant in a low-margin commodity business; and the Company classifies
the quality of wheat and stores it separately so it does not mix with any inferior varieties, which
35INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
is common enough if you were to buy it from a mandi. The result is an assurance of quality.
Using the same route, ITC acquires spices (chilli powder), again with a similar advantage. That it
has stayed away from branded rice is because the majority of its e-Choupals are not located in
rice farming areas. The model is simple enough. ITC is looking at creating food verticals to
integrate the foods division with that of IBD and the e- Choupal. In the case of wheat, Naware
explains: "We do the first value addition by offering branded Atta, the second value addition is
through biscuits, and the third is pastas." And points out that it would look at similar verticals for
sugar (going up to confectioneries and chocolates) once it can be freely traded. At the other end
the e-Choupal has become an alternative distribution channel for ITC products. About 10-15 per
cent salt volumes are sold through this chain; so are 5 per cent of the biscuits and confectionery
items. And the numbers will grow once more Choupal Sagars get going. The other key element
ITC is leveraging for the foods business is its tobacco distribution chain. It has over 1.5 million
tobacco retailers across the country, larger than Unilever's distribution chain of over 1 million,
virtually neutralising the fact that it is a latecomer in the foods game. That's not to say it hasn't
had to create a separate distribution system to sell Aashirwad atta and other FMCG products
through kinara stores (3,50,000 outlets).But biscuits and confectioneries are perfect
complementary products that can be sold through the tobacco chain. Currently, as much as half
the tobacco retailers carry confectionery and about 3 lakh stock its biscuits. And as much as 40
per cent of the tobacco retailers are already stacking FMCG products other than just tobacco. But
perhaps the most important factor that has helped ITC sustain its foods business is its healthy
financials backed by attractive tobacco margins that can absorb the pressure of losses in the
FMCG business.Says Mohan Krishnaswamy of ABN Amro, who tracks the Company: "ITC is
leveraging the strength of its cigarette business and does not face any immediate pressure of
returns, which is not the case with the multinational food companies. So, it can build scale and
wait for 2-3 years to build a viable business." Analysts point out that operating margins for ITC
are around 35 per cent as compared to 15 per cent for Hindustan Lever and 20 per cent for Nestle
India. This despite the fact that in ITC's non-cigarette FMCG business (which primarily includes
foods) margins are negative (minus 35 per cent), so it resulted in losses of over Rs 190 crore last
year - but ITC has the strength to absorb the losses without affecting its bottomlines. Unlike ITC,
analysts say companies like HUL, which are trying to get in line with their international goals,
are under pressure because they are concentrating on power brands and improvements in
margins.
36INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
HUL's sales of processed foods have actually come down and ice-cream sales have grown only
marginally in the six months ending June this year over last year. Clearly, part of the foods
strategy is prompted by ITC's attempt to reduce its dependence on tobacco, which constitutes
over 87 per cent of its operating profits and over 71 per cent of its turnover. But without excise
(because excise duty on cigarettes is high it distorts the turnover in their favour) cigarettes
contribute for only 55 per cent of the turnover. To that extent, the non-cigarette FMCG business
(at 5 per cent per cent of the Company's turnover) might look small, but its contribution to
turnover has already surpassed the Company's hospitality business and is closing the gap with its
paper business. And without taking excise into consideration (excise on food items is very low)
its contribution to turnover is already a healthy10 per cent. Also, the FMCG business is growing
much faster than others: FMCG revenues in the first quarter were up 90 per cent compared to
hotel growth of only 36 per cent and paper of 22 per cent. Of course, the agri-business grew
handsomely by 64 per cent and is the second-largest revenue earner after tobacco. Not
everything's hunky-dory though. Losses in ITC's FMCG business went up in the first quarter this
year from Rs 39 crore to Rs 54 crore, even though turnover went up by 90 per cent.
A Merill Lynch report on the Company cautions: "We are a little disappointed by higher losses
in the FMCG business on a y-o-y basis." It earmarks two risks : "Cigarette demand may slow
down and FMCG losses may exceed expectations."FMCG analyst Kunal Motishaw is monitorial
too: "ITC has the potential to become the number one foods player, but food is not its core
competency, hence it will be a tough task.Its strategy is totally different from that of HUL,
Nestle and Britannia. ITC offers its distributors higher margins (ITC says it offers competitive
margins) and also its products are more competitively priced as compared to its competitors, all
of which has resulted in it cornering an over 10 per cent market share in a short span of time."
HUL and Britannia have predictably declined to comment on their rival's strategy, but another
Mumbai analyst says: "ITC has no existing products so it has to first develop them, which might
take them longer. The Company right now is very clear about focussing on market share and not
profitablity."But that isn't likely to put a brake to ITC's foodie ambitions. It has identified its
immediate task to expand its reach into more cities and towns, to garner more retailers. The
target is to reach 1.2 million retailers (from 8,00,000) in the next two years and to ensure they
stack all ITC products.More importantly, it is playing up product differentiation to catch the eye
37INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
of the consumer. In the overcrowded biscuit category, for instance, ITC has introduced the
popular Marie biscuit in an orange flavour. Customers used to the salty crackers of Parle's
Monaco are being offered an alternative flavoured with chilli flakes. In confectionery, ITC again
changed the rules of the game by introducing flavoured mints in orange and lemon for Mint-O,
and as much as 50 per cent of the mint volumes now come from this category. That apart, it also
introduced a format of six rolls (instead of 12) priced at Rs 2, which fits in well in cigarettes
stores across the country. Buoyed with the brand's success, it has now extended the brand with
the launch of cough lozenges and in a short three months, has already grabbed a 15 per cent
share of the market. As for the ready-to-eat food market, ITC has created two distinct segments -
the upper end catered through the Kitchens of India brand (based on recipes from its restaurants
in Welcomgroup hotels) and the mid-market through the Aashirwad series. ITC executives admit
that this is a small market (total size: Rs 80 crore) but it's growing at 35 per cent per annum. And
even though a large number of players are packing meals into packets, Aashirwad is spreading
the banquet across 15,000 retail stores, while Kitchens of India is available at 7,000 outlets.
Branded foods aren’t likely to be a simple market to crack. But if the record up to now is any
indication, it might suggest that ITC Foods has been able to understand the culinary palate of
Indians much better than many of its competitors.
38INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Competitors operated with a clear strategic vision. If so, has his vision helped?
Britannia, one of the India’s largest biscuit brands held a market share of 38% in terms of value.
Indian biscuit industry, the third largest producer of the biscuits in the world was highly under-
penetrated. This presented numerous growth opportunities to new as well as existing players.
Apart from the presence of big players like ITC Foods and Parle, the local manufacturers of
biscuits and other Indian snacks had been raising concerns for Britannia. Besides competition,
Britannia faced critical challenges due to declining margins in the biscuit industry due to the
increasing costs of raw materials. Its profit had been on a decline since 2005. Though Britannia
had forayed into dairy and bakery products, 90% of its revenues still came from its core business
in biscuits category which was largely driven by product innovation. The case, highlighting the
Britannia’s growth strategies, provides scope to analyse opportunities and challenges for
Britannia in the Indian biscuit industry. With competition hotting between BIG 3 , The
Britannia , Parle and ITC in Indian bakery market ,each one has to develop its own marketing
strategy . Few have gone for product enhancement calling it a health and wellness plat form
other s have gone on pack size modification from Rs 2/- pack sachet to Rs 20/- family pack .
BRITANNIA Industries Ltd is working out a product strategy aimed at capturing various niches
of the snacking segment. For one, the Company is bullish about the "on-the-go" segment and is
planning to roll out smaller packs under its major sub-brands. It would be gradually expanding
its `ticki-packs' (packs of two or four biscuits) concept across its product range. "The market
today is heterogeneous; hence, we need to adopt a segmented approach to reach out to
consumers," said Ms Vinita Bali, CEO. The market has moved into a "consumption-oriented
phase" which she describes as "lot more people with more money to spend on newer products."
Speaking about the "on-the-go" segment, Mr Neeraj Chandra, Marketing Head, said: "It is priced
in Rs 1 to Rs 5 range. We hope to bring in our key brands under this packaging. "On-the-go" is
not just about packaging, it is also about availability in different variants and distribution."
Another niche segment the Company has identified as a potential growth driver is `in-between-
meals snacking', and it would soon be rolling out more products to address this category. The
Company has in the past launched products targeted at the "occasion-based" (such as Diwali
greetings gift packs, etc) segment.Meanwhile, it is currently test marketing newer products,
which may be taken national subsequently.These include cup cakes in Kolkata, Marie Gold
39INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Doubles in Chennai, and Mozzarella cheese in Mumbai.It introduced Marie Gold Doubles with
the `biscuit within a biscuit' catchline in Chennai and plans a phased launch in the rest of the
country.
MARKETING STRATEGY
Marketing is not Euclidean geometry a fixed system of concept. Rather marketing is one of the
dynamic fields with in the management arena. The market faces continually a new challenge
everyday and companies must respond to it positively. Therefore it is not surprising that new
market idea keep surfacing to meet new market place challenges. The market process is
applicable to more than goods and services. Anything related to market including ideas, events,
policies, prices and personalities comes under market strategy. However it is important to
emphasize opportunity in the market through market strategy.
Following strategies adopted by the organization.
A strong quality of the product and customer satisfaction:
Customers always believe in good quality product. in my survey I found that in percentage term
more people is quality conscious and not price conscious. Customer satisfaction is very
important part of the organization that at any cost they have to fulfill.
A growing relationship with customer and customer retention:
Nowadays a good relation with customer is very important for organization. Sale is totally
depending on the relation with the customers. Customer's retention is also a major aspect for
growing business. It means keep the old customer and tries to make new customer.
Focus on competitors activity:
Every organization should must be careful about its competitors step, because they can disturb
the growing sales process of the organization.
A growing emphasis on global thinking and local marketing planning:
Companies are increasing by pursuing market beyond their borders. When they enter other
countries they must follow the tradition of that country and also they make plan for local market
that which type of product has more demand and how can it run in the market.
Promotional Strategy
40INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Under the market strategy promotional idea is very important. Organization provides some
schemes or rebates to retailers or consumers. They make advertisement according to convenient
of the people and the feature of the product. So on the basis of marketing strategy a organization
runs in the market. It is several types of which makes helpful to increase sales and turnover of
the organization.
41INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
HINDUSTAN Unilever Ltd (HUL)
The Company abides by a 'Code of Business Principles' and the management ensures that it is
communicated to, understood and observed by every single employee. HUL is reputed for
conducting its business in a transparent manner with honesty and integrity and with respect for
the interests of those the Company's activities can affect. HUL believes that this reputation is an
asset, just as real as its people, brands and factories.
HUL markets products, which consistently offer value in terms of price and quality and are safe
for their intended use. Its operations are run in an environmentally sound and sustainable
manner, ensuring that the processes and products conform to standards set by the authorities. If
HUL straddles the Indian corporate world, it is also single-minded in identifying itself with
Indian aspirations and devotes itself to upgrading the value of Indian resources to globally
competitive levels. Focus on exports by leveraging its position as a cost-efficient sourcing area
for Unilever globally, Company officials said. HUL reported an 18 per cent growth in exports
with home and personal care, beverages and marine products contributing substantially.
HUL FOCUSSES ON:
Opportunities in leather, thermometer and mushroom and review them,'' HUL has a
significant advantage in the fact that it is a cost-efficient sourcing area for Unilever.
The Company focusing on country specific products such as marine products, castor oil,
coffee and rice for the export market.
HUL would continue to drive market growth by employing a strategy to understand the
consumer.
HUL follows short supply chain for distributing its products.
Optimum utilization of resources.
Focus on Power brands
Improving profitability of Foods business
Securing the future of non core businesses
42INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
43INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Analyze the customer base of the industry, including an identification of the
key market segments.
The inception of the retail industry dates back to times where retail stores were found in the
village fairs, Melas or in the weekly markets. These stores were highly unorganized. The
maturity of the retail sector took place with the establishment of retail stores in the locality for
convenience. With the government intervention the retail industry in India took a new shape.
Outlets for Public Distribution System, Cooperative stores and Khadi stores were set up. These
retail Stores demanded low investments for its establishment. The large pool of emerging middle
class, with population of more than 350 million lies at the center of big bets for the major retail
industry players. The changing consumption patterns are raising the demand for lifestyle
products. While organized retailer sector in India is targeted at high-income urban customers,
unorganized retail sector primarily caters to traditional customer base of lower income sections
in the rural pockets of India. This is probably why the two forms of retailing manage to co-exist
in India. Organized Indian Retail Sector has undergone rapid changes and has met morphed into
a high-growth industry. With the mushrooming of malls, multiplexes, and supermarkets
consumers are treated to a completely different shopping experience. With a gamut of services,
freebies and bonanzas as addendum, organized retail sector are getting all the customer attention.
The stature of the Indian Retail Industry is significant, with a whooping 5 million retail outlets
spanning across the country. However most of these are self-styled traditional units, with
significant local presence, lacking anything close to a modern retailing industry. For this very
reason, industry experts feel that opportunities in organized retailing are going to increase
manifold. The market research report, “India Retail Sector Analysis (2006-2007)”, accredits the
Indian Retail Industry as a significant revenue churner, with a market size of Rs. 10 Trillion as
per 2005. Organized Indian retail sector market size hovers around Rs 351 Billion and is rapidly
gaining ground. An analysis Indian Retail Sector reveals that average growth rate for this
segment stands at around 32% in comparison to a modest 8% in the unorganized sector. Rural
India is the major revenue driver for unorganized retailing in India with a share of 76%.The
overall Indian Retail Industry contributes 10% to the GDP and a source of employment for more
than 41 million individuals.
44INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
India retail industry is the largest industry in India, with an employment of around 8% and
contributing to over 10% of the country's GDP. Retail industry in India is expected to rise 25%
yearly being driven by strong income growth, changing lifestyles, and favorable demographic
patterns.
It is expected that by 2016 modern retail industry in India will be worth US$ 175- 200 billion.
India retail industry is one of the fastest growing industries with revenue expected in 2007 to
amount US$ 320 billion and is increasing at a rate of 5% yearly. A further increase of 7-8% is
expected in the industry of retail in India by growth in consumerism in urban areas, rising
incomes, and a steep rise in rural consumption. It has further been predicted that the retailing
industry in India will amount to US$ 21.5 billion by 2010 from the current size of US$ 7.5
billion. Shopping in India have witnessed a revolution with the change in the consumer buying
behavior and the whole format of shopping also altering. Industry of retail in India which have
become modern can be seen from the fact that there are multi- stored malls, huge shopping
centers, and sprawling complexes which offer food, shopping, and entertainment all under the
same roof.
India retail industry is expanding itself most aggressively; as a result a great demand for real
estate is being created. Indian retailers preferred means of expansion is to expand to other
regions and to increase the number of their outlets in a city. It is expected that by 2010, India
may have 600 new shopping centers.
In the Indian retailing industry, food is the most dominating sector and is growing at a rate of 9%
annually. The branded food industry is trying to enter the India retail industry and convert Indian
consumers to branded food. Since at present 60% of the Indian grocery basket consists of non-
branded items. India retail industry is progressing well and for this to continue retailers as well
as the Indian government will have to make a combined effort.
* India Shopping Malls
* Scope of the Indian Retail Market
* Indian Organized Retail Market
* Growth Factors in Indian Organized Retail sector
* Opportunities in Indian Organized Retail sector
* Challenges facing the Indian Organized Retail sector
* Role of Supply Chain in Indian Organized Retail
* Employment Generation by Indian Organized Retail Sector
45INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
* Indian Organized Retail Sector's Impact on Lifestyles
* Emerging Trends in Indian Organized Retail Sector
* Growth of Retail Companies in India
* Evolution of Indian Retail
* FDI in Indian Organized Retail Sector
* Formats in Indian Organized Retail Sector
* Consumer Durables Retail
The Indian retail market, which is the fifth largest retail destination globally, has been ranked the
second most attractive emerging market for investment after Vietnam in the retail sector by AT
Kearney's seventh annual Global Retail Development Index (GRDI), in 2008. The share of retail
trade in the country's gross domestic product (GDP) was between 8–10 per cent in 2007. It is
currently around 12 per cent, and is likely to reach 22 per cent by 2010. A McKinsey report 'The
rise of Indian Consumer Market', estimates that the Indian consumer market is likely to grow
four times by 2025. Commercial real estate services Company, CB Richard Ellis' findings state
that India's retail market is currently valued at US$ 511 billion. Banks, capital goods,
engineering, fast moving consumer goods (FMCG), software services, oil marketing, power,
two-wheelers and telecom companies are leading the sales and profit growth of India Inc in the
fourth quarter of 2008-09. India continues to be among the most attractive countries for global
retailers. At US$ 511 billion in 2008, its retail market is larger than ever and drawing both global
and local retailers. Foreign direct investment (FDI) inflows as on January 2009, in single-brand
retail trading, stood at approx. US$ 25.18 million, according to the Department of Industrial
Policy and Promotion (DIPP).
India's overall retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3 trillion
by 2018, at a compound annual growth rate (CAGR) of 10 per cent. As a democratic country
with high growth rates, consumer spending has risen sharply as the youth population (more than
33 percent of the country is below the age of 15) has seen a significant increase in its disposable
income. Consumer spending rose an impressive 75 per cent in the past four years alone. Also,
organised retail, which accounts for almost 5 per cent of the market, is expected to grow at a
CAGR of 40 per cent from US$ 20 billion in 2007 to US$ 107 billion by 2013. India has
emerged the third most attractive market destination for apparel retailers, according to a new
46INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
study by global management consulting firm AT Kearney. It further says that in India, apparel is
the second largest retail category, representing 10 per cent of the US$ 37 billion retail market. It
is expected to grow 12-15 per cent per year. Apparel, along with food and grocery, will lead the
organised retailing in India. India has one of the largest numbers of retail outlets in the world. A
report by Images Retail estimates the number of operational malls to grow more than two-fold,
to cross 412, with 205 million square feet by 2010, and a further 715 malls to be added by 2015,
with major retail developments even in tier-II and tier-III cities in India.
Marks & Spencer Reliance India is planning to open 35 more stores over the next five
years, according to Mark Ashman, CEO of the Company. The 51:49 joint venture
between UK’s Marks and Spencer and Reliance Retail Ltd already has 15 stores in India.
Future Group has been restructured to test the new rules on FDI under Press Notes 2, 3
and 4 issued in February 2009. The Company plans to bring in up to US$ 148.7 million
in foreign investment. Although FDI is permitted only in single-brand retail and not
permitted in multi-brand retail businesses like Future Group's, the conglomerate has
created two layers of operations to take advantage of the three Press Notes that allow FDI
up to 49 per cent in operating-cum-investment companies as long as they are owned and
controlled by Indians.
Carrefour SA, Europe’s largest retailer, may start wholesale operations in India by 2010
and plans to set up its first cash-and-carry outlet in the National Capital Region.
Currently, Carrefour exports goods worth US$ 170 million from India to Europe, UAE,
Indonesia, Europe, Thailand, Singapore and Malaysia.
Jewellery manufacturer and retailer, Gitanjali Group and MMTC are jointly setting up a
chain of exclusive retail outlets called Shuddi–Sampurna Vishwas. The joint venture,
which plans to open around 60 stores across India by end of this year, will retail
hallmarked gold and diamond jewellery.
Mahindra Retail, a part of the US$ 6.7-billion Mahindra Group, plans to invest US$ 19.8
million by 2010 to step up its specialty retail concept 'Mom and Me'.
Policy Initiatives
100 per cent FDI is allowed in cash-and-carry wholesale formats. Franchisee arrangements are
also permitted in retail trade. 51 per cent FDI is allowed in single-brand retailing.
47INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Road Ahead (future)
A major impediment to the growth of retail in India is the huge number of licenses and
permissions required to operate, coupled with the fact that retail does not enjoy industry status.
According to industry experts, the next phase of growth is expected to come from rural markets,
with rural India accounting for almost half of the domestic retail market, valued over US$ 300
billion. Rural India is set to witness an economic boom, with per capita income having grown by
50 per cent over the last 10 years, mainly on account of rising commodity prices and improved
productivity. According to retail and consumer products division, E&Y India, basic
infrastructure, generation of employment guarantee schemes, better information services and
access to funding are also bringing prosperity to rural households. The rural market, product
design will need to go beyond ideas like smaller sizes (such as single use sachets) to create
genuinely new products, according to Ramesh Srinivas, national industry director (consumer
markets), KPMG India. According to the Investment commission of India, the overall retail
market is expected to grow from US$ 262 billion to about US$ 1065 billion by 2016, with
organized retail at US$ 165 billion (approximately 15.5 per cent of total retail sales). India is
expected to be among the top 5 retail markets in the world in 10 years.
According to new market research report by RNCOS titled, "Booming Retail Sector in India",
organized retail market in India is expected to reach US$ 50 billion by 2011.
Number of shopping malls is expected to increase at a CAGR of more than 18.9 per cent
from 2007 to 2015.
Rural market is projected to dominate the retail industry landscape in India by 2012 with
total market share of above 50 per cent.
Organized retailing of mobile handset and accessories is expected to reach close to US$
990 million by 2010.
Driven by the expanding retail market, third party logistic market is forecasted to reach
US$ 20 billion by 2011.
48INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
A market analysis of the important competitors, their strategy objectives,
weaknesses & problems. Attempt to identify the SCAs of the major competitors.
Strengths
HUL enjoys a formidable distribution network covering over 3400 distributors and 16 million
outlets. This helps them maintain heavy volumes, and hence, fill the shelves of most outlets. The
new sales organization named 'One HUL' brings "Household and Personal Care" and foods
distribution networks together, thereby aligning all the units towards the common goal of
achieving success. HUL has been continuously able to grow at a rate more than growth rate for
FMCG Sector, thereby reaffirming its future stronghold in Indian market.
Project Shakti - Rural India is spread across 627,000 villages and possesses a serious distribution
challenge for FMCG Cos. HUL has come up with a unique and successful initiative wherein the
women from the rural sector market HUL products, and hence, are able to reach the same
wavelength as of the common man in village. Apart from product reach, the initiative also
creates brand awareness amongst the lower strata of society. This has brought about phenomenal
results.
49INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Weaknesses
HUL's market dominance, originating from its extensive reach and strong brand presence,
allowed it to raise the prices even as raw materials were getting cheaper. Hence, though the
volumes decreased, the margins grew, and Company was able to earn more profits. But higher
margins attracted competition in areas of operations. HUL's strategy remained focused on
creating power brands and earning higher margins. It was not left with any other option but to try
cutting down the costs in order to protect volumes, if not increase it.
As shown in above figure, the key differentiators for an FMCG player are ability to call shots
and pricing power, and HUL has shown weakness over both these factors.
HUL's weakness was its inability to transform its strategies at the right time. They continued
with the same old strategy which helped them gain profits but was not genuine in this changed
50INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
environment. HUL's risk aversion and market myopia led to stagnation of business, and ferocity
of competition forced it into a defensive mode. Lack of pricing power in core business and
absence of growth drivers have put HUL on a deflationary mode.
Opportunities
• India is one of the world's largest producers of FMCG goods but its exports are miniscule as
compared to production. Though Indian Cos. has been going global, their focus is more towards
Asian countries because of the similar preferences. HUL is one of the top companies exporting
FMCG goods from India. An expansion of horizons towards more and more countries would
help HUL grow its consumer base and henceforth the revenues.
• Opportunity in Food Sector - The advent of modern trade has opened up greater opportunities
for HUL to diversify its brand and strength its food division. It could look at introducing
products from its parents stable like margarines and could also look at expanding its Knorr range
of products.
51INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Well-placed to take advantage of future FMCG Growth - HUL reach out 80% of 207 million
households in the country through various brands. It has a very well-defined product portfolio
spread across many product categories. Penetration levels for some major categories like skin-
cream (22%), shampoo (38%), toothpaste (48%) and processed foods, continue to remain low
offerings but great growth opportunities products.
Threats
ITC has reduced its dependence on the cigarettes business - Contribution of the core business in
revenues has come down from 87% in FY99 to 70% in FY05. Over a period of five years, ITC
has extended its presence into areas like foods, retailing, hotels, greetings, agri, paper, etc. These
are businesses that can give it growth impetus in the long run. With ITC gaining momentum in
each of these businesses, it is turning into a consumer monolith, and hence, the greatest threat to
HUL's Business.SSKI India has gone on to say, "We maintain Out performer on ITC with a price
target of Rs. 2200, while our Under performer call on HUL remains unaltered (price target of Rs.
160)."
Figure: ITC Has Overtaken HUL in Gross Sales
52INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Figure: ITC Overtakes HUL in Bourses
A core competency is something that a firm can do well and that meets the following three
conditions specified by Hamel and Prahalad (1990):
1. It provides customer benefits
2. It is hard for competitors to imitate
3. It can be leveraged widely to many products and markets.
A core competency can take various forms, including technical/subject matter know how, a
reliable process, and/or close relationships with customers and suppliers (Mascarenhas et al.
1998). It may also include product development or culture such as employee dedication. Modern
business theories suggest that most activities that are not part of a Company's core competency
should be outsourced. If a core competency yields a long term advantage to the Company, it is
said to be a sustainable competitive advantage. As an example they gave Honda's expertise in
engines. Honda was able to exploit this core competency to develop a variety of quality products
from lawn mowers and snow blowers to trucks and automobiles. To take an example from the
automotive industry, it has been claimed that Volvo’s core competency is safety. This however is
perhaps the end result of their competency in terms of customer benefit. Their core competency
might be more about their ability to source and design high protection components, or to
research and respond to market demands concerning safety.
53INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Competitive advantage
When a firm sustains profits that exceed the average for its industry, the firm is said to possess a
competitive advantage over its rivals. The goal of much of business strategy is to achieve a
sustainable competitive advantage. A competitive advantage exists when the firm is able to
deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits
that exceed those of competing products (differentiation advantage). Thus, a competitive
advantage enables the firm to create superior value for its customers and superior profits for
itself. Cost and differentiation advantages are known as positional advantages since they
describe the firm's position in the industry as a leader in either cost or differentiation. A
resource-based view emphasizes that a firm utilizes its resources and capabilities to create a
competitive advantage that ultimately results in superior value creation.
The Competitive Advantage model of Porter learns that competitive strategy is about taking
offensive or defensive action to create a defendable position in an industry, in order to cope
successfully with competitive forces and generate a superior return on investment. According to
Michael Porter, the basis of above-average performance within an industry is sustainable
competitive advantage.
There are 2 basics types of CA:
- cost leadership (low cost), and - Differentiation.
Both can be more broadly approached or narrow, which results in the third viable competitive
strategy: focus.
Approach 1 to Competitive advantage: Cost leadership.
•a firm sets out to become the low cost producer in its industry.
• Note: a cost leader must achieve parity or at least proximity in the bases of differentiation, even
though it relies on cost leadership for it’s CA.
• Note: if more than one Company aim for cost leadership, usually this is disastrous.
• Often achieved by economies of scale
Competitive advantage model 2: Differentiation.
54INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
•a firm seeks to be unique in it’s industry along some dimensions that are widely valued by
buyers.
• Note: a differentiator cannot ignore its cost position. In all areas that do not affect it’s
differentiation it should try to decrease cost; in the differentiation area the costs should at least be
lower than the price premium it receives from the buyers.
• Area’s of differentiation can be: product, distribution, sales, marketing, service, image, etc.
Competitive advantage 3: Focus. = a firm sets out to be best in a segment or group of segments.
• 2 variants: cost focus and differentiation focus.
Stuck in the middle:
• Usually a recipe for below-average profitability compared to the industry
• Still attractive profits are possible if and as long as the industry as a whole is very attractive
• Manifestation of lack of choice
• Especially risky for focusers that have been successful and then to loose their focus. They must
seek for other niches rather then compromise their focus strategy.
A firm possesses a Sustainable Competitive Advantage (SCA) when it has value-creating
processes and positions that cannot be duplicated or imitated by other firms that lead to the
production of above normal rents. An SCA is different from a competitive advantage (CA) in
that it provides a long-term advantage that is not easily replicated.
55INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
A historical view of the strategies pursued by the major competitors can be
described.
The Rs 11,000-crore Hindustan Lever (HUL) is formulating a new strategy to expand its
presence in India’s rural markets. HUL is one among those companies in the country that derives
huge revenues (over 50 per cent) from the rural areas. But in the past one year, owing to the
failure of the monsoon in many parts of the country, farmers have registered a substantial fall in
incomes and consequently the purchasing power. For the Company this has resulted in a flat
growth of these markets. Witnessing the flat sales growth in rural areas, HUL has shifted its rural
markets strategy. Earlier each business division of the Company dealt with the rural market on
an individual basis; now the shift in strategy means the Company will deal with rural markets as
a single organization to achieve greater penetration and sales.
This approach is expected to lead to better cohesion, greater push and deeper penetration, which
would eventually lead to better sales. HUL officials say it is not enough that individual business
divisions push their own strategies for the rural market; the Company will have to work in
unison in order to achieve a balanced growth.HUL plans to reach 2, 35,000 villages, up from the
current 85,000; 75 per cent of the population, up from 43 per cent today; and a message reach of
65 per cent, up from the current television reach of 33 per cent.HUL is aiming at reaching
villages with populations less than 2,000. The rural penetration exercise is going to be
complemented by a 15-per cent hike in advertisement expenditure. In 1998 HUL’s personal
products unit initiated Project Bharat, the first and largest rural home-to-home operation to have
ever been prepared by any Company. The project covered 13 million rural households by the end
of 1999.
During the course of operation, HUL had vans visiting villages across the country distributing
sample packs comprising a low-unit-price pack each of shampoo, talcum powder, toothpaste and
skin cream priced at Rs 15. This was to create awareness of the Company’s product categories
and of the affordability of the products. The personal products unit subsequently rolled out a
second phase of the sampling initiative to target villages with a population of over 2,000. Along
with Operation Bharat, HUL conceptualized Project Streamline to enhance its control on the
rural supply chain through a network of rural sub-stockiest based in these villages. This gave the
56INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Company the required competitive edge, and extended its direct reach to 37 per cent of the
country’s rural population. The Indian rural market has a huge demand base and offers great
opportunities to marketers. Two-thirds of Indian consumers live in rural areas and almost half of
the national income is generated here. As a rule the rural market is much more price elastic and
involves more intensive personal selling efforts compared to urban marketing, and here HUL has
been more than successful.
India’s largest FMCG Company Hindustan Unilever ltd (HUL) is gearing up to launch its rural
initiative ‘Project Shakti’ in Bihar and Jharkhand very soon. Project Shakti will be operational
across all states in India. The Company also plans to cover 5, 00,000 villages with 1, 00,000
Shakti Ammas (women entrepreneurs) in the next two years. Competitor ITC Ltd is also
planning to set up 50 Choupal Sagars (rural super stores) by the end of this fiscal year. Clearly,
India’s two major FMCG players in rural markets are now extending their reach to woo new
consumers.
On HUL’s rural strategy, Dalip Sehgal, executive director (New Ventures & Marketing
Services),HUL, said: ”To support Project Shakti, we are now launching value-added services in
rural belts. With Shakti Vanis, we are educating villagers on health and hygiene. Also, we are
running campaigns on ORS (Oral Rehydration Solutions)in villages."As part of the strategy,
HUL has tied up with Skojo Foundation to offer spectacles to villagers at low price points. As
for ITC, S Sivakumar, chief executive, agri business, ITC, said: "We have introduced ‘Choupal
Prathishtan Keth’ to showcase the best farming practices to farmers. At present, we have 10
Choupal Sagars spread across nine states, and nine more Choupal Sagars are under
construction." Interestingly, ITC and HUL are also beefing up their marketing efforts to gain
market share in urban India. For instance, ITC has just launched ‘Choupal Fresh’ in Hyderabad.
"It’s an urban initiative on retailing rural produce like vegetables and fruits. After Hyderabad, we
will launch this urban initiative in Pune," explained Shivakumar. To woo urban consumers, HUL
is also extending the services of its ‘Ayush Therapy Centres (ATC)’ from 26 to 40 by the end of
this year.
57INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Analyze the environment trends, opportunities & threats. Suggest possible
scenarios for the future.
ITC Ltd is now evolving new standards in corporate social responsibility, in terms of
environment, health and safety (EHS) - going well beyond the statutory compliance levels, to
emerge as water and carbon positive. The Company has launched a major EHS exercise to
sensitise all its employees, including the rank and file, to understand the requirements of the
voluntary "Global Reporting Initiatives" (GRI) in keeping with the goal of "enhancing the
quality, rigour and utility of sustainability reporting. He said ITC is now making efforts to go
beyond the compliance levels mandated by the various statutes governing environment and
corporate safety, and has already emerged as water positive.
Opportunities
The Company’s strengths and weaknesses and areas of development or decline are analyzed.
Financial, strategic and operational factors are considered.
• The opportunities open to the Company are considered and its growth potential assessed.
Competitive or technological threats are highlighted.
• The report contains critical Company information – business structure and operations, the
Company history, major products and services, key competitors, key employees and executive
biographies, different locations and important subsidiaries
58INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
• It provides detailed financial ratios for the past five years as well as interim ratios for the last
four quarters.
• Financial ratios include profitability, margins and returns, liquidity and leverage, financial
position and efficiency ratios.
ITC is moving into new and emerging sectors including Information Technology, supporting
business solutions. e-Choupal is a community of practice that links rural Indian farmers using the
Internet. This is an original and well thought of initiative that could be used in other sectors in
many other parts of the world. It is also an ambitious project that has a goal of reaching 10
million farmers in 100,000 villages. ITC leverages e-Choupal in a novel way. The Company
researched the tastes of consumers in the North, West and East of India of atta (a popular type of
wheat flour), then used the network to source and create the raw materials from farmers and then
blend them for consumers under purposeful brand names such as Aashirvaad Select in the
Northern market, Aashirvaad MP Chakki in the Western market and Aashirvaad in the Eastern
market. This concept is tremendously difficult for competitors to emulate. Chairman Yogi
Deveshwar's strategic vision is to turn his Indian conglomerate into the country's premier FMCG
business. Per capita consumption of personal care products in India is the lowest in the world
offering an opportunity for ITC's soaps, shampoos and fragrances under their Wills brand.
Threats
The obvious threat is from competition, both domestic and international. The laws of economics
dictate that if competitors see that there is a solid profit to be made in an emerging consumer
society that ultimately new products and services will be made available. Western companies
will see India as an exciting opportunity for themselves to find new market segments for their
own offerings. ITC's opportunities are likely to be opportunities for other companies as well.
Therefore the dynamic of competition will alter in the medium-term. Then ITC will need to
decide whether being a diversified conglomerate is the most competitive strategic formation for
a secure future.
POSSIBLE SCENARIOS FOR THE FUTURE
Our non-tobacco business comprised 38 per cent of net turnover in 2003-04, and this was up to
over 51 per cent in the second quarter of this year. While our tobacco business grew 13 per cent
59INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
last year, non-tobacco grew 53 per cent. Hyderabad is in for more retail action. The Future
Group’s Food Bazaar has tied up with ITC Choupal Fresh to sell fruits and vegetables in the twin
cities. It plans to replicate the model in the other cities if the experiment is successful, said Food
Bazaar CEO Sadashiv. Choupal Fresh is ITC’s food retail chain and operates as wholesale-cum-
retail stores. It is equipped with warehousing and cold chain facilities to stock fresh horticulture
products that are directly sourced from farmers.
The retail chain leverages on the extensive backward linkages with farmers and supply chain
efficiencies. Food Bazaar is expected to take advantage of the infrastructure by partnering with
ITC’s Choupal Fresh. “We have tied up with local dealers for the supply of fruits and vegetables.
These dealers can now tie up with ITC Choupal Fresh to make their produce available at the
Food Bazaar stores,” he said. Besides such tie-ups , the Company is also planning to invest
around Rs 200 crore to expand its reach by doubling the number of stores by July next year with
a host of new product offerings . Food Bazaar has around 90 stores now and is targeting 180 in
seven top cities.
FMCG Company ITC Ltd is poised to make aggressive inroads into the market with a slew of
new launches in the branded and packaged foods business. The Company is also contemplating
the setting up a composite foods manufacturing facility in Bangalore shortly, entailing an
investment of up to Rs 700 crore. "We are consciously capitalising a lot of our efforts to expand
our existing product categories in all four segments," ITC Foods divisional chief executive Ravi
Naware said in an informal chat with mediapersons on the occasion of Sunfeast Open 2007. ITC
has a presence in four segments - ready to eat foods, staples, confectionery and snack foods.
He, however, refused to name the segment that would witness new offerings over the next six
months. "Like Sunfeast Sachin Fit Kit's multi-grain biscuits, we are also working on introducing
higher variants in our existing range of products, in response to consumer choice and preference
in urban centre’s," On the Company's plans for a third manufacturing unit, Mr. Naware said:
"We plan to set up another manufacturing facility in Bangalore. However we are yet to decide
whether it will be a foods unit only or a 'composite facility' manufacturing personal care products
too." ITC Foods already has a unit in Haridwar (Uttaranchal) and is slated to commission its
second unit at Pune in January 2008.
If the Company decides to set up an integrated food manufacturing facility, total outlay on the
project will be in excess of Rs 700 crore upwards as a similar plant in Haridwar entailed such an
investment, Mr. Naware said. Setting up of a Bingo producing snacks food unit will require an
60INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
investment of a couple of hundred crore only. ITC's decision to locate manufacturing facility in
each region is largely prompted by packaging needs. This is also the reason why the Company
could be looking at a fourth unit in West Bengal. The organised market for biscuits is estimated
at Rs 5,000 crore, of which ITC has a 11% value share.
Elaborating on future plans, Mr Naware said: "We are always open to opportunities for inorganic
growth, but it must be an economically viable proposition. We do not want to pay a high price
for the sake of inorganic growth." Incidentally, the Company had acquired Mint-O brand from
Candico. ITC Ltd's foods division is also planning to increase the export component of its
'Kitchens of India' range of premium ready-to-eat Indian dishes. Kitchens of India's vegetable
curries, chutney and pastes are available in the US and Canada. It has also started exporting
Sunfeast and Aashirvaad atta in a small way.
61INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Assess the industry from a BCG/McKinsey portfolio analysis.
India retail industry is the largest industry in India, with an employment of around 8% and
contributing to over 10% of the country's GDP. Retail industry in India is expected to rise 25%
yearly being driven by strong income growth, changing lifestyles, and favorable demographic
patterns. It is expected that by 2016 modern retail industry in India will be worth US$ 175- 200
billion. India retail industry is one of the fastest growing industries with revenue expected in
2007 to amount US$ 320 billion and is increasing at a rate of 5% yearly. A further increase of 7-
8% is expected in the industry of retail in India by growth in consumerism in urban areas, rising
incomes, and a steep rise in rural consumption. It has further been predicted that the retailing
industry in India will amount to US$ 21.5 billion by 2010 from the current size of US$ 7.5
billion. Shopping in India have witnessed a revolution with the change in the consumer buying
behavior and the whole format of shopping also altering. Industry of retail in India which have
become modern can be seen from the fact that there are multi- stored malls, huge shopping
62INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
centers, and sprawling complexes which offer food, shopping, and entertainment all under the
same roof.
India retail industry is expanding itself most aggressively; as a result a great demand for real
estate is being created. Indian retailers preferred means of expansion is to expand to other
regions and to increase the number of their outlets in a city. It is expected that by 2010, India
may have 600 new shopping centers. India's overall retail sector is expected to rise to US$ 833
billion by 2013 and to US$ 1.3 trillion by 2018, at a compound annual growth rate (CAGR) of
10 per cent. As a democratic country with high growth rates, consumer spending has risen
sharply as the youth population (more than 33 percent of the country is below the age of 15) has
seen a significant increase in its disposable income. Consumer spending rose an impressive 75
per cent in the past four years alone. Also, organised retail, which accounts for almost 5 per cent
of the market, is expected to grow at a CAGR of 40 per cent from US$ 20 billion in 2007 to US$
107 billion by 2013.
The GE matrix / McKinsey matrix is a model to perform a business portfolio analysis on the
Strategic Business Units of a corporation.
63INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
A business portfolio is the collection of Strategic Business Units that make up a corporation. The
optimal business portfolio is one that fits perfectly to the Company's strengths and helps to
exploit the most attractive industries or markets. A Strategic Business Unit (SBU) can either be
an entire mid-size Company or a division of a large corporation that formulates its own business
level strategy and has separate objectives from the parent Company.
The aim of a portfolio analysis is:
Analyze its current business portfolio and decide which SBU's should receive more or
less investment, and
Develop growth strategies for adding new products and businesses to the portfolio.
Decide which businesses or products should no longer be retained.
The BCG Matrix (Boston Consulting Group Matrix) is the best-known portfolio planning
framework. The GE / McKinsey Matrix is a later and more advanced form of the BCG Matrix.
The GE / McKinsey Matrix is more sophisticated than the BCG Matrix in three aspects:
Market (Industry) attractiveness replaces market growth as the dimension of industry
attractiveness. Market Attractiveness includes a broader range of factors other than just the
market growth rate that can determine the attractiveness of an industry / market. Compare also:
Porter's Five Competitive Forces model.
Competitive strength replaces market share as the dimension by which the competitive position
of each SBU is assessed. Competitive strength likewise includes a broader range of factors other
than just the market share that can determine the competitive strength of a Strategic Business
Unit. Finally the GE / McKinsey Matrix work with a 3*3 grid, while the BCG Matrix has only
2*2. This also allows for more sophistication.
McKinsey Matrix is strategic and marketing management tool used for portfolio analysis. Most
of the time this tool is used for analyzing portfolio of products, services, and strategic business
units. GE Matrix is similar to BCG Matrix and it is an extension of the BCG Matrix approach -
multifactor portfolio analysis tool. The GE Matrix compares different businesses on "Business
Strength" and "Market Attractiveness" variables, plus the size of the bubbles in the matrix
represents the market size instead of business sales used in the BCG Matrix. The share of the
market or business sales vs. market size is represented as pie chart inside the bubbles in the
matrix. This allows business users to compare business strength, market attractiveness, market
size, and market share for different strategic business units (SBUs) or different product offerings
on one matrix or chart.
64INDUSTRY EVALUATION
COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Bibliography
Strategic Market Management: Fifth Edition by David A. Aaker
http://www.rediff.com/money/2005/oct/31spec.htm
http://www.1000ventures.com/ebooks/bec_mc_sustainable_competitive_advantage.html
http://www.itcportal.com/the_itc_profile/history_evolution.html - top
http://www.itcportal.com/the_itc_profile/itc_profile.html - top
http://economictimes.indiatimes.com/articleshow/3375041.cms
http://www.itcportal.com/the_itc_profile/history_evolution.html - top
www.mdi.ac.in/.../Final%20%20-%20Strategic%20Market%20Management.pdf –
65INDUSTRY EVALUATION