Beacon Nov.2013


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BEACON Nov. 2013_ Volume : 2, Issue : 1

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Beacon Nov.2013

  1. 1. Issue : 1 Volume:2 November 2013 B E A C O N A Newsletter by SIMCON– SIMSREE Consulting Club
  2. 2. Volume: 2 Issue : 1 INDUSTRY ANALYSIS : FMCG Introduction FMCG is the fourth largest sector in the Indian economy with an estimated market size of Rs. 2 trillion and represents 2.5% of the country’s GDP. It has grown at CAGR of 17.3% in the last 5 years. . Food products and personal care together make up two-third of the sector’s revenues. Other segments include household care, fabric care, hair care, baby care, health care including OTC products. Rural and urban markets account for 50%-50% of the FMCG market. While online sales channels are available, grocers still are the most preferred sales channel for FMCG. BEACON : Page 1 Nov. 2013 Bargaining Power of Consumers On account of large number of buyers and limited suppliers, the bargaining power of consumer is low in Indian FMCG. Intensity of Rivalry Competitiveness among the Indian FMCG players is high. With more MNCs entering the country, the industry has become highly fragmented. Leaders in some FMCG categories Note: The percentages don’t add up to 100 due to large number of branded, unbranded competitors in the market. Other market leaders in FMCG include ITC, Nestle, Godrej Consumer, GlaxoSmithKline, GCMMF (Amul). Porter’s 5 Forces Model Barriers to Entry The Indian FMCG Industry is characterized with modest entry and exit barriers. Threat of Substitutes Several brands are positioned with narrow product differentiation. Companies entering a category trying to gain market share compete on pricing which increases products substitution. Hence, threat of substitute is high in the FMCG industry. Bargaining Power of Suppliers Prices are generally governed by international commodity markets, making most of the FMCG companies a price takers. Due to the long term relationships with suppliers etc., the FMCG companies negotiate better rates during times of high input cost inflation. Business Today’s “India’s Most Valuable Companies” Impact Analysis Goods and Service Tax (GST) GST, which will replace the multiple indirect taxes levied on FMCG sector with a uniform, simplified and singlepint taxation system, is likely to be implemented soon (the benefits are likely to come in by the end of FY’14). The rate of GST on services is likely to be 16% and on goods is proposed to be 20%. A swift move to the proposed GST may reduce prices, bolstering consumption for FMCG products. Food Security Bill (FSB) According to Crisil, FSB could generate additional savings of around Rs 4,400 this year for each BPL household that begins to purchase subsidized food which equals around 8% and 5% of the annual expenditure of a rural and urban household, respectively. For rural households the savings amount exceeds their current annual medical and educational spends. FDI in retail The decision to allow 51% FDI in multi brand retail and 100% FDI in single brand retail augers well for the outlook for the FMCG sector. The move is expected to bolster employment, and supply chains, apart from providing high visibility for FMCG brands in organized retail markets, bolstering consumer spending, and encouraging more product launches. For detailed report and all industry analysis from previous Beacons together, please visit our blog :
  3. 3. Volume: 2 Issue : 1 INDUSTRY ANALYSIS : FMCG FDI of 100% under the automatic route is allowed in the food processing sector, which is considered as a priority sector. The FMCG sector has witnessed healthy FDI inflow, as the sector accounted for 2.0 % of the country’s total FDI inflow over April 2000 to March 2013. Trends Focus on Rural Market FMCG growth will be driven by new segments such as urban India’s poorest households and low-income value seekers visiting modern trade outlets for the first time. In order to tap the growing potential of rural markets, the companies are now focused on improving their distribution networks to expand their reach in rural India. Rising Importance of Smaller-sized packs Companies are increasingly introducing smaller stock keeping units (SKUs) at reduced prices. This helps them sustain margins, maintain volumes from price conscious costumers and increase their consumer base. Expanding Horizons A number of companies are exploring the business potential of overseas markets and several regional markets. Target Name L.D. Waxson, Singapore Wyann Acquirer Acquisition Name Wipro MonthYear Acquisition Dec 2012 Consumer VLCC Acquisition Nov 2012 International Lifestyle Products Increasing urbanization and higher disposable incomes are encouraging many consumers to move from unbranded to branded products, bolstering growth in the FMCG market. Despite the current slowdown, the demand for premium products in the health and wellness space, is rising, encouraging companies to launch more premium products. Entry of New Brands (Brand/ Line Extension) Innovation is a driving factor in Indian FMCG. Several companies have started innovating or customizing their existing product portfolios for new consumer segments. Brand extensions are 5 times more successful than launching brands, increasing sales by 30% and contributing to 30% to brand sales. BEACON : Page 2 Nov. 2013 Company Name New Launches New Variants Dabur India Ltd. Babool Salt toothpaste, Gulabari Saffron & Turmeric Cold Cream and Lotion, Air-freshening gels under the brand Odonil HIT Anti Roach Gel, Cinthol shower gel, Godrej Expert Rich Crème TRESemmé range of shampoos and conditioners, Elixir range of oils, Lux deodorant, Lakmé Eyeconic Kajal. Turmeric and Saffron-based bleaches under Fem, Packaged juices under the brands Réal and Activ and Anardana variant in Hajmola. Godrej No. 1 Rosewater and Almonds. Godrej Consumer products Ltd. Hindustan Unilever Ltd. Close-up Eucalyptus Mint. Axe Apollo, Pureit Advanced and Pureit Marvella UV. Conclusion Sales of FMCG products plummeted in September 2013 as per latest Nielson data released on 12 November. The industry grew at 5.3% against 7.3% in August 2013 and against 20.2% in the same month last year. The fall is attributed to increasing inflation and negative market sentiment forcing customers to rethink unnecessary purchases. A Barclays report in October has suggested that companies like HUL, which are exposed to urban and discretionary segments, will suffer due to the slowdown. Due to the slowdown in the economy, sales of premium brands have dropped by 10-12%. Though the short term prospects for FMCG seem bleak, the favourable demographics and the rise in income level is expected to grow FMCG market by CAGR of 14.7%, by 2020. The rise of working population, rural per capita disposable income, and middle class are expected to fuel consumption. FMCG growth will increase by first time modern trade shopper or FTMTS, the customers who for the very first time are exposed to organized retail, to brands, to the proliferation of choice and to the profusion of categories they’ve never had before. FTMTS spends 35% on FMCG at modern trade and is growing by 15% each year. SOURCES: FDR0108201343.pdf For detailed report and all industry analysis from previous Beacons together, please visit our blog :
  4. 4. Volume: 2 Issue : 1 COMPANY ANALYSIS : ITC India Introduction:- BEACON : Page 3 Nov. 2013 BCG Matrix: ITC, headquartered at Kolkata, is one of India's foremost private sector companies with a market capitalization of US $ 45 billion and a turnover of US $ 7 billion. It is currently headed by Mr. Y C Deveshwar. ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India Limited. The name of the Company was changed to India Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - Fast Moving Consumer Goods, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited,'where ‘ITC’ is today no longer an acronym or an initialized form. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine and among India's Most Valuable Companies by Business Today. ITC has grown around 300% during last ten years. Introduction of brands like Sunfeast, Mangaldeep, and Classmate has been a great success. Entry in the personal care products market after 2005 boosted the company income and growth. Company’s focus on quality, innovation and differentiation backed by deep consumer insights, world-class R&D and an efficient and responsive supply chain will further strengthen its leadership position in the Indian FMCG industry. Corporate Strategy Competitors: HUL, P&G, Marico, Colgate-Polmolive, Dabur, L’oreal, Godfrey Phillip, VST, Golden Tobacco, etc. SWOT Analysis: Business Strategy ITC Group’s corporate strategy aims at creating multiple drivers of growth anchored on its core competencies. The Group is currently focused on four business groups: FMCG, Hotels, Paperboards, Paper and Packaging and Agri Business. Empowering Value Chain A conscious strategy to drive the competitiveness of value chains linked to its businesses enables ITC to make a more enduring contribution to national economic development. ITC's winning brands drive synergies to make these value chains sustainable and inclusive. At the same time, by nurturing and strengthening these value chains, ITC adds a unique source of competitive strength to its brands. A very successful example of value chain augmentation is the ITC e-Choupal initiative that empowers over 4 million farmers, while at the same time providing significant competitive advantage in procuring raw material for ITC’s Foods business – be it for Aashirvaad atta produced from handpicked whole wheat, quality-assured Aashirvaad spices or superior chip stock potatoes for Bingo! snack foods. Sources: For detailed report and all company analysis from previous Beacons together, please visit our blog:
  5. 5. Volume: 2 Issue : 1 Concept of the Month BEACON : Page 4 Nov. 2013 McKinsey 7S model How do you go about analyzing how well an organization is positioned to achieve its intended objective? Some approaches look at internal factors, others look at external ones, some combine these perspectives, and others look for congruence between various aspects of the organization being studied. Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company consulting firm, the basic premise of the McKinsey 7S model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful. The 7S model can be used in a wide variety of situations where an alignment perspective is useful to help one:  Improve the performance of a company.  Examine the likely effects of future changes within a company.  Align departments and processes during a merger or acquisition. Determine how best to implement a proposed strategy. The way the model is presented in Figure 1 below depicts the interdependency of the elements and indicates how a change in one affects all the others. The McKinsey 7Ss model is one that can be applied to almost any organizational or team effectiveness issue. If something within your organization or team isn't working, chances are there is inconsistency between some of the elements identified by this classic model. Once these inconsistencies are revealed, you can work to align the internal elements to make sure they are all contributing to the shared goals and values. Consulting Jokes There was a glass of water on the table... One man says, "It's half full". He is an optimist. Second man says, "It's half empty". He is a pessimist. Third man says, "It's twice too big". He is a management consultant. Source : BEACON
  6. 6. QUIZ OF NOVEMBER Volume: 2 Issue : 1 BEACON : Page 5 Nov. 2013 1. _____ is a company in the Scotts valley which is renowned dot com company founded in 1997, by ______ who was motivated to start it after he was charged fine for late submission of CD of Apollo13. 2. He founded one of the most successful online ventures in association with his partner, both of whom graduated from IIT-Delhi in 2008 ,by some other name. Today the venture is valued at Rs.900 Cr. He also happened to work at Bain & Co. for sometime before starting the venture. Identify the person and the venture. 3. Connect the images and identify the person and his latest venture. 4. A national Dairy Development Board’s project ,______ was headed by _________, who led it with the efficacy that it resulted in India getting transformed from a milk deficient nation to world’s largest milk producer in 1998 surpassing _____. 5. Which firm was awarded second time in a row the Market Policy and Advisory award by Commodity business Award? Answer To: with Subject= simcon_quiz_nov_2013 Winner will be recognized. All Correct Answers will be published in next month’s Edition. ANSWERS : OCTOBER ISSUE Answers of last beacon October (Issue 12) Quiz : 1. Johan C. Aurik, A.T. Kearney 2. Boston Matrix (BCG Matrix) 3. X – Point B, Y- Loft9 4. The Dhoni Effect: Rise of Small Town India 5. X - Simone Tata, Y- Lakmé  Arthur D. Little, Inc., for many years one of the largest and most diversified consultancies in the world, was founded in 1886  The first management consultancy to serve both industry and government clients Booz Allen Hamilton founded in 1914  The first modern, pure management and strategy consulting company McKinsey and Company founded in 1926 Contributions invited: To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We invite articles and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your entries to Best Regards, SIMCON –SIMSREE CONSULTING CLUB Our FB page : Mail To: BEACON