Marketing Edible Oil Industry

Group - 01 Kalpesh Agarwal - PGPM508_01 Sivaram Gunavel - PGPM508_12 Chetan Mahindra - PGPM508_23 Manish Raj - PGPM508_35 Jaspal Singh - PGPM508_47

India – fourth largest edible oil consuming economy after USA, China and Brazil

India accounts for 9.3 % of world oilseed production

Production of oilseeds and edible oil is far below the requirement

In 2007-08, the country could produce only about 8.2 million MT of edible oil, 35-40% of the demand had to be met by imports, implying heavy reliance on imports

High penetration of 90% in India

Edible Oils Vanaspati National Dairy Development Board (Anand) Hindustan Lever (Mumbai) ITC Agro-Tech (Secunderabad) Wipro (Bangalore) Marico Industries (Mumbai) Rasoi (Kolkata) Ahmed Mills (Mumbai) Avi Industries (Mumbai Adani Wilmar (Mundra Port)

Extreme variation in consumption. The country’s top 10% of the population consumes 20 kg per capita and the bottom 30%, less than 5 kg per capita

Strong regional preference for ‘first press’ oils with natural flavour – mustard, groundnut, coconut oils

Erosion of self-reliance in edible oils and rising dependence on imports.

Per capita consumption of edible oil (year wise)

Edible Oils 12.7 million MT Oils 11.2 million MT Vanaspati 1.5 million MT

Semi-Processed and Processed

Ready to Eat and Snack food

Competitors Players National Dairy Development Board – Dhara Adani Wilmar Ltd – Fortune Agrotech Foods Ltd – Sundrop Hindustan Lever Limited – Flora Panak Foods – Gemini Ruchisoya – Soyum Marico Indus. – Saffola Kaneria Oils – Rani Geepee Ceval – Chambal NK Proteins Ltd – Tirupati Aravali – Aravali Cargill – Nature Fresh

Highly fragmented industry

Over 600 oil extraction units, 166 Vanaspati manufacturing units - only 10 edible oil units and 8 Vanaspati units have national reach

Over 50% of the units - sick or under utilised due to surplus capacity

Idle capacities among these units due to shortage in feedstock supply

Major oil brands - Sundrop, Dhara, Saffola, Sweekar, Fortune

Vanaspati brands - Dalda, Rath

Market Size

Edible oils and Vanaspati markets – 12.7 million MT

Oils market growing at 8.7% CAGR

Installed CAPACITIES and Production – In MT / Year

Vanaspati Edible Oil Capacity Production 2,720,000 990,534 30,368,000 6,250,000 Utilization 36% 21%

Inputs

Edible Oils - Oilseeds (such as Groundnut, Sesame, Mustard, Sunflower), oil cakes and bran

Vanaspati - Minor (solvent extracted) edible oils - Sunflower oil, Soybean oil, Ricebran oil

Raw Material

Comprises 70% of the production cost

Oilseeds - the largest cash crop

Poor productivity - 873 Kg/ hectare (global average of 2000 kg/ hectare)

Though oilseeds have 14.5% share in gross cropped area, only 25% of it is under assured irrigation

Technology

Refining technology freely available indigenously

Oils: primarily a commodity market - price sensitive

Effective distribution chain - through a complex network of C&F agents, wholesalers / stockists & retailers (kirana shops, supermarkets)

Oil sold in bulk (tin, HDPE containers) to institutions; In retail packs (PET bottles, cans, jars, pouches) to small customers

Most vegetable oil is purchased by household or industrial buyers, food processors, restaurants and hotels.

Seasonal demand for oils & Vanaspati - September to November (peak season)

Regulation : Under the Edible Oils Packaging (Regulation) Order, 1998, edible oils cannot be sold ‘loose’ but can be sold only in ‘packed’ form

Oil consumption - North is largest market, followed by South, West & East zones

Oils and Vanaspati substitutes can be freely imported under OGL

Large scale imports of oils and Vanaspati substitutes - primarily to check price rise and meet supply shortages

Imports during 2007-08 is 5.46 million MT

Estimated imports by 2010 is 7 million MT

Demand

Macroeconomic factors: Population; per capita income; purchasing power; oilseeds

Other factors: Prices – domestic/international, Availability - oil, oilseeds

Influence of branded products – ‘ health ’ message

Growing preference for convenience foods

Key Success Factors

Raw material sourcing: focus on improving yields, getting better quality oilseeds, ensuring regular supplies - through symbiotic relationship with farmer

Branding essential for success (Oils – Sundrop/Dhara/Sunflower, Vanaspati – Dalda)

Better distribution network to improve reach

Efficiency in operation - to become price competent and withstand competition

Proposed future trading in edible oils will help curtail price volatility and lend knowledge-based assistance to farmers to eliminate unofficial markets

Future

This industry is a high volume, medium growth sector characterized by excess/idle capacities owing to in efficient operations. Imports have been influencing prospects, leading to domestic industry crisis

Social:

Consumers

Increase in per capita income and population

Change in tastes and preferences

Increased Health consciousness and low-cholesterol cooking medium

Industry

Industry players – 60% - 70% are small refining units and so are unable to import huge quantities and may be forced to close down

Low capacity utilisation. The installed capacity is only 36 million tonnes annually but utilization is only 40%.

One of the most polluting industries in India

Technological:

Low productivity in the domestic oilseed sector

Political

Liberal policies for edible oil imports

Imports of all edible oils were also placed under Open General License (OGL) since April 2004

The period from 1994 can broadly be divided into two distinct phases:

First between 1994 and 1998, when customs duty on edible oils progressively came down to reach a low of 15% in July 1998,

Second after 1999, when such duties witnessed a general upward trend to reach a high of 92.2% for refined palm oil in April 2005

Free imports, low import duties & slump in global prices lead to dumping

Economic

Annual Rainfall in time and area under oilseed crop

Increase (decline) in Tariff increases the price and depresses (increases) the consumer surplus

Global oil prices fluctuations

While tariffs can increase producers’ revenue the actual impact on profit depends on oilseeds prices (which also increases)

Cost of raw materials. Raw materials cost is 70% of Sale price

Oil accounted for one of the highest monthly cash outlay in a typical household

Consumer was extremely price sensitive

Brand loyalty low

Desired tangible attributes: Taste, Quality, Health and Value For Money

Intangible promises: Healthy Family, Affection, Loving Mother, Great Cook

Target Consumer: 21-44 years old, modern, aware, educated housewife using refined branded groundnut oil, concerned about family well being

Most brands positioned on taste

Shots of “Happy family enjoying food” used across advertising

New oils such as Saffola, Flora positioned on health

Saffola had strong franchise of consumers with heart problems : seen as an oil for the unhealthy

Flora offering a promise of ‘light’ food

Income

High – catering to highly health conscious market segment. Eg. Premium branded vegetable oils like sunflower oil, soya bean oil, PUFA oils

Medium – blended oils like sunflower & soya blend. Eg. Raag refined soya bean oil

Low – oil sold in loose. Eg. Bulk oil manufactured by local players

Region

North – Mustard, rape

South – Groundnut, coconut

East – Mustard, rape

West - Groundnut

Taste & Odor

High pungency mustard oil. Eg. Kachi Ghani

Nutty flavor - Eg. Groundnut oil

Coconut oil

Usage

As salad oil – used in Mayonnaise, salad dressing. Eg. Fortune refined cotton seed oil

For deep frying - Eg. Refined groundnut oil

For preservatives and traditional flavor – Eg. Mustard oil

For frying – Eg. Fortune Fryola especially used in hotels

“ Sehat se jeena hai”

Positioned on a “preventive platform”

Saffola had always focused on the heart. The brand's image had suffered a setback in the early 2000s with the ambulance commercial, which portrayed that one had to rush to the hospital if he did not use Saffola.

As the overall health positioning failed, Saffola moved from the family health positioning, once again to the original heart care positioning in 2004

In February 2004, Marico launched a fresh advertising campaign for Saffola after a gap of two years

Target Customers

Engage the young adults. “World Heart Day” used to appeal to them to bring their parents for a check up. This programme also gave us an opportunity to talk to these young adults about the preventive heart care for themselves.

Direct to Office Initiative : The busy executives and professionals all are looking for lifestyle interventions necessary to counter the stresses of personal and professional life

Direct to Consumer Programme, the low cal recipe demo and the lottery leveraging house wives interest areas

“ Healthy Oil for Healthy People”

Competitor Saffola (Safflower oil) used the health platform but was associated with heart patients and less taste. But Sundrop promised health without compromising taste