2. Introduction
• Cargill Inc. is U.S. based conglomerate of food, agricultural, financial and
industrial products established in 1865 in Iowa as a grain flat house by
William Wallace Cargill.
• In March 2005, Siraj A. Chaudhary(Head of the refined edible oil business
of Cargill India Pvt. Ltd.) was in the middle of developing his annual
marketing plan for India.
• In order to gain better control over cost and revenues, Chaudhary was
examining an opportunity to expand into the business to consumer space in
India.
• Planning to launch a portfolio of food products, beginning with edible oils
for the consumer market and the demand will be fulfilled by imports.
• Cargill India had already ventured into B2C marketing in 2000 and had
quickly moved out of it.
3. Dilemma
• Cargill have been targeting the institutional buyers as customers at Cargill
Inc. for decades as a part of B2B. B2C was not in the DNA so, How to
develop a B2C roadmap for Cargill India?
4. Background of Company:
• CARGILL INC. was established in 1865 in Iowa as a grain flat house by William Wallace
Cargill.
• The members of the founding family held 90% of the stock and the rest was held by
employees through stock options.
• The company has employed 140,000 people in 65 countries and the sales revenue of the
company was of $70 billion ($70000 million) by June,2005 which is nearly twice the size of
the largest company in the U.S. food and beverage industry that is Kraft Foods Inc. whose
revenue was $ 32,168 million. (exhibit 3)
• The company was a diversified conglomerate with a total of 75 businesses organized around
four major segments:
food,
agriculture
finance
industry
5. Cargill Inc. in India:
• Cargill began its operations in India in 1987 trading in food grains.
• India, which had 6,38,365 villages and among the inhabitants farming was the
main occupation.
• These villages gladly had access to televisions but the condition of
infrastructure, transport, electricity, drinking water were miserable.
• Commodity markets were dominated by intermediaries and the farmers were
also not getting proper value to their outputs.
• Cargill set up grain collection centers to deal directly with farmers rather than
go through the intermediaries and the centers were called saathis.
• Saathis were designed to leverage Cargill’s global competencies in providing
supply chain solutions, pricing options, quality insurance and risk
management tools
6. • An independent third party graded the produce into four standard levels of
quality (based on protein and moisture), and the farmers received cash
payment accordingly, on the spot.
• By the year 2005, Cargill had set up 85 saathis serving 250,000 individual
farmers in India.
• Cargill India employed more than 2,000 people in its nationwide network of
offices, plants, depots and warehouses and had revenues of 2.64 billion for
the year ending June 2004.
7. Food Industry in India
• The Indian retail market estimated at 364 billion in 2005 – 44% of the GDP.
• Food and grocery was the largest at 165 billion – 45% of the total retail
market
• The organised retail segment for food and grocery was estimated at 13 billion
per annum.
• Competitive industry as it comprised home-grown companies – Britannia and
ITC as well as multinational companies – Unilever, PepsiCo, ConAgra foods
and general mills in food space.
• Three fold strategy - Improving their cost advantages by rationalizing low
margin SKUs – Developing breakthrough through innovation – marketing
more effectively through targeted marketing and promotions.
8. Regulations and Opportunity
• There was regulations on Indian food industry by the government.
• Domestic production of edible was not adequate, failed to fulfill the market
demand.
• Imports were routed through state trading corporations.
• Govt. Initiated incentives to farmers for edible oil production to substitute
imports.
• In 1994, regulations lifted and traders got freeway to import edible oil freely.
• Cargill Inc. sensed opportunity and planned to establish refining capacities in
India through both greenfield and acquisition routes.
9. Unique Features of the Indian Consumer Market for Foods
• At-home consumption- A large part of food consumption in India happened within homes
unlike in countries of the developed world. A report published by the Federation of Indian
Chambers of Commerce and Industry pointed out that urban Indians ate out 2.7 times a month in
2003 as compared to people even in Asian countries such as Thailand (44 times) and Indonesia
(15 times). And there was also low share in the sale of ready-to-eat packaged food.
• Diversity of markets- India has a diversified market having variations based on tastes, eating
habits, climatic conditions, availability of ingredients and urban-rural divide. Different cooking
oils were preferred in different markets. One-size-fits-all national brands typical of the developed
and more particularly “power brands” typical of global corporations, would not work. Brands
were local or regional rather than national.
• Evolving retail- Over 95 per cent of retail activity was conducted through “traditional” retail —
comprising mom and pop establishments, handcart hawkers, pavement vendors, general stalls
known locally as kirana shops and streetside stores known as paan and beedi shops — together
numbering nearly 12 million nationwide. And there was also issue of distribution for
manufacturers due to poor infrastructure connectivity. Shopping for basic household
requirements was done in smaller quantities, normally day to day rather than monthly as in North
America.
10. • Younger demographic- Thirty-five per cent of Indians were less than 15 years of age and 70 per
cent less than 35 years of age. The situation was expected to prevail for the next three decades
because India was on the cusp of what economists called the “demographic dividend,” which was
brought about by a combination of factors such as decline in birth rate, increase in number of
working adults and a decrease in the dependent population. Because the young had a higher
propensity to consume, India was a promising market for companies manufacturing and marketing
food products.
• Value for money - Value for money was a major driver of consumer choice, particularly with
regard to basic necessities. It prevailed across all demographic and income segments. When Indian
consumers experienced the perfect mix between quality and price, they would exclaim “paisa
vasool!” which translated into “I got my money’s worth!” It was the highest form of praise for a
company and a benchmark of customer satisfaction to which its peers aspired.
11. Edible oils
• India was the fifth largest producer of oilseeds in the world.
• Groundnut, Soyabean and mustard together accounted for 80 percent of
aggregate output of cultivated oilseeds.
• Per capita consumption 11.5 kg compared to the world average 20 kg.
• Producers
Oil refineries
Hydrogenated oil plants
Solvent extractors
Small scale expellers
Ghanis
12. • Market size of edible oils
By revenue – Rs600 in 2005
By volume – 10.8 million tons in 2004 ( Exhibit 8)
• The Industry was growing at a compound annual growth rate (CAGR) of 4.43 per cent
since 2001.
• The Indian edible oils sector was regularly in the middle of a “buy versus build” dilemma
in securing economies of scale.
• There were broadly four circumstances under which edible oil companies took the
acquisition route.
First, overseas firms acquired domestic companies as part of an India entry strategy.
Second it was driven by the need to expand existing capacity.
Third, it was driven by the need to acquire new brands.
Finally, it was also part of setting up joint ventures (JVs) as a route to market entry.
13. Issues Related to Cargill India Pvt.Ltd.
• Cargill Inc., a U.S.-based multinational company, is known for its skills in
business-to-business (B2B) marketing.
• It processes food products and markets them in bulk to large institutional
buyers with whom it has a strong customer orientation.
• However, the head of the refined edible oils business at Cargill India its
subsidiary is facing a problem with the parent company's value proposition
around B2B.
• While developing the annual marketing plans for the next financial year, he
finds that the volatility of commodity price movements has made the task of
revenue forecasts at Cargill India difficult.
14. • This volatility is compounded by frequent changes introduced by the
federal government to official regulations governing the edible oil business
in India.
• In order to gain control over the two variables, he is examining the
prospect of moving into the business-to-consumer (B2C) space in India.
• This is a new strategic direction not only for the Indian subsidiary but also
for Cargill Inc.
• Can he achieve buy-in not only from the parent company but also from his
own managers?
• Will he be able to attract marketing professionals who can promote his new
brands successfully to the Indian consumer?
15. Market Potential Analysis of Cargill India Pvt. Ltd.
• Market potential of Cargill India Pvt. Ltd. products various on factors such
as – In mature markets the profitability is often stable, but the market
potential is less as most of the players have already taken market share
based on the segment they are serving. New players must go for market
share strategies in marketing.
• Technological competence of the existing players and culture of innovation
and development in the industry.
• Estimate the current stage in product life cycle and its implications for
marketing decisions for the product.
16. Cargill India Pvt. Ltd. - Customer Value Analysis
• Capturing customer value is essential to marketing efforts as it results in
higher return in the form of both current & future sales, greater market share,
and higher profits.
• Product differentiation is often based on building on a value niche that a firm
believes that is very important to the customer. This niche contributes to
perceived value. If the perceived value is high, then customer stay loyal to
the product if not then she can switch to the competitor’s product.
• Graphically displaying value differences for deeper understanding and better
internal communication.
• Identifying and selecting actionable value creation options. This can help in
increasing the customer lifetime value.
17. Advantages of Cargill expansion into the business to consumer
(B2C) model in India
• At home consumptions in India .
• More Individual consumption of edible oil in India.
• B2C would bring new customers at the retail end.
• Young demographic: 70 per cent less than 35 years of age. Young population
had a higher propensity to consume, India was a promising market.
• Indian market has huge potential.
• The demand for brands comes also from the existing B2B customers. But if it
enters B2C it can focus on the consumer and gain fresh insight.
18. • Generate better revenue : India was the second most populous country ,
accounting for nearly 17 per cent of the global population.
• Edible oils/oilseeds demand projections : 10.9 in 2004 to 21.3 in 2015
(Exhibit 8)
• Forecast of packaged foods sales : Oils and fats (1,751.0 in 2005 to
2,187.0 in 2010)
• From Exhibit 9 : Cargill B2C model in India has potential .
• B2C model would enable the company to tap into the popular end of the
domestic edible oils market.
• It would improve the contribution of Cargill India to global revenues of
Cargill Inc.
• B2C model could be replicated in different geographies within the Cargill
organization, particularly in emerging markets.
19. Recommendation
• Cargill should enter B2C business because of the high growth rate in food
retail in Indian market.
• Deficit in edible oil production in India.
• Increasing per capita consumption.
• Increasing consumer spending.
20. Suggestion
• Cargill should do branding of its product .
• Promotional schemes , free sampling (Below the line marketing ).
• As, Cargill is new to the B2C business. Therefore, it should hire employee
for marketing and branding.
• Cargill should also go for backward integration : mustard production
(decrease the cost of procurement from vendors )
