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24096182 analysis-of-fmcg-companies


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24096182 analysis-of-fmcg-companies

  2. 2. ACKNOWLEDGEMENTI am thankful to MR. CHANDRASHEKAR DOGRA for providing me the taskof preparing the term paper on ECONOMIC PROBLEMS FACED BY FMCGCOMPANIES (SUPPORTED BY DATA) WITH THE LIKELY SOLUTIONSAND BUSINESS STRATEGIES TO OVER COME THESE PROBLEMS. We atlovely in taking challenges and term paper provided me the opportunity to tackle apractical challenge in the subject of ECONOMICS. This term paper tested mypatience at every step of preparation but the courage provided by my teacherhelped me to swim against the tide and move against the wind.I am also thankful to my friends and parents for providing me help at every step ofthe preparation of the term paper.RAJNISH SINGH
  4. 4. INTRODUCTIONFast Moving Consumer Goods (FMCG)FMCG are products that have a quick shelf turnover, at relatively low cost anddont require a lot of thought, time and financial investment to purchase. Themargin of profit on every individual FMCG product is less. However the hugenumber of goods sold is what makes the difference. Hence profit in FMCG goodsalways translates to number of goods sold. Fast Moving Consumer Goods is aclassification that refers to a wide range of frequently purchased consumerproducts including: toiletries, soaps, cosmetics, teeth cleaning products, shavingproducts, detergents, and other non-durables such as glassware, bulbs, batteries,paper products and plastic goods, such as buckets.’ Fast Moving’ is in oppositionto consumer durables such as kitchen appliances that are generally replaced lessthan once a year. The category may include pharmaceuticals, consumer electronicsand packaged food products and drinks, although these are often categorizedseparately. The term Consumer Packaged Goods (CPG) is used interchangeablywith Fast Moving Consumer Goods (FMCG).Three of the largest and best knownexamples of Fast Moving Consumer Goods companies are NESTLÉ, UNILEVERAND PROCTER & GAMBLE. Examples of FMCGs are soft drinks, tissue paper,and chocolate bars. Examples of FMCG brands are Coca-Cola, Kleenex, Pepsi andBelieve. The FMCG sector represents consumer goods required for daily orfrequent use. The main segments of this sector are personal care (oral care, haircare, soaps, cosmetics, and toiletries), household care (fabric wash and householdcleaners), branded and packaged food, beverages (health beverages, soft drinks,staples, cereals, dairy products, chocolates, bakery products) and tobacco.
  5. 5. The Indian FMCG sector is an important contributor to the countrys GDP. It is thefourth largest sector in the economy and is responsible for 5% of the total factoryemployment in India. The industry also creates employment for 3 m people indownstream activities, much of which is disbursed in small towns and rural India.This industry has witnessed strong growth in the past decade. This has been due toliberalization, urbanization, increase in the disposable incomes and alteredlifestyle. Furthermore, the boom has also been fuelled by the reduction in exciseduties, de-reservation from the small-scale sector and the concerted efforts ofpersonal care companies to attract the burgeoning affluent segment in the middle-class through product and packaging innovations.Unlike the perception that the FMCG sector is a producer of luxury items targetedat the elite, in reality, the sector meets the every day needs of the masses. Thelower-middle income group accounts for over 60% of the sectors sales. Ruralmarkets account for 56% of the total domestic FMCG demand. Many of the globalFMCG majors have been present in the country for many decades. But in the lastten years, many of the smaller rung Indian FMCG companies have gained in scale.As a result, the unorganized and regional players have witnessed erosion in marketshare. HISTORY OF FMCG COMPANIES IN INDIAIn India, companies like ITC, HLL, Colgate, Cadbury and Nestle have been adominant force in the FMCG sector well supported by relatively less competitionand high entry barriers (import duty was high). These companies were, therefore,able to charge a premium for their products. In this context, the margins were alsoon the higher side. With the gradual opening up of the economy over the lastdecade, FMCG companies have been forced to fight for a market share. In theprocess, margins have been compromised, more so in the last six years (FMCG
  6. 6. sector witnessed decline in demand). CURRENT SITUATIONThe growth potential for FMCG companies looks promising over the long-termhorizon, as the per-capita consumption of almost all products in the country isamongst the lowest in the world. As per the Consumer Survey by KSA-Technopak,of the total consumption expenditure, almost 40% and 8% was accounted bygroceries and personal care products respectively. Rapid urbanization, increasedliteracy and rising per capita income are the key growth drivers for the sector.Around 45% of the population in India is below 20 years of age and the proportionof the young population is expected to increase in the next five years. Aspirationlevels in this age group have been fuelled by greater media exposure, unleashing alatent demand with more money and a new mindset. In this backdrop, industryestimates suggest that the industry could triple in value by 2015 (by someestimates, the industry could double in size by 2010).In our view, testing times for the FMCG sector are over and driving ruralpenetration will be the key going forward. Due to infrastructure constraints (thisinfluences the cost-effectiveness of the supply chain), companies were unable togrow faster. Although companies like HLL and ITC have dedicated initiativestargeted at the rural market, these are still at a relatively nascent stage. Thebottlenecks of the conventional distribution system are likely to be removed onceorganized retailing gains in scale. Currently, organized retailing accounts for just3% of total retail sales and is likely to touch 10% over the next 3-5 years. In ourview, organized retailing results in discounted prices, forced-buying by offeringmany choices and also opens up new avenues for growth for the FMCG sector.Given the aggressive expansion plans of players like Pantaloon, Trent, Shopper’sStop and Shoprite, we are confident that the FMCG sector has a bright future.
  7. 7. APR-SEP 2009 A&P/SALES%COMPANY SALES RS A&P APR-SEP 3YRS CR SPENDRSCR 2009 AGOHINDUSTANUNILEVER 8703 1132 13.0 8.9DABUR INDIA 1591 234 14.7 11.9MARICO 1389 176 12.7 12.1GLAXOSMITHKLINE 964 156 16.2 13.1CONSUMERCOLGATE POLMOLIVE 955 141 14.7 17.5INDIAGODREJCONSUMER 1014 94 9.3 10.3EMAMI 400 75 18.7 2.5ARGO TECH FOODS 305 31 10.1 1.3JYOTHY LABS 250 14 5.5 8.0 OVER VIEW OF INDIAN FMCG MARKETIndia offers a large and growing market of 1 billion people of which 300 millionare middle class consumers. India offers a vibrant market of youth and vigor with54% of population below the age of 25 years. These young people work harder,earn more, spend more and demand more from the market, making India adynamic and inspirational society. Domestic demand is expected to double overthe ten-year period from 1998 to 2007. The number of households with "highincome" is expected to increase by 60% in the next four years to 44 millionhouseholds. India is rated as the fifth most attractive emerging retail market. It hasbeen ranked second in a Global Retail Development Index of 30 developingcountries drawn up by A T Kearney. A.T. Kearney has estimated Indias total retail
  8. 8. market at $202.6 billion, is expected to grow at a compounded 30 per cent over thenext five years. The share of modern retail is likely to grow from its current 2 percent to 15-20 percent over the next decade, analysts feel.The Indian FMCG sector is the fourth largest sector in the economy with a totalmarket size in excess of US$ 13.1 billion. The FMCG market is set to treble fromUS$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well asper capita consumption in most product categories like jams, toothpaste, skin care,hair wash etc in India is low indicating the untapped market potential. BurgeoningIndian population, particularly the middle class and the rural segments, presents anopportunity to makers of branded products to convert consumers to brandedproducts. India is one of the world’s largest producers for a number of FMCGproducts but its FMCG exports are languishing at around Rs 1,000 crore only.There is significant potential for increasing exports but there are certain factorsinhibiting this. Small-scale sector reservations limit ability to invest in technologyand quality up gradation to achieve economies of scale. Moreover, lower volumeof higher value added products reduce scope for export to developing countries.The FMCG sector has traditionally grown at a very fast rate and has generally outperformed the rest of the industry. Over the last one year, however the rate ofgrowth has slowed down and the sector has recorded sales growth of just five percent in the last four quarters. The outlook in the short term does not appear to bevery positive for the sector. Rural demand is on the decline and the Centre forMonitoring Indian Economy (CMIE) has already downs called its projection foragriculture growth in the current fiscal. Poor monsoon in some states, too, isunlikely to help matters. Moreover, the general slowdown in the economy is alsolikely to have an adverse impact on disposable income and purchasing power as awhole. The growth of imports constitutes another problem area and while so farimports in this sector have been confined to the premium segment, FMCG
  9. 9. companies estimate they have already cornered a four to six per cent market share.The high burden of local taxes is another reason attributed for the slowdown in theindustry At the same time, the long term outlook for revenue growth is positive.Give the large market and the requirement for continuous repurchase of theseproducts, FMCG companies should continue to do well in the long run. Moreover,most of the companies are concentrating on cost reduction and supply chainmanagement. This should yield positive results for them. The profile of majorleading FMCG Market Players is as follows: PROBLEM OF FMCG COMPANIESThe fast-moving consumer goods (FMCG) companies are faced with a peculiarchallenge of maintaining profitable growths in the backdrop of a low inflation rate.As against the high inflation of the early 90s — the peak growth season for allFMCG companies — the ensuing period of a lower inflation rate dares companiesto now play the volume game. As against a growth in profitability, which camewith price increase in line with the rising inflation, the FMCG industry will nowhave to do without this critical factor which has been contributing to almost half ofthe industry’s growth. “Volumes will play a critical role now. The number of unitssold will be an important metric, as there is very little avenue to drive pricegrowth,” said MS Banga, chairman, Hindustan Lever Ltd (HLL), in his keynoteaddress at the 2nd National FMCG Conclave organized by the Confederation ofIndian Industry (CII). Since volume will be the key determinant of growth, theindustry will be forced to push volume growth. Hence, for those companies whichhitherto relied on price increase as an easy way to enhance profitability, therecould be a pressure on margins. To tackle the problem there needs to be arelentless focus on cost-cutting. “Many companies, which have understood that
  10. 10. volumes will be critical, will benefit,” added Mr. Banga. According to MaheshVyas, executive director, the Centre for Monitoring Indian Economy (CMIE), theyear holds a lot of promise, if growth is good and inflation is lower. “Volumegrowth and no price reduction is good for FMCG,” said Mr. Vyas. He, however,said fresh investments were critical for sustained growth in the economy. Anotherserious challenge which the industry is faced with, said Mr. Banga, is consumerpromotions where freebies are threatening to lead to the commoditization of theindustry. “I believe that the industry must take a serious note of it. It is threateningthe very premise on which the FMCG industry stands today (i.e. branding),” Mr.Banga added. As to how HLL, which is a leading FMCG company, would boost itsvolumes and maintain its margins, Mr. Banga said the only way out was branding.He denied that HLL was cutting down upon its advertising spends, which he said,was only on a quarter-on-quarter basis. The total advertising expenditure for HLLdeclined to Rs 182.74 crore during the third quarter ended September 30, 2003,from Rs 217.80 crore.One of the reasons is the fact that the Conditional Cash Transfer scheme (CCT) isgathering support as a replacement for myriad welfare schemes. Along with therural employment guarantee scheme, loan waivers and increase in prices at whichagricultural products are bought, the CCT could solve the FMCG’s problem ofunpredictability of agricultural income and the associated fall in market demand.The mainstay of the rural thrust of FMCG companies is based on the hope thatthere are ‘disposable incomes’ lying untapped in the hinterland: if the ruralpopulation spends some of this, it will certainly boost demand in the currentrecession. With urban consumption in decline or stagnating because of theeconomic slowdown, FMCG companies have been hit hard. The idea is to give a‘choice’ to the rural customer to shift to branded products, from traditional,
  11. 11. unbranded merchandise from the nonorganised sector. “The growth is in rural,”says India’s top marketing head, Rama Bijapurkar. Rural India constitutes over 60percent of the country’s total consumer base. It’s estimated that rural markets hold55 percent of total LIC policies, 50 percent of the market for televisions, fans,bicycles and wristwatches — and a massive 70 percent of the market for toilet soapconsumption. The Rs 65,000 crore debt waivers announced last year helped 3.6million farmers and made them eligible to fund the next crop. The Centrecontinued to provide short-term crop loans at 7 percent interest up to Rs 3 lakh. Anupturn in agriculture was seen in the UPA’s interim budget of 2009-10, where theannual growth rate of agriculture was posted at 3.7 percent. Added to this was theelection-inspired increase in minimum support prices (MSP) in 2008-09.Announced in the season ahead of the general election, the MSP for paddy (Rs 550per quintal in 2003-04) rose to Rs 900; for wheat, the MSP, which was Rs 630 perquintal, rose to Rs 1,080. It also led to massive procurement of food grains thisyear.Factors like this, according to analysts, have created ‘disposable incomes’ whichthe rural consumers should be, ideally, keen on spending on consumer goods. THEECONOMIC SURVEY 2007-08 says rural India spends, on average, 55 percent onfood and 45 percent on non-food items like clothing, consumer durables, educationand health. And its spend on urban costs of living such as electricity, commuting,fuel and rent is negligible. That level of spending on regular consumables is goodnews for FMCG manufacturers. Add to that the fact that, unlike their urbancounterparts, rural citizens’ incomes are relatively better preserved from marketfluctuations and real estate shocks. For corporate, the rural hinterland had earliermeant high investment because of poor infrastructure, absence of storage services,no electricity, water or finance facilities. In times of recession, the problems appear
  12. 12. surmountable. It’s expected that catching the villages’ fancy should be far easierthan that of the info-fatigued urban buyer. The rural market already accounts for 50percent of FMCG products like pressure cookers, tea, branded salt and toothpowder. Companies expect to increase market share and to add products to therural portfolio. According to ASSOCHAM, which announced early this year thatthe FMCG sector is pegged to grow at 40 percent in the rural market, “rising ruralincomes, healthy agricultural growth, boost in demand, rising consumerism andbetter penetration of FMCG products,’’ are the reasons for this projection. AgreesDeepak Jolly, a director with Coca-Cola India: “The rural thrust in India today ishuge. In many ways, I would say it is the main driver for the markets.” Among thefew things that the FMCG companies are seeking from this budget is that the taxesand duties that have been reduced by the government to promote the sector shouldnot be revoked. If only they could have the same impact on the monsoon: anyweakening or failure there will considerably affect the purchasing power ofvillagers and volumes of FMCG products. It’s in this context that the gatheringsupport for the conditional cash transfers (CCT) scheme should be seen — itproposes that the government deposit an amount in the account of beneficiariesidentified according to poverty criteria. The amount is deposited in the name of thewoman member of the household and accessed only if children go to school orattend the health centre. Farmers are spending more than ever to cultivate; villagersare spending more than ever to buy food. The government hopes to bring theNational Food Security Bill that provides monthly 25kg to BPL families at Rs 3per kg. It would be interesting to watch if the ‘disposable income’ left after suchsubsidies will be used for consumption. ANALYSIS OF FMCG SECTOR
  13. 13. STRENGTHS:1. Low operational costs2. Presence of established distribution networks in both urban and rural areas3. Presence of well-known brands in FMCG sectorWEAKNESSES:1. Lower scope of investing in technology and achieving economies of scale,especially in small sectors2. Low exports levels3. "Me-too" products, which illegally mimic the labels of the established brands,narrow the scope of FMCG products in rural and semi-urban market.OPPORTUNITIES:1. Untapped rural market2. Rising income levels i.e. increase in purchasing power of consumers3. Large domestic market - a population of over one billion4. Export potential 5. High consumer goods spendingTHREATS:1. Removal of import restrictions resulting in replacing of domestic brands2. Slowdown in rural demand.3. Tax and regulatory structure STRUCTURAL ANALYSIS OF FMCG INDUSTRYTypically, a consumer buys these goods at least once a month. The sector covers awide gamut of products such as detergents, toilet soaps, toothpaste, shampoos,creams, powders, food products, confectioneries, beverages, and cigarettes.Typical characteristics of FMCG products are: -
  14. 14. 1. The products often cater to 3 very distinct but usually wanted for aspects - necessity, comfort, luxury. They meet the demands of the entire cross section of population. Price and income elasticity of demand varies across products and consumers.2. Individual items are of small value (small SKUs) although all FMCG products put together account for a significant part of the consumers budget.3. The consumer spends little time on the purchase decision. He seldom ever looks at the technical specifications. Brand loyalties or recommendations of reliable retailer/ dealer drive purchase decisions.4. Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently, as and when required.5. Brand switching is often induced by heavy advertisement, recommendation of the retailer or word of mouth.DESIGN AND MANUFACTURING1. Low Capital Intensity - Most product categories in FMCG require relatively minor investment in plan and machinery and other fixed assets. Also, the business has low working capital intensity as bulk of sales from manufacturing take place on a cash basis.2. Technology - Basic technology for manufacturing is easily available. Also, technology for most products has been fairly stable. Modifications and improvements rarely change the basic process.3. Third-party Manufacturing - Manufacturing of products by third party vendors is quite common. Benefits associated with third party manufacturing include (1) flexibility in production and inventory planning; (2) flexibility in controlling labor costs; and (3) logistics - sometimes it’s essential to get certain products manufactured near the market.
  15. 15. MARKETING AND DISTRIBUTIONMarketing function is sacrosanct in case of FMCG companies. Major featuresof the marketing function include the following: -1. High Initial Launch Cost - New products require a large front-ended investment in product development, market research, test marketing and launch. Creating awareness and develop franchise for a new brand requires enormous initial expenditure on launch advertisements, free samples and product promotions. Launch costs are as high as 50-100% of revenue in the first year. For established brands, advertisement expenditure varies from 5 - 12% depending on the categories.2. Limited Mass Media Options - The challenge associated with the launch and/or brand-building initiatives is that few no mass media options. TV reaches 67% of urban consumers and 35% of rural consumers. Alternatives like wall paintings, theatres, video vehicles, special packaging and consumer promotions become an expensive but required activity associated with a successful FMCG.3. Huge Distribution Network - India is home to six million retail outlets, including 2 million in 5,160 towns and four million in 627,000 villages. Super markets virtually do not exist in India. This makes logistics particularly for new players extremely difficult.
  16. 16. FORCOSTING OF FMCG COMPANIESMarkets all over the world have been on a roll in 2003 and the Indian bourses areno exception having gained almost 60% in 2003. During this period, while thereare sectors that have outperformed this benchmark index, there are also sectors thathave under performed. FMCG registered gains of just 33% on the BSE FMCGIndex last year. At the macro level, Indian economy is poised to remained buoyantand grow at more than 7%. The economic growth would impact large proportionsof the population thus leading to more money in the hands of the consumer.Changes in demographic composition of the population and thus the market wouldalso continue to impact the FMCG industry. Recent survey conducted by a leadingbusiness weekly, approximately 47 per cent of Indias 1 + billion people wereunder the age of 20, and teenagers among them numbered about 160 million.Together, they wielded INR 14000 Cr worth of discretionary income, and theirfamilies spent an additional INR 18500 Cr on them every year. By 2015, Indiansunder 20 are estimated to make up 55% of the population - and wieldproportionately higher spending power. Means, companies that are able toinfluence and excite such consumers would be those that win in the market place.The Indian FMCG market has been divided for a long time between the organizedsector and the unorganized sector. While the latter has been crowded by a largenumber of local players, competing on margins, the former has varied between atwo-player-scenario to a multi-player one.Unlike the U.S. market for fast moving consumer goods (FMCG), which isdominated by a handful of global players, Indias Rs.460 billion FMCG marketremains highly fragmented with roughly half the market going to unbranded,unpackaged home made products. This presents a tremendous opportunity for
  17. 17. makers of branded products who can convert consumers to branded products.However, successfully launching and growing market share around a brandedproduct in India presents tremendous challenges. Take distribution as an example.India is home to six million retail outlets and super markets virtually do not exist.This makes logistics particularly for new players extremely difficult. Otherchallenges of similar magnitude exist across the FMCG supply chain. The fact isthat FMCG is a structurally unattractive industry in which to participate. Even so,the opportunity keeps FMCG makers trying. STRATEGY OF FMCG COMPANIESCOMPETITIVE STRATEGIES FOLLOWED BY FMCG COMPANIES ININDIACompetitive Strategy consists of move of companies in order to attract customers.With stand competitive pressures and strengthen an organization’s market position.The main objective of Competitive Strategy is to generate a competitive advantage,increase the loyalty of customers and to beat competitors.Five main competitive strategies are: • Overall low cost leadership strategy • Best cost provider’s strategy • Broad differentiation strategy • Focused low cost strategy • Focused differentiation strategy Here competitive strategy varies from sector to sector and company to company. Thus, it is not easy to predict a single or to find a single strategy for the whole sector. When we come on to FMCG Sector main strategies lay
  18. 18. behind market strategies, cost, and quality strategies. Here in this report you are going to get information about such type of strategies of FMCG giants. RELATED TO TWO COMPANIES HUL & ITC HUL (Hindustan Unilever Ltd.) This Company is earlier known as Hindustan Lever Ltd.This is India’s largest FMCG sector company with all type of household productsavailable with it. It has Home & Personal Care products, and also food and WaterPurifier available with it. According to Brand Equity, HUL has largest no of brandsin most trusted brands list. 16 of HUL’s brands featured in AC-Nielson BrandEquity list of 100 most trusted brands in 2008 in an annual survey. For the entireyear ending March - 2009 net turnover of company is Rs. 20’239.33 Crore whichis 47.99% higher than 31st December 2007’s Rs. 13675.43 Crore driven mainly bydom estic FMCG’s with net profit stood at Rs. 2’496.45 Crore.Products of HUL are: Annapurna; Ayush; Axe; Breeze; Bru; Brooke bond;Clinic; Dove; Fair & Lovely; Hamam; Liril; Lux; Pears; Ponds; Pepsodent; Pureit;Rexona; Rin; Sunlight; Surfexcel; Vaseline; Wheel.ITC Limited This Company was earlier known as Imperial Tobacco Company of India Ltd. It is Currently headed by Yogesh Chander Deveshwar. Company mainly operates in the industry like Tobacco, Foods, Hotels,Stationary and Greeting Cards with the major products constitutes Cigarettes,packed foods, hotels, and apparels. For the entire year ending Mar-2009 theturnover of company is at Rs. 15388 Crore which is 10.3% higher than previous
  19. 19. year’s Rs. 13947.53 Crore, driven mainly by robust 20% growth in non cigaretteFMCG business with net profit stood at Rs. 3324 Crore. ANALYSIS OF BOTH COMPANIESHUL & ITC are major companies in FMCG market in India. When we compareboth companies on the basis of their strategies i.e. , their competitive strategies inthe present market. When we look at the present segment breakup for both of thecompanies then we came to know that their different products vary too much in themarket. HUL ITCHindustan Unilever (HUL) is thelargest pure-play FMCG company in ITC is not a pure-play FMCGthe country and has one of the widest company, since cigarettes is its primaryportfolios of products sold via a strong business. It is diversifying into non-distribution channel. It owns and tobacco. FMCG segments like foods,markets some of the most popular personal care, paper products, hotelsbrands in the country across various and agri-business to reduce itscategories, including soaps, detergents, exposure to cigarettes.shampoos, tea and face creams. Performance PerformanceAfter stagnating between 1999 and ’04, Despite diversification, ITC’s reliancethe company is back on the growth on cigarettes is still huge. The tobaccotrack. In the past three years, till 2008 business contributes 40% to itsHUL’s net sales have witnessed a revenues, and accounts for over 80% ofCAGR of 11%, while net profit has its profit. This cash-generating businessposted a CAGR of 17%. has enabled it to take ambitious, but expensive bets in new segments and
  20. 20. deliver modest profit growth.ITC Segment BreakupHUL SEGMENT BREAKUP
  21. 21. POWER BRANDS, THE NEW FMCG MANTRAThree men, one voice. Indian fast moving consumer goods companies like HLL,Godrej Consumer Products Limited and Marico Industries are completely sold onthe concept of "power brands".But in their rush to put their best brands forward, are these big companies indanger of overlooking the potential offered by some of the also-ran brands?Its been almost five years since these three FMCG giants opted to manage theirbrand portfolios on the basis of the power brand strategy. How have they fared?And what does the future hold? TOP 10 FMCG COMPANIES IN INDIA1. Hindustan Unilever Ltd.2. ITC (Indian Tobacco Company)3. Nestlé India4. GCMMF (AMUL)5. Dabur India6. Asian Paints (India)7. Cadbury India
  22. 22. 8. Britannia Industries9. Procter & Gamble Hygiene and Health Care10. Marico Industries
  23. 23. SALUTION OF FMCG COMPANIESWHAT SHOULD THE FMCG PLAYERS DO NOW?They should not only price their products competitively, but also offer their ruralprospects maximum value for money spent. Certainly, reaching out to 3.33 millionretail outlets is an uphill task. The only way out for Indian FMCG players: put inplace an aggressive cost structure that would enable them to offer low-price andvalue-for-money products. But then, FMCG is a low-margin business with a highcost of raw materials. Consider the case of Marico: its material cost works out to ahigh of 59 per cent on sales. Therein lays the rural marketing paradox.However, customer-centric and market-savvy FMCG companies have alwayschased prospects when they perceive there is a latent demand. For instance,Hindustan Levers Rin, Surf and Lux are available even in Indias most obscurevillages. Hindustan Lever had given shape to its rural strategy a few years agowhen it perceived that its urban market was shrinking due to an industrialslowdown. It’s Operation Bharat that focused on personal care products made themost out of surging rural incomes. The result was there for all to see. The companyhas been able to clock in double-digit profits every three years and log in double-digit revenues every four years. Britannia with its Tiger brand of biscuits andColgate-Palmolive with its low-priced and conveniently-packaged productsdesigned for the rural masses have been other pioneers in rural marketing.
  24. 24. DISTRIBUTIONOne of the age-old problems that FMCG has been facing not only in India butglobally is that of distribution. Integrating operations with your distributors andchannel partners is a Herculean task. Few ways to reduce pain involved in this link: • Reducing supply chain costs by reducing intermediaries - Organized retail chains have set up systems for inventory management and quick servicing, thereby offering the opportunity for a company/supplier to reduce distribution cost by reducing intermediaries such as wholesalers/distributors and supplying directly to the warehouse of retail chain. • Increasing sales by driving channel width - The relative share of grocers to FMCG sales has dropped from over 50% in the early 90s to 35% in the late 90s. On the other hand the contribution of chemist outlets and paan outlets has been increasing. This has been a result of both SKUs (sachets) and hardware (mini dispensers) being specifically designed to facilitate entry to these outlets and increase consumer interface.BRAND MANAGERS TO BUSINESS MANAGERSTough market situations and a more aware and savvier demanding consumer havenecessitated that yesterdays Brand Managers be transformed into BusinessManagers who understand consumers and can innovate and be flexible to movewith the consumer. Gone are the days when brands could be made to gallop with a
  25. 25. big budget media plan, a generous dose of below-the-line and above-the-lineactivities and constant promotions and schemes in the market. Consumers whohave become demanding yet inscrutable in terms of attitudes, outlook, moods andbehavior have rendered conventional Brand Management tools obsolete. REFERENCE