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Seminar Report

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Fast Moving Consumer Goods (FMCG)

Submitted in partial fulfillment of the requirement for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Session (2012-2014)

Submitted to:- Seema Mam Submitted by:- Mayank Rawal

M.B.A 1ST SEM.

Roll No. 01213040

DOON VALLEY INSTITUTE OF ENGINEERING AND TECHNOLOGY, KARNAL

(Approved by AICTE, Affiliated to KURUKSHETRA UNIVERSITY, KURUKSHETRA)

PREFACE

Fast Moving Consumer Goods popularly known FMCG is as the name suggests is the most demanded products in the market. It includes every thing from food items like flour, biscuits, ice creams, etc to body products soaps, face creams to cigarettes to beverages, etc. Consumers need these things in their everyday life so they invests a good portion of there income in these things. They invests a good portion of there income in these things. There are so many companies which are dealing in FMCG products like HUL, Dabur, Cavin Care, AMUL dealing in dairy products, etc. By the vary nature of the product the companies are seeing this as a great source of income. As large number of companies are looking this sector as a profitable venture, so for sustaining there position and gain new market they have to bring some thing unique in there products or services to gain position in the market or to sustain there .In this project my focus is on tracking down the changing requirements, preferences, needs of customers and their changing perspective on the different products offered products offered

ACKNOWLEDGEMENT

"Accomplishment of any task necessarily depends upon the willingness and enthusiastic contribution of time and energy of many people."

From the starting till the completion of this project, there are many people without whose assistance all my efforts would have been fruitless.

I, therefore, acknowledge all who generously helped me by sharing their time, experience and knowledge with me without which this project would have never been accomplished.

Words cant express my sincere thanks to the entire faculty of MBA, under the prestigious DIET KU who had been a constant source of guidance throughout my project period.

I express my gratitude to Mrs. Neenu and Mrs. Seema Khokhar (my project guide) whose perceptive guidance, constant encouragement, constructive criticism and affection were the light of guidance during my tenure of my work

Finally, I would like to state that the project not only fulfilled an academic requirement, but would also help me in future endeavors in the years to come.

(Mayank Rawal)

TABLE OF CONTENTS

Serial No.

Name of the Topic

Page No.

Chapter-1

Introduction

Chapter -2

Four stages of product life cycle

Chapter -3

Chapter-2

Joint Ventures & Strategic Alliances

4.1 Meaning of joint venture

4.2 Benefits and challenges of joint venture

4.3 Meaning of strategic alliance

4.4 Benefit and challenges of strategic alliance

Chapter-5

Significance of Corporate Reengineering

Chapter-6

Limitation of Corporate Reengineering

Conclusion

Bibliography

CHAPTER- 1

Meaning

History of FMCG

Current situation of FMCG

Examples

FAST MOVING CONSUMER GOODS (FMCG)

Fast Moving Consumer Goods (FMCG), also known as Consumer Packaged Goods (CPG), is products that have a quick turnover, and relatively low cost. Consumers generally put less thought into the purchase of FMCG than they do for other products. Though the absolute profit made on FMCG products is relatively small, they generally sell in large numbers and so the cumulative profit on such products can be large. FMCG industry is innovative, full of rich experience, reaches world wide, people working with FMCG may get frequent opportunity to travel meet new culture, gets experience very quickly and chances to rise in status is much easier. Unlike other sectors FMCG shares float in a steady manner irrespective of market dip world wide. So basically, fast moving consumer goods are pretty awesome.

The Fast Moving Consumer Goods (FMCG) industry in India is one of the largest sectors in the country and over the years has been growing at a very steady pace. The sector consists of consumer non-durable products which broadly consists, personal care, household care and food & beverages. The most common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, and household accessories and extends to certain electronic goods. The Indian FMCG industry is largely classified as organised and unorganised. This sector is also buoyed by intense competition.

The top five FMCG companies constitute nearly 70% of the total revenues generated by this sector. Multinational FMCG companies like Hindustan Unilever, ITC, Nestle, Procter & Gamble and GlaxoSmithKline. Consumer Healthcare traditionally comprise the first category of FMCG companies. They tend to spend nearly 10% of their revenues on an average on advertising and promoting their products, which is the highest ad spend figure in the industry. Justifying their high product pricing, these companies largely tend to capture value by addressing a felt need. The Indian Economy is surging ahead by leaps and bounds, keeping pace with rapid urbanization, increased literacy levels, and rising per capita income. The big firms are growing bigger and small-time companies are catching up as well. According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by MNCs, and the balance by Indian companies.

1.2 HISTORY OF FMCG COMPANIES IN INDIA

In India, companies like ITC, HLL, Colgate, Cadbury and Nestle have been a dominant force in the FMCG sector well supported by relatively less competition and 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 also on the higher side. With the gradual opening up of the economy over the last decade, FMCG companies have been forced to fight for a market share. In the process, margins have

been compromised, more so in the last six years (FMCG sector witnessed decline in demand).

1.3 CURRENT SITUATION

The growth potential for FMCG companies looks promising over the long-term horizon, as the per-capita consumption of almost all products in the country is amongst the lowest in the world. As per the Consumer Survey by KSA-Technopak, of the total consumption expenditure, almost 40% and 8% was accounted by groceries and personal care products respectively. Rapid urbanization, increased literacy 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 proportion of the young population is expected to increase in the next five years. In this backdrop, industry estimates suggest that the industry could triple in value by 2015 (by some estimates, the industry could double in size by 2010).In our view, testing times for the FMCG sector are over and driving rural penetration will be the key going forward. Due to infrastructure constraints (this influences the cost-effectiveness of the supply chain), companies were unable to grow faster. Although companies like HLL and ITC have dedicated initiatives targeted at the rural market, these are still at a relatively nascent stage. The bottlenecks of the conventional distribution system are likely to be removed once organized 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 our view, organized retailing results in discounted prices, forced-buying by offering many choices and also opens up new avenues for growth for the FMCG sector. Given the aggressive expansion plans of players like Pantaloon, Trent, Shoppers Stop and Shop rite, we are confident that the FMCG sector has a bright future.

1.4 Examples of FMCG:

Examples of FMCG generally include 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 drinks, although these are often categorized separately

CHAPTER- 2

2.1 Characteristics of FMCG

2.2 FMCG segments

2.1 Characteristics of FMCG in India:

The following are the main characteristics of FMCGs:

From the consumers' perspective:

Frequent purchase

Low involvement (little or no effort to choose the item products with strong

Brand loyalties are exceptions to this rule)

Low price

From the marketers' angle:

High volumes

Low contribution margins

Extensive distribution networks

High stock turnover

Some of characteristics are as follows:

1. Branding:

Creating strong brands is important for FMCG companies and they devote considerable money and effort in developing bands. With differentiation on functional attributes being difficult to achieve in this competitive market, branding results in consumer loyalty and sales growth.

2. Distribution Network:

Given the fragmented nature of the Indian retailing industry and the problems of infrastructure, FMCG companies need to develop extensive distribution networks to achieve a high level of penetration in both the urban and rural markets. Once they are able to create a strong distribution network, it gives them significant advantages over their competitors.

3. Contract Manufacturing:

As FMCG companies concentrate on brand building, product development and creating distribution networks, they are at the same time outsourcing their production requirements to third party manufacturers. Moreover, with several items reserved for the small scale industry and with these SSI units enjoying tax incentives, the contract manufacturing route has grown in importance and popularity.

4. Large Unorganized Sector:

The unorganized sector has a presence in most product categories of the FMCG sector. Small companies from this sector have used their location advantages and regional presence to reach out to remote areas where large consumer products have only limited presence. Their low cost structure also gives them an advantage.

5. Daily Deals:

As discussed before, having daily deals option on the web store is a great feature to have. Firstly Groceries or FMCG has wide variety of products. Its easy to choose the products for daily deals and push products to the customers. The dead stocks which are no longer moving are the products that can be pushed to the customers as daily deals. This is a great way to increase the sales by generating greed in customers mind. In India everyone loves bargaining, discount and promotions. Retailer has to use the concepts aggressively to target this mindset.

6. Variety:

The retailer should offer wide variety of products to the customers. Indians love shopping and the more variety you have, the more feast to the eyes. Online shopping is no different from regular shopping. The shopping behaviour remains the same.

7. Managing Perishable Goods:

All the grocery stores have perishable goods like vegetables and fruits. If the retailer is opting to sell these also online, he has to make sure that these products are pushed to the customer and sold fast. Best way to do this is to have daily deals, where these perishable goods can be sold by offering discounts and promotional offers.

8. Non Durable Goods:

The goods are non durable which are damaged or become useless within a short span of time. The consumers have to use them with care keeping in mind the expiry date.

9. Frequently used:

The goods are frequently used. They include the goods that are used on daily purpose like Colgate, shop etc.

2.2 FMCG segments-

The main FMCG segments are:-

1. Personal Care:

oral care; hair care; skin care; personal wash (soaps); cosmetics and toiletries; deodorants; perfumes; paper products (tissues, diapers, sanitary); shoe care. Major companies active in this segment include Hindustan Lever; Godrej Soaps, Colgate-Palmolive, Marico, Dabur and Procter & Gamble. This include-

Skin Care:

The total skin care market is estimated to be around Rs. 3,400 Cr. The skin care market is at a primary stage in India. The penetration level of this segment in India is around 20 per cent. With changing lifestyles, increase in disposable incomes, greater product choice and availability, people are becoming aware about personal grooming. The major players in this segment are Hindustan Unilever with a market share of ~54 percent, followed by Cavin Kare with a market share of ~12 per cent and Godrej with a market share of ~3 per cent.

Hair Care:

The hair care market in India is estimated at around Rs. 3,800 Cr. The hair care market can be segmented into hair oils, shampoos, hair colorants & conditioners, and hair gels. Marico is the leader in Hair Oil segment with market share of ~ 33 per cent; Dabur occupies second position at ~17 per cent.

Oral Care:

The oral care market can be segmented into toothpaste - 60 per cent; toothpowder - 23 percent; toothbrushes - 17 per cent. The total toothpaste market is estimated to be around Rs. 3,500 Cr. The penetration level of toothpowder/toothpaste in urban areas is three times that of rural areas. This segment is dominated by Colgate-Palmolive with market share of ~49 per cent, while HUL occupies second position with market share of ~30 per cent. In toothpowders market, Colgate and Dabur are the major players. The oral care market, especially toothpastes, remains under penetration in India with 50%

2. Household Care: fabric wash (laundry soaps and synthetic detergents); household cleaners(dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellents, metal polish and furniture polish).Major companies active in this segment include Hindustan Lever, Nirma and Reckitt &

Colman. This include-

Personal Wash:

The market size of personal wash is estimated to be around Rs. 8,300 Cr. The personal wash can be segregated into three segments: Premium, Economy and Popular. The penetration level of soaps is ~92 per cent. It is available in 5 million retail stores, out of which, 75 per cent are in the rural areas. HUL is the leader with market share of ~53 per cent; Godrej occupies second position with market share of ~10 per cent. With increase in disposable incomes, growth in rural demand is expected to increase because consumers are moving up towards premium products. However, in the recent past there has not been much change in the volume of premium soaps in proportion to economy soaps, because increase in prices has led some consumers to look for cheaper substitutes.

Detergents:-

The size of the detergent market is estimated to be Rs. 12,000 Cr. Household care segment is characterized by high degree of competition and high level of penetration. With rapid urbanization, emergence of small pack size and sachets, the demand for the household care products is flourishing. The demand for detergents has been growing but the regional and small unorganized players account for a major share of the total volume of the detergent market. In washing powder HUL is the leader with ~38 per cent of market share. Other major players are Nirma, Henkel and Proctor & Gamble.

3. Branded and Packaged Food and Beverages:

Health beverages; soft drinks; staples/cereals; bakery products (biscuits, bread, cakes); snack food; chocolates; ice cream; tea; coffee; processed fruits, vegetables and meat; dairy products; bottled water; branded flour; brand device; branded sugar; juices etc. Major companies active in this segment include Hindustan Lever, Nestle, Cadbury and Dabur. Spirits and Tobacco Major Companies active in this segment include ITC, Godfrey Philips, UB and Shaw Wallace. This include-

Food Segment:

The foods category in FMCG is gaining popularity with a swing of launches by HUL, ITC, Godrej, and others. This category has 18 major brands aggregating Rs. 4,600 Cr. Nestle and Amul slug it out in the powders segment. The food category has also seen innovations like softies in ice creams, ready to eat rice by HUL and pizzas by both GCMMF and Godrej Pillsbury.

Tea:

The major share of tea market is dominated by unorganized players. More than 50 per cent of the market share is capture by unorganized players. Leading branded tea players are HUL and Tata Tea.

Coffee:

The Indian beverage industry faces over supply in segments like coffee and tea. However, more than 50 per cent of the market share is in unpacked or loose form. The major players in this segment are Nestl, HUL and Tata Tea.

Chapter- 3

3.1 ANALYSIS OF FMCG SECTOR

3.1.1 STRENGTHS

3.1.2 WEAKNESSES

3.1.3 OPPORTUNITIES

3.1.4 THREATS

3.2 FMCG MARKETING

3.3 PRESENCE OF SMALL COMPANIES

3.3.1 Factors that enable small, unorganized players to flourish

3.1 ANALYSIS OF FMCG SECTOR

3.1.1 STRENGTHS:

1. Low operational costs

2. Presence of established distribution networks in both urban and rural areas

3. Presence of well-known brands in FMCG sector

4. Strong brands in the FMCG sector

3.1.2 WEAKNESSES:

1. Lower scope of investing in technology and achieving economies of scale, especially in small sectors

2. Low exports levels

3. "Me-too" products, which illegally mimic the labels of the established brands, narrow the scope of FMCG products in rural and semi-urban market.

3.1.3 OPPORTUNITIES:

1. Untapped rural market

2. Rising income levels i.e. increase in purchasing power of consumers

3. Large domestic market - a population of over one billion

4. Export potential

5. High consumer goods spending

3.1.4 THREATS:

1. Removal of import restrictions resulting in replacing of domestic brands

2. Slowdown in rural demand.

3. Tax and regulatory structure

3.2 FMCG MARKETING

Marketing fast-moving consumer goods (FMCG) is one of the purest and most sophisticated forms of selling there is. The great FMCG-selling companies, such as Procter & Gamble and Coca-Cola, invented mass marketing almost single-handedly and grew to become multinational giants in the process. FMCG played a major role in the rise of consumerism during the twentieth century and drove the development of the media from the days of the sponsored radio show of the 1920s. Selling FMCG provided the funds for the mushrooming growth of television and the establishment of advertising agencies as a vast, lucrative industry. In the West, and now increasingly in the rest of the world, almost everyone's lives are touched by FMCG. Definitions of FMCG vary, but generally the term is used to mean branded products that are:

used at least once a month;

used directly by the end-consumer;

non-durable; and

sold in packaged form.

3.3 PRESENCE OF SMALL COMPANIES

The Indian FMCG market has been divided for a long time between the organized sector and the unorganized sector. While the latter has been crowded by a large number of local players, competing on margins, the former has varied between a two- player-scenario to a multi-player one. Unlike the U.S. market for fast moving consumer goods (FMCG), which is dominated by a handful of global players, India's Rs.460 billion FMCG market remains highly fragmented with roughly half the market going to unbranded, unpackaged home made products. This presents a tremendous opportunity for makers of branded products who can convert consumers to branded products. However, successfully launching and growing market share around a branded product 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. Other challenges of similar magnitude exist across the FMCG supply chain. The fact is that FMCG is a structurally unattractive industry in which to participate. Even so, the opportunity keeps FMCG makers trying

3.3.1 Factors that enable small, unorganized players to flourish are:

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 price competitive vis--vis the organized sector.

A highly scattered market and poor transport infrastructure limits the ability of MNCs and national players to reach out to remote rural areas and small towns.

Low brand awareness enables local players to market their spurious look-alike brands.

Lower overheads due to limited geography, family management, focused product lines and minimal expenditure on marketing

CHAPTER- 4

4.1 Obstacles for retailers' growth

4.2 Nature of competition

4.3 Differentiation practiced by various players

4.1 Obstacles for retailers' growth

Tax rates

Land/store availability

Competition from informal firms

Competition from large chain stores

Regulation on opening new markets/shops

Macroeconomic uncertainty (exchange rate, inflation, etc.)

Costs of financing (interest rate, etc.)

Conditions on financing (collateral, etc.) Transportation

Customs and trade regulations

Consumer demand

Some obstacles are explained as follows-

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 are 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 in5,160 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. It also makes new product launches difficult since retailers are reluctant to allocate resources and time to slow moving products. Critical factors for success are the ability to build, develop, and maintain a robust distribution network.

3. Competition:

FMCGs are facing a stronger competition in market as every company produce a quality product at reasonable price.

4. Shrinking margins:

With the drop in consumer spending power and the trend towards more economical brands, consumer goods companies are being forced to look for innovative ways to reduce costs, eliminate waste and enhance efficiency.

5. Emerging markets:

With reduced consumer spending power in traditional markets, FMCGs are looking to high growth emerging markets such as China, India and Brazil. The challenge is to deliver products on a regional level, making the most effective use of resources.

6. Customer Service:

Giving customers a quality and reliable service, whilst still maintaining a competitive price is a difficult balancing act. Customer Service program will dramatically shift the way people interact with and manage the customers, to ultimately enhance the quality of service you provide, ensure your customers remain loyal and maximise their life-time value.

4.2 NATURE OF COMPETITION

In FMCG market there are many sellers selling differentiated products for example soaps used for personal wash. Each brand has a specific characteristic, be it packaging, fragrance, look etc., though the composition remains the same. This is the reason that each brand is sold individually in the market. This shows that each brand is highly differentiated in the minds of the consumers. The effectiveness of the particular brand may be attributed to continuous usage and heavy advertising. This is the characteristic of Monopolistic Competition. So in FMCG sector the form of competition prevalent is mainly Monopolistic. While this may be arguable to some extent in the case of cigarettes where Oligopolistic competition is said to be prevailing still our earlier statement holds true for most other products in FMCG sector. As defined by Joe S.Bain Monopolistic competition is found in the industry where there are a large number of sellers, selling differentiated but close substitute products. Take the example of Liril and Cinthol. Both are soaps for personal care but the brands are different. Under monopolistic competition, the firm has some freedom to fix the price i.e. because of differentiation a firm will not lose all customers when it increases its price. Monopolistic competition is said to be the combination of perfect competition as well as monopoly because it has the features of both perfect competition and monopoly. It is closer in spirit to a perfectly competitive market, but because of product differentiation, firms have some control over price.

4.3 DIFFERENTIATION PRACTICED BY VARIOUS PLAYERS

Consumer goods are available in a variety of styles and brands. Product differentiation refers to such variations within a product class that (some) consumers view as imperfect substitutes. Product differentiation is pervasive in FMCG market at a very large scale. Offered under different brands by competing firms, products fulfilling the same need typically do not have identical features.

The differentiation of goods along key features and minor details is an important strategy for firms to defend their price from levelling down to the bottom part of the price spectrum. At market level, differentiation is the way through which the quality of goods is improved over time thanks to innovation. Launching new goods with entirely new performances is a radical change, often leading to changes in market shares and industry structures. There are two types of Product differentiation followed by the Industry. They are

1. Vertical Differentiation

Vertical differentiation occurs in a market where the several goods that are present can be ordered according to their objective quality from the highest to the lowest. It's possible to say in this case that one good is "better" than another. An example could be Vanaspati oil and refined oil. Vertical differentiation can be obtained:

along one decisive feature;

along a few features, each of which has a wide possible range of (continuous or discrete)values;

Across a large number of features, each of which has only a presence/absence "flag".

2. Horizontal differentiation

When products are different according to features that can't be ordered, a horizontal differentiation emerges in the market. A typical example is the ice-cream offered in different tastes. Chocolate is not "better" than lemon.

CHAPTER- 5

5.1 COMPETITIVE ANALYSIS OF FMCG INDUSTRY

5.2 INDUSTRY ATTRACTIVENESS

5.3 RIVALRY AMONG COMPETING FIRMS

5.4 INDIAN COMPETITIVENESS AND COMPARISON WITH

THE WORLD MARKET

5.1 COMPETITIVE ANALYSIS OF FMCG INDUSTRY-

INDUSTRY ANALYSIS OF INDIAN FMCG SECTOR

FMCG Sector is one of the most important sectors for each and every Economy. It plays a vital role being a necessity and inelastic product which touches every life in one or the other aspect. India's FMCG sector is the fourth largest sector in the economy and creates employment for more than three million people in downstream activities. Its principal constituents are Household Care, Personal Care and Food & Beverages. The total FMCG market is in excess of INR 85,000 Crores. It is currently growing at double digit growth rate and is expected to maintain a high growth rate. FMCG Industry is characterized by a well established distribution network, low penetration levels, low operating cost, lower per capita consumption and intense competition between the organized and unorganized segments. The FMCG Industry remained insulated from inflation led demand slowdown. Inflation as measured by the wholesale price index (WPI) shot up to 9.5 per cent in June 2008 quarter and further climbed up to12.63 per cent in September quarter. In both these quarters, industry sales accelerated by more than 15 per cent backed by healthy growth in off take as well as price hikes affected. During this period, the industry was largely able to hold on to margins through a combination of strategies such as reduction in packaging cost and changes in product mix. Since October, inflation rate has been waning and fell to5.91 per cent for the week ended 27 December 2008. Thus demand for personal care products is likely to remain buoyant. Even during the slowdown of the economy, the FMCG sector has registered a growth rate of 14.5 per cent for the year 2007-08.

5.2 INDUSTRY ATTRACTIVENESS

Industry attractiveness actually forms part of industry structure. The elements of industry structure which constitute industry attractiveness are:

1. Industry Potential-

As we know that FMCG Industry is almost recession free and is fairly potent to provide good profitability as well as good return on investment, it carries a very high potential.

2. Industry Growth-

If we compare FMCG performance from year to year basis we see that there has been a manifold increase in the rate at which it is growing.

3. Industry Profitability-

Because of monopolistic competition companies generally earns higher profits in the long term rather than on short term basis. Margins are always thin in this industry due to higher manufacturing & distribution costs.

4. Likely Future Pattern of the Industry-

In India there is a huge untapped rural market for the FMCG industry as the demand in this segment is generally met by local players who thrive on IMITATION instead of INNOVATION

5. Industry Barriers

Main barrier in FMCG industry is competition from some big &dominant players like HUL, ITC, P&G, Godrej, Marico etc. which makes life difficult for the new entrants to survive in the market.

6. Forces Shaping Competition in the Industry-

Diversified products and varied demand in all parts of the sector.

5.3 RIVALRY AMONG COMPETING FIRMS

In the fmcg industry, rivalry among competitors is very fierce. There are scarce customers because industry is highly saturated and the competitors try to snatch their share of market players use all sorts of tactics and activities from intensive advertisement

Campaigns to promotional stuff and price wars etc. Hence the intensity of rivalry is very high.

1. Potential Entry of New Competitors

FMCG Industry does not have any measures which can control the entry of new firms. The resistances very low and the structure of the industry are so complex that new firm s can easily enter and also offer tough competition due to cost effectiveness. Hence potential entry of new firms is highly viable.

2. Potential Development of Substitute Products

There are complex and never ending consumer needs and no firm can satisfy all sorts of needs alone. There are plenty of substitute goods available in the market that can be replaced if consumers are not satisfied with one. The wide range of choices and needs give a sufficient room for new product development that can replace existing goods. Every other day there is some short of new product, variants and design. This leads to higher consumers expectation.

3. Bargaining Power of Suppliers

The bargaining power of suppliers of raw materials and intermediate goods is not very high. There is ample number of substitute suppliers available and the raw materials are also readily available and most of the raw materials are homogeneous. There is no monopoly situation in the supplier side because the suppliers are also competing among themselves.

4. Bargaining Power of Consumers

Bargaining power of consumers is also very high. This is because in FMCG industry the switching costs of most of the goods is very low and there is no threat of buying one product over other. Customers are never reluctant to buy or try new things off the shelf.

5.4 INDIAN COMPETITIVENESS AND COMPARISON WITH THE WORLD MARKET

India has a huge advantage in terms of cost factors such as raw material, labour cost etc. in comparison to other countries. A brief overview of such factors is as follows:-

1. Material Availability-

India has a diverse agro-climatic condition due to which there exists a wide-ranging and large raw material base suitable for food processing industries. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and fruits &vegetables. India also has an ample supply of caustic soda and soda ash, the raw materials in the production of soaps and detergents India produced 1.6 million tonnes of caustic soda in 2003-04. Tata Chemicals, one of the largest producers of synthetic soda ash in the world is located in India. The availability of these raw materials gives India the locational advantage.

2. Labour Cost Competitiveness-

Apart from the advantage in terms of ample raw material availability, existence of low-cost labour force also works in favour of India. Labour cost in India is amongst the lowest in Asian countries. Easy raw material availability and low labour costs have resulted in a lower cost of production. Many multi-nationals have set up large low cost production bases in India to outsource for domestic as well as export markets.

3. Leveraging the cost advantage-

Global major, Unilever, sources a major portion of its product requirements from its Indian subsidiary, HLL. In 2003-04, Unilever outsourced around US$ 218 million of home and personal care along with food products to leverage on the cost arbitrage opportunities with the West. To take another case, Procter & Gamble (P&G) outsourced the manufacture of Vicks Vaporub to contract manufacturers in Hyderabad, India. This enables P&G to continue exporting Vicks Vaporub to Australia, Japan and other Asian countries, but at more competitive rates, whilst maintaining its high quality and cost efficiency.

4. Presence across the value chain-

Indian firms also have a presence across the entire value chain of the FMCG industry from supply of raw material to final processed and packaged goods, both in the personal care products and in the food processing sector. For instance, Indian firm Amul's product portfolio includes supply of milk as well as the supply of processed dairy products like cheese and butter. This makes the firms located in India more cost competitive.

CHAPTER- 6

6.1 ANALYSIS of top 10 FMCGs companies

6.1.1 Hindustan Unilever Limited

6.1.2 Indian Tobacco Company

6.1.3 Nestle India

6.1.4 GCMMF (Amul)

6.1.5 Dabur India

6.1.6 Asian Paints

6.1.7 Cadbury India

6.1.8 Britannia Industries

6.1.9 Procter & Gamble Hygiene and Health Care

6.1.10 Marico Industries

6.1 Top 10 FMCGs companies

1. Hindustan Unilever Ltd.

2. ITC (Indian Tobacco Company)

3. Nestl India

4. GCMMF (AMUL)

5. Dabur India

6. Asian Paints (India)

7. Cadbury India

8. Britannia Industries

9. Procter & Gamble Hygiene and Health Care

10. Marico Industries

6.1.1 Hindustan Unilever Limited:

Unilever is lowering its expenditure on packaging across its portfolio of food brands as part of a wider cost-cutting drive. HUL has pared down the color palette used for printing across many products. The system has been used to reduce printed packaging costs for Unilevers products. It is also eco-friendly because it reduces waste in the printing process. HUL is taking different steps to reduce the cost and increase the margin. Hindustan Unilever is product - Purest (a water purifier) has received the UNESCO Water Digest Water Award 2008-2009 in the category of best domestic non-electric water purifier. Purest received the award for outstanding contribution in the field of water in India. The products available across 21 Indian states and has reached more than 1 million homes in India giving them access to microbiologically safe drinking water. Purest performance has been tested by leading international &national medical, scientific & public health institutions and meets the germ-kill criteria of the Environmental Protection Agency, the drinking water regulatory agency in the USA.

6.1.2 Indian Tobacco Company:

Indian Tobacco Company came into existence in the year 1910 with the name of Imperial Tobacco Company of India. The company is famous for its employees satisfaction policies and the employees of the organization are happy with their employer. The company deals with different FMCG products and it cannot be any more called as Tobacco Company. The company offers a wide range of employment opportunities in the areas of purchase, technical, legal, finance and corporate development.

6.1.3 Nestle India:

The journey of Nestle India began in the year 1912 in the name of the Nestle Anglo-Swiss Condensed Milk Export Company Limited and they are dealing with selling and importing finished products in Indian market. The company is one among the top wealth creators of India. The company is manufacturing Indian Consumer products with international standards and the company is committed to shareholder satisfaction and constant growth. Nestle is planning to invest Rs 6 billion in India in 2009 for expansion of its business in the country. The company which has allotted an investment of Rs 3 billion in the Indian market in 2008 would be doubling the investment in 2009 as part of its business strategy. Nestle International is reinvesting and expanding in India and Nestle India will have all the financial resources to expand and grow from the parent company. Nestle India reported a good increase in its standalone net profit for the second quarter. During the quarter, the profit of the company rose26.54% to Rs 1,210.90 million from Rs 956.90 million in the same quarter, last year. The company posted earnings of Rs 12.56 a share during the quarter, registering 26.61% growth over prior year period. Net sales for the quarter rose 23.45% to Rs 10,356.30 million, while total income for the quarter rose 23.78% to Rs 10,423.40 million, when compared with the prior year period

6.1.4 GCMMF (Amul):

GCMMF stands for Gujarat Cooperative Milk Marketing Federation and the company aims at offering good returns to the farmers and at fulfilling the requirements of consumers by offering them quality products. Of the different products offered by GCMMF, Amul range of products is the most famous and millions of people in India use Amul products. Some of the products of Amul include Amulya, Amul Milk, Nutramul, and Amul Ice Cream, Amul Shirk hand, Amul Chocolates, Amul Cheese, Amul Spray, Amul Ghee, Amul Milk powder and Amul Butter.

6.1.5 Dabur India:

Dabur India deals with personal and health care products. The recent turnover of this company is Rs. 1899 crores. The company is divided into two major strategic business units being consumer health division and consumer care division. The company has manufacturing units in different countries and some of their popular brand products are Dabur lal dant manjan, Dabur chyawanprash, Dabur amla, hajmola, anmol, vatika and Dabur red tooth paste. Dabur has entered into the malted food drink market with the launch of a new health drink Dabur Chyawan Junior. According to the company, they expect to capture a market share of 10 per cent of the Rs. 1,900 Crores malted food drink market over the next two years. Dabur has acquired 72.15 per cent of Fem Care Pharma Ltd (FCPL), a leading player in the women is skin care products market, for Rs 203.7Crores in an all-cash deal. The Company is expected to create synergy by this deal. Dabur got approval from Government of Himachal Pradesh to set up another medicine manufacturing unit. The project has an expected investment of Rs. 130 Crores.

6.1.6 Asian Paints:

Asian paints came into existence in the year 1942 and they are dealing with industrial and marine coatings, wood finishes, automobile OEMs and refinishes, finish coats and ancillary product in decorative paints. They are manufacturers of FMCG goods namely paint and their plants are located in different states like Tamil Nadu, Uttar Pradesh, Andhra Pradesh, Gujarat and Maharastra.

6.1.7 Cadbury India:

Cadbury came into India in the year 1948 by importing consumer good namely chocolates. They were dealing only with importing chocolates, but now they have manufacturing units in different parts of India like Himachal Pradesh, Bangalore, and Gwalior, Pune and Mumbai and sales offices at Chennai, New Delhi, Kolkata and Mumbai. Some of their popular products are Cadbury diary milk, celebrations, clairs, perk and 5 star and they are also popular for their milk drink bournvita.

6.1.8 Britannia Industries:

Britannia industries are dealing with manufacturing of products like milk, butter, cheese, cakes, Rusk, bread and the popular Britannia biscuits. Some of their popular branded biscuits are milk bikis, good day, pure magic, maska chaska, treat and Marie gold. The manufacturing units of the company are located at different parts of India like Uttarakhand, Chennai, Delhi, Kolkata and Mumbai.

6.1.9 Procter & Gamble Hygiene and Health Care:

Procter & Gamble deals with manufacturing of household cleaner, pet food and personal care products. This company is shortly called as P& G and this company is a parent company of some popular companies like Global Gillette and Clariol. Some of their popular health care products are Vicks inhaler, Vicks formula 44 cough syrup, Vicks cough drops, Vicks VapoRub and Vicks Action 500+.The Company has 21 product categories out of which only 8 product have presence in India. The company is planning to launch the rest 13 product in India. The company expects to see a growth in other categories. The company has an aggressive plan to set up 20 new factories across the World out of which 19 is expected to come in emerging markets and most of them would be seen in Brazil, Russia, India, and China (BRIC) nations. Whisper which is one of the company is power brands has recorded 50 per cent market share in urban India

6.1.10 Marico Industries:

Marico Industries is a leading Indian company manufacturing and exporting consumer products to different countries like SAARC Countries, Egypt, the Middle East, Bangladesh, UAE and the USA. Some of their popular products are Parachute, Revive, Shanti, Saffola, and Mediker.

FMCG is an ever-growing sector and this sector offers a wide range of employment opportunities in different departments like marketing, finance, HR, product development, general management, administration, supervision, purchase, operations, sales and supply chain management. Thus, this sector improves the earning capacity of individuals by offering wide range of employment opportunities.