FMCG INDUSTRY IN INDIA

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Fast Moving Consumer Goods (FMCG) - alternatively known as consumer packaged goods (CPG) are products that are sold quickly and generally consumed at a regular basis

India's FMCG sector is the fourth largest sector in the economy and creates employment for more than three million people

FMCG Sector

Personal CareOral care, Hair care, Skin Care, Cosmetics and paper products

HouseholdFabric wash and

Household cleaners

Food and BeveragesCereals, Bakery

products, Snacks, Tea/Coffee, Soft drinks

VARIOUS STAKEHOLDERS OF DISTRIBUTION CHANNEL

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Analysis of Industry

Threat Of New Entrants

• Main raw material is palm oil, whose prices have gone down which makes it easier for the new firms to enter

• High investments

• Spending on advertisements

• Threat is MEDIUM

Substitute Products

• Bath Additives, Foam/Gel, Bath Oil,, Bath Salts/Powder, Body Wash/Shower Gel, Liquid Soap, Hand wash market

• Multiple brands are entering such as AXE, Fair and Lovely

• Narrow product differentiation

• Hence, threat is HIGH

Bargaining Power Of Suppliers

• Big FMCG companies dictate the prices through local sourcing from a fragmented group of key commodity suppliers

• Material needed is not hard to obtain

• Hence, threat is LOW

Bargaining Power Of Customers

• Low switching cost induces the customers’ product shift

• Influence of marketing strategies which sometimes manage to create brand loyalty.

• Availability of same or similar alternatives.

• Hence, MEDIUM

Rivalry Among Existing

Competitors

• Large number of big as well as small firms in this industry

• Price promotion: rather than price wars

Porter’s Five Forces

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Political

Heavy investment by the govt. inrural areas such as higher MSP,waiving off the loans, and MNREGAincreased the purchasing power ofthe rural population, GST may leadto reduction in prices bolsteringconsumption of FMCG goods.

Economic

Macroeconomic factors such ashigher interest rates ,inflationseldom affect the sales

Variability in commodity pricesaffect the cost of production

The per capita income of India hasrisen around 10% from 2014 to2015

Social

More beauty conscious. Theconsumption of high priced soaps hasincreased.

Many PR campaigns have beendeveloped by leading FMCGcompanies to target the ruralpopulation. According to IMRB, toiletsoap penetration in rural areas isalmost 97%.

Technological

Various innovations such asherbal soaps, shower gels etc.have been invented.

Companies invest heavily inR&D to come up with newvariants of existing products

Environmental

Regulations concerningenvironment impact have beenlaid down in The Drugs andCosmetics Act

Waste generated to bedisposed of as per the Bio-Medical Waste Rule, 1996

Legal

License from the State DrugAuthorities for manufacturing

Standards like: all Ingredients onthe label, phenolic substances,not > 2.5 % by mass etc.

PESTEL ANALYSIS

INTRODUCTION

LUX14.5%

Lifebuoy15% Dettol

8.5%

Santoor9%

Godrej No 15.5%

Others, 57

0

20

40

60

LUX Lifebuoy Dettol Santoor Godrej No 1 Others

Market Statistics- Major Soaps (INDIA,2013)

Urban Rich

Urban and Sub Urban Middle Class

Rural Poor

LUX’s Market Segmentation

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company w ith over 35 brands spanning 20

distinct categories such as soaps, detergents, shampoos, skin care, toothpastes etc.

Unilever ’s one of the most popular brand is LUX. The range of products includes beauty soaps, shower gels, bath additives,

hair shampoos and conditioners. Lux started as “Sunlight Flakes” laundry soap in 1899.

In 1925, it became the first mass-market toilet soap in the world. It is noted as a brand that pioneered female celebrity

endorsements.

As of 2009, Lux revenue was estimated at €1 billion, with market shares spread out to more than 100 countries around the

globe.Today,Lux is the market leader in countries like India, Pakistan, Brazil, Thailand and South Africa.

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PRIMARY MARKET RESEARCH

Retailer:

Kothari General Stores

Distributor:

HUL salesman

Retailer:

Nakoda General Stores

Distributor:

Ashish Chittora Agency

Retailer:

Hemant General Stores

Distributor:

Ghariwal Enterprise

Objective:

To understand the sales and distribution channels of the company- HUL (LUX)

Areas of Information:

Company

Products

Channel Structure

Demand Management

Sales Structure In Organization

Sales Motivation and Compensation

Methodology:

Interviews, Phone Calls etc.

Field Work:

Retailers, PI Shop, HUL interns, Supermarket (D-Mart), Prof. Manoj Motiani

Other Retailers: Arya General Stores, Hari-Om General Stores and Nagar General Stores

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SWOT ANALYSIS OF LUX

• Number of competitors is rising –ITC, P&G, etc. are fast catching up

• High internal competition (Pears, Dove – Beauty segment)

• Excessive dependence on beauty segment makes Lux vulnerable to changing customer tastes

• Line extension – probably with more variants catering to the beauty segment like natural, herbal soap

• Liquid body wash is currently in the growth stage

• Soap industry is growing by 10% in India

• Mainly positioned as beauty soap, lacks unisex appeal.

• Penetration in the rural areas is still less

• The stock replenishment in semi-urban areas and rural areas is quite long

• Strong Market Research

• Multiple variants

• Brand promotion

• Affordable prices

• Dynamically continuous innovations

STRENGHTHS WEAKNESSES

THREATSOPPORTUNITIES

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DISTRIBUTION CHANNEL OF HUL(LUX)

Phase 1

Wholesalers and retailers making bulk purchases with the company.

Phase 2

Wholesaler in each market was appointed as a "Registered Wholesaler," a stock point for the company's products in that market.

Phase 3

Concept of "Redistribution Stockist" (RS) who replaced the RWs and introduction of the "CFA's"(Carrying and Forwarding Agents)

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HUL's products are distributed through a wide network of redistribution

stockists, covering millions of retail outlets reaching the entire urban

population, and about 250 million rural consumers.

There are C&FAs in the country who feed these redistribution stockists

regularly. The general trade comprises grocery stores, chemists, wholesale,

kiosks, general stores and fancy outlets.

VARIOUS STAKEHOLDERS OF DISTRIBUTION CHANNEL

Carrying and Forwarding Agents (CNFs)

• Act as buffer stock‐points to ensure that stock‐outs do not take place.

• Result in cost savings in terms of direct transportation and reduced time lag in delivery.

• Help in the routing of transactions, adjustment of assortment discrepancy and sorting-breaking down a heterogeneous supply.

Redistribution Stockists

• Financing stocks and providing warehousing facilities.

• Providing manpower and providing service to retailers.

• Implementing promotional activities, extending indirect coverage and reporting sales and stock data.

Wholesalers

• Intermediary who buys goods for resale usually from company distributors or stockists of various companies and stocks all major brands.

• They provide substantial reach for various products esp. FMCG particularly in rural markets.

• HUL has very specific wholesaler-activation plans to push their products through the wholesalers(E.g. Vijeta Scheme)

Retailers

• Consists of Urban and rural consumers.

• Shakti Project was the rural marketing effort. Underprivileged women in villages are identified and trained to become Shakti Entrepreneurs (SEs) i.e. distributors of HUL products in villages to earn a sustainable income through this business.

• In addition to this HUL provides schemes to retailers.

Final Consumer

• Committed to responsible marketing and have clearly defined principles which guide their communications.

• Advertising is a way for them to engage with consumers on issues that matter to them.

• LUX came up with a series of advertising campaigns to appeal the customers. They hired famous celebrities like Reema Khan, Meera, Katrina Kaif, Aishwarya Rai as their face of the brand all these ladies where telling ordinary women that lux is the thing that will 'bring out the star in you'.

• The different SKU's, affordability, multiple variants also helped appeal the consumers. Offers like Buy 2 get 1 free etc.Group 1, SDM 3 9

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DEMAND MANAGEMENT

Deliver the Order of Sales on the visit

to Vendor

Note the Sales and demand, order for the supply of the

next visit

Inform on Order to the production

unit

Demand is managed by the Territory Sales Officer who comes around once or twice every fortnight to

check the display, keeps note of the visibility on shelf space and takes the order for delivery.

Use of Information Technology: UNIFY

HUL has an internet based system, UNIFY, which covers stockists of the home and personal care business and in towns and cities. It provides linkages with the redistribution stockists own

transaction systems, enables monitoring of stocks and secondary sales and optimizes RS’s orders and inventories on a daily basis through online interaction on orders, dispatches,

information sharing and monitoring. The IT‐powered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis. (RS net initiative as a

part of Project Leap)

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INCENTIVES FOR CHANNEL PARTNER

Redistribution Stockists

Sales Margin: App. 4.5% which includes cash discount, distribution expenses to retailers,

incentive schemes etc.

Transportation Facilities: Tempos, Auto Rickshaws

The wholesalers and retailers get around 1% discount from RS

Wholesalers

The wholesalers get cash discounts and other schemes promoted by HUL. Under the Vijeta

Scheme the wholesalers get points. The wholesaler gets bulk discounts when he orders in

bulk. In

Retailers

Sales Margin: 8.5% on MRP

Some retailers mentioned they get cash discounts, scheme based on the sales (1%-3%)

and certain discounts on full one time payment.

Vijeta Scheme is not applicable for the retailers

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National Sales Head

General Manager (North)

General Manager(South)

General Manger (East)

General Manager (West)

Cluster Manager(CM)

Cluster Manager(CM)

Cluster Manager(CM)

Cluster Manager(CM)

Area Sales Manager

Area Sales Manager

Territory Sales Officer

General Manager(Central)

STRUCTURE OF SALESFORCE

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FUNCTIONING OF SALESFORCE

GMs

North, South, West, East,

Central

Responsible for all product

lines(detergent, personal care,

food and beverages)

CMs

Divided based on turnover of area

Responsible for all product

lines(detergent, personal care,

food and beverages)

Total - 14

ASMs

7- 20 TSOs report to

each ASM.

Each ASM is responsible for

one product line.

Total - 120

TSOs

1 TSO assigned to 3-5 distributors

(Total- 1400)

Work with distributors on

a daily basis

Informally responsible for hiring salesmen

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Payment Policy

• After enquiring from the retailers, it was observed that payments are done mostly when the order is received (cash) but sometimes depending on the relationship with the salesperson, one week credit period was offered.

• The distributors have multiple payment options including cash, NEFT, cheque, DD etc.

Salary Structure

• Ground-level salesmen are on the payroll of the distributor. However, in metropolitan cities, the company hires salesmen in order to assist the distributor in order to manage the expenses.

• CTC is Rs 12.5k for the salesmen, of which 3k is variable pay. Variable pay is decided according to various metrics that are recorded in central software management system.

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COMPETITOR ANALYSIS

District Manager

Regional Branch Manager

Branch Manager

Assistant Manager

Area Manager

Area Executive

Sales Trainee

Factories Wholesale Service Providers

Wholesale Dealers

Wholesalers

Retailers Consumers

The Indian soap industry has several players. It is the perfect example of a monopolistic competitive market structure. It

has approximately 700 companies with annual revenue of $17 billion. The major players are – HUL, Godrej Consumer

Products Limited, Reckitt Benkiser, P&G, Patanjali and ITC. ITC Ltd. is one of the major upcoming competitors of HUL in

the soap industry. The sales hierarchy and the distribution system of ITC are as follows

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RECOMMENDATIONS

Bundling of goods

HUL can bundle its products on the basis of socio economic segmentation of the market. For

example- for the urban rich segment it can bundle LUX premium body wash with hair care product.

For the rural class it can bundle low price LUX soap with detergent sachets etc. This will help

enhance sales and beat competition.

Avoiding Price Conflicts

HUL has three major brands of soap selling through the same distribution channel (LUX, Lifebuoy

and Dove). The pricing strategy and margins for each of them should be established and sticked to

otherwise it may result in channel conflict.

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THANK YOU

References:

https://www.hul.co.in/

https://www.hul.co.in/Images/q401_notes_tcm1255-435960_en.pdf

http://www.livemint.com/Money/07RM1H3U8Y0vDAsB7Xpk8K/HULs-cash-return-

scheme-could-trigger-a-trend.html

https://www.visioncritical.com/5-examples-how-brands-are-using-co-creation/

https://www.wikipedia.org/

Information collected for primary research from sources such as retailers, HUL

Interns, PI shop, Area Sales Manager in Orissa).