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Introduction
0 The Indian FMCG sector is the fourth largest sector in the
economy. 0 Intense competition between the organized and unorganized segments. 0 Availability of key raw materials, cheaper labor costs and presence across the entire value chain gives India a competitive advantage. 0 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. 0 The key players in FMCG sector are HUL,ITC, Dabur India Limited, Procter & Gamble Hygiene & Health Care Limited, Nirma Limited, Emami Limited, Colgate Palmolive India Limited, Godrej Consumer Products Limited.
KEY SEGMENTS
0 Household Care
0 Personal Care
fierce. 0 There are scarce customers because the industry is highly saturated and the competitors try to snatch their share of market. 0 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.
is so complex that new firms can easily enter and also offer tough competition due to cost effectiveness. Hence potential entry of new firms is highly viable.
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.
for new product development that can replace existing goods. This leads to higher consumers expectation.
and the raw materials are also readily available and most of the raw materials are homogeneous.
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.
the shelf.
VALUE CHAIN
0 Tool for identifying ways in which value could be
created/enhanced by a firm.
understanding crucial aspects to achieve competitive strengths and core competencies in the marketplace.
key strengths. Its focus is not only to enable easy access to our brands, but also to touch consumers with a three-way convergence - of product availability, brand communication, and higher levels of brand experience.
through a network of about 7,000 redistribution stockists covering about one million retail outlets. The distribution network directly covers the entire urban population.
kiosks and general stores. Hindustan Unilever services each with a tailor-made mix of services. The emphasis is equally on using stores for direct contact with consumers, as much as is possible through instore facilitators.
available with it. It has Home & Personal Care products, and also food and Water Purifier available with it. According to Brand Equity, HUL has largest no of brands in most trusted brands list.
Equity list of 100 most trusted brands in 2008 in an annual survey. For the entire year ending March 2009 net turnover of company is Rs. 20239.33 Crore which is 47.99% higher than 31st December 2007s Rs. 13675.43 Crore driven mainly by domestic FMCGs with net profit stood at Rs. 2496.45 Crore.
Bru; Brooke bond; Clinic; Dove; Fair & Lovely; Hamam; Liril; Lux; Pears; Ponds; Pepsodent; Pureit; Rexona; Rin; Sunlight; Surf excel; Vaseline; Wheel.
ITC Limited
0 This Company was earlier known as Imperial Tobacco
Company of India Ltd. 0 It is Currently headed by Yogesh Chander Deveshwar. 0 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. 0 For the entire year ending Mar-2009 the turnover of company is at Rs. 15388 Crore which is 10.3% higher than previous years Rs. 13947.53 Crore, driven mainly by robust 20% growth in non cigarette FMCG business with net profit stood at Rs. 3324 Crore.
India. 0 When we compare both companies on the basis of their strategies i.e. , their competitive strategies in the present market. 0 When we look at the present segment breakup for both of the companies then we came to know that their different products vary too much in the market.
In crore rupees
ITC
0 ITC is not a pure-play
is the largest pure-play FMCG company in the country and has one of the widest portfolio of products sold via a strong distribution channel. 0 It owns and markets some of the most popular brands in the country across various categories, including soaps, detergents, shampoos, tea and face creams.
FMCG company, since cigarettes is its primary business. 0 It is diversifying into non-tobacco. 0 FMCG segments like foods, personal care, paper products, hotels and agri-business to reduce its exposure to cigarettes.
PERFORMANCE
0 After stagnating between 1999 and 04, the company
is back on the growth track. In the past three years, till 2008 HULs net sales have witnessed a CAGR of 11%, while net profit has posted a CAGR of 17%. 0 Despite diversification, ITCs reliance on cigarettes is still huge. The tobacco business contributes 40% to its revenues, and accounts for over 80% of its profit. This cash-generating business has enabled it to take ambitious, but expensive bets in new segments and deliver modest profit growth.
ITC
0 Increased regulatory clamps on
India, HUL is more conservative in its strategies than its Indian counterparts. Moreover, given increasing competition, it faces the risk of being overtaken by domestic players in various categories. Prolonged inflation may lead to margin contraction, in case HUL is not able to pass on this burden to consumers. The company's large size also poses a problem, since it does not give HUL the agility to address the competition it faces from national and regional players
tobacco, along with rising tax burden, pose a business risk for ITC. So, it has started an ambitious diversification plan, which has its own set of risks. With its foray into the conventional FMCG space, ITC has entered the high-clutter branded products market. This will burden its resources in terms of ad spend and brandbuilding. Creating brand recall and building market share in new products are ITCs key challenges. Export ban and rising crop prices pose a threat for its agri-business, taxing its margins.
OVERALL STRATEGY
HUL
0 HUL always believes in
ITC
0 ITC is focusing on delivering
customer friendly products with major emphasis on low cost overall without compromising on the quality of the product. 0 They are leveraging the capabilities and scale of the parent company and focusing on the value of execution. 0 The entire product portfolio is also being tweaked to include premium offerings such as Ponds Age Miracle and dove shampoo in skin and hair care.
value at competitive prices. Its tremendous reach through extensive distribution chain has been a competitive advantage. 0 Additionally, the company's e-choupal model for direct procurement is well known under which ITC partners with over 100,000 farmers for spices and wheat procurement and an even larger number for oilseeds. This kind of rural pedigree is hard to beat
Growth Drivers
HUL
0 The Company has been
ITC
0 ITCs backward integration
launching new products and brand extensions, with investments being made towards brandbuilding and increasing its market share. HUL is also streamlining its various business operations, in line with the One Unilever philosophy adopted by the Unilever group worldwide. Introduction of premium products and addition of new consumers via market expansion will be HULs growth drivers.
to ensure that its products pass efficiently from the farms to consumers has helped it to cut down supply and procurement costs. ITCs non-cigarette FMCG business leverages the large distribution network the company has developed by selling cigarettes over the years. A rich product mix, along with ramp-up of investments in its new sectors, will be instrumental in charting ITCs growth path.
Conclusion
0 HULs up-and-running business model is a treat for
investors seeking exposure in the FMCG segment. The company has delivered in the past and has the potential to do better in future. In the small and medium term. ITCs growth story is still evolving.
players currently enjoy. Though risky, the companies business model will pay off in the long run. ITC has proved its expertise in the cigarettes, hotels, paper and agri-businesses. Investors who want to bank on its execution ability in FMCG can consider the stock with a long-term horizon.