fmcg industry - outline
TRANSCRIPT
MANAGERIAL MICROECONOMICS
FMCG SECTOR AT CROSSROADSA Project Outline
Project Team: NMIMS MBA Capital Markets
Mr Sunil Bhat 03Mr Deepak Chhapolia 05Mr Subodh Gandhi 11Mr Maulik Patel 23Mr Himanshu Tiwari 29
FMCG Industry in India
The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. It has a strong MNC presence and is characterized by a well established distribution network, intense competition between the organized and unorganized segments and low operational cost. Availability of key raw materials, cheaper labor costs and presence across the entire value chain gives India a competitive advantage. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products. Growth is also likely to come from consumer 'upgrading' in the matured product categories. With 200 million people expected to shift to processed and packaged food by 2010, India needs around US$ 28 billion of investment in the food-processing industry. Around 70 per cent of the total households in India (188 million) reside in the rural areas. The total number of rural households is expected to rise from 135 million in 2001-02 to 153 million in 2009-10. This presents the largest potential market in the world. The annual size of the rural FMCG market was estimated at around US$ 10.5 billion in 2001-02. With growing incomes at both the rural and the urban level, the market potential is expected to expand further. An average Indian spends around 40 per cent of his income on grocery and 8 per cent on personal care products. The large share of fast moving consumer goods (FMCG) in total individual spending along with the large population base is another factor that makes India one of the largest FMCG markets. Rapid urbanization, increased literacy and rising per capita income, have all caused rapid growth and change in demand patterns, leading to an explosion of new opportunities. Around 45 per cent of the population in India is below 20 years of age and the young population is set to rise further. Aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent demand with more money and a new mindset.A distinct feature of the FMCG industry is the presence of most global players through their subsidiaries (HLL, P&G, Nestle, Heinz, Colgate-Palmolive), which ensures new product launches in the Indian market from the parent's portfolio. Availability of key raw materials and cheap labor costs give India a competitive edge. Rural and semi-urban markets will drive the FMCG business in the country to a compounded annual growth of 50% for the next six years. A good number of malls, nearly 220 in the country, would come up in the next four to five years in semi-urban areas that would lead to an increase in the demand for the products.
Brief Background of the Firm
In the summer of 1888, visitors to the Kolkata harbour noticed crates full of Sunlight soap bars, embossed with the words "Made in England by Lever Brothers". With it began an era of marketing branded Fast Moving Consumer Goods (FMCG) in India.
The theme of the project being "Crossroads", we have chosen Hindustan Lever Limited (HLL) as:a) It being the market leader in the sector for most of the years.b) Facing stagnation in top line growth.c) Thus, HLL is at the "Crossroads" of a major revamp in its strategy to appeal to the consumer segment.
HLL as we see it now was born in 1956 through merger of 3 separate entities.
Chief Products
Currently, HLL is India's largest fast moving consumer goods company, with leadership in Home & Personal Care Products and Foods & Beverages. HLL's brands, spread across 20 distinct consumer categories, touch the lives of two out of three Indians. They endow the company with a scale of combined volumes of about 4 million tonnes and sales of Rs.10,000 crores. With 35 Power Brands, HLL meets everyday needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life.HLL is subsidiary of Unilever which holds 51.55% of the equity. A Fortune 500 transnational, Unilever sells Foods and Home and Personal Care brands in about 100 countries worldwide.HLL has diversified product portfolio from all segments of FMCG. The major products of the firms are: Personal Care: Sunsilk, Clinic, Peposodent, Close-up, Lakme, Ayush, Lux, Breeze, DoveHome Care : Surf Excel, Wheel, Rin, Hamam, Food : Brooke Bond, Lipton, Kissan, Kwality Wall’s, Bru
Market Structure
The FMCG structure in India:
Home CarePersonal Care
FMCG(HLL)
Food & Beverages
InternetKirana Stores Super Store/MallsDoor to Door
Consumer
Major Players & their Sales Performance
Revenue Sources
FMCG Industry’s revenue per segment
0
20000
40000
60000
80000
100000
120000
Food & Beverages Personal Care Home Care
Segment
Sal
es I
n M
illi
on
0
5
10
15
20
25
30
35
40
45
% O
f T
ota
l S
ales
Food & Beverages segment leads the revenue pack followed by Personal Care and Home care. Food & Beverages segment is growing at 9% and dependent on the season. Personal care segment leads the pack with the growth rate of 10% where Home care segment is growing at 9%.
Growth Opportunities
Large untapped rural market
Export potential Increasing disposable income levels will result in faster revenue growth.
Present Challenges
Competition from the unbranded players in rural market Mushrooming of regional brands like Nirma, Ghari & Jyothi Laboratories giving the
nation-wide brands a run for their money
Bargaining power of consumer
The Major Players in the market are: HLL, ITC, Nestle, Colgate-Palmolive, P&G, Dabur, Godrej, Nirma and Marico.
HLL is the biggest player in the industry with presence in all the segments of the FMCG sector. The only company which matches HLL’s presence in the entire industry is P&G.
Lack of innovative approach in distribution channel
Rising material, advertisement and distribution cost
Strategic Initiatives
New sales organization in place.
Greater focus on activation and point of sale demand creation.
Segmented approach to general trade and modern trade
Improved customer service
o Continuous replenishment operational
o Lower trade stock
o Improved stock freshness
Information Technology for business advantage
Penetration in rural markets
Combining corporate responsibility and business strategies to aid development of
rural India
Consolidation of customers; higher investment in infrastructure, improved
customer service
Demand Forecasting
The project aims to forecast the future of HLL using a combination of the following
methods:
Extrapolation
In the extrapolation method we will use the historical data, using which the forecast will
be done. As per this method we will weigh the recent data more heavily and smooth out
cyclical fluctuations to forecast the trend. We then calculate an average and trend from
the data and use these to derive a forecast.
Regression
Regression analysis models the relationship between one or more response variables
(also called dependent variables, explained variables) (usually named Y), and the
predictors (also called independent variables, explanatory variables) usually named X1...
Xp).We will be using simple linear regression for the purpose of forecasting. Method of
Least Squares will be employed for curve fitting.
Sources & references:
HLL Website
CMIE Journal
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