competitive strategies followed by fmcg sector in india

8/6/2019 Competitive Strategies Followed by FMCG Sector in India

1/4

Competitive Strategies Followed by FMCG Sector in IndiaRelated to Two Companies HUL & ITC

Introduction

Competitive Strategy consists of move of companies in order to attract customers. With stand

competitive pressures and strengthen an organizations market position. The main objective ofCompetitive Strategy is to generate a competitive advantage, increase the loyalty of customers and tobeat competitors.

Five main competitive strategies are:

y Overall low cost leadership strategyy Best cost providers strategy

y Broad differentiation strategyy Focused low cost strategyy Focused differentiation strategy

Here competitive strategy varies from sector to sector and company to company. Thus, it is not easyto predict a single or to find a single strategy for the whole sector. When we come on to FMCG Sectormain strategies lay behind market strategies, cost, and quality strategies. Here in this report you aregoing to get information about such type of strategies of FMCG giants.

What are HUL and ITC Ltd.?

HUL (Hindustan Unilever Ltd.)

This Company is earlier known as Hindustan Lever Ltd. This is Indiaslargest FMCG sector company with all type of household productsavailable 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 mosttrusted brands list.

16 of HULs brands featured in AC-Nielson Brand Equity list of 100 most trusted brands in 2008 in anannual survey. For the entire year ending March - 2009 net turnover of company is Rs. 20239.33Crore 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.

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 isCurrently headed by Yogesh Chander Deveshwar. Company mainly operates in theindustry like Tobacco, Foods, Hotels, Stationary and Greeting Cards with the major

products constitutes Cigarettes, packed foods, hotels, and apparels. For the entireyear 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.

Analysis of Both Companies

HUL & ITC are major companies in FMCG market in India. When we compare both companies on thebasis of their strategies i.e. , their competitive strategies in the present market. When we look at the


2/4

present segment breakup for both of the companies then we came to know that their differentproducts vary too much in the market.

HUL Segment Breakup

ITC Segment Breakup

Now let us take a comparative analysis of both the companies under some heads:

HUL ITC

Hindustan Unilever (HUL) is the largest pure-play FMCG company in the country and hasone of the widest portfolio of products sold via astrong distribution channel. It owns and markets

some of the most popular brands in the countryacross various categories, including soaps,detergents, shampoos, tea and face creams.

ITC is not a pure-play FMCG company, sincecigarettes is its primary business. It isdiversifying into non-tobacco. FMCG segmentslike foods, personal care, paper products,hotels and agri-business to reduce its exposureto cigarettes.

Performance Performance

After stagnating between 1999 and 04, thecompany is back on the growth track. In the

Despite diversification, ITCs reliance oncigarettes is still huge. The tobacco business


3/4

past three years, till 2008 HULs net sales havewitnessed a CAGR of 11%, while net profit hasposted a CAGR of 17%.

contributes 40% to its revenues, and accountsfor over 80% of its profit. This cash-generatingbusiness has enabled it to take ambitious, butexpensive bets in new segments and delivermodest profit growth.

Overall Strategy Overall Strategy

HUL always believes in customer friendlyproducts with major emphasis on low costoverall without compromising on the quality ofthe product. They are leveraging thecapabilities and scale of the parent companyand focusing on the value of execution. Theentire product product portfolio is also beingtweaked to include premium offerings such asPonds Age Miracle and dove shampoo in skinand hair care.

TC is focusing on delivering value atcompetitive prices. Its tremendous reachthrough extensive distribution chain has been acompetitive advantage. Additionally, thecompanys e-choupal model for directprocurement is well known under which ITCpartners with over 100,000 farmers for spicesand wheat procurement and an even largernumber for oilseeds. This kind of rural pedigreeis hard to beat.

Growth Drivers Growth Drivers

The Company has been launching newproducts and brand extensions, withinvestments being made towards brand-building

and increasing its market share. HUL is alsostreamlining its various business operations, inline with the One Unilever philosophy adoptedby the Unilever group worldwide. Introduction ofpremium products and addition of newconsumers via market expansion will be HULsgrowth drivers.

ITCs backward integration to ensure that itsproducts pass efficiently from the farms toconsumers has helped it to cut down supply

and procurement costs. ITCs non-cigaretteFMCG business leverages the large distributionnetwork the company has developed by sellingcigarettes over the years. A rich product mix,along with ramp-up of investments in its newsectors, will be instrumental in charting ITCsgrowth path.

Risk for both the companies For HUL

Being an MNC operating in India, HUL is more conservative in its strategies than its Indiancounterparts. Moreover, given increasing competition, it faces the risk of being overtaken by domesticplayers in various categories. Prolonged inflation may lead to margin contraction, in case HUL is notable to pass on this burden to consumers. The companys large size also poses a problem, since itdoes not give HUL the agility to address the competition it faces from national and regional players.

For ITC

Increased regulatory clamps on 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 intothe conventional FMCG space, ITC has entered the high-clutter branded products market. This willburden its resources in terms of ad spend and brand-building. Creating brand recall and buildingmarket share in new products are ITCs key challenges. Export ban and rising crop prices pose athreat for its agri-business, taxing its margins.

Conclusion

HULs up-and-running business model is a treat for investors seeking exposure in the FMCGsegment. The company has delivered in the past and has the potential to do better in future. In thesmall and medium term. ITCs growth story is still evolving.

ITC is eyeing the pie which HUL and other FMCG players currently enjoy. Though risky, thecompanys 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.


4/4

Recommendations

According to us the companies should continue with their CSR and also continue with their strategies.The thing that need to be changed is that, ITC should go for more diversification in Non cigarettesegment (FMCG) while HUL should come up with the new strategies that could take the new productforward to create a new segment. A common recommendation for both is that they should focus onrural area more.

Bibliography

y Investopedia.comy Msn Encartay Economic Timesy Financial Expressy 4Ps Magaziney Business todayy Competitive Strategy by Michael Porter

y Wikipedia.comy Mega essays.comy Lots of essays.comy Times of Indiay Itcportal.comy Hul.co.iny Livemint.com

competitive strategies followed by fmcg sector in india

Documents