log process 1 - fmg 1 - group 5final

8/2/2019 Log Process 1 - FMG 1 - Group 5Final

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Log Process 1

Brand Wills Lifestyle (ITC)Industry FMCG, Personal Care

-By,

FMG-1, Group 5:Jigyasa GaubaGargi Gupta

Jaspreet KaurSourabh Das

TABLE OF CONTENTS


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1. Overview of ITC

2. Overview of the FMCG sector

3. Growth history

4. Personal care sector

5. Supply and demand scenario

6. Export and import overview

7. Factors effecting cost

8. SWOT analysis of the FMCG sector

9. Recent trends in the industry

Technology

Price

Product differentiation

10. Trends and problem faced by the industry in thenear future


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Overview of the company:

ITC is one of India's foremost private sectors.

Market capitalization of nearly US $ 19 billion and a turnover ofover US $ 5.1 Billion.

Rated among the World's Best Big Companies, Asia's 'Fab 50.

ITC ranks among India's `10 Most Valuable (Company) .

ITC India Limited

Type Public (BSE:ITC)

Founded 24 August 1910,

Radha Bazar Lane, Kolkata, India

Headquarters

Kolkata, India

Key peopleYogesh Chander Deveshwar, Chairman,

K. Vaidyanath, Director, Partho Chatterjee,

CFOIndustry Tobacco, foods, hotels, stationery, greeting

cards ,Products Cigarettes, packaged food,hotels, apparel

Revenue $4.75 billion USD (2006)

Employees 21,000 (2007)

Website www.itcport al.com

In line with ITC's aspiration to be India's premier FMCG company,recognised for its world-class quality and enduring consumer trust, ITCforayed into the Personal Care business in July 2005. In the short periodsince its entry, ITC has already launched an array of brands, each ofwhich offers a unique and superior value proposition to discerningconsumers. Anchored on extensive consumer research and productdevelopment, ITC's personal care portfolio brings world-class productswith clearly differentiated benefits to quality-seeking consumers.
http://www.itcportal.com/http://www.itcportal.com/


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ITC's Personal Care portfolio under the 'Essenza Di Wills','Fiama DiWills', 'Vivel Di Wills' 'Vivel UltraPro', 'Vivel' and 'Superia' brandshas received encouraging consumer response and is being progressivelyextended nationally.

ITC's state-of-the-art manufacturing facility meets stringentrequirements of hygiene and benchmarked manufacturing practices.Contemporary technology and the latest manufacturing processes havecombined to produce distinctly superior products which rank high onquality and consumer appeal.

Extensive insights gained by ITC through its numerous consumerengagements have provided the platform for its R&D and ProductDevelopment teams to develop superior, differentiated products thatmeet the consumer's stated and innate needs. The product formulationsuse internationally recognised safe ingredients, subjected to the higheststandards of safety and performance.

Competition:

ITC Ltd. faces competition from various other companies producing avaried line of FMCGs. In relation to Personal Care products ITC or FiamaDi Wills line of products (and the likes) faces competition fromcompanies like HUL, P&G, LOreal, Marico etc.

HUL Ltd. Hindustan Uni Lever Ltd. with its large amount of brandsunder soaps and hair care products is the biggest competitor to ITC Ltd.

Soaps market HUL presently owns around 60% market share with

JUST its soaps. With Dove directly competing with the Fiama Di Willsline of products as both of them do not cater to the mass market butthe higher middle class or high income class of the consumers inIndia.

Hair Care market Sunsilk &Clinic all clear are the major marketcapturing hair care products under HUL. They are proving to be a


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competition with ITC for the hair care products under Fiama Di Willsbrand.

P&G P&G also owns a relatively modest share of market with its haircare products. Pantene and Head & Shoulders have been in the marketfor a longer time than Fiama Di Wills and thus have more popularityamongst consumers. Like Fiama Di Wills, Pantene & Head & Shouldershave variants suiting the different needs of different consumers.

LOreal LOreal is a leading international company which enteredIndian market a few years back. LOreal has the Garnier Fructis line ofshampoos and conditioners which like Fiama Di Wills have usedtechnology to increase the quality and also come up with a number ofvariants.


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Marico Marico, as can be seen, is a major competitor to ITC. Maricoalso has hair care products. Though these products are targeted to themass market and low priced, it steals away a large market from ITC.

Overview of industry: FMCG:

Fast Moving Consumer Goods (FMCG), are the products thatare sold quickly at relatively low cost. Though the absolute profitmade on FMCG products is relatively small, they generally sell inlarge quantities, so the cumulative profit on such products can belarge.

Examples of FMCG generally include a wide range of frequentlypurchased consumer products such as toiletries, soap, cosmetics,teeth cleaning products, shaving products and detergents.

Leading FMCG companies - Some of the well known FMCGcompanies are Sara Lee, Nestl, Reckitt Benckiser, Unilever,Procter & Gamble, ITC Ltd., Coca-Cola, Carlsberg, Kleenex,General Mills, Pepsi and Mars etc.

INDIAN FMCG OVERVIEW

The FMCG sector seems to have finally joined India Inc's growthparty by posting surprising double-digit growth in sales in the pastcouple of years.

Annual revenues of Rs 72,000 crore. It is the one of the largest sectors in the Indian economy. Considering the average spending by the urban markets all over

India (as given below), the future of the sector looks bright andpromising.
http://en.wikipedia.org/wiki/Low_costhttp://en.wikipedia.org/wiki/Low_cost


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Source India Today - R K Swamy BBDO Guide to Urban Markets Average

Monthly Spending on FMCG Products* in Rs.

1 Chandigarh Chandigarh

2 Greater Mumbai

Maharashtra

3 Chennai Tamil Nadu

4 Ahmedabad Gujarat

5 Vadodara Gujarat

6 Pune Maharashtra

7 Coimbatore Tamil Nadu

8 Ludhiana Punjab

THE TOP 10 COMPANIES IN FMCG SECTOR

S.NO.

Top companies of India

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 Hygieneand Health Care

10. Marico Industries

Industry Segments:

The main segments of the FMCG sector are:


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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; ITC Ltd., Godrej Soaps,Colgate- Palmolive, Marico, Dabur and Procter & Gamble.

Household Care: Fabric wash (laundry soaps and synthetic detergents); household

cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticidesand mosquito repellants, metal polish and furniture polish).

Major companies active in this segment include Hindustan Lever, Nirma and Reckitt &Colman.

Branded and Packaged Food and Beverages: Health beverages; soft drinks;

staples/cereals; bakery products (biscuits, bread, cakes); snack food; chocolates; icecream; tea; coffee; processed fruits, vegetables and meat; dairy products; bottled water;branded flour; branded rice; branded sugar; juices etc.

Major companies active in this segment include Hindustan Lever, Nestle, Cadbury andDabur.

Spirits and Tobacco: Major companies active in this segment include ITC, Godfrey Philips,

UB and Shaw Wallace.

History Of The FMCG Industry Growth:

Main Drivers for Growth in FMCG:-

1. Higher Consumer spending The per capita disposable income of people in both urban as well asrural areas has seen a good rise in the past few years. Differentialpricing has helped consumers from all economic demographicsexperiment with new products based on their needs and abilities. Aprominent shift has been seen from consumer electronics to otherconsumer goods such as cosmetics, soaps & detergents, etc. Most FMCGplayers have been targeting the consumers needs and converting theseinto strategies and final products.


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2. Benefits of Organization in Retail FMCG Organised retail has been a boon for both the consumers as well assuppliers. This is evident from the success of recent retail players thathave entered the market such as Reliance Fresh, Big Bazaar, More, etc.For suppliers, especially farmers, organised retail allows them to receivebetter prices for their produce. For consumers, the benefits include easeof shopping, better comparison of products, good ambience, etc. But themost important factor is that consumers spend more on a productsvalue and less is wasted in services such as distribution.

3. Penetration FMCG majors have been looking to penetrate the mostly untapped ruralas well as semi-urban areas of India. To achieve this, they have plannedto implement better distribution networks. According to Asschom, FMCGwill witness more than 50% of its growth in the rural and semi-urbansegments by 2010. In the urban regions, due to cut throat competitionFMCG players have gone in for other promotional strategies such asbranding, product differentiation, package innovation, highlighting thefunctional aspect of foods, etc. The development of better and fastermeans of transport will increase FMCG penetration in the long term.

4. Indian competitiveness and global market India has an advantage over other nations in FMCG due to certainreasons, such asa) Easy and cheap availability of various raw materialsb) Cheap labourc) Spread of Indian companies across the complete value chain


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5. Shift of demand from unbranded to branded goods Consumers have become more aware of the benefits of brandedcommodities in foods.

12 percent in 2006-07

14.5 percent in 2007-08 India FMCG sector is all set for 16% growth during 2008-09

Personal Care:

Personal care category in India is valued at Rs 54.6 billion. An averageIndian spends 8% of his income on personal care products. Personalcare mainly consists of Hair Care, Skin Care, Oral Care, Personal Wash(Soaps), Cosmetic and Toiletries, Feminine Hygiene. Till 2002-2003,Personal care products, except those in oral care category, wereregarded as luxury items, and attracted a high excise duty of 120%. Butthe taxation reforms in India after 1991 have lowered the excise dutyrates that make these products more affordable. It is divided into twosegments:

The premium segment

The popular segmentThe premium segment caters mainly to urban high class and uppermiddle class, and is more brand conscious and less price sensitive. Thepopular segment caters to mass segments in urban and rural markets;prices here are around 40% of the premium segment prices.


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ShampoosThe shampoo market is valued at Rs 4.5 billions and has the penetrationlevel of only 13% in India. The market is expected to increase due toincreased marketing by players, lower duties, and availability ofshampoos in affordable sachets. Sachet makes up to 40% of the total

shampoo sale. The Indian shampoo market is divided in two parts Cosmetic Anti-dandruff

This is primarily a middle class product because more than 50% of thepopulation uses toilet soaps to wash hair. The penetration level is only30% in metros. The major players are HLL, and Procter & Gamble.

GrowthWith the increase in rural income and improvement in distributionnetwork (i.e. road development projects), the penetration levels are set

to increase. Since the consumption level in urban areas is already highin most of the categories, the growth can come only from deeperpenetration and higher consumption in rural areas. In the year 2005-06,the sector witnessed growth because of the increase in consumerdemand from urban and rural areas. In addition to demand, prices alsowent up. Also, with the increase in disposable income, some consumershave moved up in the value chain. The growth for FMCG products inFebruary 2006 was the highest in 5 years, on YoY (year over year) basis.

Prospects

The proportion of the consuming class to total households will touch46% by FY07 from 17.4% in FY95, estimated by National Council forApplied Economic Research (NCAER). As the native companies areexpanding in international market, the MNC subsidiaries are looking forgreater leverage of the parent strengths. Also, big MNCs cannot affordto avoid India because of its potential market. The market size and themajor players are:

Source:CII

Category Market share (Inbillions)

Major Players


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Skin Care 13 HLL

Personal Wash 46 HLL

Hair care 28 Marico

Oral care 23 Colgate

In India, the per capita consumption of almost all the products isamongst the lowest in the world. For example, the average consumptionof toothpastes is around 320 gms in the world but in India it is 107 gms.In Thailand, Mexico, and USA it is 262 gms, 376 gms, and 518 gmsrespectively.

History Of The FMCG Industry Growth:

12 percent in 2006-07 14.5 percent in 2007-08 India FMCG sector is all set for 16% growth during 2008-09

An increase in disposable income, across rural and urban consumers,

has led many rural consumers to shift from traditional unorganized

unbranded products to branded FMCG products and urban fraternity tosplurge on value added and lifestyle products. This is supported byimproving reach to remote markets, organized retailing and favorableIndian economy & demographics.

Supply and demand scenario:

The FMCG Industry is on a high growth trajectory with the overalldemand expected to rise manifolds such as changing customer


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preferences, emergence of modern retail formats, and growing ruralspend propensity.As discussed before, the various factors that affect demand of personalcare products are:

Increasing awareness about brands Consumers are more awareabout the benefits of branded products and thus demand qualityproducts. FMCG products are so closely connected to each other thattheir buying decisions depend on the information a consumer has oneach brand and the perception of each product. Therefore, anincreasing awareness makes a consumer more prompt and effectivein his decision which results in more buying.

Increased disposable income As shown above, the disposableincome of both rural and urban markets has considerably increased

thus increasing the purchase power of the consumers. Morepurchasing power means more demand.

New brands coming up With new brands being launched, customershave a wide range of choice and thus can choose products which

best suit their needs. The companies also, launch brands which fulfillthe needs of the customers which werent identified previously thusmaking the needs tangible and allowing them to be satisfied.

Competition With so much competition and companies participatingin the industry, there is always a neck-to-neck competition that thecompanies face. Any unfavourable change in their strategy, the


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consumer has a wide range of choices and thus can change hispreferences easily and quickly.

Fear of losing out on market share Due to inflation and such closecompetition, the industry players are in a constant fear of losing out

on their customers as nowadays consumers are not loyal to anybrand.

Down trading Down trading means shifting to less expensiveproducts. Consumers, also affected by inflation and thus lowpurchasing power, can shift their preferences to cheaper products.This would lead to an increase in demand for mass market -affordable products and an opposite effect on expensive goods.

Supply of FMCG products depends on the following factors:

Increased number of suppliers As the number of companies getting

into FMCG products has multiplied; the number of suppliers increasedproportionately and thus increased the supply.

Technological advancements In this time of advanced technologicaladvancements, production has become easier, faster and cheaper.Thus, producers are at an advantage and thus supply more.


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Input costs Any change in the costs of inputs leads to a change inthe supply of the FMCG products. An increase in the input costswould make production more expensive thus the producers wouldhave to cut down on the production and thus decrease supply. Thevice-versa holds true as well.

Export and Import Overview:

Exports

India is one of the worlds largest producers for a number of FMCGproducts but its FMCG exports are languishing at around Rs 1,000 croreonly. There is significant potential for increasing exports but there are

certain factors inhibiting this. Small-scale sector reservations limit abilityto invest in technology and quality upgradation to achieve economies ofscale. Moreover, lower volume of higher value added products reducescope for export to developing countries.

Import

Besides intense competition amongst various producers, Governmenthas removed thequantitative restrictions on more than 700 items under the EXIM Policy-2000 and on the

balance 720 odd items, restrictions were lifted from April 2001, sinceIndia is a signatory to WTO on QR (quantitative restrictions). Though thegrey market always existed, theliberalisation of imports has resulted in increase in organised imports.Importers and large distributors are now focusing on havingarrangements with overseas manufacturers and currently they aremaking efforts to increase their distribution network. From ourinteraction with couple of traders, we learn importers are offering highertrade margins and incentives to promote their products vis--vis localproducers. The imported products are available in metros and thepenetration is being made into towns and rural areas. Though there are

no official statistics available on the extent of consumer products beingimported into India, the amount is likely to be small compared with theoverall size of the market. However, these imports only can increase thecompetition amongst the existing domestic companies, consequentlydampening the earnings growth momentum. The threat from importscan have more negative impact on the household and personal carecategories and it will be less severe on food and beverage products.


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Generally consumers have reservations to try out newer range ofproducts, which could help the Indian multi-nationals.

Factors Effecting Cost:

The FMCG industry has been majorly affected by inflation due torecession in the economy. This inflation has brought up otherconsiderations and factors that affect cost n price of FMCG products.

Market leader leads the group The market leader, in this case HULLtd., leads the way other players in the industry would move. Evenwith inflation HUL did not increase the prices and thus, none of theother players did.

Input cost pressures HUL Ltd. is a big enough company to absorbthe raised cost of inputs and keep their prices constant but othercompanies may not be so lucky. Therefore, they would have toincrease the prices of their products to absorb the increased inputprices.

Location of producing unit - FMCG companies have found anotherway to reduce costs shift the manufacturing base to tax-freelocations such as Baddi in Himachal and Jammu for tax and excise

duty savings. Therefore, location of the production place affects thecost to a large extent. Location would also mean transportation costs.Carrying goods from the place of production to the place ofdistribution involves costs. If the distance is relatively longer it wouldmean more costs and vice-versa. Also, if the location or city ofproduction unit has cheap and easy transportation available or notwould also play a factor.

Government regulations The government regulations and laws hasa major bearing on the cost setting on the FMCG products. Duties andtaxes have to be duly paid to the Government otherwise it would

invite more costs in form of fines and legal fees and expenses.

Recent trends in the industry regardingproduct differentiation:


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Product differentiation (also known simply as "differentiation") is theprocess of distinguishing the differences of a product or offering fromothers, to make it more attractive to a particular target market. Thisinvolves differentiating it from competitors' products as well as one'sown product offerings.

Most of the FMCG products differentiate each other through either theretarget market or if they are targeting the same market they differentiateeach other through their ads which convinces the unique of the theirproducts for example

LOreal: Because youre worth it.Pantene: You can shineDove: With one quarter cleansing creamFiama Di Wills: Beautiful you Today, Tomorrow

SWOT analysis of FMCG industry:

Strengths:1. Low operational costs2. Presence of established distribution networks in both urban and ruralareas3. Presence of well-known brands in FMCG sector

Weaknesses:1. Lower scope of investing in technology and achieving economies ofscale, especially in small sectors2. Low exports levels3. "Me-too" products, which illegally mimic the labels of the establishedbrands. These products narrow the scope of FMCG products in rural andsemi-urban market.

Opportunities:

1. Untapped rural market2. Rising income levels i.e. increase in purchasing power of consumers3. Large domestic market- a population of over one billion.4. Export potential5. High consumer goods spending

Threats:1. Removal of import restrictions resulting in replacing of domestic
http://en.wikipedia.org/wiki/Differentiation_(economics)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Target_markethttp://en.wikipedia.org/wiki/Competitionhttp://en.wikipedia.org/wiki/Differentiation_(economics)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Target_markethttp://en.wikipedia.org/wiki/Competition


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brands2. Slowdown in rural demand3. Tax and regulatory structure

Trends that may be expected in FMCG overnext few years:

1. Inclination towards environment-friendly goods Consumers are expected to appreciate socially responsible trade. Thisshall lead to a move towards products with ingredients that can bereplenished and more natural/herbal cosmetics and skin care products.

2. Use of more technology The coming years will see a greater amount of e-marketing and bloggingfor promotion of goods. IT is expected to help in consumer-tracking aswell as Supply Chain Management.

3. More goods catering to the youth With the increase in youth population in India, the FMCG sector is tryingto come up with more products which appeal to this class of consumers.This will include more branding of commodities such as clothing,cosmetics and other accessories.

4. Health food categories This mainly targets the health-conscious, rich urban Indian. Some goodsalready existent in this segment are skimmed milk, diet soft drinks,multigrain bread, sugar-free, etc.

5. Inflation impacts FMCG majors are coming up with various measures to combat thedouble digit inflation. These measures include repositioning of productlines, variant packaging, strengthening distribution and logistics, etc.

Problems that this Industry may face in thenear future:

i. Stiff competition among domestic and foreign entrants-Players from the organised as well as unorganised sector continue tograb at each others market shares. The entry of existing players in newsegments has resulted in high pressure on margins. This has beentackled by more expenses on promotion and advertising.


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ii. Poor transport facilities The highly scattered market basket is difficult to cater to withinadequate infrastructure. Rural and semi-urban penetration in suchconditions becomes a great challenge.

iii. Low Brand-Awareness The lack of knowledge of branded, genuine commodities among peoplein small towns allows local dealers to sell spurious products.

iv. Increase in factor prices The sustained inflationary market has put a major dent in the FMCGindustry. It has led to higher costs of raw materials as well as packagingand distribution. Most companies try to transfer the burden toconsumers to some extent by price hikes and smaller SKUs.


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REFERENCES

Marketing management by Philip Kotler

Google

Scribe.com

ITC annual report.

Wikipedia

Indiatimes.com

Economictimes.com

Fundoodata.com

Provide Intext citations (Its compulsory, followHarvard referencing style. The document is given

in the course website). Also provide Bibliography

Add Introduction

Provide evidences in the SWOT analysis ( Back upwith the data )

Also give diagrams (Supply and demand curves)

Work on the aspects of technology, price, product

differentiation

Do Proper Formatting

Provide Introduction

Do more indepth analysis of cost factors

log process 1 - fmg 1 - group 5final

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