Term Paper

A Study on FMCG Sector in India and HUL

It’s Capabilities, Grand Strategies and Benchmarking

Course: Strategic Management

Course Code: MGT 612

Submitted By:

Varun Puri

10800464

RR1805 A 19

Submitted To:

Rajan Giridhar

Department of Management

Lovely Professional University

Acknowledgement

Words are the dress of thoughts, appreciating and acknowledging those, who are responsible for

the successful completion of the project.

My sincere gratitude goes to Mr. Rajan Giridhar who assigned me responsibility to work on this

project and provided me all the help, guidance and encouragement to complete this project.

The encouragement and guidance given by him have made this a personally rewarding

experience. I thank him for her support and inspiration, without which, understanding the details

of the project would have been exponentially difficult

With Sincere Thanks,

(Varun Puri)

DECLARATION

Declaration

I, "Varun Puri”, hereby declare that the work presented herein is genuine work done originally

by me and has not been published or submitted elsewhere for the requirement of a degree

programme. Any literature, data or works done by others and cited within this dissertation has

been given due acknowledgement and listed in the reference section.

(Varun Puri)

Registration No.:- 10800464

Date: 09-05-2010

Table of Contents

1 Introduction to Subject............................................................................................................1

1.1 FMCG Sector in India.......................................................................................................1

1.2 Constituents of FMCG Sector in India.............................................................................2

1.2.1 HOUSEHOLD CARE...............................................................................................2

1.2.2 PERSONAL CARE...................................................................................................2

1.2.3 FOOD AND BEVERAGES......................................................................................2

1.3 FMCG Sector: Statistics....................................................................................................3

1.4 Demand Dynamics............................................................................................................4

1.5 Rise in Disposable Income................................................................................................4

1.5.1 Higher Penetration of the Rural Population...............................................................4

2 Company profile......................................................................................................................6

2.1 HUL- Background.............................................................................................................6

2.2 Over 100 Years Link with India.......................................................................................7

3 Capabilities & Strengths........................................................................................................13

3.1 The new Hindustan Lever: Focused on FMCG..............................................................13

3.2 FMCG still offers enormous potential............................................................................13

3.3 Portfolio of Strong Brands..............................................................................................14

3.4 Better Value....................................................................................................................14

3.5 Bigger Role in Consumers’ Lives...................................................................................14

3.6 Technology, the Key Differentiator................................................................................15

3.7 Winning with Customers................................................................................................15

3.8 Opportunities Ahead.......................................................................................................16

3.8.1 Food.........................................................................................................................16

3.8.2 Beverages.................................................................................................................16

3.8.3 Exports.....................................................................................................................17

3.8.4 Investment in the FMCG sector...............................................................................17

4 Grand Strategies.....................................................................................................................18

4.1 Types of Grand Strategies...............................................................................................18

4.2 Grand Strategies Adopted by HUL.................................................................................18

4.2.1 Concentrated Growth & Market Development........................................................18

4.2.2 Joint Venture............................................................................................................18

4.2.3 Backward Integration...............................................................................................19

4.2.4 Product Development..............................................................................................19

4.2.5 Divestiture................................................................................................................19

5 Benchmarking........................................................................................................................21

5.1 India Competitiveness and Comparison with the World................................................21

5.1.1 Large domestic market............................................................................................21

5.1.2 India - a large consumer goods spender..................................................................21

5.1.3 Materials availability...............................................................................................22

5.1.4 Cost competitiveness...............................................................................................23

5.1.5 Presence across value chain.....................................................................................24

5.1.6 POLICY...................................................................................................................24

6 Conclusion:............................................................................................................................26

7 References..............................................................................................................................27

References

List of Charts

Chart 1: Rise in Disposable Income (In USD Thousands) ..............................................................4

Chart 2: Rural Vs. Urban Households Growth................................................................................5

Chart 3: Investments in FMCG Sector (August 1991- April 2004)..............................................17

Chart 4:- Consumption pie.............................................................................................................21

Chart 5:- Consumer Expenditure on Food (Worldwide)...............................................................22

Chart 6:-Labor cost comparison (Worldwide)...............................................................................23

Chart 6:-Labor cost comparison (Worldwide)

1 Introduction to Subject

1.1 FMCG Sector in IndiaFast Moving Consumer Goods (FMCG) are products that are sold quickly at relatively low cost.

Though the absolute profit made on FMCG products is relatively small, they generally sell in

large quantities, so the cumulative profit on such products can be large.

FMCG products are generally replaced or fully used up over a short period of days, weeks, or

months, and within one year. This contrasts with durable goods or major appliances such as

kitchen appliances, which are generally replaced over a period of several years

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 organised and unorganised

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.

1.2 Constituents of FMCG Sector in India

1.2.1 HOUSEHOLD CAREThe size of the fabric wash market is estimated to be $1 billion, household cleaners to be $239

million and the production of synthetic detergents at 2.6 million tonnes. The demand for

detergents has been growing at an annual growth rate of 10 to 11 per cent during the past five

years. The urban market prefers washing powder and detergents to bars. The regional and small

un-organized players account for a major share of the total volume of the detergent market.

1.2.2 PERSONAL CAREThe size of the personal wash products is estimated at $989 million; hair care products at $831

million and oral care products at $537 million. While the overall personal wash market is

growing at one per cent, the premium and middle-end soaps are growing at 10 per cent. The

leading players in this market are HLL, Nirma, Godrej Soaps and Reckitt & Colman. The oral

care market, especially toothpastes, remains under penetrated in India (with penetration level

below 45 per cent). The industry is very competitive both for organised and smaller regional

players.

The Indian skin care and cosmetics market is valued at $274 million and dominated by HLL,

Colgate Palmolive, Gillette India and Godrej Soaps. The coconut oil market accounts for 72 per

cent share in the hair oil market. In the branded coconut hair oil market, Marico (with Parachute)

and Dabur are the leading players. The market for branded coconut oil is valued at approximately

$174 million.

1.2.3 FOOD AND BEVERAGESThe size of the Indian food processing industry is around $ 65.6 billion, including $20.6 billion

of value added products. Of this, the health beverage industry is valued at $230 million; bread

and biscuits at $1.7 billion; chocolates at $73 million and ice creams at $188 million.

The size of the semi-processed/ready-to-eat food segment is over $1.1 billion. Large biscuits &

confectionery units, soya processing units and starch/glucose/sorbitol producing units have also

come up, catering to domestic and international markets.

The three largest consumed categories of packaged foods are packed tea, biscuits and soft drinks.

The Indian beverage industry faces over supply in segments like coffee and tea. However, more

than half of this is available in unpacked or loose form. Indian hot beverage market is a tea

dominant market. Consumers in different parts of the country have heterogeneous tastes.

Dust tea is popular in southern India, while loose tea in preferred in western India. The urban-

rural split of the tea market was 51:49 in 2000. Coffee is consumed largely in the southern states.

The size of the total packaged coffee market is 19,600 tonnes or $87 million.

The total soft drink (carbonated beverages and juices) market is estimated at 284 million crates a

year or $1 billion. The market is highly seasonal in nature with consumption varying from 25

million crates per month during peak season to 15 million during offseason. The market is

predominantly urban with 25 per cent contribution from rural areas. Coca cola and Pepsi

dominate the Indian soft drinks market. Mineral water market in India is a 65 million crates ($50

million) industry. On an average, the monthly consumption is estimated at 4.9 million crates,

which increases to 5.2 million during peak season.

1.3 FMCG Sector: Statistics• The size of the food processing industry exceeds US$65.6 billion.

• The size of the semi-processed/ready-to-eat food segment is over $1.1 billion.

• Of the food processing industry,

○ Bread and biscuits sales exceeds US$1.7 billion;

○ Health beverage sales exceeds US$ 230 million;

○ Ice cream exceeds US$188 million

○ Chocolates sales exceeds US$73 million

• In the hot beverage market, tea rather than coffee dominates. Coffee is consumed largely

in the southern states.

• The soft drink (carbonated beverages and juices) market is in excess of US$1 billion,

predominantly urban (>70%), and its consumption is highly seasonal.

• Major players in this segment include Hindustan Lever, Nestle, Cadbury and Dabur

1.1 Demand DynamicsThe general factors driving the growth of the FMCG sector are increase in disposable income,

rural areas, and companies’ aggressive promotion of product awareness.

1.2 Rise in Disposable Income• With increasing disposable income and subsequent rise in quality of living and hygiene

concerns, the average Indian’s spending on grocery and personal care products will likely

increase.

• Currently, the average Indian spends about 48%, also the majority, of his total income on

groceries (~40%) and personal care products (~8%)1.

Chart 1: Rise in Disposable Income (In USD Thousands)

Sources: Euro Monitor, Goldman Sachs’ BRICS Report

1.1.1 Higher Penetration of the Rural Population• Many companies are deepening their penetration in the rural areas as:

○ The FMCG sector in the urban areas is becoming quite saturated (though it will

continue to dominate in the next 8 – 10 years2) while the penetration in the rural

areas are only about 1%3.

○ The rural areas have and will continue to make up more than 50% (153 million)

of India’s total households and accounting for more than its current 66%

contribution to total FMCG consumption4.

○ Rural India has a large consuming class with 41 per cent of India's middle-class

and 58 per cent of the total disposable income5.

○ Currently, nearly 34% of the off take of FMCG companies come from rural areas.

1 KSA Technopak Consumer Outlook 2004

2 Red Orbit news: http://www.redorbit.com/news/business/1359302/indias_fmcg_brands_ready_to_move_into_the_fast_lane/index.html

3 The Hindu Business Line: http://www.thehindubusinessline.com/2005/07/19/stories/2005071903080400.htm

4 Equitymaster.com: http://www.equitymaster.com/research ‐ it/sector ‐ info/consprds

5 IBEF’s Fast Moving Consumer Goods Report

○ Companies like HUL, ITC and Colgate have already established good distribution

networks in these regions. Other companies would start catering to these regions

in near future6.

○ Between 2005 and 2010, the FMCG sector in the rural and semi-urban areas will

experience some 50% growth, at a CAGR of 10% and increase its market size to

nearly US$ 23 billion from the 2005 level of US$11.4 billion.

Chart 2: Rural Vs. Urban Households Growth

Sources: Statistical Outline of India (2001-02), NCAER

6 Equity Master: http://www.equitymaster.com/detail.asp?date=1/9/2008&story=2

1 Company profile

1.1 HUL- BackgroundHindustan Unilever Limited (HUL) is India's largest fast moving consumer goods company,

touching the lives of two out of three Indians with over 20 distinct categories in home & personal

care products and food & beverages. They endow the company with a scale of combined

volumes of about 4 million tonnes and sales of over Rs. 13,000 crores. HUL is also one of the

country's largest exporters; it has been recognised as a Golden Super Star Trading House by the

Government of India.

HUL was formed in 1933 as Lever Brothers India Limited and came into being in 1956 as

Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati Mfg. Co.

Ltd. and United Traders Ltd.. It is headquartered in Mumbai, India and has an employee strength

of over 15,000 employees and contributes for indirect employment of over 52,000 people. The

company was renamed in June 2007 to “Hindustan Unilever Limited”.

In 2007, Hindustan Unilever was rated as the most respected company in India for the past 25

years by Businessworld, one of India’s leading business magazines.7 The rating was based on a

compilation of the magazines annual survey of India’s Most Reputed Companies over the past 25

years. HUL is the market leader in Indian consumer products with presence in over 20 consumer

categories such as soaps, tea, detergents and shampoos amongst others with over 700 million

Indian consumers using its products. It has over 35 brands. Sixteen of HUL’s brands featured in

the ACNielsen Brand Equity list of 100 Most Trusted Brands Annual Survey (2008).8 According

to Brand Equity, HUL has the largest number of brands in the Most Trusted Brands List. It’s a

company that has consistently had the largest number of brands in the Top 50 and in the Top 10

(with 4 brands).

Hindustan Unilever's distribution covers over 1 million retails outlets across India directly and its

products are available in over 6.3 million outlets in India, i.e., nearly 80% of the retail outlets in

India. It has 39 factories in the country. Two out of three Indians use the company’s products and

7 Businessworld Most Respected Company 2007

8 Brand Equity Most Trusted Brands

HUL products have the largest consumer reach being available in over 80 per cent of consumer

homes across India.

The Anglo-Dutch company Unilever owns a majority stake (52%) in Hindustan Unilever

Limited. HUL was one of the eight Indian companies to be featured on the Forbes list of World’s

Most Reputed companies in 2007

1.2 Over 100 Years Link with India

YEAR MILESTONES

1888 Sunlight soap introduced in India.

1895Lifebuoy soap launched; Lever Brothers appoints agents in Mumbai, Chennai, Kolkata,

and Karachi.

1902 Pears soap introduced in India.

1903 Brooke Bond Red Label tea launched.

1905 Lux flakes introduced.

1913 Vim scouring powder introduced.

1914 Vinolia soap launched in India.

1918Vanaspati introduced by Dutch margarine manufacturers like Van den Berghs, Jurgens,

Verschure Creameries, and Hartogs.

1922 Rinso soap powder introduced.

1924 Gibbs dental preparations launched.

1925 Lever Brothers gets full control of North West Soap Company.

1926 Hartogs registers Dalda Trademark.

1930Unilever is formed on January 1 through merger of Lever Brothers and Margarine

Unie.

1931Hindustan Vanaspati Manufacturing Company registered on November 27; Sewri

factory site bought.

1935 United Traders incorporated on May 11 to market Personal Products.

1937 Mr. Prakash Tandon, one of the first Indian covenanted managers, joins HVM.

1939Garden Reach Factory purchased outright; concentration on building up Dalda

Vanaspati as a brand.

1941Agencies in Mumbai, Chennai, Kolkata and Karachi taken over; company acquires

own sales force.

1942Unilever takes firm decision to "train Indians to take over junior and senior

management positions instead of Europeans".

1943 Personal Products manufacture begins in India at Garden Reach Factory.

1944Reorganisation of the three companies with common management but separate

marketing operations.

1947 Pond's Cold Cream launched.

1951Mr. Prakash Tandon becomes first Indian Director. Shamnagar, Tiruchy, and

Ghaziabad Vanaspati factories bought.

1955 65% of managers are Indians.

1956Three companies merge to form Hindustan Unilever Limited, with 10% Indian equity

participation.

1957 Unilever Special Committee approves research activity by Hindustan Unilever.

1958 Research Unit starts functioning at Mumbai Factory.

1959 Surf launched.

1961 Mr. Prakash Tandon takes over as the first Indian Chairman; 191 of the 205 managers

are Indians.

1962 Formal Exports Department starts.

1963 Head Office building at Backbay Reclamation, Mumbai, opened.

1964Etah dairy set up, Anik ghee launched; Animal feeds plant at Ghaziabad; Sunsilk

shampoo launched.

1965 Signal toothpaste launched; Indian shareholding increases to 14%.

1966

Lever's baby food, more new foods introduced; Nickel catalyst production begins;

Indian shareholding increases to 15%. Statutory price control on Vanaspati; Taj Mahal

tea launched.

1967 Hindustan Unilever Research Centre, opens in Mumbai.

1968Mr. V. G. Rajadhyaksha takes over as Chairman from Mr. Prakash Tandon; Fine

Chemicals Unit commissioned at Andheri; informal price control on soap begins.

1969 Rin bar launched; Fine Chemicals Unit starts production; Bru coffee launched

1971Mr. V. G. Rajadhyaksha presents plan for diversification into chemicals to Unilever

Special Committee - plan approved; Clinic shampoo launched.

1973 Mr. T. Thomas takes over as Chairman from Mr. V. G. Rajadhyaksha.

1974Pilot plant for industrial chemicals at Taloja; informal price control on soaps

withdrawn; Liril marketed.

1975

Ten-year modernisation plan for soaps and detergent plants; Jammu project work

begins; statutory price control on Vanaspati and baby foods withdrawn; Close-up

toothpaste launched.

1976Construction work of Haldia chemicals complex begins; Taloja chemicals unit begins

functioning.

1977 Jammu synthetic Detergents plant inaugurated; Indian shareholding increases to

18.57%.

1978 Indian shareholding increases to 34%; Fair & Lovely skin cream launched.

1979 Sodium Tripolyphospate plant at Haldia commissioned.

1980Dr. A. S. Ganguly takes over as Chairman from Mr. T. Thomas; Unilever shareholding

in the company comes down to 51%.

1982 Government allows 51% Unilever shareholding.

1984 Foods, Animal Feeds businesses transferred to Lipton.

1986Agri-products unit at Hyderabad starts functioning - first range of hybrid seeds comes

out; Khamgaon Soaps unit and Yavatmal Personal Products unit start production.

1988 Launch of Lipton Taaza tea.

1990 Mr. S. M. Datta takes over as Chairman from Dr. A. S. Ganguly.

1991 Surf Ultra detergent launched.

1992 HUL recognised by Government of India as Star Trading House in Exports.

1993

HUL's largest competitor, Tata Oil Mills Company (TOMCO), merges with the

company with effect from April 1, 1993, the biggest such in Indian industry till that

time. Merger ultimately accomplished in December 1994; Launch of Vim bar; Kissan

acquired from the UB Group.

1994

HUL forms Unilever Nepal Limited, HUL and US-based Kimberley-Clark Corporation

form 50:50 joint venture - Kimberley-Clark Lever Ltd. - to market Huggies diapers and

Kotex feminine care products. Factory set up at Pune in 1995; HUL acquires Kwality

and Milkfood 100% brandnames and distribution assets. HUL introduces Wall's.

1995

HUL and Indian cosmetics major, Lakme Ltd., form 50:50 joint venture - Lakme Lever

Ltd.; HUL enters branded staples business with salt; HUL recognised as Super Star

Trading House.

1996

Mr. K. B. Dadiseth takes over as Chairman from Mr. S. M. Datta; Merger of Group

company, Brooke Bond Lipton India Limited, with HUL, with effect from January 1;

HUL introduces branded atta; Surf Excel launched.

1997Unilever sets up International Research Laboratory in Bangalore; new Regional

Innovation Centres also come up.

1998

Group company, Pond's India Ltd., merges with HUL with effect from January 1,

1998. HUL acquires Lakme brand, factories and Lakme Ltd.'s 50% equity in Lakme

Lever Ltd.

2000

Mr. M. S. Banga takes over as Chairman from Mr. K. B. Dadiseth, who joins the

Unilever Board; HUL acquires 74% stake in Modern Food Industries Ltd., the first

public sector company to be disinvested by the Government of India.

2002HUL enters Ayurvedic health & beauty centre category with the Ayush range and

Ayush Therapy Centres.

2003 Launch of Hindustan Lever Network; acquisition of the Amalgam Group

2005 Launch of "Pureit" water purifiers

2006 Brookefields food operations moved to Mumbai

2007

Company name formally changed to Hindustan Unilever Limited after receiving the

approval of share holders during the 74th AGM on 18 May 2007

Sales of Brooke Bond and Surf Excel each cross the Rs 1,000 crore mark

2008 HUL completes 75 years on 17th October 2008

2 Capabilities & Strengths

2.1 The new Hindustan Lever: Focused on FMCGIn 2000, 75% of their sales came from FMCG businesses. The rest came from several non-

FMCG businesses which were not profitable, and did not offer prospects for long-term

leadership. Besides, they were a drain on the core FMCG business, both in terms of resource and

focus.

They decided to disengage from all non-FMCG or commodity businesses. In all, we have

divested and discontinued 15 businesses including Animal Feeds, Speciality Chemicals, Nickel

Catalyst, Adhesives, Thermometers, Seeds, Mushrooms etc. with sales of Rs.1,750 crores as in

1999.

Today they are a focused on FMCG company with our branded business accounting for over

90% of sales, consisting of 35 brands across 20 categories. These will be their main engines of

growth, with higher levels of resource concentration, be it technology, people talent or media

spend.

2.2 FMCG still offers enormous potentialAs the largest FMCG player it was up to them to reverse the downtrading to realize its true

growth potential. They could achieve this by raising the bar and becoming world class in what

their brands offered and how they worked. Nothing less would do.

Penetration levels in several of the categories and consumption levels in all of the categories is

low by any comparison. Across the world, they are seeing a strong correlation between income

levels and the size of FMCG markets. Over the next 10 years, per capita income in India is

likely to touch China’s current levels. At those levels, the FMCG market will be over Rs.100,000

crores from a current value of Rs.40,000 crores. This is an opportunity that they have to seize.

2.3 Portfolio of Strong BrandsTheir main challenge was to reverse the downtrading in the categories and re-establish the

relevance of their brands in the mind of the consumer. In 2000, they had 110 brands, many

undifferentiated and lacking scale. They chose to focus on 35 power brands covering all

consumer appeal and price segments. They are already seeing the benefits. Six brands – Brooke

Bond, Lifebuoy, Lux, Fair & Lovely, Rin and Wheel – have emerged as mega brands in the last

five years, each with sales of more than Rs.500 crores.

2.4 Better ValueThe first step was to ensure that they offer world class quality and real differentiation backed by

technology to give them the advantage over low priced competition. They have invested over

Rs.400 crores, or 5% of sales, in the last three years to upgrade the brands.

In several cases they reduced prices to make the brands more affordable. Better quality and more

affordable prices have increased the value to the consumer.

They have also launched several low unit size and price packs for single use to make the brands

more accessible to all income groups. For example, they are the first to introduce a branded

toothpaste in a tube at Rs.5 and a branded quality shampoo in a bottle at Rs.5.

2.5 Bigger Role in Consumers’ LivesPerhaps the most significant change has been to move the brands beyond merely making

functional claims to playing a bigger and deeper role in the lives of consumers. They had to

move from selling a soap or a detergent to something far more important and central to the

consumer’s life. How often have we heard someone say, “A soap is a soap is a soap!” Or indeed,

“All detergents clean clothes as well”.

In the case of Lifebuoy, it was only when they associated it with the promise of health and

protection against disease that it claimed a larger space in the consumer’s mind. It moved from

being a mere soap to a health essential. Today Lifebuoy, their oldest brand, has grown at over

15% for the last three years.

Similarly, in the laundry market, Surf Excel went well beyond the benefit of ‘great clean’ by

saving two buckets of water with every wash. Imagine the importance of that benefit to

consumers in cities, who often get running water for only a couple of hours a day. Surf Excel is

one of their fastest growing brands today.

Both Lifebuoy and Surf Excel have succeeded because they are relevant to two key concerns of

the Indian housewife: family health and the scarcity of water.

In addition to the growing consciousness of health, consumers today are looking for ways to look

good and feel good so that they can get much more out of life. In short, consumers are seeking

Vitality in their lives. Their portfolio of 35 power brands is uniquely positioned to offer nutrition,

hygiene and personal care benefits and thereby deliver Vitality.

2.6 Technology, the Key DifferentiatorTheir brands and sound understanding of the local consumer are supported by a world class

Research and Development capability. They have over 200 of the brightest scientists and

technologists based in India.

Their recent reorganization leverages the talent pool from across 16 global technology centres, of

which four are in India. In all, they have over 4,000 high quality minds across Unilever working

relentlessly to provide new benefits that make a real difference to the consumers.

2.7 Winning with CustomersHindustan Lever has historically had a strong bond with its customers. They have strengthened

this and reinvented the way they manage their distribution channels and their customers. The

sales structure has been transformed to leverage scale and build expertise in servicing Modern

Trade and Rural Markets. They have also de-layered their sales force to improve the response

times and service levels.

Their customers are serviced on continuous replenishment. This is possible because of IT

connectivity across the extended supply chain of about 2,000 suppliers, 80 factories and 7,000

stockists. They have also combined backend processes into a common Shared Service

infrastructure, which supports the units across the country. All these initiatives together have

enhanced operational efficiencies, improved the service to the customers and have brought us

closer to the marketplace.

2.8 Opportunities Ahead

2.8.1 FoodAccording to the Ministry of Food Processing, the size of the Indian food processing industry is

around US$ 65.6 billion including US$ 20.6 billion of value added products. Of this, the health

beverage industry is valued at US$ 230 billion; bread and biscuits at US$ 1.7 billion; chocolates

at US$ 73 million and ice creams at US$ 188 million.

The size of the semi-processed/ready to eat food segment is over US$ 1.1 billion. Large biscuits

& confectionery units, soyaprocessing units and starch/glucose/sorbitol producing units have

also come up, catering to domestic and international markets. The three largest consumed

categories of packaged foods are packed tea, biscuits and soft drinks. (IBEF FMCG Report,

2009)

2.8.2 BeveragesThe Indian beverage industry faces over supply in segments like coffee and tea. However, more

than half of this is available in unpacked or loose form. Indian hot beverage market is a tea

dominant market. Consumers in different parts of the country have heterogeneous tastes. Dust

tea is popular in southern India, while loose tea in preferred in western India. The urban-rural

split of the tea market was 51:49 in 2000. Coffee is consumed largely in the southern states. The

size of the total packaged coffee market is 19,600 tonnes or US$ 87 million. The urban rural split

in the coffee market was 61:39 in 2000 as against 59:41 in 1995.

The total soft drink (carbonated beverages and juices) market is estimated at 284 million crates a

year or US$ 1 billion. The market is highly seasonal in nature with consumption varying from 25

million crates per month during peak season to 15 million during offseason. The market is

predominantly urban with 25 per cent contribution from rural areas. Coca cola and Pepsi

dominate the Indian soft drinks market.

Mineral water market in India is 65 million crates (US$ 50 million) industry. On an average, the

monthly consumption is estimated at 4.9 million crates, which increases to 5.2 million during

peak season.

2.8.3 ExportsIndia is one of the world's largest producers for a number of FMCG products but its exports are a

very small proportion of the overall production. Total exports of food processing industry were

US$ 2.9 billion in 2001-02 and marine products accounted for 40 per cent of the total exports.

Though the Indian companies are going global, they are focusing more on the overseas markets

like Bangladesh, Pakistan, Nepal, Middle East and the CIS countries because of the similar

lifestyle and consumption habits between these countries and India. HLL, Godrej Consumer,

Marico, Dabur and Vicco laboratories are amongst the top exporting companies.

2.8.4 Investment in the FMCG sector The FMCG sector accounts for around 3 per cent of the total FDI inflow and roughly 7.3 per cent

of the total sectoral investment. The food-processing sector attracts the highest FDI, while the

vegetable oils and vanaspati sector accounts for the highest domestic investment in the FMCG

sector.

Chart 3: Investments in FMCG Sector (August 1991- April 2004)

3 Grand Strategies

Grand Strategies are Comprehensive, long-term plan of essential actions by which a firm plans to achieve its major objectives. Key factors of this strategy may include market, product, and/or organizational development through acquisition, divestiture, diversification, joint ventures, or strategic alliances.

3.1 Types of Grand StrategiesConsortia Horizontal Integration Divestiture Concentrated Growth Vertical Integration Liquidation Market Development Concentric Diversification Bankruptcy Product Development Conglomerate Diversification Joint Ventures Innovation Turnaround Strategic Alliances

3.2 Grand Strategies Adopted by HUL

3.2.1 Concentrated Growth & Market DevelopmentThe erstwhile Brooke Bond's presence in India dates back to 1900. By 1903, the company had

launched Red Label tea in the country. In 1912, Brooke Bond & Co. India Limited was formed.

Brooke Bond joined the Unilever fold in 1984 through an international acquisition. The erstwhile

Lipton's links with India were forged in 1898. Unilever acquired Lipton in 1972, and in 1977

Lipton Tea (India) Limited was incorporated.

HUL made many acquisitions in Tea segment; they first acquired Brooke Bond & Co, which was

an Indian co. in 1984, while they already had Lipton brand in their Tea Segment which was

acquired in 1977. When they acquired Brooke Bond in 1984 it was a strategy aimed at market

development as the Lipton brand was meeting the needs of Premium segment, while Red Label

Brand aimed to meet the needs of middle segment.

3.2.2 Joint VentureSimultaneously, deregulation permitted alliances, acquisitions and mergers. In one of the most

visible and talked about events of India's corporate history, the erstwhile Tata Oil Mills

Company (TOMCO) merged with HUL, effective from April 1, 1993. In 1995, HUL and yet

another Tata company, Lakme Limited, formed a 50:50 joint venture, Lakme Unilever Limited,

to market Lakme's market-leading cosmetics and other appropriate products of both the

companies. Subsequently in 1998, Lakme Limited sold its brands to HUL and divested its 50%

stake in the joint venture to the company.

In1994, the company entered into a strategic alliance with the Kwality Ice-cream Group families

and in 1995 the Milk food 100% Ice-cream marketing and distribution rights too were acquired

3.2.3 Backward IntegrationAs a measure of backward integration, Tea Estates and Doom Dooma, two plantation companies

of Unilever, were merged with Brooke Bond. Then in July 1993, Brooke Bond India and Lipton

India merged to form Brooke Bond Lipton India Limited (BBLIL), enabling greater focus and

ensuring synergy in the traditional Beverages business. 1994 witnessed BBLIL launching the

Wall's range of Frozen Desserts. By the end of the year, the company entered into a strategic

alliance with the Kwality Icecream Group families and in 1995 the Milkfood 100% Icecream

marketing and distribution rights too were acquired.

3.2.4 Product DevelopmentHUL made a strategic acquisition aimed at development of new product, In January 2000, in a

historic step, the government decided to award 74 per cent equity in Modern Foods to HUL,

thereby beginning the divestment of government equity in public sector undertakings (PSU) to

private sector partners. HUL's entry into Bread is a strategic extension of the company's wheat

business. In 2002, HUL acquired the government's remaining stake in Modern Foods.

In 2003, HUL acquired the Cooked Shrimp and Pasteurised Crabmeat business of the Amalgam

Group of Companies, a leader in value added Marine Products exports

3.2.5 DivestitureHUL puts its leather business sale on hold9

Hindustan Unilever (HUL) has put the sale of its leather business on hold as it failed to find a

suitable buyer. The business is run by Pond’s Exports, a wholly-owned subsidiary of HUL. The

annual report said leather exports had a difficult year due to forex volatility and recessionary

9 DasGupta, P, (2009), “HUL puts its leather business sale on hold”, Mumbai, Accessed From: http://www.mydigitalfc.com/companies/hul-puts-its-leather-business-sale-hold-299

conditions in Europe. India’s competitive advantages of good quality leather and the ability to

service small orders were neutralized by China’s significant cost advantages and a well-

developed market for components.

Conglomerate Diversification

In 1993, it acquired the Kissan business from the UB Group and the Dollops Icecream business

from Cadbury India. As at that time both of the business concerns were on peak & the best

promising businesses.

4 Benchmarking

4.1 India Competitiveness and Comparison with the World

4.1.1 Large domestic marketIndia is one of the largest emerging markets, with a population of over one billion. India is one of

the largest economies in the world in terms of purchasing power and has a strong middle class

base of 300 million.

Around 70 per cent of the total households in India (188 million) resides 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.

4.1.2 India - a large consumer goods spenderAn 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.

Chart 4:- Consumption pie

Even on an international scale, total consumer expenditure on food in India at US$ 120 billion is

amongst the largest in the emerging markets, next only to China.

Chart 5:- Consumer Expenditure on Food (Worldwide)

4.1.3 Materials availabilityIndia has a diverse agro-climatic condition due to which there exists a wide-ranging and large

raw material base suitable for food processing industries. India is the largest producer of

livestock, milk, sugarcane, coconut, spices and cashew and is the second largest producer of rice,

wheat and fruits & vegetables.

India also has an ample supply of caustic soda and soda ash, the raw materials in the production

of soaps and detergents – India produced 1.6 million tonnes of caustic soda in 2003-04. Tata

Chemicals, one of the largest producers of synthetic soda ash in the world is located in India. The

availability of these raw materials gives India the locational advantage.

4.1.4 Cost competitivenessChart 6:-Labor cost comparison (Worldwide)

Apart from the advantage in terms of ample raw material availability, existence of low-cost labor

force also works in favor of India. Labor cost in India is amongst the lowest in Asian countries.

Easy raw material availability and low labor costs have resulted in a lower cost of production.

Many multi-nationals have set up large low cost production bases in India to outsource for

domestic as well as export markets.

4.1.4.1 Leveraging the cost advantageGlobal major, Unilever, sources a major portion of its product requirements from its

Indian subsidiary, HLL. In 2003-04, Unilever outsourced around US$ 218 million of

home and personal care along with food products to leverage on the cost arbitrage

opportunities with the West.

To take another case, Procter & Gamble (P&G) outsourced the manufacture of Vicks

Vaporub to contract manufacturers in Hyderabad, India. This enables P&G to continue

exporting Vicks Vaporub to Australia, Japan and other Asian countries, but at more

competitive rates, whilst maintaining its high quality and cost efficiency.

4.1.5 Presence across value chainIndian firms also have a presence across the entire value chain of the FMCG industry from

supply of raw material to final processed and packaged goods, both in the personal care products

and in the food processing sector. For instance, Indian firm Amul's product portfolio includes

supply of milk as well as the supply of processed dairy products like cheese and butter. This

makes the firms located in India more cost competitive.

4.1.6 POLICYIndia has enacted policies aimed at attaining international competitiveness through lifting of the

quantitative restrictions, reduced excise duties, automatic foreign investment and food laws

resulting in an environment that fosters growth. 100 per cent export oriented units can be set up

by government approval and use of foreign brand names is now freely permitted.

4.1.6.1 FDI PolicyAutomatic investment approval (including foreign technology agreements within

specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas

Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector

except malted food, alcoholic beverages and those reserved for small scale industries

(SSI). 24 per cent foreign equity is permitted in the small-scale sector. Temporary

approvals for imports for test marketing can also be obtained from the Director General

of Foreign Trade. The evolution of a more liberal FDI policy environment in India is

clearly supported by the successful operation of some of the global majors like PepsiCo

in India.

4.1.6.2 Removal of Quantitative Restrictions and Reservation PolicyThe Indian government has abolished licensing for almost all food and agro-processing

industries except for some items like alcohol, cane sugar, hydrogenated animal fats and

oils etc., and items reserved for the exclusive manufacture in the small scale industry

(SSI) sector. Quantitative restrictions were removed in 2001 and Union Budget 2004-05

further identified 85 items that would be taken out of the reserved list. This has resulted

in a boom in the FMCG market through market expansion and greater product

opportunities.

4.1.6.3 Central and state initiativesVarious states governments like Himachal Pradesh, Uttaranchal and Jammu & Kashmir

have encouraged companies to set up manufacturing facilities in their regions through a

package of fiscal incentives. Jammu and Kashmir offers incentives such as allotment of

land at concessional rates, 100 per cent subsidy on project reports and 30 per cent capital

investment subsidy on fixed capital investment upto US$ 63,000. The Himachal Pradesh

government offers sales tax and power concessions, capital subsidies and other incentives

for setting up a plant in its tax free zones. Five-year tax holiday for new food processing

units in fruits and vegetable processing have also been extended in the Union Budget

2004-05.

Wide-ranging fiscal policy changes have been introduced progressively. Excise and

import duty rates have been reduced substantially. Many processed food items are totally

exempt from excise duty. Customs duties have been substantially reduced on plant and

equipment, as well as on raw materials and intermediates, especially for export

production. Capital goods are also freely importable, including second hand ones in the

food-processing sector.

4.1.6.4 Food lawsConsumer protection against adulterated food has been brought to the fore by "The

Prevention of Food Adulteration Act (PFA), 1954", which applies to domestic and

imported food commodities, encompassing food color and preservatives, pesticide

residues, packaging, labelling and regulation of sales.

5 Conclusion:

Hindustan Unilever was the most preferred Brand in India. It has wide range of products varying

from Home care to food care and Other FMCG categories. It has also launched water purifier. It

was listed in ET-500 ranking of India’s biggest Companies and its ranking was number 32.

Though HUL, as a brand have good perception from its consumers, following are the major

threats waiting for any FMCG company in the market. So those things have to be considered in

order to posses the same consumer perception towards HUL!

• Private Label/In-house Branding: Ongoing increase in the number of supermarkets,

hypermarkets & other such concept business results in the promotion of their own brands.

So there I a possibility of change in behavior of consumers towards HUL

• Quality Management:- Because of multi production centers, the qualitu of the same nrand

product has to be maintained to retain the consumer. Introduction of variants has to be

done only by keeping flagship product without any change.

• Brand Loyalty: Essential aspect to be considered in this rival competitive world! Recently

“Rin & Tide” comparative advertisement made it clear even big giants like HUL finds no

way to dominate the market without gaining the loyalty of tits consumers. This is a try to

change the fickle minds of consumers towards rival bands

1 References

Books

Pearce II, J.A., Robinson Jr., RB and Mital, A., “Strategic Management: Formulation,

Implementation and Control”, 10th Ed., Tata McGraw-Hill, New Delhi, 2008

Journals, Publications & Websites

DasGupta, P, (2009), “HUL puts its leather business sale on hold”, Mumbai, Accessed From: http://www.mydigitalfc.com/companies/hul-puts-its-leather-business-sale-hold-299

Equitymaster.com: http://www.equitymaster.com/research ‐ it/sector ‐ info/consprds

Equity Master: http://www.equitymaster.com/detail.asp?date=1/9/2008&story=2

IBEF’s , “Fast Moving Consumer Goods Report 2009”, Accessed from:www.ibef.org

The Hindu Business Line: 19-7-2005 http://www.thehindubusinessline.com/2005/07/19/stories/2005071903080400.htm

Red Orbit news: http://www.redorbit.com/news/business/1359302/indias_fmcg_brands_ready_to_move_into_the_fast_lane/index.html