B E A C O N A Newsletter by SIMCON– SIMSREE Consulting Club

Volume:2

Issue : 1 November 2013

INDUSTRY ANALYSIS : FMCG

Volume: 2

Issue : 1

Introduction

FMCG is the fourth largest sector in the Indian

economy with an estimated market size of Rs. 2 trillion and

represents 2.5% of the country’s GDP. It has grown at

CAGR of 17.3% in the last 5 years. .

Food products and personal care together make up

two-third of the sector’s revenues. Other segments include

household care, fabric care, hair care, baby care, health care

including OTC products. Rural and urban markets account for

50%-50% of the FMCG market. While online sales channels are

available, grocers still are the most preferred sales channel for

FMCG.

Leaders in some FMCG categories

Note: The percentages don’t add up to 100 due to large number

of branded, unbranded competitors in the market.

Other market leaders in FMCG include ITC, Nestle, Godrej

Consumer, GlaxoSmithKline, GCMMF (Amul).

Porter’s 5 Forces Model

Barriers to Entry

The Indian FMCG Industry is characterized with mod-

est entry and exit barriers.

Threat of Substitutes

Several brands are positioned with narrow product

differentiation. Companies entering a category trying to gain

market share compete on pricing which increases products sub-

stitution. Hence, threat of substitute is high in the FMCG indus-

try.

Bargaining Power of Suppliers

Prices are generally governed by international com-

modity markets, making most of the FMCG companies a price

takers. Due to the long term relationships with suppliers etc.,

the FMCG companies negotiate better rates during times of

high input cost inflation.

Bargaining Power of Consumers

On account of large number of buyers and limited sup-

pliers, the bargaining power of consumer is low in Indian

FMCG.

Intensity of Rivalry

Competitiveness among the Indian FMCG players is

high. With more MNCs entering the country, the industry has

become highly fragmented.

Business Today’s “India’s Most Valuable Companies”

Impact Analysis

Goods and Service Tax (GST) GST, which will replace the multiple indirect taxes

levied on FMCG sector with a uniform, simplified and single-

pint taxation system, is likely to be implemented soon (the

benefits are likely to come in by the end of FY’14). The rate of

GST on services is likely to be 16% and on goods is proposed

to be 20%. A swift move to the proposed GST may reduce

prices, bolstering consumption for FMCG products.

Food Security Bill (FSB)

According to Crisil, FSB could generate additional

savings of around Rs 4,400 this year for each BPL household

that begins to purchase subsidized food which equals around

8% and 5% of the annual expenditure of a rural and urban

household, respectively. For rural households the savings

amount exceeds their current annual medical and educational

spends.

FDI in retail

The decision to allow 51% FDI in multi brand retail

and 100% FDI in single brand retail augers well for the outlook

for the FMCG sector. The move is expected to bolster employ-

ment, and supply chains, apart from providing high visibility for

FMCG brands in organized retail markets, bolstering consumer

spending, and encouraging more product launches.

BEACON : Page 1

Nov. 2013

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INDUSTRY ANALYSIS : FMCG

Volume: 2

Issue : 1

FDI of 100% under the automatic route is allowed in

the food processing sector, which is considered as a priority

sector. The FMCG sector has witnessed healthy FDI inflow, as

the sector accounted for 2.0 % of the country’s total FDI inflow

over April 2000 to March 2013.

Trends

Focus on Rural Market

FMCG growth will be driven by new segments such as

urban India’s poorest households and low-income value seekers

visiting modern trade outlets for the first time. In order to tap

the growing potential of rural markets, the companies are now

focused on improving their distribution networks to expand

their reach in rural India.

Rising Importance of Smaller-sized packs

Companies are increasingly introducing smaller stock

keeping units (SKUs) at reduced prices. This helps them sustain

margins, maintain volumes from price conscious costumers and

increase their consumer base.

Expanding Horizons

A number of companies are exploring the business

potential of overseas markets and several regional markets.

Lifestyle Products

Increasing urbanization and higher disposable incomes

are encouraging many consumers to move from unbranded to

branded products, bolstering growth in the FMCG market. De-

spite the current slowdown, the demand for premium products

in the health and wellness space, is rising, encouraging compa-

nies to launch more premium products.

Entry of New Brands (Brand/ Line Extension)

Innovation is a driving factor in Indian FMCG. Several

companies have started innovating or customizing their existing

product portfolios for new consumer segments. Brand exten-

sions are 5 times more successful than launching brands, in-

creasing sales by 30% and contributing to 30% to brand sales.

Conclusion

Sales of FMCG products plummeted in September

2013 as per latest Nielson data released on 12 November. The

industry grew at 5.3% against 7.3% in August 2013 and against

20.2% in the same month last year. The fall is attributed to in-

creasing inflation and negative market sentiment forcing cus-

tomers to rethink unnecessary purchases.

A Barclays report in October has suggested that com-

panies like HUL, which are exposed to urban and discretion-

ary segments, will suffer due to the slowdown. Due to the slow-

down in the economy, sales of premium brands have dropped

by 10-12%.

Though the short term prospects for FMCG seem

bleak, the favourable demographics and the rise in income level

is expected to grow FMCG market by CAGR of 14.7%, by

2020. The rise of working population, rural per capita dispos-

able income, and middle class are expected to fuel consumption.

FMCG growth will increase by first time modern trade shopper

or FTMTS, the customers who for the very first time are ex-

posed to organized retail, to brands, to the proliferation of

choice and to the profusion of categories they’ve never had be-

fore. FTMTS spends 35% on FMCG at modern trade and is

growing by 15% each year.

SOURCES:

http://www.iseindia.com/ResearchPDF/FMCG_Update1.pdf

https://www.pwc.in/en_IN/in/assets/pdfs/rc-publications/innovation-in-

fmcg.pdf

http://www.cii.in/Sectors.aspx?

http://www.slideshare.net/IBEFIndia/fmcg-august-2013

http://reports.dionglobal.in/Actionfinadmin/Reports/

FDR0108201343.pdf

Target Name Acquirer

Name

Acquisition Month-

Year

L.D. Waxson,

Singapore

Wipro

Consumer

Acquisition Dec 2012

Wyann

International

VLCC Acquisition Nov 2012

Company Name New Launches New Variants

Dabur India Ltd. Babool Salt tooth-

paste, Gulabari Saf-

fron & Turmeric Cold

Cream and Lotion,

Air-freshening gels

under the brand

Odonil

Turmeric and Saf-

fron-based bleaches

under Fem, Pack-

aged juices under

the brands Réal and

Activ and Anardana

variant in Hajmola.

Godrej Con-

sumer products

Ltd.

HIT Anti Roach Gel,

Cinthol shower gel,

Godrej Expert Rich

Crème

Godrej No. 1 Rose-

water and

Almonds.

Hindustan Unile-

ver Ltd.

TRESemmé range of

shampoos and condi-

tioners, Elixir range

of oils, Lux deodor-

ant, Lakmé Eyeconic

Kajal.

Close-up Eucalyp-

tus Mint. Axe

Apollo, Pureit Ad-

vanced and Pureit

Marvella UV.

For detailed report and all industry analysis from previous Beacons together, please visit our blog :

http://simconblog.wordpress.com

BEACON : Page 2

Nov. 2013

COMPANY ANALYSIS : ITC India

Volume: 2

Issue : 1

Introduction:-

ITC, headquartered at Kolkata, is one of India's fore-

most private sector companies with a market capitalization of

US $ 45 billion and a turnover of US $ 7 billion. It is currently

headed by Mr. Y C Deveshwar.

ITC was incorporated on August 24, 1910 under the

name Imperial Tobacco Company of India Limited. The name

of the Company was changed to India Tobacco Company

Limited in 1970 and then to I.T.C. Limited in 1974. In recogni-

tion of the Company's multi-business portfolio encompassing a

wide range of businesses - Fast Moving Consumer

Goods, Hotels, Paperboards & Specialty Papers, Packaging,

Agri-Business and Information Technology - the full stops in

the Company's name were removed effective September 18,

2001. The Company now stands rechristened 'ITC Lim-

ited,'where ‘ITC’ is today no longer an acronym or an initial-

ized form.

ITC is rated among the World's Best Big Companies, Asia's

'Fab 50' and the World's Most Reputable Companies by Forbes

magazine and among India's Most Valuable Companies by

Business Today.

Competitors:

HUL, P&G, Marico, Colgate-Polmolive, Dabur, L’oreal, God-

frey Phillip, VST, Golden Tobacco, etc.

SWOT Analysis:

BCG Matrix:

Business Strategy

ITC has grown around 300% during last ten years.

Introduction of brands like Sunfeast, Mangaldeep, and Class-

mate has been a great success. Entry in the personal care prod-

ucts market after 2005 boosted the company income and

growth. Company’s focus on quality, innovation and differen-

tiation backed by deep consumer insights, world-class R&D and

an efficient and responsive supply chain will further strengthen

its leadership position in the Indian FMCG industry.

Corporate Strategy

ITC Group’s corporate strategy aims at creating multi-

ple drivers of growth anchored on its core competencies. The

Group is currently focused on four business groups: FMCG,

Hotels, Paperboards, Paper and Packaging and Agri Business.

Empowering Value Chain

A conscious strategy to drive the competitiveness of

value chains linked to its businesses enables ITC to make a

more enduring contribution to national economic development.

ITC's winning brands drive synergies to make these value

chains sustainable and inclusive. At the same time, by nurturing

and strengthening these value chains, ITC adds a unique source

of competitive strength to its brands. A very successful example

of value chain augmentation is the ITC e-Choupal initiative

that empowers over 4 million farmers, while at the same time

providing significant competitive advantage in procuring raw

material for ITC’s Foods business – be it for Aashirvaad atta

produced from handpicked whole wheat, quality-assured

Aashirvaad spices or superior chip stock potatoes for Bingo!

snack foods.

Sources:

http://www.itcportal.com

http://moneycontrol.com

For detailed report and all company analysis from previous Beacons together, please visit our blog:

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BEACON : Page 3

Nov. 2013

Concept of the Month

McKinsey 7S model

How do you go about analyzing how well an organization is positioned to achieve its intended objective?

Some approaches look at internal factors, others look at external ones, some combine these perspectives, and others

look for congruence between various aspects of the organization being

studied.

Developed in the early 1980s by Tom Peters and Robert Waterman, two

consultants working at the McKinsey & Company consulting firm, the

basic premise of the McKinsey 7S model is that there are seven internal

aspects of an organization that need to be aligned if it is to be successful.

The 7S model can be used in a wide variety of situations where an align-

ment perspective is useful to help one:

Improve the performance of a company.

Examine the likely effects of future changes within a company.

Align departments and processes during a merger or acquisition. Determine how best to implement a proposed strategy. The way the model is presented in Figure 1 below depicts the interdepen-

dency of the elements and indicates how a change in one affects all the

others.

The McKinsey 7Ss model is one that can be applied to almost any

organizational or team effectiveness issue. If something within your or-

ganization or team isn't working, chances are there is inconsistency between some of the elements identified by this

classic model. Once these inconsistencies are revealed, you can work to align the internal elements to make sure they

are all contributing to the shared goals and values.

Consulting Jokes There was a glass of water on the table...

One man says, "It's half full". He is an optimist.

Second man says, "It's half empty". He is a pessimist.

Third man says, "It's twice too big". He is a management consultant.

Source : http://dilbert.com/

BEACON : Page 4

Nov. 2013

BEACON

Volume: 2

Issue : 1

Arthur D. Little, Inc., for many years one of the largest and most diversi-

fied consultancies in the world, was founded in 1886

The first management consultancy to serve both industry and government

clients Booz Allen Hamilton founded in 1914

The first modern, pure management and strategy consulting company

McKinsey and Company founded in 1926

QUIZ OF NOVEMBER

Answers of last beacon October (Issue 12) Quiz :

1. Johan C. Aurik, A.T. Kearney

2. Boston Matrix (BCG Matrix)

3. X – Point B, Y- Loft9

4. The Dhoni Effect: Rise of Small Town India

5. X - Simone Tata, Y- Lakmé

1. _____ is a company in the Scotts valley which is renowned dot com company founded in 1997,

by ______ who was motivated to start it after he was charged fine for late submission of CD of

Apollo13.

2. He founded one of the most successful online ventures in association with his partner, both of

whom graduated from IIT-Delhi in 2008 ,by some other name. Today the venture is valued at

Rs.900 Cr. He also happened to work at Bain & Co. for sometime before

starting the venture. Identify the person and the venture.

3. Connect the images and identify the person and his latest venture.

4. A national Dairy Development Board’s project ,______ was headed by

_________, who led it with the efficacy that it resulted in India getting

transformed from a milk deficient nation to world’s largest milk producer in

1998 surpassing _____.

5. Which firm was awarded second time in a row the Market Policy and Advi-

sory award by Commodity business Award?

ANSWERS : OCTOBER ISSUE

BEACON : Page 5

Nov. 2013

Volume: 2

Issue : 1

Answer To: simcon.simsree@simsree.net with Subject= simcon_quiz_nov_2013

Winner will be recognized.

All Correct Answers will be published in next month’s Edition.

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