Business Strategy

Strategy Analysis of Marico Industries

1/14/2010
Submitted To: Mr. Suresh
Submitted By:
Hitesh Goyal
Reg. No.- BLR 0903071001
Table of content

Content Page number

Table of content…………………………………………………………………………………….. 1
Introduction ……………………………………………………………………………………………..2
Internal analysis of Marico Industries …………………………………………………….. 2
PROFIT Analysis……………………………………………………………………………………..2
Physical resources ………………………………………………………………………………2
Reputational resources ……………………………………………………………………… 2
Organizational resources ……………………………………………………………………… 3
Financial resources ………………………………………………………………………………. 3
Technological resources …………………………………………………………………….. 3
VRHN Analysis …………………………………………………………………………………… 3
Valuable ………………………………………………………………………………………………. 3
Rare ………………………………………………………………………………………………….. 3
Hard to imitate …………………………………………………………………………………….4
Not substitutable……………………………………………………………………………….. 4
Internal analysis …………………………………………………………………………………….4
Strength……………………………………………………………………………………………….. 4
Weaknesses …………………………………………………………………………………………5
Internal factor evaluation ……………………………………………………………………….. 6
Importance of understanding competitor…………………………………………………6
Rational behind identifying competitor…………………………………………………….. 7
7
Competitive profit matrix (nature care segment)………………………………………
8
Competitive profit matrix (health care segment)……………………………………….
8
Analysis of CPM & IFE…………………………………………………………………………….
8
External analysis of Marico Industries ……………………………………………………….
8
Porter’s 5 forces ……………………………………………………………………………………..
8
Threat of substitutes …………………………………………………………………………….
8
Threat of new entrants………………………………………………………………………
9
Determinant of supplier power ………………………………………………………..
9
Determinant of buyer power ……………………………………………………………
9
Rivalry among existing players………………………………………………………….
9
External factors evaluation ………………………………………………………………….
9
Threats …………………………………………………………………………………………….
9
Opportunities ………………………………………………………………………………….
10
Conclusion ……………………………………………………………………………………………. 11
References ………………………………………………………………………………………….. 12

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Introduction:

I have chosen Marico Industries limited for study of internal forces and external analysis with

reference to strategically way. The company has witness the substantial revenue growth of 21% in

their market share[ CITATION Shu08 \l 1033 ] . According to FICCI’s annual report the FMCG

industry will witness double digit growth rate in the coming year as well. There are various factors

behind this growth i.e. the increase in the FDI limit by government in the retail sector and many

other regulations[ CITATION FDI09 \l 1033 ]. In this report we will discuss the internal factors that

will have impact on the company’s overall strategy and operations. This report is prepared taking

competition as one of the important factors and we try to figure out where the company stands in

terms of their strategy to utilize their strength, encounter their weaknesses and how to withstand

the completion.

Internal analysis of Marico Industry : There are numerous strategic concepts which are applied

to find out the internal analysis, those are as follows:

PROFIT Analysis:

Physical Resources: The Company is buying raw material for its hair oil market from various

copra (raw material for coconut oil) from various south Indian states like Tamilnadu and Kerala.

The company is having four plants two in Maharashtra and one each in Goa and Kerala. The

company is using Kardi and corn as raw material for their edible oil business [ CITATION Oil09 \l

1033 ].

Reputational Resources: The Company’s brands are leaders in their segments of operations,

the brands like Parachute and Revive are synonyms for the product category in which they are

operating[ CITATION Ven06 \l 1033 ]. So the company is having high brand value or reputation in

the industry.

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 Organizational Resources: The Company is having the values such as excellence, innovation;

transparency etc and company’s operations are always adhering to these values. The company is

always comes up with innovative products i.e. they are the first one to come up with instant

starch (Revive) in the market, same is the case with their brand Parachute Stars which is the first

brand which is targeted to the children in the age group of 8-15 years[ CITATION Sri09 \l 1033 ].

Financial Resources: The Company is consistently making double digit profit since last three

quarters, in the last quarter the company’s net profit grew by 21% [ CITATION BSR09 \l 1033 ] . The

company is utilizing this fund in expanding their business by acquiring the foreign brands or

strengthening their brands in foreign market[ CITATION Mar08 \l 1033 ] .

Technical Resources: The Company is implementing SAP systems in their supply chain and in

various operations from India to South Africa, which results in less procurement and operating

cost. The company is using G-talk for the instant communication between various levels of

employees[ CITATION Raw09 \l 1033 ].

VRHN Analysis (Empirical Analysis):

Valuable: The company’s product line is concentrated on three segments i.e. hair care (brands

like Parachute, Hair & Care etc), personal care (includes edible oil like Saffola and Sweekar) and

recently the company has launched person skin care clinics Kaya. The company has positioned

the products is such a manner that all of their products are of high value for the consumers.

Rare: The raw material for the manufacturing of Coconut oil and edible oil are easily available

in the market and are easy to procure [ CITATION Ven06 \l 1033 ].

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 Hard to imitate: Since the company is operating in the FMCG industry so most of their

products are easily substitutable and one can produce the same product with little or no

differentiation, but still their products like Mediker and Revive doesn’t have any competitor in

the organized market[ CITATION Dat01 \l 1033 ].

Non substitutability: Some of the company’s brands like Mediker (Anti lie shampoo) and

Revive (starch) are highly non substitutable in the organized market but there are products in

non-organized market which acts as a potential threat for them [ CITATION Ven06 \l 1033 ] ,

on the other hand other brands like Parachute (hair oil) and Saffola (edible oil) are having close

substitutes in the market. In spite of the stiff competition the company’s brand managed to hold

majority share in their segment of operation[ CITATION Ind08 \l 1033 ] .

Internal Analysis:

Strengths:-
1. The company’s brands like Parachute hair oil (with 48%); Saffola and Mediker are leaders in

their segment of operation[ CITATION Ind08 \l 1033 ].

2. The company is having strong presence in foreign market like Bangladesh, Egypt and other

South African countries.[ CITATION Dat01 \l 1033 ]

3. No close competitor for most of their product lines. [ CITATION Mal09 \l 1033 ]

4. The company’s strong distribution network because of which the company has got the

distribution rights from its competitor P&G for their products like Clearasil, Old Spice and

Pampers. [ CITATION Mal09 \l 1033 ].

5. The company’s aggressive global and local acquisitions[ CITATION Mar08 \l 1033 ]. In the

last 18 months the company has finalized 8 mergers and acquisitions in India and abroad as

well [ CITATION Ven06 \l 1033 ]

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 6. The company is consistently coming up with new innovation, products and business ideas;

this is the reason why the company is able to differentiate their products from their

competitors.[ CITATION Ven06 \l 1033 ]

7. Fastest growth rate in the industry, the company is witnessing double digit since last three

quarter(the company witnessed 21% increase in the sales in quarter in the last quarter)

whereas the other competitor like HUL have seen decrease in their profit

margins[ CITATION Sri09 \l 1033 ].

8. The companies understanding of the rural market, the company is repositioning and

repackaging the products according to rural taste and preferences[ CITATION Oil09 \l

1033 ].

Weakness:-

1. The major sales of the company comes from their two brands Parachute and Saffola, the

other brands were not in very profitable segments [ CITATION Dat01 \l 1033 ].

2. The company has seen constant decrease in their earning per share ratios, in the year it was

11.92 and in present is around 2.9 this indicates that the company is not paying proper

dividends to stock holders which will present a threat to the company from the share holders[

CITATION Mar09 \l 1033 ].

3. The company’s current ratio is 2.72, which is far greater than the industry standards it

indicates that the company is unable to allocate its funds properly[ CITATION Mar09 \l 1033

].

4. The company is still ranked third in their health care segments, they are still having 23%

market share whereas the nearest competitor Agro Tech Foods having 34% market share in

the organized sector[ CITATION Dat01 \l 1033 ]. There is still a wide difference in terms of

market share that the company has to bridge.

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Internal Factor Evaluation:

Weighted
Key Internal Factors Weight Rating Score
Strength
Dominant Market share by their brands 0.17 4 0.68
Strong presence in foreign market 0.12 3 0.36
No close competition in most of product line 0.06 3 0.18
Strong distribution network 0.15 4 0.6
aggressive global and local acquisitions 0.07 4 0.28
Innovation driven 0.05 3 0.15
Fastest growth in industry 0.07 4 0.28
Understanding of rural market 0.11 3 0.33

Weakness
Major revenue generation from few brands 0.08 1 0.08
Consistent decrease in earnings per share ratios 0.05 2 0.1
High Current ratio 0.05 2 0.1
Wide difference in terms of market share 0.02 1 0.02
1 3.16

Importance of understanding Competition:

Understanding the competition is very important for every organization because it helps the

company in making their future strategy and policies, through the competition the company can

figure out the where the brands or products of company stands and how they can improve it, how

they can differentiate their products from that of competitors. The company is operating in

FMCG industry where the companies are facing stiff competition, so it’s really very important

for the firm to take that into consideration before coming up with any decision. Along with the

existing competitors we have taken latent competitors or potential competitors in to the

consideration because in the Indian FMCG sector there are lots of players who can come up with

new product or brand at any given time.

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Rational behind identifying competitors:

We have identified Dabur (with Vatika brand) and Hindustan Unilever Ltd (Latent competitor)

as competitor in Nature care segment, where the company is having brands like Parachute, Hair

& Care etc and on health care segment (brands like Saffola and Sweekar) we have indentified

Adani-Wilmar and Agro-Tech as the company’s competitors.

Since Dabur is having their products in every segment where Marico is having and also in terms

of market share Dabur is next only to Marico[ CITATION Raw091 \l 1033 ]; on the other hand HUL

has earlier came up with their hair oil brand Nihar which has captured almost 10% of the market

share, but in year 2006 Marico has acquired the brand for Rs. 100 cr [ CITATION Bur06 \l 1033 ] , but

still the company has the potential to come up with products which can be a threat for the

company.

In the health care segment the company is ranked third in the organized market next to Agro tech

foods and Adani-Wilmar[ CITATION Oil09 \l 1033 ]. So we are considring this two as major

competitor for Marico.

Competitive Profile Matrix (for Nature Care segment):

Marico Dabur HUL

Weigh Ratin Wtd Ratin Wtd Ratin
CSFs t g Score g Score g Wtd Score
Market Share 0.2 4 0.8 3 0.6 1 0.2
Brand image 0.05 3 0.15 2 0.1 3 0.15
Financial Position 0.13 3 0.39 2 0.26 2 0.26
Product Quality 0.15 4 0.6 4 0.6 1 0.15
Distribution
Channel 0.15 4 0.6 4 0.6 4 0.6
Global Operations 0.1 4 0.4 2 0.2 2 0.2
Pricing of Products 0.05 3 0.15 3 0.15 2 0.1
Company Image 0.05 3 0.15 3 0.15 3 0.15
Product Varity 0.07 3 0.21 3 0.21 1 0.07
Innovation in
Product line 0.05 3 0.15 2 0.1 1 0.05
1 3.6 2.97 1.93

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Competitive Profile Matrix (for health care segment):

Agro tech
Marico Adani Wilmar foods
Ratin Wtd
CSFs Weight g Wtd Score Rating Wtd Score Rating Score
Market Share 0.2 2 0.4 3 0.6 4 0.8
Brand image 0.05 3 0.1 4 0.2 4 0.01
Financial Position 0.13 3 0.39 3 0.39 3 0.39
Product Quality 0.15 4 0.6 3 0.45 4 0.6
Distribution Channel 0.15 4 0.6 4 0.6 4 0.6
Global Operations 0.1 3 0.3 3 0.3 2 0.2
Pricing of Products 0.05 3 0.15 3 0.15 3 0.15
Company Image 0.05 3 0.15 4 0.2 4 0.2
Product Varity 0.07 2 0.14 4 0.28 3 0.21
Innovation in Product
line 0.05 3 0.15 3 0.15 3 0.15
1 2.98 3.32 3.31

Analysis of CPM and IFE:

With the analysis of the competitive profile matrix (CPM) we can conclude that the company’s

strategy in the Nature care segment is better than that of their existing and latent competitors, on

the other hand the company has to adopt new strategy to strengthen their position in the health

care segment. As the analysis of internal factor evaluation (IFE) we can say that the company’s

strategy is aligned with the strength and weakness of their organization. We have also recognized

how the study of internal factor and competition will help in determining the strategy for the

organization.

External analysis of Marico Industries:

Porter’s five forces:

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 Threat of substitute products: The products in Fast Moving Consumer Goods (FMCG)

industry are highly substitutable. For every single product there are many players giving almost

the same product or with some differentiation.

Threat of new entrants: The establish companies have very huge base of loyal customers,

which will create entry barrier for any new entrant in the market. Even if some new competitor

will be a potential threat for the companies the companies will buy out that competitor.

Determinants of supplier’s power: The industry is dependent mostly on the local players for

the supply of their raw material, so there the quality and supply constrains comes in to the

picture which affects the company’s business in adverse way.

Determinants of buyer’s power: Since the products in the industry are highly substitutable and

the number of sellers in industry is comparatively very less with respect to the number of

buyers. The market is also very price sensitive, if a company increases the price of their

products the customer has many options to choose from. So the buyers can switch from one

product to the other.

Rivalry among existing players: There is intense rivalry among the companies operating in the

Indian FMCG market; they sell the products with little or no differentiation. This includes

some big and established names in the market like HUL, Dabur, and P&G etc.

External factor evaluation:

Threats:-

1. The majority of sales in the industry come from unorganized market, which is priced at

almost 50% less than their branded counterpart. This will lead to negative growth trends in

the industry.

2. The industry is infamous because of production malpractice of duplicate products in the

rural market. The FMCG majors in Indian rural market are facing this problem

[ CITATION Bus00 \l 1033 ]. This factor also acts as a threat to the industry.

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 3. Strong and multinational competitors. In the Indian FMCG market there is intense rivalry

between both the national and international players. So the industry is always a innovation

driven.

4. Price difference between premium and low priced brand.

5. Future disputes between retailers and the companies. There are clashes of interest between

the FMCG companies and their suppliers.

6. The companies in Indian FMCG market have to depend on volume for their profit

maximization; they cannot play the margin game for their growth.

7. Very few transporters with nationwide presence, so most of the work is being handled by

the local players so the quality and supply assurance is another issue[ CITATION vin07 \l

1033 ].

Opportunities:-

1. Consistent growth in demand in the market. According to FICCI, the FMCG industry will

witness to grow 20-30 per cent in 2009-10, comparatively 10-20% in 2008-09 and the

industry is supposed to quadruple its current size in the coming ten years[ CITATION

GST09 \l 1033 ].

2. Scope for the development of new products in the market. The industry is innovation

driven, so there is consistent scope for the development of new product lines or to fill the

voids between the existing product lines.

3. Opportunities for Merger and Acquisition (M&A) activities in India and abroad as

well[ CITATION Mar08 \l 1033 ].

4. Expenditure in development of rural infrastructure will improve the income of rural house

hold therefore will increase the disposable income for them. The rural market is witnessing

40% growth (in terms of sales) whereas urban market is growing by 25%.

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 5. Exemption on personal income tax will increase the disposable income in the hand of the

consumers. Income tax slab in India has been raised to Rs. 1.5 lakhs from the existing 1.1

lakhs. This will give a relief of Rs. 4000.00 for each Indian tax payer (Budget, 2009-10).

This will result in higher spending, that will significantly contribute to the development of

the industry.

6. The industry will also get benefited from the fringe tax which adds to the cost

unnecessarily, the government has decreased the fringe tax by around 30% [ CITATION

Bud09 \l 1033 ].

7. Huge customer base: India has a population of more than 1.170 Billion and it is expected

to be around 1.450 billion by 2030. FMCG Industry which is directly related to the

population, which is expected to maintain a robust growth rate.

8. Increase in Foreign Direct Investment in organized retail sector. The FDI limit in the retail

sector is raised from 26% to 49%, this step will enable to increase the size of industry

[ CITATION FDI09 \l 1033 ]

9. Export potential: Cheap labor, quality product & services have helped India to represent as

a cost advantage over other Countries. Even the Government has offered zero import duty

on capital goods and raw material for 100% export oriented units.

Conclusion:

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