TERM PAPER

Of

MARKETING

On the topic of
ECONOMICS PROBLEMS FACED BY FMCG COMPANIES (SUPPORTED BY DATA) WITH THE LIKELY SOLUTION AND BUSINESS STRATEGY TO OVER COME THESE PROBLEM

SUBMITTED TO
MR. CHANDRASHEKHAR DOGRA

SUBMITTED BY
RAJNISH SINGH MBA (regular) SEC- RR1902 ROLL NO.-RR1902A11 REG. NO-10901327

ACKNOWLEDGEMENT
I am thankful to MR. CHANDRASHEKAR DOGRA for providing me the task of preparing the term paper on ECONOMIC PROBLEMS FACED BY FMCG COMPANIES (SUPPORTED BY DATA) WITH THE LIKELY SOLUTIONS AND BUSINESS STRATEGIES TO OVER COME THESE PROBLEMS. We at lovely in taking challenges and term paper provided me the opportunity to tackle a practical challenge in the subject of ECONOMICS. This term paper tested my patience at every step of preparation but the courage provided by my teacher helped me to swim against the tide and move against the wind. I am also thankful to my friends and parents for providing me help at every step of the preparation of the term paper. RAJNISH SINGH

INDEX
INTRODUCTION 1FAST MOVING CONSUMER GOODS (FMCG) HISTORY OF FMCG COMPANIES IN INDIA CURENT SITUATION OVER VIEW OF INDIAN FMCG MARKET PROBLEM OF FMCG COMPANIS ANALYSIS OF FMCG SECTORS 1 STRENGTHS 2 WEAKNESSES 3 OPPORTUNITIES 4 THREATS STRUCTURAL ANALYSIS OF FMCG INDUSTRY 1DESIGN AND MANUFACTURING 2MARKETING AND DISTRIBUTION FORCOSTING OF FMCG COMPANIES STRATEGY OF FMCG COMPANIES 1COMPETITIVE STRATEGIES ALLOWED BY FMCG COMPANIS IN INDIA 2POWER BRANDS THE NEW FMCG MANTRA TOP 10 FMCG COMPANIES IN INDIA SOLUTION OF FMCG COMPANIES 1WHAT SHOULD THE FMCG PLAYERS DO NOW 2DISTRIBUTION BRAND MANAGERS TO BUSINESS MANAGERS REFRENCE

INTRODUCTION
Fast Moving Consumer Goods (FMCG) FMCG are products that have a quick shelf turnover, at relatively low cost and don't require a lot of thought, time and financial investment to purchase. The margin of profit on every individual FMCG product is less. However the huge number of goods sold is what makes the difference. Hence profit in FMCG goods always translates to number of goods sold. Fast Moving Consumer Goods is a classification that refers to a wide range of frequently purchased consumer products including: toiletries, soaps, cosmetics, teeth cleaning products, shaving products, detergents, and other non-durables such as glassware, bulbs, batteries, paper products and plastic goods, such as buckets. Fast Moving is in opposition to consumer durables such as kitchen appliances that are generally replaced less than once a year. The category may include pharmaceuticals, consumer electronics and packaged food products and drinks, although these are often categorized separately. The term Consumer Packaged Goods (CPG) is used interchangeably with Fast Moving Consumer Goods (FMCG).Three of the largest and best known examples of Fast Moving Consumer Goods companies are NESTL, UNILEVER AND PROCTER & GAMBLE. Examples of FMCGs are soft drinks, tissue paper, and chocolate bars. Examples of FMCG brands are Coca-Cola, Kleenex, Pepsi and Believe. The FMCG sector represents consumer goods required for daily or frequent use. The main segments of this sector are personal care (oral care, hair care, soaps, cosmetics, and toiletries), household care (fabric wash and household cleaners), branded and packaged food, beverages (health beverages, soft drinks, staples, cereals, dairy products, chocolates, bakery products) and tobacco.

The Indian FMCG sector is an important contributor to the country's GDP. It is the fourth largest sector in the economy and is responsible for 5% of the total factory employment in India. The industry also creates employment for 3 m people in downstream activities, much of which is disbursed in small towns and rural India. This industry has witnessed strong growth in the past decade. This has been due to liberalization, urbanization, increase in the disposable incomes and altered lifestyle. Furthermore, the boom has also been fuelled by the reduction in excise duties, de-reservation from the small-scale sector and the concerted efforts of personal care companies to attract the burgeoning affluent segment in the middleclass through product and packaging innovations. Unlike the perception that the FMCG sector is a producer of luxury items targeted at the elite, in reality, the sector meets the every day needs of the masses. The lower-middle income group accounts for over 60% of the sector's sales. Rural markets account for 56% of the total domestic FMCG demand. Many of the global FMCG majors have been present in the country for many decades. But in the last ten years, many of the smaller rung Indian FMCG companies have gained in scale. As a result, the unorganized and regional players have witnessed erosion in market share.

HISTORY OF FMCG COMPANIES IN INDIA

In India, companies like ITC, HLL, Colgate, Cadbury and Nestle have been a dominant force in the FMCG sector well supported by relatively less competition and high entry barriers (import duty was high). These companies were, therefore, able to charge a premium for their products. In this context, the margins were also on the higher side. With the gradual opening up of the economy over the last decade, FMCG companies have been forced to fight for a market share. In the process, margins have been compromised, more so in the last six years (FMCG

sector witnessed decline in demand).

CURRENT SITUATION
The growth potential for FMCG companies looks promising over the long-term horizon, as the per-capita consumption of almost all products in the country is amongst the lowest in the world. As per the Consumer Survey by KSA-Technopak, of the total consumption expenditure, almost 40% and 8% was accounted by groceries and personal care products respectively. Rapid urbanization, increased literacy and rising per capita income are the key growth drivers for the sector. Around 45% of the population in India is below 20 years of age and the proportion of the young population is expected to increase in the next five years. Aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent demand with more money and a new mindset. In this backdrop, industry estimates suggest that the industry could triple in value by 2015 (by some estimates, the industry could double in size by 2010). In our view, testing times for the FMCG sector are over and driving rural penetration will be the key going forward. Due to infrastructure constraints (this influences the cost-effectiveness of the supply chain), companies were unable to grow faster. Although companies like HLL and ITC have dedicated initiatives targeted at the rural market, these are still at a relatively nascent stage. The bottlenecks of the conventional distribution system are likely to be removed once organized retailing gains in scale. Currently, organized retailing accounts for just 3% of total retail sales and is likely to touch 10% over the next 3-5 years. In our view, organized retailing results in discounted prices, forced-buying by offering many choices and also opens up new avenues for growth for the FMCG sector. Given the aggressive expansion plans of players like Pantaloon, Trent, Shoppers Stop and Shoprite, we are confident that the FMCG sector has a bright future.

APR-SEP 2009 COMPANY SALES RS A&P SPENDRSCR 1132 234 176 156 141 94 75 31 14

A&P/SALES% APR-SEP 3YRS 2009 13.0 14.7 12.7 16.2 14.7 9.3 18.7 10.1 5.5 AGO 8.9 11.9 12.1 13.1 17.5 10.3 2.5 1.3 8.0

CR HINDUSTANUNILEVER 8703 DABUR INDIA MARICO GLAXOSMITHKLINE CONSUMER COLGATE POLMOLIVE 955 INDIA GODREJCONSUMER EMAMI ARGO TECH FOODS JYOTHY LABS 1014 400 305 250 1591 1389 964

OVER VIEW OF INDIAN FMCG MARKET

India offers a large and growing market of 1 billion people of which 300 million are middle class consumers. India offers a vibrant market of youth and vigor with 54% of population below the age of 25 years. These young people work harder, earn more, spend more and demand more from the market, making India a dynamic and inspirational society. Domestic demand is expected to double over the ten-year period from 1998 to 2007. The number of households with "high income" is expected to increase by 60% in the next four years to 44 million households. India is rated as the fifth most attractive emerging retail market. It has been ranked second in a Global Retail Development Index of 30 developing countries drawn up by A T Kearney. A.T. Kearney has estimated India's total retail

market at $202.6 billion, is expected to grow at a compounded 30 per cent over the next five years. The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the next decade, analysts feel. The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. 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. India is one of the worlds largest producers for a number of FMCG products but its FMCG exports are languishing at around Rs 1,000 crore only. There is significant potential for increasing exports but there are certain factors inhibiting this. Small-scale sector reservations limit ability to invest in technology and quality up gradation to achieve economies of scale. Moreover, lower volume of higher value added products reduce scope for export to developing countries. The FMCG sector has traditionally grown at a very fast rate and has generally out performed the rest of the industry. Over the last one year, however the rate of growth has slowed down and the sector has recorded sales growth of just five per cent in the last four quarters. The outlook in the short term does not appear to be very positive for the sector. Rural demand is on the decline and the Centre for Monitoring Indian Economy (CMIE) has already downs called its projection for agriculture growth in the current fiscal. Poor monsoon in some states, too, is unlikely to help matters. Moreover, the general slowdown in the economy is also likely to have an adverse impact on disposable income and purchasing power as a whole. The growth of imports constitutes another problem area and while so far imports in this sector have been confined to the premium segment, FMCG

companies estimate they have already cornered a four to six per cent market share. The high burden of local taxes is another reason attributed for the slowdown in the industry At the same time, the long term outlook for revenue growth is positive. Give the large market and the requirement for continuous repurchase of these products, FMCG companies should continue to do well in the long run. Moreover, most of the companies are concentrating on cost reduction and supply chain management. This should yield positive results for them. The profile of major leading FMCG Market Players is as follows:

PROBLEM OF FMCG COMPANIES

The fast-moving consumer goods (FMCG) companies are faced with a peculiar challenge of maintaining profitable growths in the backdrop of a low inflation rate. As against the high inflation of the early 90s the peak growth season for all FMCG companies the ensuing period of a lower inflation rate dares companies to now play the volume game. As against a growth in profitability, which came with price increase in line with the rising inflation, the FMCG industry will now have to do without this critical factor which has been contributing to almost half of the industrys growth. Volumes will play a critical role now. The number of units sold will be an important metric, as there is very little avenue to drive price growth, said MS Banga, chairman, Hindustan Lever Ltd (HLL), in his keynote address at the 2nd National FMCG Conclave organized by the Confederation of Indian Industry (CII). Since volume will be the key determinant of growth, the industry will be forced to push volume growth. Hence, for those companies which hitherto relied on price increase as an easy way to enhance profitability, there could be a pressure on margins. To tackle the problem there needs to be a relentless focus on cost-cutting. Many companies, which have understood that

volumes will be critical, will benefit, added Mr. Banga. According to Mahesh Vyas, executive director, the Centre for Monitoring Indian Economy (CMIE), the year holds a lot of promise, if growth is good and inflation is lower. Volume growth and no price reduction is good for FMCG, said Mr. Vyas. He, however, said fresh investments were critical for sustained growth in the economy. Another serious challenge which the industry is faced with, said Mr. Banga, is consumer promotions where freebies are threatening to lead to the commoditization of the industry. I believe that the industry must take a serious note of it. It is threatening the very premise on which the FMCG industry stands today (i.e. branding), Mr. Banga added. As to how HLL, which is a leading FMCG company, would boost its volumes and maintain its margins, Mr. Banga said the only way out was branding. He denied that HLL was cutting down upon its advertising spends, which he said, was only on a quarter-on-quarter basis. The total advertising expenditure for HLL declined to Rs 182.74 crore during the third quarter ended September 30, 2003, from Rs 217.80 crore. One of the reasons is the fact that the Conditional Cash Transfer scheme (CCT) is gathering support as a replacement for myriad welfare schemes. Along with the rural employment guarantee scheme, loan waivers and increase in prices at which agricultural products are bought, the CCT could solve the FMCGs problem of unpredictability of agricultural income and the associated fall in market demand. The mainstay of the rural thrust of FMCG companies is based on the hope that there are disposable incomes lying untapped in the hinterland: if the rural population spends some of this, it will certainly boost demand in the current recession. With urban consumption in decline or stagnating because of the economic slowdown, FMCG companies have been hit hard. The idea is to give a choice to the rural customer to shift to branded products, from traditional,

unbranded merchandise from the nonorganised sector. The growth is in rural, says Indias top marketing head, Rama Bijapurkar. Rural India constitutes over 60 percent of the countrys total consumer base. Its estimated that rural markets hold 55 percent of total LIC policies, 50 percent of the market for televisions, fans, bicycles and wristwatches and a massive 70 percent of the market for toilet soap consumption. The Rs 65,000 crore debt waivers announced last year helped 3.6 million farmers and made them eligible to fund the next crop. The Centre continued to provide short-term crop loans at 7 percent interest up to Rs 3 lakh. An upturn in agriculture was seen in the UPAs interim budget of 2009-10, where the annual growth rate of agriculture was posted at 3.7 percent. Added to this was the election-inspired increase in minimum support prices (MSP) in 2008-09. Announced in the season ahead of the general election, the MSP for paddy (Rs 550 per quintal in 2003-04) rose to Rs 900; for wheat, the MSP, which was Rs 630 per quintal, rose to Rs 1,080. It also led to massive procurement of food grains this year. Factors like this, according to analysts, have created disposable incomes which the rural consumers should be, ideally, keen on spending on consumer goods. THE ECONOMIC SURVEY 2007-08 says rural India spends, on average, 55 percent on food and 45 percent on non-food items like clothing, consumer durables, education and health. And its spend on urban costs of living such as electricity, commuting, fuel and rent is negligible. That level of spending on regular consumables is good news for FMCG manufacturers. Add to that the fact that, unlike their urban counterparts, rural citizens incomes are relatively better preserved from market fluctuations and real estate shocks. For corporate, the rural hinterland had earlier meant high investment because of poor infrastructure, absence of storage services, no electricity, water or finance facilities. In times of recession, the problems appear

surmountable. Its expected that catching the villages fancy should be far easier than that of the info-fatigued urban buyer. The rural market already accounts for 50 percent of FMCG products like pressure cookers, tea, branded salt and tooth powder. Companies expect to increase market share and to add products to the rural portfolio. According to ASSOCHAM, which announced early this year that the FMCG sector is pegged to grow at 40 percent in the rural market, rising rural incomes, healthy agricultural growth, boost in demand, rising consumerism and better penetration of FMCG products, are the reasons for this projection. Agrees Deepak Jolly, a director with Coca-Cola India: The rural thrust in India today is huge. In many ways, I would say it is the main driver for the markets. Among the few things that the FMCG companies are seeking from this budget is that the taxes and duties that have been reduced by the government to promote the sector should not be revoked. If only they could have the same impact on the monsoon: any weakening or failure there will considerably affect the purchasing power of villagers and volumes of FMCG products. Its in this context that the gathering support for the conditional cash transfers (CCT) scheme should be seen it proposes that the government deposit an amount in the account of beneficiaries identified according to poverty criteria. The amount is deposited in the name of the woman member of the household and accessed only if children go to school or attend the health centre. Farmers are spending more than ever to cultivate; villagers are spending more than ever to buy food. The government hopes to bring the National Food Security Bill that provides monthly 25kg to BPL families at Rs 3 per kg. It would be interesting to watch if the disposable income left after such subsidies will be used for consumption.

ANALYSIS OF FMCG SECTOR

STRENGTHS: 1. Low operational costs 2. Presence of established distribution networks in both urban and rural areas 3. Presence of well-known brands in FMCG sector WEAKNESSES: 1. Lower scope of investing in technology and achieving economies of scale, especially in small sectors 2. Low exports levels 3. "Me-too" products, which illegally mimic the labels of the established brands, narrow the scope of FMCG products in rural and semi-urban market. OPPORTUNITIES: 1. Untapped rural market 2. Rising income levels i.e. increase in purchasing power of consumers 3. Large domestic market - a population of over one billion 4. Export potential 5. High consumer goods spending THREATS: 1. Removal of import restrictions resulting in replacing of domestic brands 2. Slowdown in rural demand. 3. Tax and regulatory structure STRUCTURAL ANALYSIS OF FMCG INDUSTRY Typically, a consumer buys these goods at least once a month. The sector covers a wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, food products, confectioneries, beverages, and cigarettes. Typical characteristics of FMCG products are: -

1. The products often cater to 3 very distinct but usually wanted for aspects necessity, comfort, luxury. They meet the demands of the entire cross section of population. Price and income elasticity of demand varies across products and consumers. 2. Individual items are of small value (small SKU's) although all FMCG products put together account for a significant part of the consumer's budget. 3. The consumer spends little time on the purchase decision. He seldom ever looks at the technical specifications. Brand loyalties or recommendations of reliable retailer/ dealer drive purchase decisions. 4. Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently, as and when required. 5. Brand switching is often induced by heavy advertisement, recommendation of the retailer or word of mouth. DESIGN AND MANUFACTURING
1. Low Capital Intensity - Most product categories in FMCG require

relatively minor investment in plan and machinery and other fixed assets. Also, the business has low working capital intensity as bulk of sales from manufacturing take place on a cash basis.
2. Technology - Basic technology for manufacturing is easily available. Also,

technology for most products has been fairly stable. Modifications and improvements rarely change the basic process.
3. Third-party Manufacturing - Manufacturing of products by third party

vendors is quite common. Benefits associated with third party manufacturing include (1) flexibility in production and inventory planning; (2) flexibility in controlling labor costs; and (3) logistics - sometimes its essential to get certain products manufactured near the market.

MARKETING AND DISTRIBUTION Marketing function is sacrosanct in case of FMCG companies. Major features of the marketing function include the following: 1. High Initial Launch Cost - New products require a large front-ended

investment in product development, market research, test marketing and launch. Creating awareness and develop franchise for a new brand requires enormous initial expenditure on launch advertisements, free samples and product promotions. Launch costs are as high as 50-100% of revenue in the first year. For established brands, advertisement expenditure varies from 5 12% depending on the categories.
2. Limited Mass Media Options - The challenge associated with the launch

and/or brand-building initiatives is that few no mass media options. TV reaches 67% of urban consumers and 35% of rural consumers. Alternatives like wall paintings, theatres, video vehicles, special packaging and consumer promotions become an expensive but required activity associated with a successful FMCG.
3. Huge Distribution Network - India is home to six million retail outlets,

including 2 million in 5,160 towns and four million in 627,000 villages. Super markets virtually do not exist in India. This makes logistics particularly for new players extremely difficult.

FORCOSTING OF FMCG COMPANIES

Markets all over the world have been on a roll in 2003 and the Indian bourses are no exception having gained almost 60% in 2003. During this period, while there are sectors that have outperformed this benchmark index, there are also sectors that have under performed. FMCG registered gains of just 33% on the BSE FMCG Index last year. At the macro level, Indian economy is poised to remained buoyant and grow at more than 7%. The economic growth would impact large proportions of the population thus leading to more money in the hands of the consumer. Changes in demographic composition of the population and thus the market would also continue to impact the FMCG industry. Recent survey conducted by a leading business weekly, approximately 47 per cent of India's 1 + billion people were under the age of 20, and teenagers among them numbered about 160 million. Together, they wielded INR 14000 Cr worth of discretionary income, and their families spent an additional INR 18500 Cr on them every year. By 2015, Indians under 20 are estimated to make up 55% of the population - and wield proportionately higher spending power. Means, companies that are able to influence and excite such consumers would be those that win in the market place. The Indian FMCG market has been divided for a long time between the organized sector and the unorganized sector. While the latter has been crowded by a large number of local players, competing on margins, the former has varied between a two-player-scenario to a multi-player one. Unlike the U.S. market for fast moving consumer goods (FMCG), which is dominated by a handful of global players, India's Rs.460 billion FMCG market remains highly fragmented with roughly half the market going to unbranded, unpackaged home made products. This presents a tremendous opportunity for

makers of branded products who can convert consumers to branded products. However, successfully launching and growing market share around a branded product in India presents tremendous challenges. Take distribution as an example. India is home to six million retail outlets and super markets virtually do not exist. This makes logistics particularly for new players extremely difficult. Other challenges of similar magnitude exist across the FMCG supply chain. The fact is that FMCG is a structurally unattractive industry in which to participate. Even so, the opportunity keeps FMCG makers trying.

STRATEGY OF FMCG COMPANIES

COMPETITIVE STRATEGIES FOLLOWED BY FMCG COMPANIES IN INDIA Competitive Strategy consists of move of companies in order to attract customers. With stand competitive pressures and strengthen an organizations market position. The main objective of Competitive Strategy is to generate a competitive advantage, increase the loyalty of customers and to beat competitors. Five main competitive strategies are: Overall low cost leadership strategy Best cost providers strategy Broad differentiation strategy Focused low cost strategy Focused differentiation strategy Here competitive strategy varies from sector to sector and company to company. Thus, it is not easy to predict a single or to find a single strategy for the whole sector. When we come on to FMCG Sector main strategies lay

behind market strategies, cost, and quality strategies. Here in this report you are going to get information about such type of strategies of FMCG giants. RELATED TO TWO COMPANIES HUL & ITC HUL (Hindustan Unilever Ltd.) This Company is earlier known as Hindustan Lever Ltd. This is Indias largest FMCG sector company with all type of household products available with it. It has Home & Personal Care products, and also food and Water Purifier available with it. According to Brand Equity, HUL has largest no of brands in most trusted brands list. 16 of HULs brands featured in AC-Nielson Brand Equity list of 100 most trusted brands in 2008 in an annual survey. For the entire year ending March - 2009 net turnover of company is Rs. 20239.33 Crore which is 47.99% higher than 31st December 2007s Rs. 13675.43 Crore driven mainly by dom estic FMCGs with net profit stood at Rs. 2496.45 Crore. Products of HUL are: Annapurna; Ayush; Axe; Breeze; Bru; Brooke bond; Clinic; Dove; Fair & Lovely; Hamam; Liril; Lux; Pears; Ponds; Pepsodent; Pureit; Rexona; Rin; Sunlight; Surfexcel; Vaseline; Wheel. ITC Limited This Company was earlier known as Imperial Tobacco Company of India Ltd. It is Currently headed by Yogesh Chander Deveshwar. Company mainly operates in the industry like Tobacco, Foods, Hotels, Stationary and Greeting Cards with the major products constitutes Cigarettes, packed foods, hotels, and apparels. For the entire year ending Mar-2009 the turnover of company is at Rs. 15388 Crore which is 10.3% higher than previous

years Rs. 13947.53 Crore, driven mainly by robust 20% growth in non cigarette FMCG business with net profit stood at Rs. 3324 Crore. ANALYSIS OF BOTH COMPANIES HUL & ITC are major companies in FMCG market in India. When we compare both companies on the basis of their strategies i.e. , their competitive strategies in the present market. When we look at the present segment breakup for both of the companies then we came to know that their different products vary too much in the market. HUL Hindustan Unilever (HUL) is the largest pure-play FMCG company in the country and has one of the widest distribution channel. It owns and markets some of the most popular brands in the country across various ITC ITC is not a pure-play FMCG company, since cigarettes is its primary tobacco. FMCG segments like foods, personal care, paper products, hotels and agri-business to reduce its

portfolios of products sold via a strong business. It is diversifying into non-

categories, including soaps, detergents, exposure to cigarettes. shampoos, tea and face creams. Performance Performance After stagnating between 1999 and 04, Despite diversification, ITCs reliance the company is back on the growth HULs net sales have witnessed a CAGR of 11%, while net profit has posted a CAGR of 17%. on cigarettes is still huge. The tobacco revenues, and accounts for over 80% of its profit. This cash-generating business has enabled it to take ambitious, but expensive bets in new segments and track. In the past three years, till 2008 business contributes 40% to its

deliver modest profit growth.

ITC Segment Breakup

HUL SEGMENT BREAKUP

POWER BRANDS, THE NEW FMCG MANTRA Three men, one voice. Indian fast moving consumer goods companies like HLL, Godrej Consumer Products Limited and Marico Industries are completely sold on the concept of "power brands". But in their rush to put their best brands forward, are these big companies in danger of overlooking the potential offered by some of the also-ran brands? It's been almost five years since these three FMCG giants opted to manage their brand portfolios on the basis of the power brand strategy. How have they fared? And what does the future hold?

TOP 10 FMCG COMPANIES IN 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 Hygiene and Health Care 10. Marico Industries

SALUTION OF FMCG COMPANIES

WHAT SHOULD THE FMCG PLAYERS DO NOW? They should not only price their products competitively, but also offer their rural prospects maximum value for money spent. Certainly, reaching out to 3.33 million retail outlets is an uphill task. The only way out for Indian FMCG players: put in place an aggressive cost structure that would enable them to offer low-price and value-for-money products. But then, FMCG is a low-margin business with a high cost of raw materials. Consider the case of Marico: its material cost works out to a high of 59 per cent on sales. Therein lays the rural marketing paradox. However, customer-centric and market-savvy FMCG companies have always chased prospects when they perceive there is a latent demand. For instance, Hindustan Lever's Rin, Surf and Lux are available even in India's most obscure villages. Hindustan Lever had given shape to its rural strategy a few years ago when it perceived that its urban market was shrinking due to an industrial slowdown. Its Operation Bharat that focused on personal care products made the most out of surging rural incomes. The result was there for all to see. The company has been able to clock in double-digit profits every three years and log in doubledigit revenues every four years. Britannia with its Tiger brand of biscuits and Colgate-Palmolive with its low-priced and conveniently-packaged products designed for the rural masses have been other pioneers in rural marketing.

DISTRIBUTION One of the age-old problems that FMCG has been facing not only in India but globally is that of distribution. Integrating operations with your distributors and channel partners is a Herculean task. Few ways to reduce pain involved in this link:

Reducing supply chain costs by reducing intermediaries - Organized retail chains have set up systems for inventory management and quick servicing, thereby offering the opportunity for a company/supplier to reduce distribution cost by reducing intermediaries such as wholesalers/distributors and supplying directly to the warehouse of retail chain. Increasing sales by driving channel width - The relative share of grocers to FMCG sales has dropped from over 50% in the early 90's to 35% in the late 90's. On the other hand the contribution of chemist outlets and paan outlets has been increasing. This has been a result of both SKU's (sachets) and hardware (mini dispensers) being specifically designed to facilitate entry to these outlets and increase consumer interface.

BRAND MANAGERS TO BUSINESS MANAGERS Tough market situations and a more aware and savvier demanding consumer have necessitated that yesterday's Brand Managers be transformed into Business Managers who understand consumers and can innovate and be flexible to move with the consumer. Gone are the days when brands could be made to gallop with a

big budget media plan, a generous dose of below-the-line and above-the-line activities and constant promotions and schemes in the market. Consumers who have become demanding yet inscrutable in terms of attitudes, outlook, moods and behavior have rendered conventional Brand Management tools obsolete.

REFERENCE
http://www.coolavenues.com/know/mktg/competitive-strategies-2.php http://www.rediff.com/money/2005/nov/15spec.htm www.hll.com www.itc.com www.insightory.com www.oppapers.com http://www.indianmba.com/Faculty_Column/FC448/fc448.html