Project Report on A Study Challenges before Indian FMCG sector By PRANAY KUMAR GUPTA Enrolment No.

2491000053 For partial fulfillment of the requirements of second year MBA curriculum of Two years Full time MBA (Industry Integrated) Programmed Submitted to:

Through

No. 15, New BEL Road, MSRIT Post, MS Ramaiah Nagar, Bangalore-560054 www.rimsbangalore.in
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STUDENTS DECLARATION

I hereby solemnly affirm, declare and state project report on Challenges before FMCG sector was done by me with due diligence and sincerity and this report based on that study is a bonafied work by me and submitted to ANNAMALAI UNIVERSITY through RAMAIAH INSTITUTE OF MANAGEMENT SCIENCES, Bangalore under the guidance and supervision of Dr. Lucas.M, Faculty RIMS is my original work and not submitted for the award of any other degree, diploma, fellowship or other similar title or prizes.

PLACE: BANGALORE DATE:

Signature: ENROLLMENT NO.

CERTIFICATE FROM THE GUIDE

This is to certify that the project report on the

Challenges before FMCG sector by

PRANAY KUMAR GUPTA, Enrollment no:2491000053 carried out in partial fulfillment for the award of degree of MBA(Industry Integrated) programme of Annamalai University at RIMS, Bangalore under my guidance and direction. This study report is an original work and not submitted earlier to any University/Institute.

PLACE: BANGALORE DATE:

Signature:

Guide Name:

Dr .Lucas.M

Table of Contents

Particulars
Chapter 1 Introduction Chapter 2 Review of Literature Chapter 3 Research Methodology Chapter 4 Analysis & Interpretation Chapter 5 Findings& Suggestions Chapter 6 Conclusion and recommendation Bibliography Annexure I Annexure II

Page No.
6-7
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30-32

33-45

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ACKNOWLEDGEMENT
I owe a great many thanks to a great many people who helped and supported me during the writing of this project. I express my thanks to the DEAN of Ramaiah Institute., Of Management Sciences, Bangalore for extending his support. My deepest thanks to Dr.Lucas.M. the guide of this project for guiding and correcting in various documents of mine with attention and care. He has taken the keen interest ingoing through the project and make necessary correction as and when needed. I could also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extent my Heartfelt thank to my friends and well-wisher.

CHAPTER 1 INTRODUCTION
The Fast Moving Consumer Goods (FMCG) industry in India is one of the largest sectors in the country and over the years has been growing at a very steady pace. The sector consists of consumer non-durable products which broadly consists, personal care, household care and food & beverages. The Indian FMCG industry is largely classified as organised and unorganised. This sector is also buoyed by intense competition. Besides competition, this industry is also marked by a robust distribution network coupled with increasing influx of MNCs across the entire value chain. This sector continues to remain highly fragmented. Industry Classification The FMCG industry is volume driven and is characterised by low margins. The products are branded and backed by marketing, heavy advertising, slick packaging and strong distribution networks. The FMCG segment can be classified under the premium segment and popular segment. The premium segment caters mostly to the higher/upper middle class which is not as price sensitive apart from being brand conscious. The price sensitive popular or mass segment consists of consumers belonging mainly to the semi-urban or rural areas who are not particularly brand conscious. Products sold in the popular segment have considerably lower prices than their premium counterparts. Following are the segment-wise product details along with the major players:

Significance of the study:

This research will put a light on various new challenges faced by the FMCG sector. The type of competition faced by other various FMCG brands will be known.

Scope of the study:

The research report will enable us to know the reason behind the reduced growth rate in FMCG sector. The various measures to be adopted by the companies to help them to face the challenges will be known by this research. Consumers point of view regarding the reduced growth rate of FMCG sector will be known by this research.

Statement of the problem- with the growing competition and the changes in the
consumer purchase behaviour along with the entry of more and more retail brands the FMCG sector is facing many new kind of challenges although the other sector of sector is lagging behind this is observe the
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India are growing at a fast rate FMCG

recent year .This research is mainly focused on the type of challenges faced by the FMCG sector

Conclusion:On the basis of the research I will come to know which of the
hypothesis is correct and correct hypothesis will come as the conclusion of the research.

CHAPTER 2 REVIEW OF LITRATURE Fast Moving Consumer Goods (FMCG)

Introduction
FMCG are products that have a quick shelf turnover, at relatively low cost and dont 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
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the fourth largest sector in the economy and is responsible for 5% of the total factory employment in India. 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.

Definition Fast moving consumer goods Fast-moving consumer goods (FMCG) or consumer packaged goods (CPG) are products that are sold quickly and at relatively low cost. Examples
include non-durable goods such as soft drinks and grocery items. 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 substantial.

Products which have a quick turnover and relatively low cost areknown as fast moving consumer goods Fmcg products are those that get replaced within a year Fmcg may also include pharmaceuticals, consumer electronics, packaged food products, soft drinks, tissue paper, and chocolate bars.

History of FMCG in India

In India, companies like ITC, HUL, 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 Scenario
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. Aspiration levels in young 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 HUL 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
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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.

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.

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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 outperformed 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.

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Challenges Faced by FMCG Companies

FMCG is relatively less capital-intensive, but demands immense skills and expenditure on branding and distribution. Most companies in the sector create value through product differentiation, package innovation, and differential pricing and highlighting the functional aspect of foods. Inflation restricts the industry's growth; many companies in the sector thrive under inflationary pressures. Most companies pass on the cost inflation to consumers, via a judicious blend of price hikes, packaged size reduction and change in product mix. The top five FMCG companies constitute nearly 70% of the total revenues generated by this sector. They tend to spend nearly 10% of their revenues on an average on advertising and promoting their products, which is the highest ad spend figure in the industry.

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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 Bang, 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. Bang. According to Mahesh Visa, 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 are good for FMCG, said Mr. Visa. He, however, said fresh investments were critical for sustained growth in the economy.

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Another serious challenge which the industry is faced with, said Mr. Bang, 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.

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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 200809. 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.

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Its expected that catching the villages fancy should be far easier than that of the infofatigued 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.

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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

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Market Opportunities

Vast Rural Market

Rural India accounts for more than 700 Million consumers, or ~70 per cent of the Indian population and accounts for ~50 per cent of the total FMCG market. The working rural population is approximately 400 Millions. And an average citizen in rural India has less then half of the purchasing power as compare to his urban counterpart. Still there is an untapped market and most of the FMCG Companies are taking different steps to capture rural market share. The market for FMCG products in rural India is esti-mated ~ 52 per cent and is projected to touch ~ 60 per cent within a year. Hindustan Unilever Ltd is the largest player in the industry and has the widest market coverage.

Export - Leveraging the Cost Advantage

Cheap labor and quality product & services have helped India to represent as a cost ad-vantage over other Countries. Even the Government has offered zero import duty on capital goods and raw material for 100% export oriented units. Multi National Companies out-source its product requirements from its Indian company to have a cost advantage. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew apart from being the second largest producer of rice, wheat, fruits & vegetables. It adds a cost advantage as well as easily available raw materials.

Sectoral Opportunities
Major Key Sectoral opportunities for Indian FMCG Sector are mentioned below:

Dairy Based Products

India is the largest milk producer in the world, yet only around 15 per cent of the milk is processed. The organized liquid milk business is in its infancy and also has large long-term growth potential. Even investment opportunities exist in value-added products like desserts, puddings etc.

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Packaged Food
Only about 10-12 per cent of output is processed and consumed in packaged form, thus highlighting the huge potential for expansion of this industry.

Oral Care
The oral care industry, especially toothpastes, remains under penetrated in India with penetration rates around 50 per cent. With rise in per capita incomes and awareness of oral hygiene, the growth potential is huge. Lower price and smaller packs are also likely to drive potential up trading.

Beverages
Indian tea market is dominated by unorganized players. More than 50% of the market share is capture by unorganized players highlighting high potential for organized players.

Top 10 FMCG Companies S. NO. Companies 1. Hindustan Unilever LTD. 2. ITC (Indian Tobacco Company) 3. Nestle India 4. GCMMF (Amul) 5. Dabur India 6. Asian Paints (India) 7. Cadbury (India) 8. Britannia India 9. Procter & Gamble Hygiene and health care
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10. Marico Industries

Company Prospects

Hindustan Unilever Limited

Hindustan Unilever Limited (HUL) is India's largest fast moving consumers

goods company based in Mumbai. It is owned by the British-Dutch company Unilever which controls 52% majority stake in HUL. 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 employee strength of over 16,500 employees and contributes to indirect employment of over 65,000 people. The company was renamed in June 2007 as Hindustan Unilever Limited. Lever Brothers started its actual operations in India in the summer of 1888, when crates full of Sunlight soap bars, embossed with the words "Made in England by Lever Brothers" were shipped to the Kolkata harbour and it began an era of marketing branded Fast Moving Consumer Goods (FMCG). Hindustan Unilever's distribution covers over 2 million retail outlets across India directly and its products are available in over 6.4 million outlets in the country. As per Nielsen market research data, two out of three Indians use HUL products.

ITC (INDIAN TOBACO COMPANY)

ITC Limited or ITC is an Indian public conglomerate company headquartered in Kolkata, West Bengal, India. Its diversified business includes four segments: Fast Moving Consumer Goods (FMCG), Hotels, Paperboards, Paper & Packaging and Agri Business. ITC's annual turnover stood at $7 billion and market capitalization of over $33 billion. The company has its registered office in Kolkata. It started off as the Imperial Tobacco Company, and shares ancestry with Imperial Tobaccoof the United Kingdom, but it is now fully independent, and was rechristened to Indian Tobacco Company in 1970 and then to I.T.C. Limited in 1974.

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The company is currently headed by Yogesh Chander Deveshwar. It employs over 26,000 people at more than 60 locations across India and is listed onForbes 2000. ITC Limited completed 100 years on 24 August 2010. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.

NESTLE
Nestl is the world's leading Nutrition, Health and Wellness company. Our mission of "Good Food, Good Life" is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night.

The Company was founded in 1866 by Henri Nestl in Vevey, Switzerland, where our headquarters are still located today. We employ around 2,80,000 people and have factories or operations in almost every country in the world. Nestl sales for 2009 were CHF 108 bn. The NESTLE CORPORATE BUSINESS PRINCIPLES are at the basis of our Companys culture, developed over 140 years, which reflects the ideas of fairness, honesty and long-term thinking.

AMUL

Amul Formed in 1946, it is a brand name managed by an Indian cooperative organisation, Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF), which today is jointly owned by 3.03 million milk producers in Gujarat, India. Amul is based in Anand Gujarat and has been a successful example of cooperative organization.Amul spurred the White Revolution in India which in turn made India the

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largest producer of milk and milk products in the world. It is also the world's largest vegetarian cheese brand. Amul is the largest food brand in India and world's largest pouched milk brand with an annual turnover of US $2.2 billion Currently Unions making up GCMMF have 3.1 million producer members with milk collection average of 9.10 million litres per day. Besides India, Amul has entered overseas markets such as Mauritius, UAE, USA, Oman, Bangladesh, Australia, China, Singapore, and Hong Kong and a few South Africancountries. Its bid to enter Japanese market in 1994 did not succeed, but it plans to venture again. Dr Verghese Kurien, former chairman of the GCMMF, is recognised as a key person behind the success of Amul. On 10 Aug 2006 Parthi Bhatol, chairman of the Banaskantha Union, was elected chairman of GCMMF.

Dabur India
Dabur (Dabur India Ltd) is India's largest Ayurvedic medicine manufacturer. Dabur's Ayurvedic Specialities Division has over 260 medicines for treating a range of ailments and body conditions-from common cold to chronic paralysis.

Asian Paints India

Asian Paints is Indias largest paint company and Asias third largest paint company, with a turnover of Rs 77.06 billion. The group has an enviable reputation in the corporate world for professionalism, fast track growth, and building shareholder equity. Asian Paints operates in 17 countries and has 24 paint manufacturing facilities in the world servicing consumers in over 65 countries. Besides Asian Paints, the group operates around the world through its subsidiaries Berger International Limited, Apco Coatings, SCIB Paints and Taubmans. Forbes Global magazine USA ranked Asian Paints among the 200 Best Small Companies in the World for 2002 and 2003 and presented the 'Best under a Billion' award, to the company. Asian Paints is the only paint company in the world to receive this recognition. Forbes has

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also ranked Asian Paints among the Best under a Billion companies in Asia In 2005, 06 and 07. The company has come a long way since its small beginnings in 1942. Four friends who were willing to take on the world's biggest, most famous paint companies operating in India at that time set it up as a partnership firm. Over the course of 25 years Asian Paints became a corporate force and India's leading paints company. Driven by its strong consumer-focus and innovative spirit, the company has been the market leader in paints since 1968. Today it is double the size of any other paint company in India. Asian Paints manufactures a wide range of paints for Decorative and Industrial use. In Decorative paints, Asian Paints is present in all the four segments v.i.z Interior Wall Finishes, Exterior Wall Finishes, Enamels and Wood Finishes. It also introduced many innovative concepts in the Indian paint industry like Colour Worlds (Dealer Tinting Systems), Home Solutions (painting solutions Service), Kids World (painting solutions for kids room), Colour Next (Prediction of Colour Trends through in-depth research) and Royale Play Special Effect Paints, just to name a few. Asian Paints has always been ahead when it comes to providing consumer experience. It has set up a Signature Store in Mumbai where consumers are educated on colours and how it can change their homes. Vertical integration has seen it diversify into products such as Phthalic Anhydride and Pentaerythritol, which are used in the paint manufacturing process. Asian Paints also operates through APPG (50:50 JV between Asian Paints and PPG Inc, USA, one of the largest automotive coatings manufacturer in the world) to service the increasing requirements of the Indian automotive coatings market. Another 50:50 JV with PPG has been proposed which will service the protective, industrial powder, industrial containers and light industrial coatings markets.

Cadbury India

Cadbury India began its operations in India in 1948 by importing chocolates. It now has manufacturing facilities in Thane, Induri (Pune) and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and sales offices in New Delhi, Mumbai, Kolkata and Chennai. The corporate head office is in Mumbai. Since 1965 Cadbury has also pioneered the development of cocoa cultivation in India. For over two decades, Cadbury has worked with
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the Kerala Agricultural University to undertake cocoa research. Cadbury was incorporated in India on 19 July 1948. Currently, Cadbury India operates in four categories: chocolate confectionery, milk food drinks, candy and gum category. Its products include Cadbury Dairy Milk, Bournville, 5-star, Perk, Gems,clairs, Bournvita, Celebrations and Bilkuland Bournville. It is the market leader in Chocolate Confectionery business with a market share of over 70%. The Brand Trust Report, India Study, 2011 published by Trust Research Advisory ranked Cadbury in the top 100 most trusted brands list.

Britannia India
The company was established in 1892, with an investment of Rs. 295. Initially, biscuits were manufactured in a small house in central Kolkata. Later, the enterprise was acquired by the Gupta brothers mainly Nalin Chandra Gupta, a renowned attorney, and operated under the name of "V.S. Brothers." In 1918, C.H. Holmes, an English businessman in Kolkata, was taken on as a partner and The Britannia Biscuit Company Limited (BBCo) was launched. The Mumbai factory was set up in 1924 and Peek Freans UK, acquired a controlling interest in BBCo. Biscuits were in big demand during World War II, which gave a boost to the companys sales. The company name finally was changed to the current "Britannia Industries Limited" in 1979. In 1982 the American company Nabisco Brands, Inc. became a major foreign shareholder. Britannia Industries Limited is an Indian food-products corporation based in Bangalore, India. It is famous for itsBritannia and Tiger brands of biscuit, which are popular throughout the country. Britannia has an estimated 38% market share. The Company's principal activity is the manufacture and sale of biscuits, bread, rusk, cakes and dairy products.

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Procter & Gamble

Procter & Gamble Co. (P&G) is an American company based in Cincinnati, Ohio that manufactures a wide range of consumer goods. In India Proctor & Gamble has two subsidiaries: P&G Hygiene and Health Care Ltd. and P&G Home Products Ltd. P&G Hygiene and Health Care Limited is one of Indias fastest growing Fast Moving Consumer Goods Companies with a turnover of more than Rs. 500 crores. It has in its portfolio famous brands like Vicks & Whisper. P&G Home Products Limited deals in Fabric Care segment and Hair Care segment. It has in its kitty global brands such as Ariel and Tide in the Fabric Care segment, and Head & Shoulders, Pantene, and Rejoice in the Hair Care segment. Procter & Gambles relationship with India started in 1951 when Vicks Product Inc. India, a branch of Vicks Product Inc. USA entered Indian market. In 1964, a public limited company, Richardson Hindustan Limited (RHL) was formed which obtained an Industrial License to undertake manufacture of Menthol and de mentholised peppermint oil and VICKS range of products such as Vicks VapoRub, Vicks Cough Drops and Vicks Inhaler. In May 1967, RHL introduced Clearsil, then Americas number one pimple cream in Indian market. In 1979, RHL launched Vicks Action 500 and in 1984 it set up an Ayurvedic Research Laboratory to address the common ailments of the people such as cough and cold. In October 1985, RHL became an affiliate of The Procter & Gamble Company, USA and its name was changed to Procter & Gamble India. In 1989, Procter & Gamble India launched Whisper the breakthrough technology sanitary napkin/towel. In 1991, P&G India launched Ariel detergent. In 1992, The Procter & Gamble Company, US increased its stake in Procter & Gamble India to 51% and then to 65%. In 1993, Procter & Gamble India divested the Detergents business to Procter & Gamble Home Products and started marketing Old Spice Brand of products. In 1999 Procter & Gamble India Limited changed the name of the Company to Procter & Gamble Hygiene and Health Care Limited. P&G Home Products Limited was incorporated as 100% subsidiary of The Procter & Gamble Company, USA in 1993 and it launched Ariel Super Soaker. In the same year Procter & Gamble India divested the Detergents business to Procter & Gamble Home Products. In 1995, Procter & Gamble Home Products entered the Haircare Category with the launch of Pantene Pro-V shampoo. In 1997 Procter & Gamble Home Products launched Head
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&Shoulders shampoo. In 2000, Procter & Gamble Home Products introduced Tide Detergent Powder the largest selling detergent in the world. In 2003, Procter & Gamble Home Products Limited launched Pampers worlds number one selling diaper brand. Today, Proctor & Gamble is the second largest FMCG company in India after Hindustan Unilever Limited.

Marico Industries
Marico is a fledgling Indian group providing consumer products and services in the areas of Health and Beauty based in Mumbai. During 2009-10, the company generated a Turnover of about Rs.26.6 billion (USD 600 Million), in respect of its food, hair care and skin care related activities. Marico's own manufacturing facilities are located at Goa, Kanjikode, Jalgaon, Pondicherry, Dehradun, Baddi, Paonta Sahib and Daman. The organisation holds a number of brands including paracute , Saffola, Hair&Care, Nihar, Mediker, Revive, Manjal, Kaya Skin Clinic, Aromatic, Fiancee, HairCode, Xmen, Hercules, Caivil, Code 78 and Black Chic. Parachute is the flagship brand of Marico and consists of a line of edible coconut-oil based hair products. Maricos brands and their extensions occupy leadership positionswith significant market shares in a number of health and beauty areas. Saffola is essentially blended refined edible oil which is claimed to be beneficial for Heart health. It is marketed under the names of New Saffola, Tasty and Active. All of them contain blended vegetable oils in various proportion. The main type of oils which are blended include Rice Bran oil, Kardi oil or Safflower oil, Corn oil and Soya oil. In addition to being a producer of consumer products the organisation also operates Kaya Skin Clinic (of which (as of 2010) 81 exist in India, 13 in UAE) and 2 in Bangladesh. Marico recently acquired the aesthetics business, of the Singapore based Derma Rx Asia Pacific Pte. Ltd. (Derma Rx), under the Kaya portfolio. All the services offered at Kaya Skin Clinic are designed and supervised by a team of over 250 dermatologists and carried out by certified skin practitioners who have undergone more than 300 hours of training. The services are US
27

FDA approved and tested in-house, and conform to the highest international quality standards. Kaya Skin Clinic has over 600,000 satisfied customers. Harsh Mariwala is the Chairman and MD of this organisation. The company has 3 divisions the Consumer Products Group(CPB), The International Business Group and Kaya Skin Clinic. CPB is headed by Saugata Gupta. Kaya Skin Clinic is headed by Ajay Pahwa. The company in recent years has been known for its foreign acquisitions in countries such as South Africa, Egypt and Singapore.

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Conclusion

The FMCG sector has a tremendous opportunity for growth in India with the growing population the rising income, education and urbanization the advent of modern retail and a consumption- driven society. However successfully launching and growing market share around a branded product in India presents tremendous challenges Many of these challenges raised have to do with operational inefficiencies an ambiguous and inconsistent tax regime bureaucracy lazy and outdated legislation as well as infrastructural bottlenecks These need to be overcome not only through a concerted effort by the industry but with active government intervention and promotion to ensure that the sector is able to perform as per its potential.

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Chapter 3 RESEARCH METHODOLOGY

Research
Research is a way to generate information from primary and secondary sources which can also define research as scientific and diplomatic search for pertinent information on specific topic.

Research is systematic design collection analysis and reapportion of data and finding which are relevant to specific situation.

Research methodology is a framework a blueprint or the research study which guides the collection and analysis of data .Research

Methodology is being framed in order to achieve the research objective. It is an expression what is expected of the research exercise in term of result and the analysis input need to convert data into research finding designing a search plan call for decision or the data sources, research approaches instrument and contract method.

Data collection method

The research methodology can call for gathering primary as well as secondary data. Primary data is one, which is collected by investigator himself for the purpose of a specific inquiry or study. Such data is original in character and is generated by surveys conducted by individual or research institution. When a data which is already been collected by others such data is called secondary data.

30

Data sources
In this project I have used both primary and secondary data

aTools for collecting primary data :1. Questionnaires 2. Schedules 3. Personal interviews 4. On spot observations a. Sample size around 50 to 100 persons. b. Sampling data- the data will be analysed and interpreted result of the questionnaires and schedules c. Tools for collecting secondary data- books, magazines, websites, and other related research reports.

Objectives: Primary objective:

To find out the various new challenges face by the FMCG sector.

Secondary objectives:
To explain the reason of the reduced growth rate of FMCG sector in India. To find out the various measure which the sector should take so as to increase the growth rate. To know the consumers preference and choices regarding the various brands available in India

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Hypothesis

Null hypothesis- the passing of the cost inflation by the FMCG sectors to the consumers
is not going to have any adverse effect on the consumer's buying behaviour.

Alternate hypothesis- the passing of the cost inflation by the FMCG sectors to the
consumers is certainly having an adverse effect on the consumer's buying behavior

32

CHAPTER 4 ANALYSIS AND INTERPRETATION Research Objective- To find out which hypothesis (null and alternate) is correct. Sample size 50 customers 1. Do you think FMCG sectors are facing any kind of problems? Options Yes No Total Respondents 35 15 50

Graph
0% 0%

no 30%

yes 70%

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2. What kind of challenges according to you are the most difficult for the sectors to face?

1 40% of people said-FMCG is relatively less capital-intensive, but demands immense skills and expenditure and distribution.

2 35%of people said- Most companies in the sector create value through productdifferentiation, package innovation, and differential pricing and highlighting the functional aspect of foods.

3 25%of people said- Inflation restricts the industry's growth; many companies in the sector thrive under inflationary pressures.

3. Do you think the passing of the cost inflation by the FMCG sectors to the consumers is having an adverse effect on the consumer's buying behaviour?

Options Yes No Total

Respondents 27 23 50

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Graph
0% 0%

no 46% yes 54%

4. How many per cent this is affecting the consumer's purchasing decision?

Options a. 0% - 25% b. 25% - 50%. c. 50% - 75% d. 75% - 100% Total

Respondents 09 11 17 13 50

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Graph
75-100% 3%

0%-25% 24%

50-75% 44% 25%-50% 29%

5. Have you made any purchase decision on the basis of the above factor. Options Yes No Total Respondents 30 20 50

Graph
0% 0%

no 40%

yes 60%

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6. Which of the products you feel are affected the most due to this cost inflation?

According to the data collected most of the respondents say soaps and shampoos are the most affected products due to this cost inflation others include products in personal care category

7. Do you think the FMCG sector should stop this passing the cost inflation to the consumers? Options Yes No Total Respondents 45 5 50

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Graph
0% no 10% 0%

yes 90%

8. Do you think govt. is trying to help the FMCG sectors in dealing with these kind of challenges?

Options Yes No Total

Respondents 24 26 50

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Graph
0% 4th Qtr 0%

no 52%

yes 48%

9. Is there any product which you stopped purchasing due to the cost inflation?

According to the data collected most of the respondents say no that they havent stopped purchasing FMCG product due to the cost inflation.

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10. Do you think the increasing competition in the FMCG sector is one of the major reasons of the above problem? Options Yes No Total Respondents 10 40 50

Graph
0% 0%

yes 20%

no 80%

40

11. Do you think the FMCG companies are forced to pass the cost inflation to the consumers?

Options Yes No Total

Respondents 34 16 50

Graph
0% 0%

no 32%

yes 68%

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12. Do you believe that even if the companies don't pass the cost inflation to the consumers then also they will be able to sell the products with gaining profit? Options Yes No Total Respondents 26 24 50

Graph
0% 0%

no 48%

yes 52%

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13. If yes then what do you think is the major reason why the companies doing it?

According to the data collected the respondents say that the companies passing the cost inflation is mainly doing it for the profit gaining

14. Do you think consumers are most likely to shift their brands due to cost inflation? Options Yes No Total Respondents 33 17 50

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Graph
0% 0%

no 34%

yes 66%

15. Is shifting the brands by the consumers a serious problem faced by the FMCG companies?

Options Yes No Total

Respondents 33 17 50

44

Graph
0% 0%

NO 34%

YES 66%

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Chapter 5 Findings and Suggestions Findings

FMCG is relatively less capital-intensive, but demands immense skills and expenditure on branding and distribution. Most companies in the sector create value through product differentiation, package innovation, and differential pricing and highlighting the functional aspect of foods. Inflation restricts the industry's growth; many companies in the sector thrive under inflationary pressures. Most companies pass on the cost inflation to consumers, via a judicious blend of price hikes, packaged size reduction and change in product mix. The top five FMCG companies constitute nearly 70% of the total revenues generated by this sector. They tend to spend nearly 10% of their revenues on an average on advertising and promoting their products, which is the highest ad spend figure in the industry.

Suggestions
1 Strengthen consumer understanding Deep consumer understanding will always be at the heart of FMCG Especially during the current downturn, it is critical to know and respond to changing consumer and shopping behaviour. More sophisticated and rigorous tools need to be applied. 2 Improve Engagement with Modern Retail There are large synergies for FMCG companies and Modern Retail if they work closely together Some areas include: Key Account Management Appoint account managers to work with retail partners Together, create plans on everything from stocking practices to display, pricing and in-store promotions. Improve fill rates withModern Retail, which are currently very low at 60%.ollaboration Developing a brand exclusively for a retailer enabling the

46

retailer to offer unique products / offers to the customers and saving marketing costs to the manufacturer.

Investor
1 An investor can invest in this sector for long term point of view as there is a large rural untapped market is there in India and also there is a growing population which will increase the demand in the near future. A valve investor can for this sector. 2 This sector is not recommended for growth investors because in short run this sector fluctuates less and also its not a follower of market driven or market rally sector. 3 Household and clothing sector moves faster in the bullish trend but during downturn the basic needs driven sector gets least affected must do the detail analysis before investing. 4 Investment should be done when the market is discounted or the sector is a lower PE, this will be the best time for the investor to invest. 5 Indian FMCG sector is still far away from its saturation point, large government spending and economic development will boost up the industry business and its expected that Indian market will exceed the china market till 2015

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Chapter 6 Conclusion and Recommendations

According to the data collected in the questionnaire and the graph made I came up with the conclusion that alternate hypothesis is correct.The passing of the cost inflation by the
FMCG sectors to the consumers is certainly having an adverse effect on the consumer's buying behavior. After conducting the research I came to know that all the companies of FMCG sector are not forced to transfer the cost inflation to the consumers and even if they dont do so they are capable of earning profits. Even the companies are able to earn profits without transferring the cost inflation they do it to earn more profit which is the main reason why they face challenges due to this factor. After this research I would like to suggest the companies that they should stop thinking in this manner and if they stop this kind of behavior then they would not face the problems due to this factor. Due to the transfer of cost inflation many consumers tend to shift their brands and this will stop if the companies behave in an appropriate manner.

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Bibliography

Book1 Ackoff, Russell L, The Design of Social Research,Chicago: University of Chicago Press, 1961

Journal and magazines 1 Economic times newspaper 2 Capital market magazine 3 Economic and political review Journal

Websites1 www. Scribd .com 2 www.google.com

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Annexure I

50

Questionnaire 1. Do you think FMCG sectors are facing any kind of problems?

Yes

no

2. What kind of challenges according to you are the most difficult for the sectors to face?

3. Do you think the passing of the cost inflation by the FMCG sectors to the consumers is having an adverse effect on the consumer's buying behaviour?

Yes

no

4. How many per cent this is affecting the consumer's purchasing decision?

a. 0% - 25% b. 25% - 50%. c. 50% - 75% d. 75% - 100%

5. Have you made any purchase decision on the basis of the above factor.

Yes

no

6. Which of the products you feel are affected the most due to this cost inflation?

7. Do you think the FMCG sector should stop this passing the cost inflation to the consumers?

Yes

no

8. Do you think govt. is trying to help the FMCG sectors in dealing with these kind of challenges?

51

Yes

no

9. Is there any product which you stopped purchasing due to the cost inflation?

10. Do you think the increasing competition in the FMCG sector is one of the major reasons of the above problem?

Yes

no

11. Do you think the FMCG companies are forced to pass the cost inflation to the consumers?

Yes

no

12. Do you believe that even if the companies don't pass the cost inflation to the consumers then also they will be able to sell the products with gaining profit?

Yes

no

13. If yes then what do you think is the major reason why the companies doing it?

14. Do you think consumers are most likely to shift their brands due to cost inflation?

Yes

no

15.Is shifting the brands by the consumers a serious problem faced by the FMCG companies?

Yes

no

52

Annexure II

53

Synopsis
Name: Pranay Kumar Gupta College roll no: AB1018 Registration no: 2491000053 Ramaiah institute of management studies Program name: MBA marketing Project in marketing

TOPIC: A study on Challenges before the Indian FMCG Sector 1. Introduction: 2. Statement of the problem 3. Need for the study/ significance of the study

Statement of the problem- with the growing competition and the changes in the consumer purchase behaviour along with the entry of more and more retail brands the FMCG sector is facing many new kind of challenges although the other sector of India are growing at a fast rate FMCG sector is lagging behind this is observe the recent year .This research is mainly focused on the type of challenges faced by the FMCG sector Objectives: Primary objective: To find out the various new challenges face by the FMCG sector.

54

Secondary objectives: To explain the reason of the reduced growth rate of FMCG sector in India. To find out the various measure which the sector should take so as to increase the growth rate. To know the consumers preference and choices regarding the various brands available in India

Significance of the study: This research will put a light on various new challenges faced by the FMCG sector. The type of competition faced by other various FMCG brands will be known.

Scope of the study: The research report will enable us to know the reason behind the reduced growth rate in FMCG sector. The various measures to be adopted by the companies to help them to face the challenges will be known by this research. Consumers point of view regarding the reduced growth rate of FMCG sector will be known by this research.

Limitation of the study: The collection of data regarding the FMCG sector and its challenges is not so easy. Consumers purchase behaviour changes from time to time ending upon various different aspects. The study is limited to Bangalore City only.

RESEARCH METHODOLOGY d. Tools for collecting primary data :5. Questionnaires 6. Schedules 7. Personal interviews 8. On spot observations

55

e. Sample size around 50 to 100 persons. f. Sampling data- the data will be analysed and interpreted result of the questionnaires and schedules g. Tools for collecting secondary data- books, magazines, websites, and other related research reports.

Hypothesis - Null hypothesis- the passing of the cost inflation by the FMCG sectors to the consumers is not going to have any adverse effect on the consumer's buying behaviour. Alternate hypothesis- the passing of the cost inflation by the FMCG sectors to the consumers is certainly having an adverse effect on the consumer's buying behaviour. Statistical tools for hypothesis testing : Random sampling, cluster sampling, Q test, CHI SQAURE TEST etc.

Conclusion: On the basis of the research I will come to know which of the hypothesis is correct and correct hypothesis will come as the conclusion of the research.

Name of the Research Scholar: Dr.Lucas.M.

Name of the Research Guide:

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