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HIMANSHU AGRAWAL & SAUMYA RANJITH

P16002 & P16046

IIM NAGPUR
Ajanta Packaging
Contents
Memo...................................................................................................................... 2
Executive Summary..................................................................................................... 3
Situation Analysis....................................................................................................... 4
Problem Statement...................................................................................................... 6
Options.................................................................................................................... 6
Criteria for Evaluation.................................................................................................. 6
Evaluation of Options................................................................................................... 6
Recommendation........................................................................................................ 7
Action Plan............................................................................................................... 7

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Memo

Date: 24th April 2013


From: Saumya Ranjith
To: Deepankar Agarwal
Subject: Report on future course of action for Ajanta Packaging.
Dear Mr. Agarwal,
Enclosed is the report on whether Ajanta Packaging should diversify into PET-bottle
varieties.
Regards.

2
Executive Summary

Indian packaging industry has been growing at the rate of 15% as a result of prosperous
FMCG sector, increasing urbanization, rising income levels, changing consumption pattern,
and expanding modern retail. However, glass packaging industry has been negatively
impacted due to increasing competition from the better substitutes like PET bottles,
aluminium cans, Tetra Pak etc. Since, 95% of the revenues of Ajanta Packaging, is generated
by glass bottle, the profitability of the company is at risk. Enhancing Ajanta Packaging
product range with more PET bottle varieties would help the company increase its market
share considering its forecasted CAGR of 6.4%. It will align the product range of the
company with the evolving market trends and customer preferences.

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Situation Analysis
Indian packaging industry has grown at 15% over last few years as compared to the global
industry CAGR of 3.1 per cent. Food and beverage segment contributes most to the
packaging industry growth because of prosperous FMCG sector. The growth is expected to
further accelerate with increased urbanization, growing disposable income of middle class
families, change in the consumption patterns and expansion in modern retails. Recent
economic collapse and increasing inflation had hurt glass-packaging industry. Rising raw
material prices and increasing competition is negatively impacting the profitability.
Glass-industry has following properties:
Dominated by a few large players.
Plants are located nearby user industries so that the transportation costs can be
decreased.
Long credit periods to maintain the customer loyalty.
Increased usage of PET bottles and other substitutes is the biggest challenge faced by
industry
Consumers in glass industry can be segmented as follows:
Large buyers
Quality conscious buyers had begun using alternate forms of packaging material
Prioritize aesthetics
Highly seasonal demand, especially for soft drinks, cosmetics and beer.
The current scenario of Ajanta packaging:
Strength (Internal) Weaknesses (Internal)
1. Established a niche position as one of the 1. Overreliance on glass products as 95%
primary glass-bottle suppliers. revenues comes from it.
2. Due to excellent distribution network, net 2. Increasing raw material prices and rising
sales realization yields are good. operating expenses.
3. Able to offer just-in-time supply to 3. Profit margins are decreasing because of
customers via their marketing offices due to rising prices and increasing competition.
low lead times.
4. Offer quality focused, cost effective, time
bound and customised packaging solutions.
5. Good products and professional expertise
along with wide range of products allowing
negotiation with suppliers.

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Opportunities (External) Threats (External)
1. Estimated CAGR of 3.1% for global 1. Rise in use of substitute products like
packaging industry. Indian industry has PET.
grown at 15% in last few years. 2. Increased inflation negatively impacting
2. Growing middle class disposable income, the raw material prices.
increasing urbanization with changing 3. Shift of pharmaceutical industry towards
consumer patterns. substitute packaging.
3. Increasing use of flexible packaging. 4. Growing PET market is reducing glass
bottle usage and giving tough competition.

Level of competition in packaging industry


Threats of New Entrants (Low)
Companies are recognizing the decline of glass-packaging industry and diversifying into
other businesses. Hence the threat of new entrant is low. Therefore, Ajanta can maintain a
certain product portfolio in glass and charge a premium. But the threat of new entrant in PET
packaging is huge as the industry is on rise and every company is trying to diversify into PET
market.

Industry Rivalry (High)


Competition is very high in the industry due to shrinking market size. Competitors of Ajanta
Packaging are targeting few glass bottle customers leading to a price war.

Bargaining Power of Suppliers (Low)


Suppliers have less bargaining power due to increased competition in the industry spread
across the globe. Presence of warehouses in multiple locations give Ajanta some power in
negotiation as compared to others.

Threat of substitutes (High)


Threat of substitutes for Ajanta Packagings glass products is very high. Customers and even
the entire industries are moving towards packaging material which are lightweight, tough,
and easy to use, have better shelf lives, low environmental impact and are easy to stack such
as aluminium cans, tetra Pak, and PET bottles.

Bargaining power of Buyers (High)


Buyers have strong power of negotiation as the glass bottles are considered as a commodity
product without much differentiation. Also, availability of many substitute products have
further increased their bargaining power.

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Problem Statement
Whether Ajanta Packaging should diversify their product portfolio to PET bottles? If Yes,
when?

Options
Continue with the existing product portfolio of glass and attract more customers.
Diversify into new product portfolio of PET bottles.

Criteria for Evaluation


Evaluation of options will be done mainly on following three criteria:
Future growth prospects
Market share
Customer preference

Evaluation of Options
Continue with the existing product portfolio of glass bottles and attract more
customers Recent economic collapse and increased inflation which had affected the prices
of raw materials and the relevant operational expenses like warehouse rentals, interest and
freight costs show that the future growth prospects for this industry is not satisfactory.
However, there is some potential existing in beer, wine & spirits industry. Low market share,
which reached to 11% of total packaging industry in 2012, is expected to decline further. This
is due to increase in expectations of Indian consumers and competition from imported
products with respect to the quality and its aesthetic value. Customer loyalty and superior
customer relationship management practices are crucial for the company as 90% of the
revenue comes from the repeat customers. Therefore, if emphasis is laid on attracting more
customers for glass-bottle packaging, their retention is taken care of. The weight reduction of
the bottles by 25 30 % due to new technologies and improved control over glass
distribution make glass packaging convenient for customers.
Diversify into new product portfolio of Polyethylene terephthalate (PET) bottles - The
future growth prospects of Indian packaging industry is characterized by rise of substitutes
like aluminium cans, tetra Pak cartons and especially PET bottles that are becoming
increasing popular due to its light weight, clarity, toughness and inertness to oxygen &
carbon-dioxide along with the added advantage of convenience and ease of use. PET bottles
industry has a forecasted CAGR of 6.4%. There has been a shift in the preferences to PET
bottles in soft drinks, alcohol industry (especially Indian Made Foreign Liquor- IMFL) and
pharmaceutical industry. With ease in regulations, increase in western style consumer
spending and expected CAGR of 29%, the growth opportunities in this industry are huge.

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INR 60 billion soft drinks industry which is growing at 5 6% annually have also shifted to
PET bottles. Continued growth of Indian Pharmaceutical industry to become US$ 15,490 and
its shift in preference to PET bottles is also a crucial factor in attaining high market share.
There is growing preference of customers for PET bottles due to its convenience, light-
weight, innovative packaging designs. The main factor attributing to this shift is increasing
consumption of packaged, frozen and other processed foods by the growing Indian middle
class. Their acceptance is supported by brand differentiation PET bottles offer and easy
display of products to its target consumers.

Recommendation

Diversification into new PET-bottle varieties and decrease over-reliance on glass-bottles are
recommended to deal with the declining profitability of the glass-bottles. Due to changing
trend & preferences of customers, the focus is shifting from rigid packaging to flexible
packaging. After considering future growth prospects of PET bottles and to avoid decreasing
market share of glass bottles, it is the right moment to shift the focus to PET bottles.

Action Plan

1. Company should improve its offering of customized services, especially in PET


bottles as it would increase its customer base.
2. Synergize the existing marketing & supply chain systems in favour of PET bottles.
3. Provide more incentives or discounts for PET bottles to have an edge over
competitors.

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