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Co||ege of 8us|ness management
Þost Graduate Centre for Management 5tud|es and kesearch
Manga|ore - 575003
Dr. Jomon Lonappan
II MBA ‘A’
This project aims to study the various systems, practices & structures followed by ITC, HLL, Nestle
and Frito Lays in Modern trade- Supermarket Stores and recommend appropriate strategies for ITC
to attain preferred supplier status.
The project provides information about the various procedures followed by ITC with respect to
distribution chain function and client management. It will also bring out the process followed to service
With the fast growing retail industry in India, competition has increased between the major market
players to service the Key Accounts and become category captains. Companies are continually
trying to engage and construct innovate ideas to service this market.
This project will also bring out insights on the practices followed by various companies and also the
strategies used to improve service levels in detail.
The trends in the Indian FMCG market are increasingly becoming analogous to the international
market. This is a huge change from what the sector was like some three years ago. India as a market
has started reflecting international trends not only in intra categories but inter-categories as well. We
are currently in what can be slated as the third phase of development in the FMCG sector. From the
look of things, the FMCG companies will have two-thirds of the turnover of any other
industry led by contemporary categories. Internationally, FMCG companies are already moving to
There are basically two reasons why the FMCG sector is not attracting as much talent as it used to
earlier. Firstly, Indians are increasingly being offered more choices as far as career options go. Also, the
slow growth rate has impacted career choices. Other sectors such as IT, telecom, et al, have offered that
flexibility, which we haven’t been able to offer. But the FMCG sector will return with a vengeance
with the support of the emerging and contemporary categories, which would offer a value proposition
Fast Moving Consumer Goods (FMCG), also known as Consumer Packaged Goods. (CPG), are products that
have a quick turnover, and relatively low cost. Consumers generally put less thought into the purchase of
FMCG than other products. The absolute profit made on a FMCG product is lower; however they are
generally sold in high numbers. Hence profit in FMCG goods generally scales with the number of goods
sold, rather than the profit made per item.
The classification generally includes a wide range of frequently purchased consumer products including:
toiletries, soaps, cosmet i cs, t eet h cl eani ng product s, s havi ng products, detergents, and other non-
durables such as glassware, bulbs, batteries, paper products and plastic goods. The category may include
pharmaceuticals, consumer electronics and packaged food products and drinks, although these are
often categorized separately. Contrast consumer durables such as kitchen appliances that are generally
replaced less than once a year.
The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of
US$ 13.1 billion. It has a strong MNC presence and is characterized by a well established distribution
network, intense competition between the organized and unorganized segments and low operational cost.
Availability of key raw materials, cheaper labour costs and presence across the entire value chain
gives India a competitive advantage.
Growth is also likely to come from consumer ‘upgrading’ in the matured product categories. With 200
million people expected to shift to processed and packaged food by 2010, India needs around US$ 28 billion of
investment in the food-processing industry. Automatic investment approval (including foreign technology
agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and
Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector.
According to this year's Global Retail Development Index India is positioned as the leading destination
for retail investment. This followed from the saturation in western retail markets and we find big western
retailers like Wal-mart and Tesco entering into Indian market. India's retail industry accounts for 10 percent
of its GDP and 8 percent of the employment to reach $17 billion by 2010. There are about 300 new malls,
1,500 supermarkets and 325 departmental stores being built in the cities very soon.
ITC is one of India's foremost private sector companies with a market capitalization of nearly US $ 13
billion and a turnover of US $ 3.5 billion. Rated among the World's Best Big Companies, Asia's 'Fab 50'
and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected
Companies by Business World and among India's Most Valuable Companies by Business Today, ITC
ranks third in pre-tax profit among India's private sector corporations.
ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-
Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Greeting Cards,
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 and Greeting
As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly
nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the
market". In his own words: "ITC believes that its aspiration to create enduring value for the nation
provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not
only driving each of its businesses towards international competitiveness but by also consciously
contributing to enhancing the competitiveness of the larger value chain of which it is a part."
ITC's production facilities and hotels have won numerous national and international awards for quality,
productivity, safety and environment management systems. ITC was the first company in India to voluntarily
seek a corporate governance rating.
ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India
Limited'. Its beginnings were humble. A leased office on Radha Bazaar Lane, Kolkata, was the centre
of the Company's existence. The Company celebrated its 16th birthday on August 24, 1926, by purchasing
the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of
310,000. This decision of the Company was historic in more ways than one. It was to mark the beginning
of a long and eventful journey into India's future. The Company's headquarter building, 'Virginia House',
which came up on that plot of land two years later, would go on to become one of Kolkata's most
venerated landmarks. The Company's ownership progressively indianised, and the name of the
Company was changed to I.T.C. Limited in 1974. In recognition of the Company's multi-business
portfolio encompassing a wide range of businesses - Cigarettes & Tobacco, Hotels, Information
Technology, Packaging, Paperboards & Specialty Papers, Agri-Exports, Foods, Lifestyle Retailing and
Greeting Gifting & Stationery - the full stops in the Company's name were removed effective
September 18, 2001. The Company now stands rechristened ‘ITC Limited’.
ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership
position in every segment of the market. It's highly popular portfolio of brands includes Insignia, India Kings,
Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake.
The Company has been able to build on its leadership position because of its single minded focus on value
creation for the consumer through significant investments in product design, innovation, manufacturing
technology, quality, marketing and distribution.
All initiatives are therefore worked upon with the intent to fortify market standing in the long term. This in
turns aids in designing products which are contemporary and relevant to the changing attitudes and evolving
socio economic profile of the country. This strategic focus on the consumer has paid ITC handsome dividends.
ITC Foods launched a range of Ready-To-Eat dishes under the 'Aashirvaad ReadyMeals' label, in Hyderabad,
on 25th June 2003.
The unique packaging form, using a retort process, ensures that the original freshnessand taste of the recipes is
protected without the use of preservatives.
The Retort Process
The pioneering introduction of retorting technology is what has made the sale of ‘Ready- to-Eat’ food
products commercially viable. The need of frontline military soldiers for light but nutritious food, with an
assured long shelf life was the impulse and the inspiration for the development and fine-tuning of the retorting
process. Retorting technology was used by the US in its Apollo Space missions. Today it is the mainstay of US
military rations. Retorting is also widely used in packaged foods in Japan and Europe. The efficacy and
effectiveness of the retorting process depends on the sterilisation process and the retorting pouch.
Mint-o and Candyman
ITC currently has two brands in the confectionery segment - 'mint-o' and 'Candyman'. 'mint-o' was acquired by
ITC from Candico in March 2002. ITC re-launched the compressed mint offering, across all major markets in
India, with new and improved product and packaging. Available in the regular mint flavour with added blue
specks to enhance consumer experience, mint-o is also offered in innovative 'Orange mint' and
'Lemon mint' flavours. 'Mint-o' is available in two sizes – rolls of 20 and 6, capturing the international essence
of ‘youthful cool’
Riding on the success of offerings in the Glucose, Marie and Cream categories, ITC has recently enriched its
'Sunfeast' range of biscuits. The Company has launched three new cream flavours - Coconut, Strawberry and
Pineapple. Strawberry & Pineapple creams have flavour enhancers. ITC has pioneered the launch of coconut
cream biscuits in India. The Company has also introduced 'Sunfeast Dark Fantasy', a dark chocolate and
vanilla cream offering for the premium segment in select markets. 'Sunfeast Pasta Treat', whole wheat based
non-fried product in 4 exciting flavours, has been introduced as a healthy snacking option for children. The
pasta segment was further expanded with the launch of ‘Sunfeast Benne Vita’ in 4 innovative variants. The
snack food team is geared and ready to further enrich its product portfolio in the near future.
ITC's new snacks brand Bingo! marks the company's foray into the fast growing branded snacks segment. The
launch of Bingo! represents ITCs' fifth major line of foods business after the highly successful Staples,
Biscuits, Ready-to-Eat and Confectionery businesses. Bingo! will leverage the platform of a youthful and
innovative snack offering. The launch of Bingo! is symbolic of ITCs' distinct approach of introducing
innovative and differentiated products in a largely undifferentiated market place.
Greeting, Gifting & Stationery
ITC is blending its core capabilities to market a growing range of greeting, gifting & stationery consumer
products. These capabilities include: Manufacturer of India's first environment friendly Elemental Chlorine
Free (ECF) pulp, paper & paperboard Knowledge of image processing, printing & conversion garnered from
its Packaging & Printing Business. Brand Building & Trade marketing & distribution strengths resident in its
FMCG Business. ITC's Greeting & Gifting products include Expressions range of greeting cards and gifting
products. The gifting portfolio includes autograph books, slam books, party invitations, letter pads, gift-wraps,
popup books & mini books. The business also markets
ITC Pricing Strategy:
The pricing of the ITC food division depends upon the Customers’ demand schedule, the cost function and the
competitors’ price. The pricing of the company is such that it caters to the need of all income groups of people
but special provision has been kept for Low and middle income group, and their pricing are competitive with
respect to other players like Britannia, Parle and Briskfarm. The company follows the Going rate pricing that
is the price of the product depends upon the competitors price. The firm chooses pricing more or less the same
as Market leader.
ITC Promotional Activities
A particular budget is allocated for the promotion of the products, the local promotion scheme is decided by
the Area Sales Manager, it give its suggestion to the District office and that is forwarded to the Head Quarter
in Kolkata. In another promotional scheme for Biscuits a particular number of cases is given freely to the
distributors according to the amount of sale they make, this was adrop down promotion i.e. of the number of
free cases that a particular distributors gets, off them a certain part is reserved for the retailers and customer if
they buy a certain level of biscuit quantity.
Buoyed by a strong distribution network ITC is likely to retain its market share in the cigarettes business; the
ban on advertisements is likely to work in favour of ITC thanks to the recall factor. The company's reliable
distribution network also ensures superior inventory turnover than its peers
Strengths: ITC leveraged it traditional businesses to develop new brands for new segments. For example, ITC
used its experience of transporting and distributing tobacco products to remote and distant parts of India to the
advantage of its FMCG products. ITC master chefs from its hotel chain are often asked to develop new food
concepts for its FMCG business. ITC is a diversified company trading in a number of business sectors
including cigarettes, hotels, paper, agriculture, packaged foods and confectionary, branded apparel, personal
care, greetings cards, Information Technology, safety matches, incense sticks and stationery.
Weaknesses: The Company’s original business was traded in tobacco. ITC stands for Imperial Tobacco
Company of India Limited. It is interesting that a business that is now so involved in branding continues to
use its original name, despite the negative connection of tobacco with poor health and premature death.
To fund its cash guzzling FMCG start-up, the company is still dependent upon its tobacco revenues.
Cigarettes account for 47 per cent of the company's turnover, and that in itself is responsible for 80% of its
profits. So there is an argument that ITC's move into FMCG (Fast Moving Consumer Goods) is being
subsidised by its tobacco operations.
Opportunities: Core brands such as Aashirvaad, Mint-o, Bingo! And Sun Feast (and others) can be
developed using strategies of market development, product development and marketing penetration.
ITC is moving into new and emerging sectors including Information Technology, supporting business
solutions. e-Choupal is a community of practice that links rural Indian farmers using the Internet. This is an
original and well thought of initiative that could be used in other sectors in many other parts of the world. It is
also an ambitious project that has a goal of reaching 10 million farmers in 100,000 villages.
Threats: The obvious threat is from competition, both domestic and international. The laws of economics
dictate that if competitors see that there is a solid profit to be made in an emerging consumer society that
ultimately new products and services will be made available. Western companies will see India as an exciting
opportunity for themselves to find new market segments for their own offerings.
ITC's opportunities are likely to be opportunities for other companies as well. Therefore the dynamic of
competition will alter in the medium-term. Then ITC will need to decide whether being a diversified
conglomerate is the most competitive strategic formation for a secure future.
Recommendations as a Marketing Manager
• The time spent for collecting GRN could be totally avoided by collecting the copy during next supply.
• Loading the goods overnight/ early morning would help to reach D.C. early. Unloading time can be better
utilized by adding an extra Employee at DC point.
• Having a single consistent employee trained to service individual Key Accounts.
• In case of any shortage of stock and if there is urgency of supply; arrangement should be made between two
different Region distributors on bought out basis or on loan basis.
• Proper display of “KOI” gondolas i.e. Display space which would give more visibility in store. It should not
be lost among the bright colors of other products.
• Attractive arrangements, Multiple display points (secondary points) should be done for various categories.
• Involvement of Merchandisers for internal promotional activities in stores. Conducting Quarterly/ Seasonal
promotions for various categories for brand building and customer knowledge at all “Key Accounts”.
Strategies to provide superior service levels
• Eliminating Wholesale Dealer from the channel.
• Hiring Vehicles for delivery for hourly basis.
• Conducting Quarterly/ Seasonal promotions for various categories for brand building and customer
knowledge at all “Key Accounts”
• Being a part of the transportation channel from DC to outlets. “Providing incentives to stores for highest
sales yearly/ half yearly”
It is a given that the consuming class pie in India is growing. While consumer durables and housing have
clearly taken a front seat in the consumption pattern, it is unlikely that the FMCG sector growth will not
mirror the GDP growth trend over the long term. The environment will no doubt, continue to be competitive,
but volume growth may more than make up for it for stronger companies. Though the benefits of this will take
a few years to filter in, in the long run, the overall tax structure for these companies will get simplified thereby
providing a fillip. Also, the government's decision to allow 100% FDI in single product retailing (like Lacoste,
Tommy Hilfiger) is a sign of better things to come in the long term.
For investors, a key thing to note is that with markets at all time highs and interest rates looking to strengthen,
the equity risk profile has increased over the short term. In such a scenario, FMCG is likely to be a good
defensive bet. For one, most FMCG companies are operating at zero debt levels. Their cash flows continue to
be strong and dividend payouts are encouraging. More importantly, expectations of a demand revival are not
factored into most forward projections. ITC with the vast range of products has already made a mark as one of
the biggest player in the industry. ITC is planning to expand its horizon of products by adding various
categories under its umbrella. The company looks set to face the upcoming demand of the market with more
innovative strategies which will surely keep them insight with their competitors.
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