CHAPTER - V

FAST MOVING CONSUMER GOOD INDUSTRY

This Chapter covers:

5.a. Overview of FMCG Industry in India

b. Changing features of FMCG industry during 1 990s

c. Porter s Analysis of different industries such as Ice-cream Industry, Chocolate

Industry', Bakery' Industry'

d. Leading FMCG companies and their changing strategies, such as HLL, Cadbury
India Ltd., Britannia Industries Ltd, Nestle India Ltd., Dabur India Ltd.,

e. Herfindahl index

f. Mergers and Acquisitions

g. Analysis of the impacts on companies due to the changing economic policies

h. Overall impacts on Nestle India Ltd., Britannia industries Ltd.,

i. Conclusion

127

1 (136)
 FAST MOVING CONSUMER GOOD INDUSTRY

5.a. Overview of FMCG Industry in India

Introduction
Fast Moving Consumer Goods (FMCG), also known as Packaged Mass
Consumer Goods (PMCG), include all consumer non-durable goods that are
used daily or frequently and are purchased at least once a month. Such products
include detergents, toilet soaps, toothpaste, shampoos, creams, powders, food
products, confectioneries, beverages and cigarettes. As is evident from the list
provided above, FMCG, when put together, represent major chunk of the
consumer s budget though they are not all that expensive individually.
The main sub-segments of the FMCG industry comprise the following:
Household goods (fabric wash, hair care, household care, oral care and
personal wash).
Agro products (food processing, dairy products, edible oil/fats, sugar and tea).
Branded food and beverages (bakery products, soft drinks, staple food,
chocolates, chips/snack food, culinary products and ice-cream).
Tobacco and related products (including cigarettes).
FMCG may be classified as necessities, comforts as well as luxuries,
and are unutilized by a large section of the population. Price and income
elasticity of demand for FMCG depend on the actual product and its target
segment of consumers. Hence, we have premium, popular and economical
modes of pricing for the high, middle and low-income groups respectively.
Consumer-wise FMCG industry is broadly divided into two categories:
• The premium category catering to the brand conscious urban higher/upper
middle class.
• The popular category that meets the requirements of the price sensitive
masses in urban and rural markets.

The FMCG sector, especially in India, has a very hazy definition. It generally
means clubbing most consumer goods items under one category. It is India’s

128

1 (137)
 second largest industry on the basis of Sales Tax paid and number of people
employed.
Given below is a brief summary about the origins and the progress of the
FMCG industry in India.

THE ICE AGES: Dabur was one of the first players in the Indian fast moving
consumer goods (FMCG) scene. That was about 1 1 5 years ago when the term
FMCG had not yet gained currency. The focus then was on providing
consumer goods on a large scale. Since then the industry has come a long way
what with catchphrases, buzzwords, marketing strategies, advertising all
thrown in for good measure.

THE MIDDLE AGES (the 50’s): At the time of India’s independence there
were many multinationals like Hindustan Lever Limited, Colgate and Nestle.
Out of these companies only Hindustan Lever Limited had a domestic
production base. For other MNCs, the domestic market was too small and the
*

purchasing power of people was too low to entail any serious investment
decisions.

THE SWINGING SIXTIES (60’s): The sixties were not too exciting in the
Indian context particularly the FMCG sector. In spite of the fact that many
more MNC’s set up shop in India with a local manufacturing base the scene
wasn’t to bright. This was due to the fact that the government accorded a
misplaced emphasis on the concept of self-sufficiency and due to the heavy
influence of socialist philosophy the natural inclination of the government was
to frown upon the capitalist multinationals.

THE DARK AGES (70’s): With a socialist government at the helm the
MNC’s did not stand a chance. A statute was promulgated to restrict the equity
stake of foreign investment to 40%. Coke and IBM decided that they had
enough and they left -India-.- The only major FMCG MNC (that’s quite a
mouthful) that stayedÿput was Unilever. It somehow managed to retain a 51%
stake by complying with certain government regulations. There were not too

129

1 (138)
 many players in the FMCG scene, which vyas dominated by a few big players.
Which meant that there was not enough choice for the consumers. With a
socialist government at the helm which still thought that capitalism was dirty
4

word, and a fundamentalist opposition which opposed anything videshi on the

grounds that it was videshi, things never looked more bleak for this segment.
0

LIBERALIZATION (THE 90’s): After the introduction of reforms by the

—
Narasimha Rao Manmohan Singh duo the MNC’s returned. This period was
marked by the creation of new categories and also new sub categories within
existing categories. Demand was created where there was none by innovative
sales and marketing strategies. With a burgeoning middle class that had the
required purchasing power the MNC’s were faced with the enviable prospect of
a growing market that was not yet completely explored. There was a renewed
emphasis on the distribution network.

5.b. SALIENT FEATURES OF THE INDUSTRY

The major features that distinguish this sector from the others are:
Low Capital Intensity
Most product categories in FMCG, require relatively minor investment
in plant and machinery and other fixed assets. The turnover is typically five to
eight times the investment made in a green-field plant at full capacity. This is
also due to the fact that the business being marketing driven.
0

S'

High Initial Launch Cost

There is a large front-ended investment made in new products including
cost of product development, market research, test marketing and most

importantly its launch. Launch costs 'are as high as 50-100% of revenue in the
• • •

first year and these costs progressively reduce as the brand matures, gains
consumer acceptance and turnover rises.
$

130 0

«
r

1 (139)
 Technology
Technology tor most products has been fairly stable. Modifications and
improvements rarely change the basic processes. Nonetheless, major global
players spend enormous sums on R&D due to their ability to spread cost over
%

the wider base of their global operations. Research driven formulations give a
cutting edge.
Marketing Drive
The marketing function however has greater importance in FMCG
companies. The players have to reach out to mass population and compete with
several other brands, which essentially offer similar products. The perceived
differences are greater than the real differences in the product.
Market Research
Consumer’s purchase decisions are based on perceptions about brands.
They also keep on changing with fashion, income and changes in lifestyle.
With increasing competition, companies spend enormous sums on product
launches. Market research and text marketing become inevitable.
Balance Sheets Are Misleading
The most critical asset for FMCG companies is represented by its brands
and distribution network. Brands are bought and sold like any other assets.
Typically, when an FMCG business is sold, the value of the brand is several
times of that of tangible assets.
Third-Party Manufacturing
Manufacturing of products by third party vendors is quite common in
this industry. Third party manufacturing gives fiscal advantages particularly of
*

excise duties as well as

Flexibility in production
Inventory planning
Flexibility in controlling labour costs
It is beneficial (in terms of logistics) and sometimes essential to get certain
«

products manufactured near the market.

Significant Presence of Unorganized Sector

131

1 (140)
 There is a significant presence of unorganized sector in India. Basic
technology for most products is fairly simple and easily available.
Fiscal advantages: In India, small-scale sector enjoys (the concessions
however have been diluted considerably in the past few years) exemption.
Remote rural markets: Due to highly scattered market and poor transport
infrastructure, very few MNC companies/organized players have been able to
reach out to remote rural areas and even small towns.
Low brand awareness enables local players to market their spurious look-alike
brands.
Cost advantage: Lower overheads due to limited geography, family
management, focused product lines and minimal expenditure on marketing.

FMCG business rests on the two pillars of brand equity and distribution
network.

Brand Equity
Brand equity refers to the intangible asset in the form of brand names.
The consumer’s loyalty for a particular brand is due to the perception that the
product
Distinctively superior and consistent quality
Satisfies his/her specific needs
Provides better value for money than other competing brands.

In FMCG products, brand equities are relatively stronger as the consumer is

reluctant to try unknown brands/unbranded products as most of these products
are for personal use. It is often difficult to differentiate a product on technical
or functional grounds and therefore little reason to switch from a known brand.

Distribution Network:
In the FMCG sector, one of the most crucial success factor is the ability
to build, develop and maintain a robust distribution network.
Distribution network refers to the consumer buying points where
products are available (almost always).

132

1 (141)
A new product is typically slow moving.
Lesser consumer demand.

Therefore dealers/retailers are reluctant to allocate resources and time.

Established players use their clout to inhibit new entrants.

Duty and Taxes:

The economic and political liberalization of 1991 had unleashed a new
wave of reforms, which resulted in falling excise duties, easing of licensing
norms, which boosted the growth of the industry. There has been a progressive
reduction in excise duties on major FMCG product categories.
Though the reforms have given a new lease of life to the industry the
excise duties and rates are still higher compared to other countries. This has
affected the bottom lines of many companies amidst fierce competition and
sluggish demand due to low agricultural output.
The high level of taxation on FMCG industry has led to low penetration
of FMCG products and hence low growth, which in turn leads to low base for
Government collection revenue. The FMCG industry is faced with what is
called inverted duty structure for import of raw materials. Currently the import
of raw materials and finished goods.face similar duties. The industry fears that
this could lead to dumping in the Indian market.

5.c.Porter’s analysis of different industries such as ice-cream, chocolate

and Bakery Products
SWOT ANALYSIS
Strength
FMCG goods are consumer non-durables and purchased at least once a month
so repeat purchases are more in this sector.

The consumer doesn’t need to shop around for arriving at a purchase decision.
So the purchases are mostly impulse purchases and don’t need prior planning
before purchasing.
The sector is composed of consumers who fall in premium as well as popular
category are both having high end as well as the low-end customers.
133

1 (142)
This sector requires low capital in terms of working capital and fixed assets.
I

The technology required is not complex or sophisticated.

Weakness
It is low margin and high volume business. So heavy marketing and advertising
required.
Product differentiation is difficult, so differentiation is on the basis of branding,
which makes start up cost necessary.
As high volume is essential in this industry, economies of scale are a must in
terms of marketing, distribution and production.
This industry is driven by the growth in economy, high standard of living and
per capita income. The FMCG sector derives 40 to 50% of its revenue from the
rural areas and so any drop in income due to low agricultural output affects its
revenue stream.
Any change in duty or taxes disturbs the cost price equation as the products are
low margin products and any increase in price de grows the demand, as the
consumers are price sensitive.

Opportunity
The growth in rural market is significantly higher than the urban market.
The growing electronic channels help in the promotional campaign and aid in
marketing and advertising.
Emerging markets of the world.

Threats
The abolition of QR will lead to increased competition for the domestic pilayers
from the MNCs.
Any fall in disposable income due to low agriculture output or any natural
calamity affects the demand in the rural sector.
Any new technology adopted by the competitor who reduces cost of production
or distribution is major threat to the other players.
134

1 (143)
Fake products from the dubious producers.

5.d. Leading FMCG companies and their changing strategies, such as HLL,
Cad bin’)’ India Ltd., Britannia Industries Ltd, Nestle India Ltd., Dabur India
Ltd.

Products Researched
Ice creams
Chocolates
Bakery products

Company’s Researched
Britannia Industries Limited
Cadbury India Limited
Dabur India Limited
Hindustan Lever Limited
Nestle India Limited

Ice cream Industry

History
Originally, Englishmen brought ice cream to India. They had built an
icehouse in Madras to store ice, which was specially brought from Europe. But
this was long ago. In the western region of India, ice creams were available
from around early 1920s. Since then the ice cream industry has come a long
way from hand-cranked machine to attractively packaged ice cream in a variety
of flavours, shapes and sizes. Vadilal was started in around 1927; Kwality was
started around early 1 940s. 1 970s Arun and Joy sought an entry in the Southern
India, while Nirulla’s and Gaylord in the North India. The 90s saw the entry of
Cadbury’s Dollops, 100% Milk food and Baskin Robbins. The event, which
changed the face of the Indian ice cream industry, was the entry of HLL,
erstwhile BBLIL now merged with HLL, through acquisition of market leader.
Kwality and through introduction of $3 billion worldwide brand Walls to make

135

1 (144)
new combined brand Kwality-Walls. In this jungle Amul entered with its
I

primary launch in Gujarat on 10 March 1996.

Highlights
Pre Liberalization
In 1990’s liberalization swept by many industries, the ice-cream
#

industry however remained untouched due to its reservation for small-scale

sectors.

Pre 1997
The leading players were unable to invest adequately to develop an
infrastructure of cold chain for storage and distribution. Erratic supply and
shortage of power in most parts of the country have been the major factors
limiting growth of a cold chain ice-cream market growth during the late ‘80s
and in the early ‘90s was very low at around 2-3% pa.
\

Post 1997
At the beginning of first phase of liberalization, Hindustan Lever (HLL)
entered the market through frozen dessert route. Frozen desserts (which use
edible oil fat instead of milk fat) were technically not reserved for small scale.
Amul ice cream, manufactured by the largest milk-producing co-operative was
introduced in Mumbai market in 1996, intensifying the competition.
The market has started picking up especially after de-reservation of the sector
in 1997. %

For last 1-2 years the ice cream market in India is growing at 15-20% per

annum and presently in 1999-00 it is estimated at worth of Rs. 14-16 bn.

This growth rate is expected to continue for another next 2-J years because of
lower base.
Of the total size of Rs. 15-1 8 bn, around 30-32% is in the hands of organized

sector valued at Rs. 4.9 bn, rest all is with the unorganized sector.
0

Excise on ice cream was increased from 13% to 16% in the FY2000 budget.

136

1 (145)
Forms
Cone
Cups
Part>' Pack
Bar (Candy)

Candy sticks account for about 25-30% of volumes, whereas cups and other
novelties contribute the rest.

Product Life Cycle

Industry Status in the Industry
Characteristic
Demand Market penetration expected to increase, buyers need to be
educated hence, induce change in consumption habits. _—
Technology
_
Important, because consumers demand more trendier product
variety seeking and entry of global brands.
1

Products

Manufacturing
differentiation amongst brands. _
Available in wide variety of flavors and there is clear

Reasonable production runs, i.e. neither short nor long.

_
and Distribution Distribution is highly important, so needs to be developed
further. Capacity shortages absent.
Growth 33% + (value wise) 8-10% (volume wise), per capita
consumption 100ml much lesser than the neighboring
countries. Hence large potential market available for growth.
Competition About 150 players in the organized sector and over 2000
players in the unorganized sector. Few national brands that of
HLL, Amul and Vadilal hence severe competition.

Major Players
The Indian ice cream market is dominated by a large number of small
local manufacturers and regional players. Major national players are:
Brands

Hindustan Lever Kwality Walls, Dairy Classic, Max Cornetto

Magnum

Vadilal International Vadilal, Dairy Fresh

GCMMF/Other Amul, Mother Dairy

Cooperatives

Maharashtra Dairy Products Baskin Robbins

137

1 (146)
Market Shares

Hindustan Lever: 50%, represented mainly by Kwality Walls brand. It has

introduced the Max range of ice creams targeted at children.
Amul is the second largest player at the national level, with an estimated
market share of 35% and is rapidly gaining market share.
Vadilal is another player in the national market with 8-9% of the market share
but that too is shrinking.

Segmentation
On the basis of flavors:

On the basis of flavors the market today has a number of flavors like
vanilla, strawberry, chocolate, mango, butterscotch a number of fruit flavors,
dry fruit flavors traditional flavors like Kesar-Pista, Kaju-Draksh etc. The
market is totally dominated by Vanilla, Strawberry and chocolate, which
combined account for more than 70% of the market followed by butterscotch
and other fruit flavors.
On the basis of stock keeping units/packaging the market can be divided into 4
segments:
1 . Cones
2. Cups
3. Sticks or candies
4. Take-aways
On the basis of the consumer segments the market can be divided into four
segments:
1 . Impulse segment (Pull cart)
2. Retail (Home take-aways)
3. Institutional/catering
4. Parlors
a ""
—
catering accounts for around
While institutional or 1 5%, retail and impulse
combined take the major chunk with 70% of the market.

138

1 (147)
Distribution

Vadilal
Consumer

HLL
Super Stockiest
k Distributor Retailers
C&F A A
Amul Bulk buyer

Others

Generally this is the way in which the three major players, HLL, Vadilal
and Amul distribute ice cream.
Typical Promotional Activity
Advertising
Free Plastic Box
p

Recipe Books
Schemes for distributors
Annual Distributor Meet

Consumer Awareness and Penetration

Low income, high prices, non-availability of good quality products, poor
distribution infrastructure and low investment in marketing have all resulted in
one of the lower per capita consumption of ice cream in India at 106ml per
annum. Per capita consumption of ice cream in other countries is as follows:
Ice cream penetration at all India level is estimated to be 14%. The
penetration is understandably higher in large metros at 29% compared to 24-
25% in small/medium towns. The same in rural areas is low at 9.5%. In rural
areas, Kulfis /ice creams made by small/cottage industry are popular.
The market for organized sector is restricted to large metropolitan cities.
In small towns and villages, there are thousands of small players who produce
ice-cream s/kulfis in their home backyard and cater to the local market.
«

Consumption .of ice creams in different regions of India is as follows:

v* North 30%
139

1 (148)
 East 1 0%
West 40%
South 20%

Consumer Habits and Practices

Ice creams are primarily impulse purchase products and they are not a frequent
consumption habit. It remains once in awhile indulgence.
For impulse purchase budget, ice cream competes with other impulse products
such as soft drinks, chocolates, confectionary etc. Therefore higher share of
voice of soft drink has an adverse impact on ice cream demand.
While most consumers have liking for one or two flavors, they frequently try
out new flavors. Vanilla, strawberry and chocolate together account for 70% of
volumes.
There is a significant seasonality in ice cream consumption in India.
Consumption of branded ice creams is restricted to metropolitan cities and
other towns.

Competition
Stiff competition has started between the two leading players HLL and
GCMMF. With GCMMF starting the price war by giving heavy discounts on
its cones and also by launching lower price segments products. HLL too has
launched a range of ice creams for low price segment and has clearly
segmented the market on the basis of the age.
While GCMMF with its advantage in milk procurement and competitive
pricing is strengthening its position in the market by tying up with cooperatives
by expanding its network, HLL has advantage of vast portfolio of brands from
its parent. Moreover FILL too is experimenting with new innovative concepts
for increasing the reach of its ice creams.

CHOCOLATE INDUSTRY
History

140

1 (149)
 In the late 80’s, when the market started stagnating, Cadbury
repositioned its Dairy Milk to any time product rather than an occasional
luxury. Its advertisement focused on adults rather than children. Cadbury s
Five Star, the first count chocolate, was launched in 1968. Due to its resistance
to temperature, the chocolate has become one of the most widely distributed
chocolate in the country. Other competing brands such as GCMMF’s Badam
bar and Nestle’s Bar One have minor market shares.
In the early 90’s, high cocoa prices compelled manufacturers to raise
product prices and reduce their advertisement budget affecting the volumes
significantly. The launch of wafer chocolates Kit Kat and Perk spurred volume
growth in the mid 90’s. These chocolates positioned as snack food rather than
on the indulgence platform compete with biscuits and wafers.

Products and Segmentation

Chocolate products are:
Large units bars/slabs
Count lines
Panned varieties
Small value added units 0
t m

Confectionery products are:

Hard boiled sugar candies, lollipops, jellies
Toffees
Chewing candies
»

Gum based products are:

Chewing gum
Bubble gum

Consumer Habits and Piactices

as indulgence and not as snack food, as prevalent in
Chocolates are consumed
western countries.
Almost 75% chocolates and 90% confectionery are impulse purchase.

141

1 (150)
Molded Chocolates
Dairy Milk
Truffle
Amul Milk Chocolate
Nestle Premium
Nestle Milky Bar

Count lines
5 Star
Perk
Kitkat
Picnic
Canned products
Cadburys’ Gems
Nutties
Nestle’s Marbles
Eclairs
(Droplets of hard caramels with soft chocolate fillings)
Cadbury Eclairs
$ m

Parle Melody
Nutrine’s Eclairs

Major Players
Cadbury is the market leader in all categories with over 65% market
share. Its main competitor is Nestle India. Nestle has identified chocolate and
confectionery as one of the thrust areas for growth. It has launched some of its
international brands like Quality Street, After Eight, Lions in India. In 1998,
Cadbury launched a new count bar Picnic. Nestle immediately followed it with
the launch of Charge. Gujarat Co-operative Milk Marketing Federation
(GCMMF) and Central Arecanut and Cocoa Manufacturers and Processors Co¬
operative (CAMPCO) .are other two significant players. Both are local
manufacturers.

143

1 (151)
 »

Distribution, in the case of chocolates, is a major deterrent to new

entrants as the product has to be kept cool in summer and also has to be
adapted to suit local tropical conditions. With removal of Quantitative
Restrictions all the major international chocolate brands especially Swiss
brands would become freely available in the market.
r

Market Share
Moulded segment Count segment Eclairs
Cadbury 70% Cadbury 76% Cadbury 49%
Nestle 23% Nestle 20% Nutrine 37%
GCMMF 5% Campco 3% Nestle 12%
Others 2% Others 1% Parry’s 1%
Others 1%

BAKERY INDUSTRY
Industry Structure
In 1977-78, the Government reserved the bread and biscuit
manufacturing for small scale and restricted entry of large producers. During
the last two decades, small and unorganized players shared the growth in the
I .*

£ * m 1 t , v : r*
£ 5 •
*
’

*
v ;

industry. . Currently, there are an estimated two million bakeries across the
country engaged in production and bread, biscuits and other products. This
sector has not been able to maintain quality and hygiene standards, for want of
capital and technology.
*

Major Players and Market Shares

Bread
Major Players
Modern Food Industries
Britannia
They are the two major players accounting for 10% and 5% of total
respectively. In the organized segment, these two players account
bread market
for 80% of the market.
144

1 (152)
 During the last decade, Britannia consistently lost market share in bread as
its major competitor Modern Foods had an unfair advantage of getting wheat
(key raw material) at subsidized rate from the Government.

Biscuits
Major players and their Market Share
Plain Biscuits
Britannia 15%
Parle 10%
Cream Biscuits
Bakeman 10%
Smithkline- 8%
Kwality 3-4%
Glucose Biscuits
The glucose segment accounts for 35 per cent of the overall biscuit
\
market.
Parle 55%
Britannia 20-25%
Salty Biscuits
Parle’s Monaco
Britannia’s Snax
Sweet-Salty Biscuits
Parle’s Krackjack
Britannia’s 50-50
Consumption of biscuits
West and North India: Glucose Biscuits
South and East India: Milk biscuits
Grocery shops, general stores and other retail outlets sell biscuits and bread
predominantly. However, relative share of impulse purchase in this category is
not very significant.

145

1 (153)
In relative terms, penetration of biscuit is higher in rural markets as compared
to bread. Rural market with 75% of population, accounts for 40% of bread
consumption and about 50% of biscuit consumption.

Consumer Awareness and Penetration

Bread and biscuits have been in the Indian market for a long time. The
awareness is very high, close to 100% in urban areas and around 90% in rural
areas. Penetration of bread is estimated to be close to 60% in urban areas and
around 1 5% in rural areas. Biscuit penetration is about 60% in urban areas and
20% in rural areas. Penetration of Cake and other products is insignificant and
restricted only to large cities/metros.

Consumer Habits and Practices

Primarily low cost bread (known as pav) is manufactured by unorganized
sector.
A sizable volume of biscuits is consumed at small roadside teashops/stalls
across the country. A bulk of their requirement is met by unorganized sector
and typical consumers are truck drivers/travelers.
Brand loyalties are relatively stronger in the popular segment whereas in the
premium segment, consumers look for novelty and change.
Consumption of cakes/pastries is mostly restricted to special occasions like
Birthdays, parties, weddings, etc.

Market Size and Growth

Over 80% of bread is manufactured by the unorganized sector. In terms
of value, bread market is estimated at Rs.l6bn (MRP Rs.21 bn) whereas biscuit
market is valued at Rs.40bn (MRP Rs.60bn).
Bread market is estimated to be growing at around 7% pa in volume
terms, whereas the biscuit market in the recent years has witnessed a little
higher growth at around 8-10% pa. Within the biscuit category, cream and
specialty biscuits are growing at faster pace at 20% pa, while the popular

146

1 (154)
 \

6-7% pa. The Glucose segment recorded higher growth

segment is growing at
in 1998, driven by strong growth in Britannia’s 1 iger brand.
Entry of Global Players I

In the past, several major MNCs like Cadbury, Brooke Bond and Nestle
f

tried to enter into the biscuit segment but were not successful. These players
0

found it difficult to compete with the unorganized players in the lower/populai

segment of the market. In the upper end of the market, market size is small and
there are established players with strong brand equities and a well-entrenched
distribution network. Ultimately, they pulled out of the product category.

Multi National Corporations who ventured into Indian Market

Nestle SA: Nestle is the largest producer of biscuits in the world.
Osem International of Israel had set up a joint venture with Dabur for the

manufacture of bakery of bakery products.

United Biscuits the second largest biscuit manufacturer in the world, is
\

launching its popular McVitie’s Digestive brand in India.

Kellogg’s has also entered the segment with the launch of its digestive

Breakfast Cereal Biscuits.

Sara Lee, another leading global player has acquired the biscuit business of

Nutrine, a south based confectionery firm.

HINDUSTAN LEVER LIMITED

Introduction #

Hindustan Lever, a 51.6% subsidiary of Unilever Pic. Is the Numero

Uno in the FMCG market in India. The company’s business sprawls from

Personal and Home Care to foods and beverages to industrial and agricultural

products.
It has a dominating presence in all key FMCG categories like toilet
soaps detergents, skin/hair care and personal products. And is the leading

player in food products such as branded tea, coffee, ice cream and other
0
*

culinary products.
9

0
147 9

1 (155)
 I

s
«

Fast moving consumer goods (FMCG) business is characterized by two pillars:

Strong brand equity
i

Wide distribution network.

Brand equities are built over a period of time by technological innovations,
consistent high quality, aggressive advertisement and marketing. Availability
near the consumer through a wide distribution network is another crucial
t

success factor, as products are of small value, frequently purchased, daily use
items.
HLL is strong on both these fronts, its association with its parent helps in
launching new products through technological innovations.
Liberalization, de-reservation from small scale, progressive reduction in
excise duty rates, onslaught of cable television etc. have led to strong demand
0

growth in all the segments during the last few years.

Detergents
HLL is the market leader in the detergent and soap industry. Nirma is
the only significant competitor, P&G, despite being the global leader in this
t

segment, has been unable to achieve a critical mass in India.

Oral Care Segment
HLL has emerged as a strong number two player, giving stiff
competition to the market leader Colgate.
Skin Care Market
HLL has strengthened its position with the acquisition of Ponds’ and
Lakme brands. It has also been launching international cosmetics and perfumes
in the domestic market.
Food Products
Tata Tea is packed tea, Nestle in coffee and culinary products, GCMMF
in ice creams, are the main competitors in the foods business.

148
m

4
<

1 (156)
 HLL continues to strengthen its dominating position in all FMCG

product segments. It has undertaken a massiveive distribution expansion drive

through increasing awareness and penetration ot its products.

Background
Three Unilever companies were merged in 1956 to form HLL. These

companies were Hindustan Vanaspati Manufacturing Company edible oil

(1931), Lever Brothers India Limited Soaps (1933) and United Traders-
personal products (1935).
About 10% of the equity was offered to the public by way of an IPO in
1956. To comply with FERA, Unilever’s stake was further diluted to 51% in
the late 70’s. To retain 51% foreign holding, HLL complied with stringent
export and other stipulations imposed by the government, and diversified into
businesses such as chemicals, fertilizers and exports.
Over the last five years, FILL has expanded its operations by the merger
and takeover route. It acquired TOMCO an ailing Tata group company
(1993), merged Unilever group companies Brooke Bond Limited (1996) and
Ponds India (1998), and has acquired cosmetic business of another Tata Group
Company Lakme (1998).
While strong growth in personal products divisions has driven HLL’s
profitability' in the last few years, the company is now focusing on building up
a strong foods division, which will be its future growth driver. The company
has been making significant investments in its food businesses such as ice

creams (Kwality, Max), staple food (Annapurna), bakery, products (the t

Modern Foods acquisition). The contribution of the foods business to total

which is currently about 25% will gradually increase. The
turnover,

manauement has identified 9 growth engines for future (Rural markets, Internet
opportunities and foods business being some of them, which will enable the
company to maintain its leading position in the new competitive scenario. The
company is looking at aggressively leveraging on telecommunications, -
information technolog)', and internet as areas that will enable reduction of costs
in supply chain and distribution management.

149

1 (157)
Product Portfolio
PERSONAL CARE
Toilet Soaps
Dove
Savlon
Moti
Lux
Hamam
Hair Care
Sunsilk
Clinic
Organic
Nihar
Oral Care
Pepsodent
Close-up
HOUSEHOLD CARE
Surf
Rin
Wheel
Ala
Vim
COFFEE
Brookebond
Bru
DAIRY PRODUCTS
Kwality Walls
Feast
Funjoos
FRUIT PRODUCTS
Kissan FruitKick
OIL
150

1 (158)
Dalda
Flora
Gold Seal
Future Plans
The company has identified three thrust areas for its future growth,
namely:
Securing the future of non-FMCG product categories
Increasing profitability of food product categories
Profitable growth of FMCG product categories
For the core FMCG product categories the company has identified four
thrust areas in order to develop their respective markets. The company has also
re-oriented itself in order to grow these categories by redefining the markets.
The thrust areas identified by the company are:
Rationalization of brand portfolio
The company presently has a brand portfolio of 110 of these the
company has decided to focus its energies on core 30 brands, which
collectively contribute more than 70% of the total FMCG sales of the company.
Exploitation of additional new channels
The company is planning to focus on building out of home business by
creating new point of consumption as for ice creams through parlors etc. The
company has set up separate dedicated sales team/group for carrying out
institutional sales. Besides these initiatives the company is working on the
traditional wholesalers route in order to increase its penetration deep in the
rural areas.
Driving down costs
The company has decided to focus on reducing the costs across the
extended supply chain. For this the company is in process of extensive usage of
connectivity of various stakeholders in the supply chain. The company is also
driving down its costs through reduction in corporate center cost and pulling
down fixed cost of business.

CADBURY INDIA LIMITED

151

1 (159)
Introduction
Cadbury Schweppes is one of the leading global companies in beverages
and confectionery businesses. It has operations in over 190 countries. Cadbury
is a subsidiary of Cadbury Schweppes. It has established itself as the

dominating player in the Indian chocolate market with strong brands like Dairy
Milk, Five Star, Perk, etc. It has also been expanding its confectionery product
portfolio. Bournvita brand in the malted health drink category is the strongest
selling brand. Cadbury’s Bournvita is the leader in the brown drink (cocoa
based) segment.
Cadbury enjoys the chocolate market share of about 70%. Key
competition in the chocolate segment is from co-operative owned Amul and
Campco, besides a host of unorganized sector players. The mid 90’s saw the
entry of new players like Nestle, which created categories like wafer chocolate
and spurred growth.
Background
Cadbury was originally incorporated as a wholly owned subsidiary of
Cadbury Schweppes Overseas Ltd. (CSOL) in 1948. The company’s original
name was Cadbury Fry (India) Ltd. Over the years, the company attempted
several diversifications in food category. Cadbury dominates the Indian
chocolate market with about 70% market share. Besides, it has a 5% market
share in the organized sugar confectionery market and 16% market share in
milk/malted foods segment.
For more than five decades now, Cadbury has enjoyed leadership
position in the Indian chocolate market to the extent that ‘Cadbury” has
become a generic name for chocolate products. The fact that Cadbury cultivates
its own cocoa beans, gives the company an edge over others, as imported cocoa
beans are not only expensive but have a different taste.
Cadbury’s Bournvita is the leading brand in the brown drinks segment
of milk/malted food products with around 35% volume share among brown
beverages. Overall volume share in the malted food drinks market is estimated
at 12%. In 1999, Cadbury re-launched Bournvita with a new formulation and
advertising campaign positioning Bournvita on the health benefit platform to
152

1 (160)
compete with white drinks. As a result
Bournvita volumes recorded a strong
growth.

Product Portfolio
Chocolates
Bars
Dairy Milk
Truffle
Count Lines
5 Star
Picnic
Milk Treat
Panned Confectionary
Gems
Wafer Chocolates
Perk
Eclairs
Cadbury’s Eclair
Toffees
English Toffee
Byte
Malted Beverages
Bournvita
Drinking Chocolate
Cocoa powder
Modernization and expansion
Cadbury has made considerable investment in modernization and
expansion of its plants. Besides increasing capacity, it has added new product
lines where its new products. A new production line for manufacture of value
added sugar confectionery products was started in 1 999.
Distribution
153

1 (161)
 Cadbury s distribution network consists of 27 depots, 1,900 distributors/
stockiest and over 300,000 retailers who are directly serviced by the company.

SWOT Analysis
Strength
70 /o of the market share is being enjoyed by the company.
Bournvita is the leading brand and strength of company.
Inci easing production capacity because of expansion.
Continuous growth of sales.
Skillful management.
Distribution network of 27 depots, 1900 distributors and 300,00 stockist.
Modernized manufacturing plants.
Greater penetration for its chocolate products in the urban area.
Weakness
Low per capita consumption of chocolates in India.
Failure of foraying into biscuits with Cadbury butter, Glucose and Bournvita.
Failure of diversification into ice-cream brands.
Opportunities
The market share of the chocolates as a whole is very low which can be
increased through converting chocolates as a snack product.
Un-taped markets.
Increased production capacity is also an opportunity for more production and
higher sales.
Higher media reach like TV, particularly in the rural sector, that has enhanced
aspirations and life styles and hence opportunities for higher penetration.
Threats
Increasing competition from MNCs.
Threat of new global entrants
High competition from developing unorganized sectors.
Eradication of excise duties on fruits and vegetables and so threat of new
emerging entrants.
154

1 (162)
High sales tax p to 4-20% on branded sales while
no duty on unbranded
products and hence heavy competition from unorganized
sector.

BRITANNIA INDUSTRIES LIMITED

Introduction
BRIL is the market leader in the biscuit and bakery products segment in
i
the organized market. Biscuits contribute to more than 80% of Britannia’s total
turnover. Other products include bread and cakes. The company has also
established a significant presence in the dairy business in the last two years
with launch of a wide range of milk products such as butter, dairy whitener,
cheese, flavoured milk and ghee.
BRIL has consolidated its position in the dairy business as well as
strengthened its leadership in the core bakery business. Margins have been
improving despite the fast pace of new product launches in the last two years.
As sales stabilize, operating margin will witness a further improvement.
Rationalization of manufacturing operations, and greater contribution of higher
margin dairy products has also yielded margin gains.
In the bread business, the company is likely to face increasing
competition post HLL’s acquisition of Modern Foods, the second best national
player in the country. The company has decided to strengthen its bread
business in the southern states and has been scouting for acquisition and
manufacturing tie up opportunities in the region. However value growth was
lower as the company rationalized its product range.
Background
BRIL was incorporated in 1918 as Britannia Biscuits Co Ltd. in
Calcutta. During the ‘50s and ‘60s, Britannia expanded operations to Mumbai,
Delhi and Chennai. In 1924, Pea Frean UK acquired a controlling stake, which
later passed on to the Associated Biscuits International (ABI) a UK based
company. Exports of seafoods started in the ‘70s. In 1987, Nabisco, a well-
known European food company, acquired ABI.

155

1 (163)
 In 1989, J M Pillai, Singapore based NRI businessman along with
BSN group acquired Asian operations of Nabiscothus acquiring controlling
stake in BRIL. Later, BSN group and Nusli Wadia took over Pillai ’s holdings.
In 1977, the Government reserved the industry for small-scale sector,
which constrained Britannia’s growth. In April 1997, the Government de-
reserved the biscuit sector from small scale and BRIL has expanded captive
manufacturing facilities and has been modernizing and upgrading its facilities.
Business
The biscuit market in India is estimated to be valued at Rs.30bn. 1 he
unorganized sector accounts for about 60% of the market. In the organized
sector, BRIL and Parle are the major players. Other players in the organized
sector include domestic players like Bakeman’s, Champion and Priya and
MNC’s like SmithKline Consumer, Kelloggs, Sara Lee, Heinz and United
Biscuits. Britannia has been more aggressive in new launches in the last I -2
years. The expected entry of consumer giant HLL in the bakery business could
also be a reason for the company’s aggressive stance.
Bread is one of the most widely consumed processed foods in the
country. The market has historically grown at 6-8% pa. The industry is
dominated by a large number of players in the unorganized sector, which
accounts for more than 50% of the market. Britannia Industries and Modern
Foods (now owned by HLL) are the only two players with a national presence
in packet slice bread segment. There are several other regional players who
have significant market shares in their respective local areas. Britannia’s
derives revenues out of 4 key product divisions namely, Biscuits, Bread, Cake

and Rusk, and Dairy product.

Biscuit: Britannia has a 44% market share in the organized biscuit market.
Over the years, Britannia has introduced and developed a full line of brands in

all segments of the biscuit market. Biscuits contributed to 83.6% of total

revenues in FY00. The company sold of biscuits worth Rs.10 bn during the
—
year. Biscuit volumes grew by 15% .yoy while sales in value terms increased by
13.5%.

156

1 (164)
Product Portfolio
Biscuits
Tiger
Fifty-Fifty
Marie
Bourbon
Snax
Pure Magic
Good Day
Bread
Britannia Bread
Dairy Products
Flavored Milk
Zip Sip
Chocolate Milk
Strawberry Milk
Cheese
Cheese Singles
Cheese Cubes
Cheese Spread
Butter
Britannia Butter
Cake
Britannia 2 in 1 cakes
NESTLE INDIA LIMITED
Introduction
Nestle, has a broad based presence in the goods sector. The processed foods
sector, which currently accounts for less than 1-2% ol total food consumption, is
slated to grow at a fast pace. Historically, the policy framework favoured small and
un-organized players while the MNC players were restricted from adding capacities.
This led to the mushrooming of a vast un-organized sector. Large players with strong

157

1 (165)
marketing network and brand equity, were forced to source a large part of their
requirements from third party producers.
»

Background
Nestle was promoted by Nestle Alimentana, Switzerland, a wholly
owned subsidiary of Nestle Holdings Ltd., Nassau, Bahama Islands. Nestle is
one of the oldest food MNC operating in India, with a presence of over a
century. For a long time, Nestle India’s operations were restricted to importing
and trading of condensed milk and infant food. Nestle was incorporated as a
limited company in 1 959. In 1 978, the Company issued 0.4mm new shares and
0.38m of existing shares of Nestle Holdings Ltd. to Indian public to reduce its
foreign holdings to 40%. Its name was changed from Foods Specialties Ltd. to
the current name in 1981. Over the years, the company expanded its product
range with new products in instant coffee, Maggie noodles, sauces, pickles and
other culinary aids, chocolates and confectionery.
Current Scenario
During the last two years, however, several food products have been de-
reserved from small-scale sector. Many MNC as well as domestic players have
made aggressive investments in the sector. Also quantitative restrictions on
several food products have been lifted/will be lifted in the next one year. This
will lead to growth spurred by greater availability of imported products.
Competition
Nestle faces a lot of competition for various products.
HLL is a major competitor for Instant coffee.
Heinz for Baby Food.
Indo Nissin Foods and International Best foods for semi-processed foods.
Cadbury’s for chocolates.
Product Portfolio
Beverages
Coffee
Nescafe
Sunrise Premium
Sunrise Extra
158

1 (166)
Tea
Tasters Choice
Malted/Milk Beverages
Milo
Nestle Growing Up Milk.
Nestle Cereal Milk Drink

Baby Cereal
Cerelac
Nestum
Instant Milk Powder
Lactogen
Nestogen
Dairy Whiteners
Every Day
Tea Mate
Chocolates and Confectionery
Kitkat
Milky Bar
Nestle Crunch -
Nestle Bar-One
Munch
Sugar Confectionery Portfolio
Polo
Allen’s Soothers
Milky bar Eclairs
Food products
Maggie noodles
Maggie Cup-O-Soup

159

1 (167)
 I

DABUR INDIA LIMITED

Background
Set up in 1884 by Dr S K Burman as a proprietary firm for the
manufacture of ayurvedic drugs, the Company was incorporated later by his
descendants in the name of Dabur (Dr S K Burman) Pvt. Ltd. In the late ‘70s,
Dabur Pvt. Ltd,, promoted a company to manufacture high-grade guargum and
a plant was set up at Alwar, But poor performance resulted in losses and with a
view to rehabilitating the company,
Dabur Pvt. Ltd. was reverse merged with it
and the new company was named Dabur India Ltd. Dabur manufactures over
450 products, mainly ayurvedic, covering a wide range of health and personal
care and has manufacturing plants located at 6 different places in the country.
Dabur went public in November 1 993, raising Rs. 541 ,5m (at Rs. 95/share) and
the issue was oversubscribed 21 times. Dabur Research Foundation, a group
company, handles research, product development/improvement for increasing
consumer satisfaction.
Introduction
Dabur India is into business of manufacturing and selling of ayurvedic
medicines, ayurvedic, natural and herbal personal and health products and
processed foods either directly or indirectly through its subsidiaries. The
company is among top FMCG companies in the country. It its presence in
Indian market for past 1 15 years. Most of its ayurvedic/OTC brands are the
market leaders in their respective segments. Dabur has developed considerable
*

expertise in these traditional areas and has well understood the consumer
preferences for the traditional ayurvedic remedial measures.
«

Business
Ayurvedic products, based on natural elements/herbal extracts,
originated in India have become popular in the OTC segment, wherein
significant advertising and promotional expenses have to be incurred in order
to increase consumer awareness.
But, in the absence of price controls margins are attractive once a brand
is established. Most large ayurvedic players such as Dabur, Zandu, Baidyanath
etc. leverage on brand equity, new product launches and established
• •

160

1 (168)
 I

DABUR INDIA LIMITED

Background
Set up in 1884 by Dr S K Burman as a proprietary firm for the
manufacture of ayurvedic drugs, the Company was incorporated later by his
descendants in the name of Dabur (Dr S K Burman) Pvt. Ltd. In the late ‘70s,
Dabur Pvt. Ltd,, promoted a company to manufacture high-grade guargum and
a plant was set up at Alwar. But poor performance resulted in losses and with a
view to rehabilitating the
company, Dabur Pvt. Ltd. was reverse merged with it
and the new company was named Dabur India Ltd. Dabur manufactures over
450 products, mainly ayurvedic, covering a wide range of health and personal
care and has manufacturing plants located at 6 different places in the country.
Dabur went public in November 1 993, raising Rs. 541 .5m (at Rs. 95/share) and
the issue was oversubscribed 21 times. Dabur Research Foundation, a group
company, handles research, product development/improvement for increasing
consumer satisfaction.
Introduction
Dabur India is into business of manufacturing and selling of ayurvedic
medicines, ayurvedic, natural and herbal personal and health products and
processed foods either directly or indirectly through its subsidiaries. The
company is among top FMCG companies in the country. It its presence in
Indian market for past 1 15 years. Most of its ayurvedic/OTC brands are the
market leaders in their respective segments. Dabur has developed considerable
expertise in these traditional areas and has well understood the consumer
preferences for the traditional ayurvedic remedial measures.
Business
Ayurvedic products, based on natural elements/herbal extracts,
originated in India have become popular in the OTC segment, wherein
significant advertising and promotional expenses have to be incurred in order
ft

to increase consumer awareness.

But, in the absence of price controls margins are attractive once a brand
is established. Most large ayurvedic players such as Dabur, Zandu, Baidyanath
etc. leverage on brand equity, new product launches and established
160

1 (169)
distribution network to drive sales. Exports are also limited to mainly OTC
products promoted as tonics/for supplements etc.
»

Strong brands of the company

Chyawanprash
PudinHara
Hajmola
Dabur Amla
Dabur Vatika
Lai Dant Manjan

Family Products Division

Hair Care Products
Dabur Amla Hair Oil
Dabur Special Hair Oil
Vatika Hair Oil
Vatika Shampoo
Oral Care Products
Dabur Lai Dant Manjan
Binaca Oral Care
Skin Care Products
Samara skin care products
Dabur Gulbari
Honey
Dabur Honey
Health Care Division
Ayurvedic health tonics
Chayawanprash
Health Tablets
Pudin Hara
Hajmola
Hingoli
Health Oils

161

1 (170)
Dabur La Tail

Ayurvedic Specialities Division

This division has a range of ayurvedic products in its portfolio. The
portfolio has more than 300 medicines in it. The division is expected to attain
sales turnover of Rs. 1 bn within few years. The division is pushing its
products through OTC route and through ayurvedic practitioners.

Pharmaceutical Division
This division is into business of manufacturing and selling branded
formulations for specific diseases. The company’s Oncology section is into
manufacturing and selling ayurvedic based drugs fo r cancer.
Exports Division
The company exports to Europe, Argentina, Mexico, Brazil, Japan, and
Taiwan. It has already got marketing approvals in market of Russia, Thailand,
Philippines, Bangladesh, Sri Lanka, Brazil, Kenya, Ghana, Barbados and
Mongolia.
The exports done by the company are focused on three type of products
namely, Herbals, bulk drugs and anti-cancer formulations. The company
exports its herbals to African countries. It also exports its products like Amla
Hair Oil to market of US, Europe and Canada. It also exports its
Chayawanprash to markets of Russia. During FY00 the company started
exports of Real Fruit Juice to US. In bulk drugs the company exports drugs
like Paclitaxel, Decotaxel, Terfenadine and Ambroxol Hydrochloride. The
bulk drug exports grew by 35% you during the year.
The company is in process of establishing it self as a global player in
generic anti-cancer formulations. During FY 2000 the company started setting
up a manufacturing unit for anticancer injectibles in UK.
Distribution Network
The company under its restructuring exercise has started focusing on
distribution formulations. The company has also implemented ERP system to

162

1 (171)
cover all its activities. The company also started its interactive website during
the year. It has plans of going for B to B and B to C transactions.
9

Restructuring
The company started restructuring its business to meet the growing
• •
competition two years back. Under recommendations from the McKinsey
report the company has started focusing on its core competencies. It has
discontinued its low margin businesses like merchant exports, generic drugs
and heibal intermediates. The company has also exited from two JVs namely
confectionery JV with General DE Cafeteria India Limited and biscuits JV,
Excelsia Foods Limited. The company has also hived off its foods business
into a separate subsidiary, Dabur Foods Limited.

5.e.H ERFINDAHL INDEX

Herfindahl index is used to measure the overall industry concentration.
The index is computed by summing up the squared market share of all the
market firms under consideration in the industry. It takes into account the size
of the distribution of the firms. These are the Herfindahl index of the products
selected.
ICECREAMS

Company / year 1995-96 1996-97 1997-98 1998-99 1999-2000

HLL 0.50 0.51 0.46 0.44 0.43
GCMMF 0.25 0.26 0.23 0.22 0.20
ARUN and JOY 0.12 0.13 0.13 0.14 0.16
Maharastra’s Dairy 0.08 0.09 0. 12 0.12 0.13
HERFINDAHL INDEX 0.3333 0.3527 0.2958 0.2760 0.2674

CHOCOLATES
Company / year

_ 1995-96 1996-97 1997-98 1998-99 1999-2000

Cadbu
Nestle
GCMMF
Nutrine
__
HERFINDAHL INDEX
__
_
0.65
0.20
0.05
0.03
0.4695
0.67
0.21
0.05
0.04
0.4971
0.66
0.23
0.68
0.25
0.08
0.06
0.4985
0.09
0.07
0.5379
0.70
0.25
0.10
0.09
0.5706

163

1 (172)
BISCUITS _
Company / year 1995-96 1996-97 1997-98 1998-99 1999-2000
_
Modern Food Industries 0.10

__
Britannia
Parle
0.05
0.11
0.08
0.12
0.09
0.12
0.10
0.14
0.11
0.10 0.10 0.11 0.10 0.11
Smithkline 0.08 0.10 0.12 0.13 0.12
HERFINDAHL INDEX 0.0289 0.0385 0.049 0.0513 0.0582

ANALYSIS
ICE CREAM INDUSTRY
In the last five years it has been seen that the concentration was
increasing at an increasing rate till 1996-97 then onwards it is decreasing. This
signifies the entrance of new competitors in the market and the major entrant is
Amul.

CHOCOLATE INDUSTRY
In the last five years it has been seen that the concentration has been
increasing at an increasing rate, which is because Multi-Nationals with big
pockets are entering the Indian markets.

BAKERY INDUSTRY
The Bakery Industry in India has always been a small-scale industry,
mostly limited to family operated businesses. But now with companies like
Hindustan Lever and Britannia venturing into this industry in a big way, its
concentration is gradually increasing but at a slower pace.

5.f. MERGERS AND ACQUISITIONS

(THE PROCESS CARRIED OUT AFTER LIBERALIZATION)

Reason for mergers and acquisitions

Restructuring operations

164

1 (173)
Size
Battling formulations
I

Under valuations
Improving shareholders value
Faster growth
Global ambitions
The first wave of mergers and joint ventures was driven primarily by
competitive compulsions and as an outcome of business restructuring, of late
however the larger and more aggressive companies have been buying out the
smaller ones to assume market leadership. Till 1999, the biggest mergers and
acquisitions deals were in the FMCG industries that are traditionally intensely
• •
competitive and have become more so with the entry of well-known
international brands.
Hindustan Lever’s
Acquisitions
Tomco
Dollop’s
Kwal ity
Milkfood
Kissan
Modern Foods
Mergers
Doom Dooma with Brooke Bond
Brooke Bond with Lipton
Pond’s with Quest International
Brooke Bond Lipton India Ltd. (BBLIL) with Hindustan Lever Ltd. (HLL)

Coco-Cola’s
Acquisition
Thumps Up
• i
•— •
< • • •> -
Limca
Gold Spot
Crush
165

1 (174)
Canada Dry
Sport Cola
Others
Tata Tea took over Tetley for 270 million (Rs. 1,900 crore) and it was one of
India’s largest overseas acquisition. The deal handed the country’s largest tea
company instant access to markets across the world ranging from the US, UK
and the Middle East.
Nutriene acquired by Sara Lee
PepsiCo Inc. acquired a 90% stake in South Beach Beverage Co (Sobe).
GILLETTE India’s merger of two subsidiaries of the parent Wilkinson
Sword India and Duracell India with it. While Wilkinson Sword India
markets lower-end shaving products such as 7 O’Clock blades and Wilman
Shaving Systems.
Dabur India acquired Binaca brand from Binaca Hygiene.
Joint Ventures
HLL
Kimberly Clarke
S C Johnson
Dabur
General DE Confiteria India Limited
Excelsia Foods Limited

5.g.AnaIysis of the Impact on Companies due to the changing economic

policies:
Hindustan Lever Limited
Positive impacts
Lowering of dividend tax from 20 /o to 10/o

Reduction of surcharge on tax

# e

Fruit and vegetable based food products exempted from excise duty.
The company has Kissan brand of jams, sauces, ketchups etc, which would
get an excise exemption. The excise exemption and the positive policy stance
towards the food processing industry will aid the company in increasing the
166

1 (175)
sales contribution from its foods business, which has been identified as a future
growth engine.
Customs duty on Soda Ash reduced from 25% to 20%
The detergent business of HLL contributes close to 17% to total revenues
and soda ash is a major raw material involved in production of detergents.
Customs duty increased on Tea and Coffee
Increase in customs duty would lead to higher prices of these beverages
in the market. The move would also help in checking the inflow of cheap
imports in the market. The beverage business contribute around 1 5% of the
total revenue of the company thus the move would in increasing the profits.
Negative impacts
Customs duty increased on edible oil: There has been a sharp hike in customs
duties on all grades of refined and crude oils. This would lead to an increase in
the raw material cost required for manufacturing soap and Vanaspati.
Excise duty imposed on toothbrushes.
The personal product category, which includes toothbrushes, contributes
close to 17% to HLL’s total revenues. However toothbrushes account for a
small part of the segment sales and impact of the 4% excise levy on toothbrush
would be marginal.

Excise duty of 4% imposed on Laundry soaps

Laundry soaps are a small portion of overall detergent sales of HLL and the
4% excise levy would not have a major negative impact.
5.h. Overall impacts on Nestle India Ltd., Britannia Industries Ltd.:
(POSITIVE)
Nestle India Ltd.
Positive impact proposals
Lowering of dividend tax from 20% to 10%
Reduction of surcharge on tax.
Food processing products exempted from excise duty.

167

1 (176)
 The Maggie brand of sauces, ketchups and soups account for a major chunk
of the Indian ketchup and soup market. The duty exemption would help the
company to grow both its top line and bottom line.
Customs duty increased on Coffee: Increase in customs duty would help in
checking cheap imports in the market, as free imports are allowed with
effective from April 2001.
Domestic coffee prices could also firm up and could lead to higher realizations
m

for the company.

Negative impact
None
Overall impact: POSITIVE
Britannia Industries Limited
Positive impact proposals
Lowering of dividend tax from 20% to 10%
Reduction of surcharge on tax
Negative impact
Lower excise duty on smaller biscuit packs withdrawn.
Duty raised from 8% to 16%, the increase in excise duty on smaller packs
t

of biscuits would have a major impact on company’s bottom line as well as top
line. The move would affect the growth of its fastest growing brand Tiger, if
prices were raised. The additional excise burden would be significant as Tiger
is estimated to contribute close to 10% of Britannia’s turnover.
Customs duty increased on edible oil.
The increase in customs duty would lead to higher edible oil and vanaspati
prices and increase the raw material cost required for manufacturing biscuits.
This would affect the operating margins.
Overall impact: NEGATIVE

5.i. CONCLUSION
For a good part of the 1990s, the leading players in fast-moving
consumer goods (FMCGs) saw their sales grow by 20% or more each year on
the back of cuts in excise duty, aggressive brand launches and greater market
168

1 (177)
penetration. Such growth, in a market worth about Rs600bn (US$1 2.8bn),
today seems a distant dream.
Disappointing growth in consumer demand (especially from rural India),
increased competition and down trading by consumers, have hit sales growth
(as have the poor monsoon and either drought or floods in several states).
Everything said and done the index of industrial production for consumer non¬
durables or FMCGs, including soaps, detergents, shampoos, toothpaste,
confectionery, cigarettes and beverages has been one of the lowest in recent
times.
The outlook for 2003 is no better for the simple reason that there is little
to drive growth from 7% to less than 6% for the current fiscal year, c %oox-o%)
Rural markets account for 40-50% of sales for most FMCG companies
but with market penetration, rates up and rural purchasing power declining,
boosting volumes will be difficult. Rising costs for transport, advertising and
commodities could force manufacturers to hike product prices and further deter
consumers. While sales volumes overall remain stagnant. Other manufacturers
are accepting that they must go down market. The trend is the same no matter
the product - cigarettes, biscuits or chocolate - and it is not going to disappear
anytime soon.
While most FMCG companies have been able to increase profits despite
slowing sales growth, they will not be able to do so indefinitely. The fatter
profits have come largely from- lower commodity prices and increased
operational efficiencies.
Competition in the FMCG market is already intense, with several cash-
rich and highly focused players in every product category. To see the effect,
one need look no further than Hindustan Lever, which has dominated several
product categories for decades and remains a fierce competitor.
As well as strong local competition, there are aggressive new foreign
entrants in many categories; Imports will soon be a factor as well. In addition
to legitimate products, the industiy must also contend with counterfeit goods,
which are estimated to eat away roughly Rsl 7bn of sales annually.

169

1 (178)
 FMCG companies are clearly feeling the heat. For players lit
Hindustan Lever, with 60% turnover coming from highly mature categoric.:.n

i even more daunting. Over the medium term,

like soaps, the challenge is
marketers can reasonably expect volume growth from increased usage of
products such as soap, and increased switching to branded products But
growth in the near term will have to come from elsewhere. The most obvious
source is mergers and acquisitions.
But whatever their focus today, experienced FMCG makers know that
sustainable growth will be determined by volumes, not prices.
Thus the future of FMCGs depends on how aggressively they
increase their brand numbers and how many newer markets they enter.

170

1 (179)