Company Strategy Report (Food Products)

Microeconomics: Term 1
Group A4

A G Gokil (PGP/1101/06)
Abhinav Burman (PGP/1102/06)
Akshita Jain (PGP/1107/06)
Anushka Jain (PGP/1113/06)
Bonde Pranav Tukaram (PGP/1116/06)
Deepika Gulati (PGP/1121/06)
Raghav Singh (PGP/1148/06)
Rathnakaram Krishna Chaitanya (PGP/1150/06)
Shivam Mittal (PGP/1163/06)
T I Mohamed Irfan (PGP/1169/06)
Introduction

The combined food industry is worth US $8.7 trillion and contributed to around 10% to the world’s
total GDP in 2018. The worth of the Indian food industry currently is US $40.3 billion. India being
one of the largest producers of food in the world is poised for drastic growth in the coming years.
It is fast emerging as a sourcing hub for processed food and estimates an excellent growth. Due to
which many international players are trying to enter by collaborating with domestic companies.

Food processing industry

Out of the total Indian food market, the food processing industry occupies a large chunk i.e. 32 %
of the market. Adding to it is also part of 12% total exports. These include products ranging from
vegetables, fruits, meat, seafood, and RTE. The plethora of new technology allows for many Indian
produces to increase production while maintaining quality standards.

Beverages

Beverages segment has shown a large trend of innovation & growth. It is said to grow by 30%
every year. Milk is the market share king as marketed as a health beverage. Dairy products also
are extremely high in market share. Innovation here include flavored milk drinks. Another key
contributor on the beverages segment is carbonated soft drinks.

Challenges in food industry

India being the second largest agricultural hub of the world. It is poor in areas regarding
agricultural wastage. Countries like USA (65%), china (23%) are far ahead with regards to food
wastage. It is a shame no innovation in this sector has been achieved. 35% of fruits and vegetables
are said to be wasted due to reasons like poor storage and this co-relates to revenue drop of amount
worth Rs. 500 billion. The reason the vegetables rot is due to their high-water content. Even though
the food processing industry has served farmers and ensure employment it is still lacking in new
innovations to address the previous problems.

One reason is that Indian society is averse to changes and not ready to experiment with new
products. This is attributed to the Indian mind-set which is set in stone. We can expect things to
turn around as time passes. Another reason has to do with the regulations which lack clarity on
product approval. Lastly it suffers from low investment in R&D to bring out innovative products.
Again, this ties back to return on investment forecasted.

Research problem

To study the market concentration of food product industry using Herfindahl-Hirschman index
(HHI) & its change over the last 20 years (2000-2019).

Methodology and Data Collection

CMIE to excel

1. We used ProwessIQ software provided by CMIE to analyze financial data of firms

2. We select the tab Companies and Sets - Select Companies in pre-defined sets - All
Industries - Non financial - Manufacturing - Food and Agro products
3. Send to new OSC (Output)
4. Then, we select the tab Financial Statements - Annual Financial Statements - Total Income
(Query builder) - Sales check box
5. Below the query option, fill L20 in query on date and output date as we want sales data of
the last 20 years for the food industry
6. In the select domain checkbox - choose companies in current OSC
7. Then select send to new OSC and wait for the query to execute
8. Finally, select export to excel option
9. We get the output excel sheet having sales data of food firms for the last 20 years

Excel to HHI

1. The extracted datasheet is taken and sorted according to the total sales in decreasing order.
2. Then, we calculate the total sales in one year for the entire food industry.
3. Market share is then realized by dividing the sales of each company for all allocated 20
years by the total sales of the year multiplied by hundred for percentage.
 4. To determine the HHI of the industry the market share is squared for each company and
then summed. The number obtained is the HHI of the industry for a particular year.
5. The HHI thus obtained for every year is plotted in a graph and inferences then made.

Further, we selected the top 10 companies and analyzed their business strategies to understand
their effect on the HHI Index.

Results (HHI Index)

To calculate the HHI index we need the sales data of each participant in the market and total sales.
We divide each participant's sales upon the total sales of the market. This gives the market share
of each participant company. Then we add the HHI Index of all the participants to get the HHI
index of the industry or market. Based on the HHI index calculated the market can be said either
heavily concentrated or moderately concentrated. The scores from 1500 to 2500 shows moderately
concentrated, scores above 2500 shows a concentrated market. Value of 10000 shows the
monopolistic market and the value of 1 shows a lot of equally sized small participants in an
incredibly competitive market.

Year HHI Year HHI

2000 515.6746 2010 527.3063
2001 499.809 2011 519.1934
2002 512.2203 2012 556.0603
2003 493.3399 2013 522.6792
2004 506.4818 2014 476.7866
2005 558.245 2015 473.7254
2006 573.9202 2016 476.2509
2007 556.3679 2017 383.3287
2008 533.0073 2018 384.6815
2009 518.9984 2019 374.0171
Discussion (Business Strategies of Different Firms)

ITC

ITC ltd is an Indian based multinational company headquartered at Kolkata, West Bengal. It was
established in 1910. ITC foods has 7 popular brands under it, Aashirvad, Sunfeast, and Bingo!,
Candyman, kitchens of India are some of their top brands. The products they offer are of many
varieties, highly differentiated and delight millions of households. Within the FMCG industry the
market share of ITC is 14%. When talking about the biscuit industry it is an example of oligopoly
in India with the main players being Britannia, Parle & ITC who oversee 90 percent of the whole
market.

Key Strategies

1. In an attempt to strike back against covid, ITC has taken up many social initiatives such as
215 CR contingency fund, distribution of cooked meals and collaborating with NGOs.
 2. Brand portfolio highly diversified and cater to all market segments and is major driver in
growth in all 3 economic sectors- agriculture, manufacturing and services.
3. Other innovations include e-chouppal system to empower farmers along with afforestation
initiatives where over 8,02,000 acres of greenery constructed.
4. Packaged food, immunity boosting food as well sanitisers have been made available
through them.
5. To help bring products to customers amidst the pandemic ITC has innovative partnerships
with dominos, Swiggy, Zomato etc. ITC has expanded to stores on wheels and it is available
on 6 million retailers across India.
6. Other product launches include Aashirvad milk, superfoods aimed at immunity conscious
people.

Avanti Feeds

Avanti feeds is the largest shrimp & fish feed producer in India. During the global economic crisis
in 2008, the demand for shrimp products declined and hurt Avanti badly. The country’s shrimp
industry lobbied the government to allow a new variety of shrimp i.e. whiteleg shrimp which is
more resistant to disease than the previously cultivated black tiger shrimp. Avanti raised capital
for changing their business model from black tiger shrimp to whiteleg shrimp by selling its 25
percent stake for 5 crores to Thai Frozen products PCL in exchange for technical expertise
regarding whiteleg shrimps. These decisions helped Avanti double its market share from 25 to
above 50 percent and grow annually at 45 percent to industry growth of 15 percent.

Key Strategies

1. Collaborating and bringing on board the farmers to adopt whiteleg shrimp for farming
2. Started its expansion into Gujarat
3. New customer-focused marketing strategy
4. Dumped the credit-based sales system that was being followed
 5. Feed Conversion Ratio is the amount of feed required to produce shrimp. Currently,
1.5 kg feed produces 1 kg shrimp product i.e. FCR is 1.5, Avanti targeting to reduce it
to 1.2
6. Punctual regarding payments to raw-material suppliers and long-term relationships
with suppliers, farmers and stakeholders
7. Having a robust supply chain and inventory system that prevents overstocking of
materials and feed
8. Focus on economies of scale and efficient systems to improve profits and lower costs

Godrej Agrovet Ltd

Godrej Agrovet Ltd is a diversified Agribusiness Company incorporated in 1991 which operates
across five business verticals namely Animal feed, Oil Palm, Crop Protection, Dairy & Poultry
and Processed Foods. Some of its products include Milk More – cattle feed, palm oil, ready-to-eat
food under the brand ‘Real Good’ & ‘Yummiez’, and milk & milk-based products under the brand
‘Jersey’

Key Strategies

1. Animal Feed: In 2015, GAVL set up an R&D center in Nasik that helped improve the
operational efficiency to achieve cost leadership which was crucial as it operated largely in
unorganized sectors. Apart from this, the product differentiation, increase in volume of sale &
price helped it generate more revenues.

2. Palm Oil: GAVL focused on creating presence in certain regions (AP) for palm oil
business & used palm oil biomass in animal feed business as additional revenue stream.
Increase in the area of palm plantation from 64125 to 64800 hectares & price of crude palm
oil helped increase revenue by 16% in 2018-19.

3. Dairy Business: GAVL focused on increasing market share in southern states & automated
majority of its operations to achieve economies of scale. It practiced strengthening
 relationships with farmers & started procuring milk directly from them for cost reduction &
continued new product launch.

4. Poultry & Processed Food Business: GAVL increased the distribution network &
introduced new product range – ‘Royale’, under Yummiez. In 2018 it forayed in live bird
business. It focused on increasing the brand visibility through outdoor advertising & leveraged
the growth of supermarkets for their chilled & frozen poultry products.

Marico Ltd.

Marico Ltd is one in all India's leading client merchandise corporations in operation within the
healthy food, edible oils, beauty and upbeat house, serving in twenty five countries, nurturing
multiple brands within the classes of edible oils, health foods, grooming and cloth care. They bit
around 185+ million households monthly. Increase in top line CAGR is 16% and bottom line
CAGR is 24%.

Key strategies

1. Economies of scale, with lower however quick growing per capita financial gain:
Marico has achieved their market leadership in premium refined edible oil classes by
innovation, superior product proposition, whole building and distribution strength giving
growth, therefore Marico can drive penetration at the BOP and conversion from unbranded
to branded.

2. Premiumise and classified lower penetration of Competition in ecommerce: With the

rise of the center category and high-income segments, customers show inclination to
premium and purposeful merchandise that align in conjunction with their lifestyles.

3. New Engines of Growth: Marico has known Healthy Foods, hair care, male grooming and
skin Care as new engines of growth. A healthy innovation pipeline and therefore the ‘core’
 delivering stable growth will be seen. Marico has deployed Robotic method Automation
(RPA to enhance potency.

4. Sustainability: Creates a distinction.

Nestle India Ltd

Nestle India Ltd one of the top players in the FMCG segment. They have a presence in milk,
nutrition beverages, prepared dishes, cooking aids, chocolate & confectionery segments. They are
a subsidiary of Nestle S.A. of Switzerland. Nestle has a pan India presence with eight
manufacturing facilities and four branch offices, located in Delhi, Mumbai, Chennai, and Kolkata,
with the head office at Gurgaon. In the year 1956 Nestle India Ltd was incorporated, with initial
production facility being set up in 1961 at Moga in Punjab.

Key Strategies

1. To apply nutrition expertise which enables them to enhance the wellness and health of
people and pets.
2. To meet the needs of the modern consumer by providing delicious, healthy, convenient
products for time-constrained, conscious lifestyles.
3. To bring premium food innovations to market. Fueled by consumer insights, nutrition
science, and culinary excellence.
4. To offer a wide array of plant-based foods, so they become consumers’ preferred choice as
they diversify their diets.
5. Using their expertise and scale to provide access to nutrition everywhere to everyone.

Value creation model

1. Increasing growth through differentiation, innovation. Offer relevant products and

solutions to consumers. Maintain a commitment to reach sustainable organic growth.
2. Improving operational efficiency. Underlying trading operating profit margin to reach
between 17.5% to 18.5% in 2020 (from 16.0% in 2016).
 3. Allocating resources and capital with discipline and clear priorities, divestitures, and
acquisitions.

Varun Beverages

Varun Beverages Ltd (VBL) is the second largest Franchisee in the World out of America in the
sales of Carbonated Soft Drinks and Non-Carbonated Beverages sold under the trade owned by
PepsiCo. The company is a franchisee of PepsiCo. They sell all the products under the brand
PepsiCo. It is a great responsibility on the company to keep up the brand value and image of
PepsiCo.

Key strategies

1. The company has increased its brand portfolio by a wide range thereby leading to the
increase in the sales of the company.

2. They have started doing business in almost all the products under PepsiCo Brand.
Company has shown economies of scale showing that in 2014 the assets per sale is less
whereas in 2019 it has considerably become more.

3. Managing the brand equity value of PepsiCo as the sales are somehow related to the brand
value of PepsiCo.

4. They have almost 38 state of art facilities to produce the beverages and this shows they
have a particularly good production capacity available.

5. Their major strategy to increase the sales was increasing the brand portfolio and production
capacity

Tata Consumer Products

Formerly known as Tata global beverages limited, a subsidiary of Tata group, TCP is a consumer
product company offering the food and beverages under the one roof. Tata consumer products is
a 2nd largest player, with over 330 million serving everyday across the world, in branded beverage
business. Having a reach of over 200 million households in India. Tata consumer product has
grown by innovation, strategic merger and acquisitions and sustainable growth. From the year
2000 to 2020, sales of Tata consumer products have increased by almost 700%.

Key Strategies

1. Joint Venture: Company has a joint venture with Starbucks and PepsiCo as Tata
Starbucks private Ltd. (2012) and NourishCo beverage Ltd (2011).
2. Acquisitions: During the period, Tata Consumer products acquired many companies, such
as: Tetley (2000), Good earth (2005), Eight O’clock coffee (2006), Grand(2009),
MAP(2014).
3. Innovation and New Product development: They continuously enhance their product
offerings including tea coffee water and other beverages.
4. Innovation in communication: The award winning, multi-media Campaigns that grabbed
the attention of the nation, enhanced the sales as well as profits of the company, along with
increasing brand awareness.
5. Distribution: Wide and deep distribution network ensure that the products reach to every
corner of the world. Apart from the traditional means to grab the market, they are using
modern trade, rural distribution, and digital channels.
6. Production: Facilities and technologies available across the world are continuously
reviewed and keep upgraded to meet the latest operating practices that based on
international recognized quality and environment management standards.

Britannia Industries Ltd

Founded in 1892 in Kolkata, Britannia Industries Ltd. has been in working for more than 100
years. Britannia has a wide range of food products including biscuits, bread, cakes as well as rusk
in the bakery sector and milk, butter, cheese etc. in the dairy sector. The market share of Britannia
Industries Ltd. In the food industry has been around 2.4-3% for the last 20 years.

Key Strategies

1. Product portfolio: Britannia has a wide range of food products including biscuits, bread,
cakes as well as rusk in the bakery sector and milk, butter, cheese etc. in the dairy sector.
The company sells to 50% of the Indian households through its 5 million retail outlets.
2. Pricing: The biscuit industry is oligopoly in India with the main players being Britannia,
Parle and ITC who oversee 90 percent of the whole market and amongst that Britannia has
a market share of around 33% in the Indian market. Parle and Britannia are the price setters
in India. For new products Britannia has since long used a penetration method of pricing.
3. Brand Image: The company's brand image has helped tremendously in increasing and
maintaining sales over all these years. In the year 1999-2000, the company saw an increase
of 37% in the annual profits. This was mainly attributed to its huge marketing campaign
“Britannia khao, World cup Jao”.

In 2017-2018 GST, the company increased their tangible assets by 24.1%, the sales only increased
by 7.29% instead of the really profitable 14% in the year 2016-2017. The effects of it normalised
by 2019. The very slow economy experienced in 2019 led to Britannia having sales increase of
only 4.3% in the year which is half of the previous year.

Mondelez India Foods Pvt. Ltd.

Mondelez India is a part of Mondelēz International- a multinational confectionery, food, and

beverage company, and also the market leader in the chocolate category in the country. Mondelez
India owns over 65 percent of the market share, with Cadbury Dairy Milk alone having a market
share of over 40 per cent. Other members of the iconic brand family are Oreo, Bournvita, Perk,
Tang, Bournville, Gems and more.

Key Strategies
 1. Positioning Cadbury as the go-to sweets: in the 1970s and 1980s, the brand was only
available in certain areas and mostly targeted towards children. But as consumption
patterns changed over time, the company started targeting adults as well. In the last decade,
it has positioned itself as something meetha (‘kuch meetha ho jaye’)— a strategy to counter
traditional Indian sweets.

2. Recognizing the consumer shift towards healthier lifestyle choices: “We want to be the
‘treat’ one has after a strict health regime or otherwise,” asserts Anil Viswanathan, director
- marketing (chocolates), Mondelez India. And therefore, it is now making its products
available in ‘bite-able’ sizes and launching products like Cadbury Dairy Milk 30% Less
Sugar.

3. Effective Cooling system: Chocolate companies in India face the issue of tackling high
temperatures as most retail outlets are not air conditioned. Mondelez invests heavily in its
cooling infrastructure to build a cold chain and distributes small refrigerators to retailers.

4. Focus on e-commerce sales: Mondelez developed a partnership with Amazon.in to set up

the country’s first virtual chocolate and sweet store. Working with key players like
Amazon, Snapdeal and Big Basket, they launched products like Bournvita biscuits,
Cadbury Fuse and Cadbury Dairy Milk Marvellous Creations online before hitting the
traditional stores.

Shree Renuka Sugars Ltd.

Shree Renuka Sugars is a Mumbai based sugar refiner and ethanol producer. It is India’s largest
sugar manufacturer and one of the largest sugar producers and refiners in the world. As per the
data of 2019, it accounts for 20% of India’s international sugar contribution. The company makes
sugar, ethanol, organic manure, and power.
Key Strategies:

1. Global Expansion: Shree Renuka Sugars expanded its operations to the world’s largest
producer of sugar Brazil. It operates 11 mills globally out of which 4 are in Brazil, the
operations are comparably cheaper. The weather also helps in large production of sugars
and placing itself in the first and second largest sugar producing nations of the world makes
the company a global agri-business.
2. Acquisition: Acquisition enhances the company’s operational synergies and helps it up-
scale. This strategy helps in eliminating the competition. Shree Renuka sugars acquired
VDI mill in Brazil and it recently acquired a mill in Renukoot, India.
3. Subsidiaries: The Company has 13 subsidiaries as of now. This strategy is helpful to keep
the brand identity unique at times of acquisition.
4. By-products: The Company uses the by-products from sugar manufacturing to produce
ethanol, organic manure, and power. The molasses, i.e. the effluent obtained in sugar
manufacturing is used to produce ethanol.
5. Co-Generation of Power: Bagasse is a fibrous residue of cane stalk, which is used in
power generation. Various sugar manufacturing firms use by-products to generate power.
Shree Renuka Sugars use the power generated to carry on its operations and sells it to the
state electricity board.

Conclusion

According to the US Department of Justice, an industry with an HHI of less than 1500 is said to
have low market concentration. As seen from the results, the HHI for the Food Products industry
for each year from 2000 to 2019 is below 1500. Hence, this shows that the Food Products industry
has low market concentration & high competition. This further indicates the presence of large
number of smaller firms in the industry. Also, it is evident that the HHI has decreased from 515.67
in 2000 to 374.02 in 2019. This decreasing concentration can be attributed to the increase in the
number of smaller firms entering the industry. With the advent of new technologies smaller firms
can overcome some of the barriers like product differentiation & they also target certain regions
initially, hence securing a place in the industry.
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