ITC

‘ Imperial Tobacco Company of India Limited

ARUN KUMAR R
Company Profile
1.1 Brief history of Company
Company Profile of ITC

ITC Limited is an Indian conglomerate founded on 24 August 1910. The company

(formerly known as Imperial Tobacco Company of India Limited) is currently headed by
Sanjiv Puri. The company has its registered office in Kolkata. It employs over 20,000
people at more than 60 locations across India.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers,
Packaging Agri-Business, Packaged Foods & Confectionery, Information Technology,
Branded Apparel Personal Care, Stationery, Safety Matches and other FMCG products.
While ITC is an outstanding market leader in its traditional businesses of Cigarettes,
Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share
even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel,
Personal Care and Stationery.

It ranks third in pre-tax profit among India's private sector corporation. ITC is one of
India's foremost private sector companies with a market capitalization of over US S 22
billion and a turnover of US 6 billion.

ITC is rated among the World's Best Big Companies, Asia' Fab 50and 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 among India's ‘10 Most Valuable (Company) Brands’, in a study conducted by
Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50
best performing companies compiled by Business Week.

ITC is one of India's most valuable and respected corporations

Brief History of ITC

ITC was incorporated on August 24, 1910 under the name of ‘Imperial Tobacco
Company of India Limited. A leased office on Radha Bazar 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 LL.
Nehru Road) Kolkata, for the sum of Rs 310,000. The Company's ownership
progressively indianised, and the name of the Company was changed to LT.C. Limited in
1974. In recognition of the Company's muti-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.

ITC Packaging & Printing Business was set up in 1925 as a strategic backward
integration for ITC Cigarettes business. It is today India's most sophisticated packaging
house.

In 1975 the Company launched its Hotels business with the acquisition of a hotel in
Chennai which was rechristened ‘ITC Welcome group Hotel Chola’. Since then ITC’s
Hotels business has grown to occupy a position of leadership, with over 70 owned and
managed properties spread across India.

In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam

Paperboards Limited, which today has become the market leader in India.

In 1985, ITC set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British joint
venture. In August 2002, Surya Tobacco became a subsidiary of ITC Limited and its
name was changed to Surya Nepal Private Limited (Surya Nepal).

In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing

company and a major supplier of tissue paper to the cigarette industry. Tribeni Tissues
Division was merged with the Bhadrachalam Paperboards Division to form the
Paperboards & Specialty Papers Division in November 2002.

In 1990, leveraging its agri-sourcing competency ITC set up the Agri Business Division
for export of agri-commodities. ITC’s unique and now widely acknowledged e-Choupal
initiative began in 2000 with Soya farmers in Madhya Pradesh. Now it extends to 9
states covering over 4 million farmers. ITC’s first rural mall, christened ‘Choupal Sagar
was inaugurated in August 2004 at Sehore. On the rural retail front, 24 Choupal Sagar’s
now operational in the 3 states of Madhya Pradesh Maharashtra and Uttar Pradesh.

In 2000, ITC launched a line of high quality greeting cards under the brand name
‘Expressions’. In 2002, the product range was enlarged with the introduction of Gift
wrappers, Autograph books and Slam books. In the same year, ITC also launched
‘Expressions Matrubhasha’, a vernacular range of greeting cards in eight languages and
‘Expression Paperkraft’, a range of premium stationery products. In 2003, the company
rolled out ‘Classmate’ a range of notebooks in the school stationery segment.

ITC also entered the Lifestyle Retailing business with the Wills Sport range of
international quality relaxed wear for men and women in 2000. The Wills Lifestyle
chain of exclusive stores later expanded its range to include Wills Classic formal wear
(2002) and Wills Clublife evening wear (2003). ITC also initiated a foray into the
popular segment with its men's wear brand, John Players, in 2002. In 2006, Wills
Lifestyle became title partner of the country's most premier fashion event - Wills
Lifestyle India Fashion Week that has gained recognition from buyers and retailers as
the single largest B-2-B platform for the Fashion Design industry. In 2007, the Company
introduced ‘Miss Players’- a fashion brand in the popular segment for the young woman.

In 2000, ITC spun off its information technology business into a wholly owned
subsidiary, ITC InfoTech India Limited, to more aggressively pursue emerging
opportunities in this area.

ITC’s foray into the Foods business is an outstanding example of successfully blending
multiple internal competencies to create a new driver of business growth. It began in
August 2001 with the introduction of ‘Kitchens of India’ ready-to-eat Indian gourmet
dishes. In 2002, ITC entered the confectionery and staples segments with the launch of
the brands minto and Candyman confectionery and Aashirvaad atta (wheat flour). 2003
witnessed the introduction of Sunfeast as the Company entered the biscuits segment
ITC entered the fast growing branded snacks category with Bingo! in 2007.
In 2002, ITC's philosophy of contributing to enhancing the competitiveness of the entire
value chain found yet another expression in the Safety Matches initiative. ITC now
markets popular safety matches brands like iKno, Mangaldeep, Aim, Aim Mega and Aim
Metro.

ITC forayed into the marketing of agarbattis (incense sticks) in 2003 marked the
manifestation of its partnership with the cottage sector. ITC’s popular agarbattis brands
include Spriha and Mangaldeep across a range of fragrances like Rose, Jasmine,
Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa.

ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath & body
care products for men and women in July 2005. Inizio, the signature range under
Essenza Di Wills provides a comprehensive grooming regimen with distinct lines for
men (Inizio Homme) and women (Inizio Femme). Continuing with its tradition of
bringing world class products to Indian consumers the Company launched ‘Fiama Di
Wills’, a premium range of Shampooos, Shower Gels and Soaps in September, October
and December 2007 respectively. The Company also launched the ‘Superia range of
Soaps and Shampoos in the mass-market segment select markets in October 2007 and
Vivel De Wills & Vivel range of soaps in February and Vivel range of shampoos in June
2008.
1.2 Business Process of the Organisation – Products
 ITC FMCG

Cigarettes
ITC is the market leader in cigarettes in India. It's highly popular portfolio of brands
includes Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan,
Berkeley, Bristol and Flake.

ITC’s cigarettes are produced in its state-of-the-art factories at Bangalore, Munger,

Saharanpur and Kolkata. These factories are known for their high levels of quality,
contemporary technology and work environment.

ITC's has presence in overseas markets as well. In the extremely competitive US market,
ITC offers high-quality. value-priced cigarettes and Roll-your-own solutions. In West
Asia ITC has become a key player in the GCC markets through growing volumes of its
brands.

Foods

ITC made its entry into the branded & packaged Foods business in August 2001 with the
launch of the Kitchens of India brand. A more broad-based entry has been made since
June 2002 with brand launches in the Confectionery, Staples and Snack Foods segments.

The Foods business strives to deliver quality food products to the consumer. All
products of ITC’s Foods business available in the market today have been crafted based
on consumer insights developed through extensive market research. ITC's state-of-the-
art Product Development facility is located at Bangalore.

The Foods business is represented in 4 categories in the market. These are:

1. Ready To Eat Foods

2. Staples

3. Confectionery

4. Snack Foods
Lifestyle retailing

ITC’s ventured into Lifestyle Retailing Business Division through its Wills Lifestyle chain
of exclusive specialty stores.

Wills Lifestyle, the fashion destination, offers a tempting choice of Wills Classic work
wear, Wills Sport relaxed wear, Wills Club life evening wear, fashion accessories and
Essenza Di Wils - an exclusive range of fine fragrances.

With a distinctive presence across segments at the premium end, ITC has also
established John Players as a brand that offers a complete fashion wardrobe to the male
youth of today.

Education & Stationary

ITC made its entry into the stationery business in the year 2002 with its premium range
of notebooks. ITC’s Education and Stationery Products are marketed under the brands
"Classmate" and "Paperkraft".

The Classmate range of products is targeted at satisfying education & stationery needs
of students & young adults. The product range includes Notebooks, Math Instruments,
Scholastic Products as well as Writing Instruments.

The Paperkraft range of products aims at satisfying the stationery needs & office
consumables need of office executives and working professional. The continuously
expanding product range under Paperkraft includes Premium Business Paper, Paper
Stationery, Markers & Highlighters.

Safety Matches

ITC's range of Safety matches include popular brands like i Kno, Mangaldeep, Aim, Aim
Mega and Aim Metro. With differentiated product features and innovative value
addition, these brands effectively address the needs of different consumer segments.
The Aim brand is the largest selling brand of Safety Matches in India.
Aggarbattis

ITC commenced marketing Agarbattis (Incense Sticks) sourced from small-scale and
cottage units in 2003. Mangaldeep Agarbattis are available in a wide range of fragrances
like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Durbar, Tarangini, Anushri, Ananth
and Mogra. Durbar Gold is a new offering from Mangaldeep launched in Andhra Pradesh
and has received wide consumer acceptance.

Personal Care

ITC forayed into the Personal Care business in July 2005. In the short period since its
entry, ITC has already launched an array of brands, each of which offers a unique and
superior value proposition to discerning consumers. Anchored on extensive consumer
research and product development, ITC's personal care portfolio brings world-class
products with clearly differentiated benefits to quality-seeking consumers.

ITC's Personal Care portfolio under the ‘Essenza Di Wills', ‘Fiama Di Wills’, ‘Vivel Di
Wills’, ‘Vivel UltraPro’, 'Vivel' and 'Superia' brands has received encouraging consumer
response and is being progressively extended nationally.

ITC Welcome Group of Hotels

ITC-Welcome group: fastest growing Hospitality chain in India

 Over 90 properties across 70 location.

 5 Brands - ITC Hotels, Welcome Hotel, My Fortune, Fortune & Welcome Heritage.
 155-Star Deluxe 5-Star Properties with over 3800 rooms.
 45 Fortune Hotels with over 3300 rooms.
 40 Welcome Heritage Properties with nearly 1000 rooms.
 Exclusive tie up with Starwood Luxury Collection for 10 Hotels.
 First hotel chain in the LEED (Leadership in Energy and Environmental Design)
Platinum Rating.
1.3 Customers of the Company – Level of Operations

Customers Of ITC

Whole salers

•Independent wholesalers - free to sell various product lines of different brands

•No exclusivity – multiple wholesalers in a particular area

•Wholesaler serves to increase the penetration of ITC products Economics

•Gets all categories of products – Personal care, Food and Cigarettes from ITC distributors at
a price which is 1% lower than the price at what the distributor sells to the retailer.
Retailers

•Beedi shops, mom-n-pop stores, etc.

•Minimum purchase value per month for a retailer to be serviced by a distributor.

•Gross margins range from 9-15% depending on the product category.

•Promotional schemes, display schemes for retailers.

Level of Operations

ITC has 3-Tiered Governance Structure

1. Board of Directors
2. Corporate Management Committee
3. Divisional Management Committee
 1. Board of Directors
The roles of the Board Committees are determined by the Board from time to
time, details of which are provided below, under the heading ‘Committees of the
Board’. Comprising executive (4) and non executive directors (11).
2. Corporate Management Committee (CMC)
The primary role of the CMC is strategic management of the Company’s
businesses within Board approved direction / framework and realisation of
Company goals. The CMC also assesses the performance of the businesses and
allocates resources, and operates under the strategic supervision and control of
the Board.
3. Divisional Management Committee (DMC)
The primary role of the DMC is executive management of the business to realise
tactical and strategic objectives in accordance with Board approved plan. The
Executive Committee for Business Vertical within the Division is responsible to
deliver comprehensive business results under the overall direction and
supervision of the Divisional Chief Executive supported by the DMC.

1.4 Competitors of the Company

 Marico
Marico is ITC's top competitor. Marico is a Public company that was founded in
Mumbai, Maharashtra in 1990. Marico operates in the Personal Services
industry. Marico has 25,596 fewer employees vs. ITC.
 Emami
Emami has been one of ITC's top competitors. Emami is headquartered in
Kolkata, West Bengal, and was founded in 1974. Emami is in the Consumer
Goods industry. Emami generates 5.71% the revenue of ITC.
 Patanjali
Patanjali Ayurved is perceived as one of ITC's biggest rivals. Patanjali Ayurved
was founded in 2006 in Haridwar, Uttaranchal. Patanjali Ayurved competes in
the Consumer Goods field. Patanjali Ayurved generates $5.2B less revenue than
ITC.
 HUL (Hindustan Unilever Limited)
HUL about 35 brands which span across 20 distinct categories like detergents, soaps,
skin care, deodorants, tea, coffee, ice cream, packaged food, and many more. The main
strength of this company is its innovation. The company’s research center continuously
works and develops innovative products which make HUL lead the consumer goods
market. As HUL is considered as a market leader in consumer goods, it is indeed a top
ITC competitor.

 P&G

A popular American multinational consumer goods corporation, P&G is headquartered

in Ohio, United States. It manufactures a wide range of consumer goods. The company
has its business operations in five main segments, Grooming, Health Care, Fabric &
Home Care, Beauty, and Baby, Feminine & Family Care.

One of the main strength of P&G is that it has its own brands which are valued by them
and customers. It has a huge product portfolio and due to which the economy of the
sales increases. Due to their excellent R&D and brand value, P&G is considered a top ITC
competitor.

 Nestle

Nestle is a food processing industry located in Switzerland. Established in the year

1866, Nestle is the largest food company in the world based on revenue. The various
products of Nestle include medical food, baby food, breakfast cereals, bottled water, tea,
coffee, dairy products, confectionery, frozen food, ice cream, snacks, and pet foods.

The company has about eight factories and many co-packers. It is a lively company
which provides their consumers with various products of global standards. The
company has about 200 brands that range from global to local ones and their products
are available in almost 191 countries. The research and development center of Nestle is
the world’s largest food and nutrition research organization. Due to their broad
portfolio of products, Nestle is considered a top ITC competitor.

 Godrej Consumer Products Limited (GCPL)

Indian Consumer Goods, Godrej Consumer Products Limited (GCPL) is based out in
Mumbai. It is engaged in manufacturing of various products which includes hair
colorants, soap, liquid detergents, and toiletries.

The company has many brands which include, Godrej Fair Glow, Cinthol, Godrej No.1,
and many more. At present, the Group has about 1.1 billion consumers worldwide and
across various businesses. The company is ranked the largest in household insecticide
and hair care players.

The company is also at the top in producing the hair care needs of the consumers. GCPL
creates own strong brands in various business segments. It focuses on innovation and
expands their product portfolio by introducing many new products. Due to their strong
market position in many categories, GCPL is considered a top ITC competitor.

 Dabur

A popular Ayurveda medicine and natural consumer products manufacturer, Dabur is

an Indian company. The portfolio of Dabur’s FMCG includes five leading brands. Their
brands are well known by the name Dabur for healthcare products, Vatika for personal
care, Hajmola for digestives, Fem for skin care products, and Real for fruit juices.

The products of Dabur have a huge presence in the international markets and are

available in about 120 countries. The revenue from the international market is about
30% of the total turnover. It is well placed among its customers. Dabur is considered as
the fourth largest company in FMCG segment. It has a great distribution network
worldwide. Due to their brand and the quality of products, Dabur is considered a top
ITC competitor.

ITC Hotel Competitors

 Leela Hotels

An Indian luxury hotel chain, Leela Hotels was founded in the year 1986 by C.P.
Krishnan Nair.  This hotel is a group of nine luxury hotels and palaces. Over the years,
the company has been on a continuous journey to make the travelers comfortable that
crosses their path.

The main goal of the hotel is to provide the most a memorable and magical stay at their
5-star hotels and to deliver the essence of India. Over the 30 years, Leela Hotels has
grown to geta first-class collection of almost nine award-winning luxury hotels that are
spread across the main destinations in India.

The main strength of this hotel is the brand and being the main player in the hotel
segment. It has about seven, five-star hotel managing about 2128 rooms in the country.
Due to their quality of rooms and their service, Leela Hotels is considered a top ITC
competitor.

 Taj Group of Hotels

Taj group of hotels is an international chain of resorts and hotels that is headquartered
in Mumbai, India. It was founded by the Tata group during the year 1903. The company
has about 99 hotels and resorts across 83 locations in India and 16 in other countries.

From the world eminent landmarks to the contemporary business hotels, beach resorts
to outstanding palaces, each Taj hotels provides a fusion of Indian hospitality, modern
luxury, and superior service. The TajMahal Palace located in Mumbai is an iconic
flagship and this hotel has set a benchmark for luxury and fine living.  It is considered to
be the best luxury hotel chain in India. Due to their brand value, Taj group of hotels is
considered a top ITC competitor.

ITC Competitors in Cigarettes

 Philip Morris International

With brands like Marlboro, L&M and others in its belt, without a doubt a top ITC
competitor in the cigarette industry is Philip Morris International. Philip Morris is an
American origins company which has worldwide distribution of its cigarette brands.
Cigarettes are a major revenue driver for ITC and Philip Morris hits ITC in the premium
brands of cigarettes.
Philip morris acquired Godfrey phillips, a major Cigarette manufacturer and distributor
in India which is a majority playground for ITC. The combined power and deep pockets
of Philip Morris is a challenger to the market share of ITC.

1.5 STRATEGIES - BUSINESS, PRICING, MANAGEMENT

Business strategies

 Product Strategy

 ITC has a dynamic portfolio in its marketing mix with businesses spanning FMCG, Agri-
business, Hotels, Information technology, paperboards and packaging. The product lines
have great product length and depth.

In FMCG goods ITC is India’s leading marketer. ITC comprises of packaged food,
Lifestyle retailing, Education and stationery products, safety matches and incense sticks,
personal care products. ITC’s food brands include Sunfeast with sub-brands Dark
fantasy, Yumfills, Bounce; Bingo, Candyman, Yippee, GumOn, Mint-O, Kitchen of India,
Aashirvaad, Fabelle, Sunfresh, B natural and Sunbeam. Within each of these brands
there are different variants of the product. For example, ITC Sunfeast offers biscuits,
cookies and cakes; ITC Yippee offers instant noodles and pasta; candyman offers toffees,
candies and mint.

ITC has a range of popular brands like Navy cut, Insignia, India Kings, Silk cut, Gold
flake, Classic, Lucky Strike, Players, capstan, Bristol, Duke & Royal, which has won many
awards.

ITC has developed an array of products in the personal care segment. Based on
extensive consumer research and product development ITC’s brands like Fiama, Vivel,
Essenza Di Wills, Engage, Superia have received a very positive response. Shower to
Shower and Savlon are already very popular.

Wills Lifestyle and John Players are ITC’s lifestyle retailing businesses. They provide a
tempting collection of apparels and a delightful shopping experience to their
consumers. Classmate and Paperkraft offer a variety of products in the education and
stationery business. Classmate is the largest notebook brand in the country. Carton
board packaging, flexible packaging are the different product lines of ITC’s packaging
business.

ITC has a premium range of luxury hotels in over 70 destinations. ITC hotels are the
greenest luxury hotels in the world because of its sustainable and responsible policies.

 Product differentiation:

ITC has been launching new products and brand extension with investment being made
towards brand building and increasing its market share. ITC has done the packaging
such that the product attracts the buyer. It launched packs with different quantity
keeping in mind the specific consumer demand.

 Cost leadership

ITC is focusing on delivering value at competitive prices. they believe in customer

friendly products with major emphasis on low cost overall without compromising on
the quality of the product.

 Cost Control Strategy

ITC realized that they have to offer products at a price which is either equal or, less than
what the competitors are offering.ITC"s printing and packaging business provided high-
quality, cost-effective, and innovative packaging.

ITC also enjoyed cost advantage over its competitors owing to its electronic
procurement system called e-Choupal.

 Promotion and Advertising Strategy

ITC designs its promotion strategy keeping in mind its brand proposition and its target
audience. It promotes its product through Print, television and radio as a part of its
marketing mix. ITC’s different brands have different brand ambassadors. For example,
classmate has been endorsed by Yuvraj Singh and Soha Ali Khan; Saina Nehwal has
endorsed Salvon; Shahruk Khan has been endorsing the entire range of snacks under
the umbrella brand of Sunfeast. ITC roped in Ranbir Kapoor for John players.

As part of ITC’s centenary initiative, Classmate launched the largest student contact
program- Ideas for India challenge. It provided a platform for Indian youth to
brainstorm and address the issues and challenges which our nation faces and help in
developing the nation. ITC also launches a lot of digital campaigns to ensure maximum
participation. The Fiama De Wills Men campaign is one such example. Fiama DE Wills
has had an association with the talented designer, Masaba Gupta for Wills Lifestyle
Fashion Week. ITC also engage in cross marketing promotions. YiPPee! Launched a
campaign with Paytm offering recharge coupons equivalent to the price of YiPPee
noodles. The company launched an advertisement to back the campaign.

 Packaging and Printing

ITC’s Packaging & Printing continued to aggressively pursue new product development
across segments as a key driver for growth. Some of its innovations, during the year,
included antifungal coated cartons, micro-perforation for specific laminates, braille
feature for labels and cold seal laminates for chocolates.

Pricing Strategy

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 Brisk
farm. 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.

Value based pricing for luxury products.

 Management strategy.
 I. Create multiple drivers of growth by developing a portfolio of world class
businesses that best matches organisational capability with opportunities in
domestic and export markets.

II. Continue to focus on the chosen portfolio of FMCG, Hotels, Paper, Paperboards &
Packaging, Agri Business and Information Technology.

III. Benchmark the health of each business comprehensively across the criteria of
Market Standing, Profitability and Internal Vitality.

IV. Ensure that each of its businesses is world class and internationally competitive.

V. Enhance the competitive power of the portfolio through synergies derived by

blending the diverse skills and capabilities residing in ITC's various businesses.

VI. Create distributed leadership within the organisation by nurturing talented and
focused top management teams for each of the businesses.

VII. Continuously strengthen and refine Corporate Governance processes and

systems to catalyse the entrepreneurial energies of management by striking the
golden balance between executive freedom and the need for effective control
and accountability.

1.6 CSR Activities of ITC

 To direct ITC's CSR Programmes, inter alia, towards achieving one or more of the
following - enhancing environmental and natural capital; supporting rural
development; promoting education; providing preventive healthcare, providing
sanitation and drinking water; creating livelihoods for people, especially those from
disadvantaged sections of society, in rural and urban India; preserving and
promoting sports;
 To develop the required capability and self-reliance of beneficiaries at the grass
roots, especially of women, in the belief that these are prerequisites for social and
economic development;

 To engage in affirmative action interventions such as skill building and vocational

training, to enhance employability and generate livelihoods for persons from
disadvantaged sections of society;

 To pursue CSR Programmes primarily in areas that fall within the economic vicinity
of the Company's operations to enable close supervision and ensure maximum
development impact;

 To carry out CSR Programmes in relevant local areas to fulfil commitments arising
from requests by government/regulatory authorities and to earmark amounts of
monies towards "Enterprise Social Responsibility (ESR)" activities and to spend
such monies through ESR/CSR Cells of such administrative bodies of the
government and/or directly by way of developmental works in the local areas
around which the Company operates;

 To provide equal opportunities to beneficiaries of the Company's CSR Programmes

as vendors or employees on merit;

 To promote sustainability in partnership with industry associations, like the

Confederation of Indian Industry (CII) through the CII-ITC Centre of Excellence for
Sustainable Development, in order to have a multiplier impact.

1.7 EXPORT AND IMPORT

FMCG

Its products, ranging from FMCG to paper and packaging, have contributed significantly
to India’s foreign exchange earnings (more than USD 2 billion in the last decade).The
cigarette business has been expanded to competitive markets like the US and Middle
East through its own brands. In foods, the company is building a presence in ready-to-
eat Indian cuisine through a range of exotic recipes branded Kitchens of India, created
by its chefs of the hotel business. The International Business Division ranks as one of the
largest Indian exporter of agri - products with exports of over USD 150 million.
Although one of the relatively younger business divisions of ITC, it has, in a short span
established itself as a first choice supply chain partner of several leading international
customers like Coca Cola, Abudhabi Flour Mill and Mitsubishi who source agriculture
commodities and food products from India.

Paperboards and packaging

ITC’s Paperboards and Packaging division is the largest exporter of coated boards from
India. The company exports nearly 20 per cent of the coated boards it produces. Clients
for packaging include well-known companies like British American Tobacco, Surya
Nepal Private Limited, VST Industries, GTC, UB Group, Shaw Wallace, Seagrams, Allied
Domecq, Whyte & Mackay, Hindustan Lever, Tata Tetley and Nestle, Reckitt Benkiser
India Limited, JK Helene Curtis.

Agri – Business

Agri-business: The company focuses on exports of soyameal, rice (basmati and non-
basmati),pulses, coffee, black pepper, edible nuts, marine products (shrimps and
prawns), processed fruits etc. Agri exports contributes over 60 per cent of ITC's total
foreign exchange earnings. Seafood products are exported under well-known brands
Gold Ribbon, Blue Ribbon, Aqua Kings, Aqua Bay, Aqua Feast and Peninsular.

Cigarette Tobaccos

ITC is also the largest buyer, processor and exporter of cigarette tobaccos in India and
has been the country’s single largest integrated source of quality tobaccos for customers
in 37 countries over the last six decades.

1.8 Collaborations and Expansion plans

FMCG major ITC expects its new collaborations with unlikely partners, including
Domino’s, Swiggy and Zomato opening new distribution channels, to become
mainstream in future. It had partnered with food delivery chains such as Domino’s,
Swiggy and Zomato along with community centric apps such as Apna Complex, My gate,
No broker and Azgo which had the readiness to address delivery to housing societies in
metros. Through the tie-up with Swiggy and Zomato, ITC ensured home deliveries of its
brands like Aashirvaad, Yippee, Sunfeast, B natural, Savlon, Nimyle and Fiama.
The company had also joined hands with logistics player like Dunzo besides opening up
directly to the consumers with its portal ITCstore.in with an aim of ensuring
uninterrupted supplies of essential items and foods to its consumers.

The partnership with Domino’s was one of the first partnerships ITC embarked upon
through which the company’s food products such as Aashirvaad Atta and Aashirvaad
Spices were made available in multiple markets starting from Bengaluru and expanding
to other key metros. Depending on effectiveness, the company plans to expand the
partnership further in the future.

Creating Highly Collaborative Multi-stakeholder Partnerships is a key element in ITC's

model. In most initiatives, ITC works in close collaboration with NGOs and target
communities. NGO's are Project Implementation Agencies, interacting directly and
extensively with target communities who have the final say in major decisions -
ensuring that the interventions are suited to their needs and thus have the best chance
of sustained success in the long run.

Technical Collaborations

24 technical collaborations with national & global organisations in Agriculture, Water &
Biodiversity - CGIAR, World Wide Fund for Nature (WWF), International Union for
Conservation of Nature (IUCN), International Water Management Institute (IWMI),
Tamil Nadu Agricultural Institute (TNAI) and others • Financial Literacy-CRISIL
Foundation.

Expansion Plans
 1. In FMCG

ITC is planning to expand its FMCG portfolio by foraying into new segments. This
includes the luxury ‘Fabelle’ Chocolates collection, dairy & dairy beverages under the
‘Aashirvaad Svasti’ and ‘Sunfeast Wonderz’ brands, frozen foods from the ‘ITC Master
Chef’ collection, skincare with the premium ‘Dermafique' among others.

ITC is planning to expand its fast-moving consumer goods (FMCG) business in double
digits next fiscal by quickening the pace of product launches, deepening distribution
into the rural hinterland, and building integrated hubs for output, stocking and delivery
of items such as cookies, packaged flour and soaps.

2. In Hotels

ITC plans to add 2,500 rooms to its hotel segment to take the total inventory to 12,000
in five years from 9,500 now, even as the diversified group mulls foraying into the
healthcare space

1.9SWOT Analysis

I. Strengths

Portfolio of Business: ITC has 6 strong and diverse businesses under its name which
boasts its total revenue and allows ITC to innovate and explore other business
opportunities.

Strong Brands in various businesses: ITC is a strong house of brands with most of

its products leading the segments in which they operate. ITC owns some of the most
popular cigarette brands like gold flake and Classic. It also owns Sunfeast, which is
amongst the top selling biscuits in India. Similarly, Aashirvaad, Yippee!, Engage, John
Players and Bingo are also amongst the market leader in their respective categories.
ITC’s hotel and property businesses are also doing well.
With a portfolio like this, ITC has become one of the most powerful conglomerates in
India and is admired all over the world.

Effective Social Business Initiatives: ITC has developed a triple-bottom-

line strategy through which concentrates on developing the nation’s economic, social
and environmental capital. ITC has brought in initiatives like E-Choupal, Choupal
Pradarshan Khet (CPK) which benefits the people at the grass root level, i.e. farmers.
These initiatives have also helped ITC to improve its corporate image from a traditional
tobacco manufacturer.

Inter and Intra-divisional Synergy: ITC has successfully utilised the strengths of existing
business to foray into a newer products or categories. ITC leveraged the strong
distribution system of cigarette brands to create a channel for its FMCG products.
Furthermore, ITC leveraged the knowledge of food and bakery items from its hotel
business to enter into Packaged Food category.

II. Weaknesses

High Proportion of revenues from Tobacco products: ITC has been continuously making
efforts to divert the FMCG business from over dependence on tobacco products and
have been successful in doing so to an extent. But, tobacco products remain to be the
major source of the revenue contributing more than 60% of the total revenue from
FMCG businesses. Association with Tobacco Products affects the image: ITC has made a
lot of efforts to improve its corporate image but the fact that ITC has many tobacco
products in its portfolio impacts its corporate image.

An increase in Tax on Tobacco affects revenue: Due to the increase in taxation on

tobacco products, the prices and hence revenues get affected.

III. Opportunities

Strategic Acquisitions: ITC should continue making the strategic acquisition like they
have done in the past by acquiring Savlon from Johnson & Johnson and B Natural from
Balan natural Foods. Keeping in mind that the product fits into the existing distribution
network, ITC can look to increase its portfolio of products and expand its Non-Tobacco
FMCG business and thereby strengthening the base of revenue.

Growth in Purchasing power and improving lifestyle: ITC should tap on the increasing

purchasing power and improving the lifestyle of customers in India. This could help in
increasing revenue for all its businesses.

Growing Personal Hygiene as well as Food processing Industry in India: ITC should

utilise its distribution channel in Personal Hygiene and Food Processing Industry to
capitalise on the growth in the categories and hence increase revenue.

Tap opportunities created in the Rural Market: The growing rural market in India and
other emerging nations create huge opportunities to improve the bottom-line of the
company.

IV. Threats

Intensifying Competition in FMCG businesses: ITC faces intense competition in its FMCG

business from large MNCs like HUL and P&G and Indian FMCGs like Patanjali and Dabur.
This limits the market share for ITC.

Strict Regulations and Increasing Taxation in Cigarette Business: The Tobacco and

Cigarette Industry in India continue to be targeted by strict government regulations and
taxation system. This possesses a threat to the highly profitable Cigarette business of
ITC.

Increasing awareness on health: There has been an increase in the health consciousness

which has resulted in the decrease in demand for tobacco products in India. Also, anti-
smoking campaigns throughout the country affect the sales of cigarettes
 CHAPTER 2

An Overview of The Industry

2.1 Brief History of The Industry

Between 1950 and 1980, there was limited investment in the FMCG sector. Local people
had lower purchasing power, which meant that people opted for necessity products
rather than premium products. Indian government was inclined towards favouring the
local shops and retailers. Between 1980 and 1990, people wanted more variety of
products which encouraged FMCG companies to increase the availability of products.
FMCG Industry started getting traction and other companies started entering the
industry. Media industry in India also boomed during the same time which gave new
companies even more incentive to make their business profitable. Prior to 1991, when
globalisation and liberalisation occurred in India, western apparels and foreign food
products were not available to local customers. Common people weren’t very aware of
brand recognition. After 1991, FMCG industry was inspired by the international
companies which also allowed government intervention to incentivise foreign FMCG
companies to operate in India.

The Indian FMCG industry generates massive employment opportunities and currently
employs more than 3 million people. Departmental stores, grocery stores, and super
markets are the places where consumers buy the necessary products for daily
consumption. In the 21st century, people don’t want to move across different stores to
acquire the common household goods. Hence, the introduction of supermarkets, where
customers have variety of choices for different household products, into localities are
proving to be extremely convenient to the customers. Some of the most common stores
in India are: Reliance Retail, Big Bazaar, D-Mart, Easy day, MORE, Spencer’s, Spar, Hyper
City, and Star Bazaar. Although the operations of supermarkets are profitable, local
grocery stores are suffering due to lack of variety of products. Unlike other emerging
FMCG industry around the world, FMCG sector in India is still quite conventional.
Despite street markets are still one of the most visited places for shopping in urban and
rural settings, online platforms are leading the way to buy FMCG products.
 In India, companies like ITC, HLL, Colgate, Cadbury and Nestle have been a dominant
force in the FMCG sector well supported by relatively less competition and high entry
barriers (import duty was high). These companies were, therefore, able to charge a
premium for their products. In this context, the margins were also on the higher side.
With the gradual opening up of the economy over the last decade, FMCG companies
have been forced to fight for a market share. In the process, margins have been
compromised, more so in the last six years.

2.2Business Process of The Industry

I. Design and Manufacturing

 Low Capital Intensity - Most product categories in FMCG require relatively minor
investment in plan and machinery and other fixed assets. Also, the business has low
working capital intensity as bulk of sales from manufacturing take place on a cash
basis.

 Technology - Basic technology for manufacturing is easily available. Also,

technology for most products has been fairly stable. Modifications and
improvements rarely change the basic process.

 Third-party Manufacturing - Manufacturing of products by third party vendors is

quite common. Benefits associated with third party manufacturing include (1)
flexibility in production and inventory planning; (2) flexibility in controlling labor
costs; and (3) logistics - sometimes it’s essential to get certain products
manufactured near the market.

II. Marketing and Distribution

 Product Launch - New products require a large front-ended investment in product

development, market research, test marketing and launch. Creating awareness and
 develop franchise for a new brand requires enormous initial expenditure on launch
advertisements, free samples and product promotions. Launch costs are as high as 50-
100% of revenue in the first year. For established brands, advertisement expenditure
varies from 5 - 12% depending on the categories.

 Mass Media Options - The challenge associated with the launch and/or brand-building
initiatives is that few no mass media options. TV reaches 67% of urban consumers and
35% of rural consumers. Alternatives like wall paintings, theatres, video vehicles,
special packaging and consumer promotions become an expensive but required activity
associated with a successful FMCG. “Several factors influence consumer’s choice
towards the products launched by corporate and among them, creating awareness in
the target market is the most important. Product awareness is created through various
sources and the success largely depends on the effective use of advertising media.
Marketers would be looking for valuable information regarding the type of media that is
more efficient and brings the expected results.”

Distribution

FMCG distribution channels consist of three important entities: agents, merchants and
facilitators. 
 Agents generate sales by promoting a company’s product but they never stock or
buy the product themselves. An agent can be an independent person or a member of the
company itself.
 Merchants such as retailers, wholesalers or stockists buy and stock the products
in bulk and them supply them to other retailers or sometimes directly to the consumer.
Merchants are usually independent but sometimes a manufacturing unit has their own
wholesale or retail departments.
 Facilitators, as the name indicates, facilitates the transportation of goods
manufactured from one place to another. Facilitators include logistic services,
warehouse owners, independent distributors who are just involved in storing and
transporting the manufactured product and not promoting or trading them

III. Competitiveness
 Basic technology for most products is fairly simple and easily available.

 The small-scale sector in India enjoys exemption/ lower rates of excise duty, sales tax
etc. This makes them more prices competitive vis-a-vis the organized sector.

 A highly scattered market and poor transport infrastructure limits the ability of MNCs
and national players to reach out to remote rural areas and small towns.

2.3Market Demand and Supply – Contribution to GDP – Revenue Generation

a) Demand

Consistent GDP growth (approximately 15% for last five years), increasing population ,
growing awareness, changes in consumer profile ( more young population), increasing
consumer income ( approx 60% increase from 2006 to 2014), changing consumer
expenditure pattern (More expenditure on non food items), increasing discretionary
income , changing lifestyle, growth in rural sector (increasing share of non-agricultural
sector), Untapped rural market ( Low penetration levels for many FMCG categories),
aspiring rural consumers, high private consumption, rising urbanization and huge
export potential are resulting in increased demand for FMCG products.

Most Demanded FMCG Goods

Personal Wash - The personal wash can be segregated into three segments: Premium,
Economy and Popular. Demand is expected to increase because consumers are moving
up towards premium products

Detergents - Household care segment is characterized by high degree of competition

and high level of penetration. With rapid urbanization, emergence of small pack size and
sachets, the demand for the household care products is flourishing. The demand for
detergents has been growing but the regional and small unorganized players account
for a major share of the total volume of the detergent market.

Personal Care - Such products include sanitary napkins, tissues, razors, shaving creams,
shave-gel, anti-ageing products, shampoos, conditioners, lotions, cosmetics, deodorants,
perfumes, hair oil, tooth-paste, tooth-brush, moisturizers, and cleansers, bathing soaps,
body-wash and other toiletries.

Skin Care - The skin care market is at a primary stage in India. The penetration level of
this segment in India is around 20 per cent. With changing life styles, increase in
disposable incomes, greater product choice and availability, people are becoming aware
about personal grooming.

Oral Care - The penetration level of toothpowder/toothpaste in urban areas is three

times that of rural areas. The oral care market, especially toothpastes, remains under
penetrated in India with penetration level 50 per cent. “In India, the awareness level of
oral care products is less; only toothpastes, tooth powders and toothbrushes are
dominating the market.”

b) Supply

The nature of FMCG product i.e. frequently consumed, low priced & easily available
generates huge and consistent demand for companies. Apart from this the presence of
strong brands in different FMCG categories made this sector growing for years. New
products, E-commerce and innovation in marketing methods are helping companies in
improving service quality expanding their businesses. Also the growth in modern retail
provided an opportunity to companies for expanding their business.
c) Contribution to GDP
FMCG products are sold and purchased on an extensive level every day in India which
leads FMCG sector to be the 4th largest sector in the Indian economy. It has grown from
INR 2,20,852.4 Crore in 2011 to INR 3,68,669.75 Crore in 2017-18 and is expected to
reach INR 7,24,759.3 Crore in 2020 with a CAGR (Compound annual growth rate) of
27.86%. 
The FMCG sector is one of the major industries in the Indian market contributing nearly
20% to the Gross Domestic Product (GDP). Rural segment is a large contributor with
approximately 45% share in revenue. The market size and GDP contribution of FMCG
shows that there are millions of jobs in FMCG sector. 
d) Revenue Generation
The retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840
billion in 2017, with modern trade expected to grow at 20 per cent - 25 per cent per
annum, which is likely to boost revenues of FMCG companies. Revenues of FMCG sector
reached Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and are estimated to reach US$
103.7 billion in 2020. The sector witnessed growth of 16.5 per cent in value terms
between July-September 2018; supported by moderate inflation, increase in private
consumption and rural income.
Rise in rural consumption to drive the FMCG market. It contributes around 36 per cent
to the overall FMCG spending. FMCG urban segment witnessed growth rate of 8 per cent
whereas rural segment grew at 5 per cent in quarter ended in September 2019. The
revenue of FMCG’s rural segment is forecasted to grow to 11-12 per cent in 2020.

2.4Level and Type of Competition – Firms Operating in the Industry

The level of competition in the FMCG sector is Direct Competition
where products which perform the same function compete against each other.
Example:
1.HUL and P&G

The HUL vs P&G rivalry exists in every retail counter or modern retail showrooms. And
it is most prominent in personal care or hygiene products like Detergents, shampoo,
soaps, and others.

P&G has head and shoulders, HUL has dove. P&G has Olay, whereas HUL has Sunsilk and
Tresemme. P&G has Old spice, HUL has Axe. Thus, powerful products are present in
both the companies, both of them die hard rivals to each other. However, each of the
companies have their own trademark products as well.

2. Parle vs Britannia (Biscuits)

Parle has one of the best selling and the most widely distributed product in the biscuit
market –  Parle G. The product has won many distribution awards in the past few years
and it is known for its packaging as well as for its variants in price. Hence the biscuit
sells in low end as well as middle level markets.

Others like Marie, Hide and seek and Monaco also sell in huge amounts.
However, Britannia has some power house products in its portfolio like Bourbon, good
day, little hearts, 50 50 and others. The competition amongst these two brands is
 evident when each has a variant of Marie biscuits. Parle's is known as “Marie” and
Britannia's is known as “Marie gold”.

3 Pepsi vs Coke (Soft drinks)

The companies are very aggressive when it concerns their marketing or their
distribution. Both the companies are known to break distributors by giving them huge
margins and at the same time, they are known to take direct digs at each other. Due to
their intense rivalry, no other soft drink brand has been able to survive in this market

Type of Competition

Monopolistic Competition

Monopolistic competition is a market situation in which there are a large number of

sellers and a large number of buyers for the products and services. The firms in a
monopolistic competitive market are generally small in size. All firms provide similar
products i.e. the products are close substitutes of each other.

The Indian FMCG Market is a perfect example of monopolistic competition. It is a highly

crowded market with a large number of national and global players competing on
margins. The stock turnover is high as FMCG products are frequently consumed and
have a short shelf life.

Firms Operating in the Industry

i. ITC

ITC Limited company has second largest annual turnover in FMCG companies of India,
headquartered in Kolkata. The most popular products and brands of ITC are major
cigarette brands of India such as Wills Navy Cut, Gold Flake, Bristol and food brands
include Aashirvaad salt, Yippee, Sunfeast biscuits and personal care products like Savlon
Soap and Mangaldeep brand of agarbattis.

ii. Nestle
 Nestle is the largest food company in the world and operates in list of categories in
consumer products as well as packed food. The food and beverage company has over
2000 brands including coffee, bottled water, KitKat, soups, sauces and Maggi noodles.

iii. Colgate Palmolive

Colgate Palmolive is an American consumer products company, also has numerous

subsidiary organizations. The most popular oral hygiene products of the company are
Colgate toothpaste, mouthwashes, Cibaca and Palmolive soap, shampoo and hair
conditioner.

iv. Parle Agro

Parle Agro Private Limited is an Indian FMCG company, split into three separate
companies to handle Parle Products, Parle Agro and Parle Bisleri. Frooti, Appy Fizz,
famous biscuit brand Parle G and Bisleri, Bailley mineral water.

v. Marico

Marico Limited company operates into consumer products and services, the company
generated one of the highest turnover in India with popular products brands like
Parachute hair oil, Nihar and Saffola.

vi. Procter & Gamble (P&G)

Procter & Gamble company specializes in personal care range of products and India is
one of the most popular selling market for P&G. Gillette bran of razors, Oral-B
toothpastes and tide laundry detergent are the popular consumer goods of the
company.

vii. Godrej

Godrej Group owned by the Godrej family and the consumer products limited deals in
FMCG product categories. Consumer goods of Godrej Group are Cinthol, Shikakai soap,
liquid detergent brands Ezee and shaving cream brands
viii. Patanjali Ayurved

Patanjali Ayurved Limited manufactures mineral and herbal products from the lap of
Indian Himalayas and Nepal, listed as the fastest growing FMCG company in India. Baba
Ramdev and Acharya Balkrishna established the Patanjali Ayurved, produces personal
care and food products in India.

ix. Dabur

Dabur is a leading Ayurvedic product manufacturer in India, also into the Pharma
business for natural consumer products. Dabur is also one of leader in Ayurveda
products brands along with health & personal care.

x. Emami

Emami is one of the major skin care FMCG companies in India, also into men’s
deodorant market along with splash, Zandu balm, colds and coughs health products.

xi. Nirma

Nirma group of companies manufactures cosmetics, detergents, soda ash and salt. The
fastest growing consumer goods companies in India based in the city of Ahmedabad,
offering a range of detergents, soaps and consumer brands in India.

xii. Johnson & Johnson

Johnson & Johnson is an American company and one of the most valuable companies of
the world. Well known consumer products of the Johnson & Johnson in India are Clean
& Clear facial wash, Johnson baby shampoo, Stayfree and Neutrogena skincare brand.2

2.5 Pricing Strategies of FMCG Industry

 Market Penetration Pricing.

The price charged for products and services is set artificially low in order to gain market
share. Once this is achieved, the price is increased. 
Reason for Adoption

 The market is highly price sensitive and a low price stimulate market growth.
 Production and distribution costs fall with accumulated production experience;
 Low price discourages actual and potential competition.
 Target-return pricing

Determines the price that would yield its target return on investment.

 Perceived-value pricing

Made up of several elements, such as the buyers' image of the product performance, the
warranty quality, customer support, and softer attributes such as the suppliers'
reputation, trustworthiness, and esteem.

 Value Pricing

Charging a fairly low price for a high quality offering

Reengineering the company’s operations to become a low cost producer without

sacrificing quality to attract a large number of value conscious customers.

 Going – rate pricing

 The Going-Rate Pricing is a method adopted by the firms wherein the product is priced
as per the rates prevailing in the market especially on par with the competitors. where
costs are difficult to measure or competitive response is uncertain, firms feel the going
price is a good solution because it is thought to reflect the industry's collective wisdom.

 Promotional pricing

Companies use several pricing techniques to stimulate early purchase.

Techniques are:

• Loss-leader pricing

• Special-event pricing
• Cash rebates

• Low-interest financing

• Longer payment terms

• Warranties and service contracts

• Psychological discounting

 Differentiated Pricing

companies often adjust their basic price to accommodate differences in customers,

products, locations, and so on

•Customer-segment pricing

•Product-form pricing Image pricing

• Channel pricing

•Location pricing

• Time pricing

3.2 Prospects and Challenges of FMCG Industry

 Prospects
 Leading players of consumer products have a strong distribution network in
rural India; they also stand to gain from the contribution of technological
advances like internet and e-commerce to better logistics. Rural FMCG market
size is expected to touch US$ 220 billion by 2025.
 Online portals are expected to play a key role for companies trying to enter
the hinterlands. The Internet has contributed in a big way, facilitating a
cheaper and more convenient means to increase a company’s reach.
 The sector is further expected to grow at a Compound Annual Growth Rate
(CAGR) of 27.9% to reach US$ 103.7 billion by 2020.
  The initiatives for the growth of sector are expected to increase the
disposable income in the hands of the common people, especially in the rural
area, which will be beneficial for the sector.
 By 2030, India will become world’s fifth largest consumer market, according to
KPMG. The FMCG industry has also seen a rise in M&A deals and more investors
will pump money into this thriving sector.
 Recent government has started more focus on rural India for its upliftment
through various initiatives such as allocation of funds for irrigation, road
construction, increase in minimum support price for key crops, employment
guarantee schemes etc, all such initiatives will drive demand in rural areas.
 Due increase in awareness level, rural consumers are also preferring health and
wellness products, which gives FMCG companies a huge opportunity to showcase
their health and wellness products.
 Personal care market is also growing two fold due to increase in purchasing
power and growing consumer interest, according to industry sources this market
is growing at an annual rate of 20%.
 Food processing industry also have huge potential in rural India, this industry is
ranked fifth in terms of production, consumption, export and expected growth,
food processing industry accounts for approx 30% of total food market in India.
 Due to increase in disposable income in the hands of rural India, has given opportunity for
premium brands to test themselves in the rural market.
 Due to focus on basic infrastructural development (like roads and electricity) in
rural areas, FMCG industry has huge potential to reduce cost and time in making
available products in rural areas.

 Challenges in FMCG Industry

 Change in consumer buying behaviour due to COVID 19

One of the significant repercussions of lockdown is panic shopping. There has been a
major change in customer’s buying behaviour over the past few days. The consumers
are fearing a shortage of essentials at their home. Hence, they are buying everything in
excess just to ensure that they won’t run out of the essentials during these tough times.
Owing to panic buying among the consumers, the demand for household products and
FMCG goods is mushrooming exponentially.

Big brands have noted a surge in their demands. Even grocery stores are reporting high
demands for fresh vegetables, fruits, bread, wheat, oil, and other grocery items.

The demand graph has gone up. However, restricted movement is disrupting the supply
chain. In such a scenario, the movement of essential goods and the delivery of the
orders have become major challenges for brands.

 There is a lack of manpower in the industry as most of the people have gone to their
hometowns in COVID 19 lockdown period. The deficiency of manpower is causing a
delay in both the production and delivery of FMCG products. 

 Retailing Challenges due to Corona Virus Lockdown

In addition to challenges in the supply chain, there is a challenge for the field salesman
in taking orders while maintaining ‘social distancing’. Due to movement restrictions,
salesmen are not able to visit physical outlets to book orders. Hence, it’s becoming
challenging for the salesman to receive orders and get it fulfilled through distributors.
Instead, they are embracing work from home concept, which is entirely new for them. 

Furthermore, salesmen are not able to meet retailers in person, which is causing a dent
in a brand's value. On top of that, consumers are buying products in bulk without being
brand conscious. Hence, big brands are losing their loyalty to local brands.

Ensuring smooth interaction between brands and retailers has also become quite
difficult. Furthermore, there have been instances of misinterpretation of the Central
government’s directives by authorities and local-level governments. 

 Intense competition both in organized and unorganized sector gives huge challenge
for FMCG firms to operate in rural India.

 Due to low illiteracy level it is difficult to educate about the products and also
duplicate products try to make their mark by copying the similarities of original
products.
 Due to low illiteracy level it is difficult to educate about the products and also
duplicate products try to make their mark by copying the similarities of original
products.

 Due to huge dependency still on agriculture for income, demand is seasonal in rural areas, which
creates challenges in maintaining adequate amount to stock.

 Due to many languages and dialets, it’s a challenge for FMCG firms to promote and
advertise their products in every local language.

 Sale in rural areas is more driven by availability of products and this again is a huge
challenge due to huge and vast market of rural India.

 Due to inadequate power supply media coverage for promotion of products

becomes a huge and expensive task for companies.

 Lack of proper warehouse facilities gives a challenge for FMCG companies to safely store
products and make them timely available in market.

 Due to largely scattered market making product available timely and early than your competitor
is a huge challenge for companies.

 The waste management is a major problem faced by FMCG this is caused while
selling packaged goods to low-income consumers, the packaging waste that is left
behind, especially sachets is turning into a major waste problem. While bigger
packages, such as PET bottles, are normally part of a formal or informal waste
management system, sachets are normally not being reused. Although there are
initiatives under way, most packaging waste ends up in landfills or the countryside
 Dealing with complex taxations structures is a challenge faced by FMCG industry
because of the complex taxation structure, it is difficult to treat India as one market.
Varying local tax structures across states encourage traders to indulge in the
smuggling of goods across states, leading to the creation of grey markets. Experts
are of the view that smuggled goods account for about 15 percent of the total goods
flow. Such activities distort the plans and activities of FMCG companies. Further
because of the tax on the interstate sales, companies can never ship goods to
 customers located outside the state. They first have to transfer goods to the state
level warehouses on a consignment basis and then supply the goods to the
customers. With the introduction of VAT, harmonization of taxes across states and
the possible removal of tax on inter-state sales, FMCG companies will see lots of
changes in the way they have been managing their supply chains.

2.7 Key Drivers of FMCG Industry

DESIRE TO
EXPERIMENT EVOLVING CONSUMER
WITH BRANDS LIFESTYLE

GOVERNMENT NEW PRODUCT

SUPPORT TO LAUNCHES

ENCOURAGE
FDI INFLOW

GROWING
RURAL
MARKET
FMCGGREATER AWARENESS
KEYDRIVERS
OF PRODUCTS BRANDS

GROWTH OF
MODERN TRADE
INCREASING
CONSUMER INCOME
AND DEMANDS STRONG
AVAILIBILITY OF DISTRIBUTION
ONLINE GROCERY CHANNEL
STORES
 Rising income
Incomes have risen at a brisk pace in India and will India‘s nominal per capita income
(USD) continue rising given the country‘s strong economic growth prospects. According
to IMF, nominal per capita income is estimated to grow at a CAGR of 4.94% during
2010-19F An important consequence of rising incomes is growing appetite for premium
products, primarily in the urban segment .Moreover The Indian government has been
supporting the rural population with higher MSPs, loan waivers, and disbursements
through the NREGA programme and other Government initiatives like Pradhan Mantri
Jan Dhan Yojana These schemes have empowered the rural masses and increased their
purchasing power, thus boosting FMCG consumption.

 Rising Rural consumption

Over 65% of India’s population stays in rural areas and they spend 50% of their total
spending on FMCG products. Hence, rural market, accounting for 45% of overall
revenue of the FMCG sector, is one of the key contributors to India’s FMCG growth story.

India registered a healthy 30% YoY growth in terms of cities and towns transacting
through e-commerce, primarily driven by rural India, where of ~4,300 e-commerce
hubs, 3,281 comprise Bharat hubs (smaller towns) and 1,015 rural hubs. A number of
factors, like improved internet connectivity, rural mobile phone access and widespread
television coverage helped companies to educate consumers better about products and
helped FMCG companies to grow their revenues. As per Jyothy Labs Annual Report,
India’s rural per capita disposable income is estimated to increase at a CAGR of 4.4% to
USD 631 bn by 2020, which is likely to act as a major boost for rural consumption.
Additionally, recent announcement on farm loan waivers by various state governments
is also expected to take off some of the financial burden from the farmers, which is also
likely to support the consumption growth in rural India going ahead. Increased focus of
the government on improving farmer’s income, digitization, smaller size packets, rising
awareness and expected rise in per capita disposable income is likely to drive growth
for FMCG companies in rural India.

 Changing Lifestyle

It is difficult to ignore lifestyle trends that are today impacting upon consumer
purchasing decisions. For the FMCG Sector, these trends are positive and encouraging
innovation. Consumer lifestyle is continuously evolving. Companies are tailoring their
product with features that suit the lifestyle of their target segment. On the other hand
consumers are buying products which match up with their living standard, class and
which are acceptable in the culture. Opportunities in the health and wellness space-
Growing concerns over lifestyle related health issues like obesity, diabetes,
hypertension and chronic heart disease are pushing consumers to make a shift in their
food preferences. It has been witnessed in the recent past, that, consumers have
consciously made a preference shift towards healthy, fat-free and no-sugar options in
processed foods. According to industry estimates, the diet-related food and beverages
market in India is witnessing double digit growth. This growing market for healthy and
nutritious food is proving to be an opportunity for several food and beverage
manufacturers, which are aligning their strategies in line with the changing consumer
preferences. Several food and beverage companies are responding to this trend through
new product launches that have the same taste but reduced levels of salts/ sugars .

 Government Support to FDI Inflow

The government has allowed 100 per cent Foreign Direct Investment (FDI) in food
processing and single-brand retail and 51 per cent in multi-brand retail. This would
bolster employment and supply chains, and also provide high visibility for FMCG brands
in organised retail markets, bolstering consumer spending and encouraging more
product launches. The sector witnessed healthy FDI inflows of US$ 15.94 billion during
April 2000-December 2019.

 Young Population

Another major factor propelling the demand for food services in India is the growing
youth population, primarily in the country’s urban regions. India has a large base of
young consumers who form the majority of the workforce and, due to time constraints,
barely get time for cooking.

 Online Portals

Online portals are expected to play a key role for companies trying to enter the
hinterlands. The Internet has contributed in a big way, facilitating a cheaper and more
convenient means to increase a company’s reach. It is estimated that 40 per cent of all
FMCG consumption in India will be online by 2020. The online FMCG market is
forecasted to reach US$ 45 billion in 2020.

 Strong Distribution Channel

There is a strong network of distributors that these FMCG companies utilise to connect
themselves with every paan wala, kirana store, chemist, and the likes in a certain region.
In order to become their clients, the companies deploy regional executives,
merchandisers, and distributors who in turn become the face of these companies for
them. These representatives are responsible for taking orders and delivering them in a
said tat-period (turnaround period). On a given day, an average order to delivery period
is two to five days depending upon the nature of the product, in order to maintain the
harmony in the market.

 Modern Trade

Growth in sales through modern trade especially e-commerce is gradually outpacing the
growth of FMCG products in general trade. Post the announcement of demonetization
and implementation of GST, the overall modern trade is expected to grow at even faster
rate with e-commerce to be the major driver of this growth. A faster growth in internet
user base, broadband data consumption, rise in smartphone penetration rate and in
digital transaction is expected to drive the growth going ahead. According to market
researcher Nielsen’s Report, growing consumer trust and confidence in online buying
has helped e-commerce platforms to expand their share in India's total FMCG retail
sales by as much as three times (source: economic times dated December 18, 2018). The
report added that the fresh and packaged groceries have seen significant upswing in
online purchase of these categories. The report also stated that global online grocery
purchasing is up 15% in the last two years, leading to an estimated USD 70 bn of
additional sales in online FMCG segment. In another report, Nielsen expects e-
commerce's contribution to the total FMCG sales is expected to rise to 11% by 2030,
from currently projected at 1.3% after being grown from 0.4% to FMCG sales in 2016
(source: economic times dated November 14, 2018).

 Experimenting New Brands and Products

Consumers have started the liking of varieties in a product as they get bored of the same
product using on a continuous bases. This is a driving force for the companies to come
up with new products in their categories.

2.8 Stalwarts in the FMCG Industry

 Yogesh Chander Deveshwar

Yogesh Chander Deveshwar, was a rare example of an employee joining straight out of
college and moving through the ranks to become not just the youngest chairman of a
frontline conglomerate in India Inc, but also the longest serving one for 23 years.

YCD, as he was popularly referred to in corporate circles, had joined the board of ITC
Ltd in 1984 in just sixteen years after he joined the company from Indian Institute of
Technology, Delhi. He was subsequently appointed the chief executive and chairman in
1996.
YC Deveshwar made a strong contribution to Indian industry. His efforts helped ITC
become a professionally-run Indian company with a global footprint. ITC was engaged
in non-tobacco businesses even before Deveshwar took charge, given the disfavour with
which cigarettes are viewed by political establishments, health activists and the general
public.
But the strong impetus that this part of the business got under Deveshwar has made ITC
synonymous also with luxury hotels, agri-business, paper and paperboards, branded
apparel and lifestyle retail, agarbattis, packaged foods, and personal care. It is now a
multi-product, hugely diverse conglomerate, and tobacco is just a part of it.

Deveshwar’s leadership transformed ITC into a valuable and admired multi business
conglomerate with a robust portfolio of front-ranking businesses in FMCG, hotels,
paperboards and paper, packaging and agri-business. His Vision to make societal value
creation a bedrock of corporate strategy also led ITC to become a global exemplar in
sustainability and the only company in the world to be carbon positive, water positive
and solid waste positive for over a decade.

While ITC has retained its lead in the tobacco business accounting for two out of three
legal cigarettes sold in the country, the company has a wide spectrum of bestsellers in
non-tobacco segments as well. It has created more than 50 popular brands, such as
Aashirvaad and Sunfeast to Classmate and Bingo. In FY18, the non-cigarette FMCG
business revenue was Rs 11,328 crore, while gross profit of the business was Rs 164
crore.
According to Deveshwar, building successful Indian brands has been ITC’s biggest
achievement in an FMCG market that is dominated by multinationals. He has an
ambition: to grow ITC’s non-cigarette FMCG business revenue to Rs 1 lakh crore by
2030, in the process becoming the largest FMCG firm in the country beating Hindustan
Unilever. Puri has time and again said ITC is on the path to achieve Deveshwar’s vision
despite of external hiccups like implementation of GST and weak monsoon
Led by Deveshwar, ITC has received significant global and national recognition for its
pioneering work in creating sustainable communities as part of efforts to transform
rural India. Some of its achievements have been featured as case studies at Harvard
Business School. Harvard had ranked Deveshwar the seventh best-performing CEO in
the world in 2012, alongside icons like Apple’s Steve Jobs. In 2011, he was conferred the
Padma Bhushan.
Under him, ITC’s focus is on sustainable growth. It has been carbon positive, water
positive and solid waste recycling positive for more than a decade years. All its luxury
hotels are LEED Platinum certified. Renewable energy constitutes about 48% of ITC’s
total energy consumption. It has created 6 million jobs in the country.
Deveshwar has ensured ITC is on a firm footing as a truly global Indian conglomerate
with a focus on social development. Such efforts, he believes, will boost the overall
economy of the nation. “The mission to create world-class brands in India must,
therefore, assume the fervour of a national movement,” he said some time ago, adding:
“Such world-class Indian brands will help create, capture and retain larger value for the
economy.”

 Nitin Paranjpe

Nitin Paranjpe has led India’s largest consumer packaged goods company on an
aggressive growth charge over the last five years despite a tough macroeconomic
environment. Having joined the company as a management trainee in 1982 and risen
through the ranks in the post-liberalization period, Paranjpe, 50, has always been
something of a star in the system and was tipped for a leadership role in the Unilever
Plc universe quite early on in his career. When he became chief executive officer (CEO)
at 46, he was the youngest-ever at the post at Unilever’s Indian unit.
The company’s market capitalization has risen nearly threefold from ₹ 51,283.69 crore
in 2008 to ₹ 143,394 crore in 2013. Net profit has grown from ₹ 2,504.51 crore in the
15-month period in 2008-09 to ₹ 3,828.98 crore in financial year 2013. Sales in the five
years have grown 5.71% on a compounded annual growth rate basis from ₹ 20,457.95
crore to ₹ 27,003.99 crore.

He has a great blend of strategic and operator ability and combined them well

As a marketing professional, Paranjpe is very attuned to ground realities and able to

connect with people across the system, known as a people’s person, Paranjpe has shown
himself able to connect with the changing Indian consumers and the young. He launched
programmes such as reverse mentoring, which involved 25-year-olds guiding their
older colleagues on social media and making them more tech-savvy.
Under his tenure, the company has been chosen as the No. 1 recruiter at India’s
management schools for four years, according to the Nielsen Campus Track-B School
Survey.
He was a member of the nomination and remuneration committee, stakeholder
relationship committee and corporate social responsibility committee of HUL.

 Helmut Maucher
Nestle veteran Helmut Maucher, who turned the Swiss-based company into the world’s
biggest food group during his almost 20-year leadership. Maucher, a German who joined
the company as a commercial apprentice and later became chief executive and
chairman.Helmut Maucher was a highly esteemed and charismatic personality, a strong
and visionary leader, who dedicated so much of his life to Nestle. Known for being
outspoken, Maucher boosted the company’s sales through a series of aggressive
acquisitions in the 1980s. Maucher joined Nestle as an apprentice at the Nestle factory
in Eisenharz, his home town in southwestern Germany, and held several management
positions in Germany before transferring to Nestle’s Swiss headquarters in 1980. He
was named chief executive in 1981, at the height of a dispute over Nestle’s marketing of
infant formula in developing countries.

Helmut Maucher looks both at the world market potential for Nestlé's products and at
the internal profile of the company itself. Externally, although there are problems, he
sees an improving climate for investment by multinational companies. But he points
out that the early Swiss companies like Nestlé had no real global strategy at all.

Internally, acquisition strategy is important, but for reasons of synergy not finance.
Moving into products in the “grey zone” between food, dietetics, nutrition and
pharmaceuticals is of increasing interest. He concludes by emphasizing the powerfully
international character of Nestlé's top management staff.

 Paul Bulcke

When Paul Bulcke was named CEO of Nestlé , the world’s largest food and beverage company, in
2008, his brief was clear: Don’t mess with success. Yet Bulcke, 60, who joined Nestlé in 1979,
didn’t see himself as merely a caretaker for the Swiss company, which sells an eye-popping 1.3
billion products a day. Instead, he has been gently tweaking Nestlé’s portfolio of more than
2,000 brands to boost profitability and further the company’s transformation into a leader in
nutritional health. Bulcke, spearheaded the acquisition of businesses more aligned with the
company’s goals, such as the 2012 purchase of Pfizer’s (PFE) infant-nutrition unit. And this year
it acquired, from Valeant Pharmaceuticals International  (VRX), the rights to commercialize
several aesthetic dermatological products in the U.S. and Canada.

As a result, Nestlé’s Nutrition and Health Sciences business is expected to account for
11% of this year’s estimated total revenue of 91.8 billion Swiss francs ($95.2 billion,
with the Swiss franc trading at one U.S. dollar plus a few pennies). Stripping out
acquisitions and divestitures, organic sales growth for the unit in 2013 was 7.6%

Bulcke’s portfolio refinements have not only opened new markets for Nestlé, but
boosted its profit margin. Nestlé’s earnings before interest, taxes, depreciation, and
amortization are projected to total 19% of revenue this year, up from 16.7% in 2007,
just before he took charge.
Analysts expect Nestlé to earn 10.7 billion Swiss francs ($11.1 billion) this year, or
CHF3.39 per share, with net income rising to CHF11.4 billion in 2015, or CHF3.68, on a
6.4% rise in revenue, to CHF97.7 billion.

Bucls’s experience in emerging and developed markets and described him as “a strong
and pragmatic business leader with an outstanding, proven performance record.”

Bulcke “is known inside of the house for his leadership based upon trust and
transparency and has a very high level of personal integrity.

 Harsh Mariwala

The founder and chairman of Marico - the company behind the well-known household
brand Parachute - has carved a niche for himself in the highly competitive FMCG space,
and continues to play a key role in the company. Founded 28 years ago, Marico is a
consumer and personal care product giant, with brands like Saffola, Set Wet, Livon and
Mediker which have now become household names across India. The company has a
presence in 25 countries.

Innovation was another key ingredient to the success of Harsh Mariwala as an

entrepreneur. In the 70s, oil was sold in tin containers, Harsh wanted to portray
Parachute as a premium brand and wanted the packaging to reflect that. When the
company did a market survey, they found out that none of the traders were willing to
keep the iconic plastic bottles of Parachute that we see today. As Harsh has always
relied on professionals in critical areas of the business, he hired a professional from
Ranbaxy for this problem who lived up to his billing and came up with an ingenious
solution – Round Plastic bottles of superior quality plastic which made it impossible for
the rodents to get a grip on the bottles and the new packaging became an immediate hit
with the consumers driving up the sales.
 Another example of innovation that came much later was the transformation of anti-
lice shampoo ‘Medikar‘ into an oil-based preparation after a survey showed that
customers are more attuned to putting oil in their hair rather than shampooing them.
This single alteration made the sales of Medikar shoot up many folds.

 With an extreme focus on sales, distribution along with product innovation, Harsh had
brought the consumer business of Bombay oil from 50 lakhs to 80 crores by the late
80s. Parachute became a market leader in the segment across India with a market share
of 50% by 1991.

 Genius of Harsh Mariwala was again at a display with the way he turned around
Saffola from a niche product in Mumbai to a segment leader within a few years.
Mariwala stumbled upon a research that Safflower oil (different from sunflower oil)
reduced cholesterol risk in individuals, following which he hired an ad agency to build
Saffola’s brand around its health benefits. Saffola with its tagline ‘healthy for the heart’
followed parachute’s footsteps and established its dominance in the edible oils
segment. Saffola along with Sweekar sunflower oil gave Bombay oil 14% market share
closely followed by ITC at the second spot with 12% market share.

 Karsanbhai Patel

Karsanbhai started Nirma in 1969, in an era when India's domestic detergent market
had very few players, mainly multi national companies, which targeted India's
affluent. For most middle class and poor people, detergents were not affordable.
Karsanbhai started making detergent powder in the backyard of his house in Khokra
near Ahmedabad, and sold them from door to door at Rs 3 per Kg, when other brands
were selling detergents at the range of Rs 13 per Kg. Business Standard reports how
during early 80s, when Nirma was struggling with sales, Karsanbhai came out with a
brilliant plan to dry out the market of his products collecting all due credits. This was
followed by a massive advertising campaign featuring his daughter in a white frock
singling the famous Nirma jingle. Customers flocked to stores, only to return empty-
handed. As the demand for Nirma peaked, Karsanbhai overwhelmed the market with
his products, leading to massive sales. That year, sales of Nirma peaked, making it the
most sold detergent, way above their nearest rival - Surf of Hindustan Unilever. This
year, as Karsanbhai bought the LafargeHolcim’s cement business for $1.4 billion, he
proved yet again, that his entrepreneurial appetite is far from over. Mint reports how
the deal will help Nirma gain a stronger hold in Rajasthan and the surrounding region.
An entrepreneur in the truest sense, Karsanbhai, although a media shy person, has a
keen eye for nation building. He started the Nirma Institute of Technology in 1995,
followed by the Nirma University of Science and Technology in 2003, overseen by the
Nirma Education and Research Foundation. In 2004, he launched the Nirmalabs
education project, aimed at training and incubating entrepreneurs in India. In 2010,
Karsanbhai Patel was conferred with Padma Shri.

 A.G. Lafley

In 2000, Lafley was elected to be the president and CEO of Procter & Gamble and began
to lead 110,000 P&G’s employees who distributed in 70 countries. The P&G was just in a
big trouble because of a series of radical plans made by the ex-CEO Durk I. Jager. Jager
developed the new product blindly. He did not focus on the core competitive product.
What is more, P&G was a very conservative company at that time. With many other
reasons, the company fell into a big failure. Fortunately, the advent of Lafley saved P&G.
Lafley made a new policy decisively-“Continue to promote the growth of the core
advantages of resources and profit from it.” Lafley focused on the old brand and made a
soft revolution at the same time. He replaced half of the senior officials and cut away
nearly 10,000 jobs to make P&G more flexible and professional. “Innovation” was
Lafley’s core concept. No matter by encouraging the organic growth of the company or
by merging the others’ creations, Lafley never stopped to innovate. He said: “Each
enterprise has its own core organization principle. And the principle in P&G is
innovation.” What’s more, Lafley would like to make an exception to promote the
talented person and he was good at cooperating with other people and companies.
Under his leadership, sales of P&G were nearly doubled-from 39 billion dollars to 76
billion dollars. Procter & Gamble Company became the American top 10 most valuable
company and the world’s top 15 most valuable companies since that time. And it was
considered as one of the most respected company from then on.

 Dr. Verghese Kurien

The success of Amul is attributed mainly to Dr. Verghese Kurien, who was associated
with KDCMPUL since 1950. He had an impeccable understanding of the business. Under
his management, Amul from the initial days started focusing on quality, variety,
outreach, advertising, and, more importantly innovation.

See this one instance. During the 1950s in India, Nestlé's milk powder was popular. Milk
powder could be processed only by cow milk until then. India has a considerable buffalo
milk supply, but it was short on cow milk. It is unlike Europe, from where Nestle came.
Since Europe did not need it, the technology was also not invented.

Dr. Kurien asked Indian dairy engineer H M Dalaya, and Dalaya developed skimmed
milk and milk powder from buffalo milk. This alone was such a remarkable step that 30
years later, Amul did not end Nestlé's reign in this segment in India, it has knocked it
over globally today. Amul later started producing cheese from buffalo milk since 1961.
How many kinds of Amul cheese do you remember? In fact, it was Dr. Kurien's idea to
use cheaper tin-can packaging for ghee. This was later adopted by various other
enterprises, including Wipro. Dr. Kurien did leave such a legacy and hence one would
find so many articles about him saying 'the nation is indebted to him.'

Fortune favours the brave. Dr. Kurien was a visionary. He knew that he was in a serious
business. He employed Sylvester Da Cunha's AS advertising company. They came with
the idea of the little polka dot frock girl for their butter campaign. In the initial phase,
they planned some ads relating to daily events. They were witty puns with a word or
two. This campaign-style was new. People went gaga over the 'Amul Baby.' It became so
popular that it continues even today. Perhaps four Indian generations could identify
Amul with that girl. It holds the Guinness World Record of the longest-running
campaign. I really do not find any reason for this campaign to end.

 Varun Berry

Varun Berry was roped in by Britannia Industries at a time when the company was
directionless and had an unhealthy balance sheet. Berry took up the challenge and
managed to transform the company into a ‘total foods’ major. He also trimmed down
costs, revamped the management team, streamlined the product portfolio and brought
the focus back on a handful of brands. During his tenure, the FMCG major and the
country’s top biscuit maker has rapidly expanded sales and enhanced profits and gained
a sizeable market share in biscuits even as it continues to gain a bigger foothold into
other segments, including dairy and snacking.

During the FY 2017-18, the company posted a net profit of Rs 1,004 crore, which is a 14
per cent jump from Rs 885 crore in the year ago period. During that period, its revenue
went up by 10 per cent at Rs. 9,830 crore.

Varun Berry was sharp: grow faster than the market, grow market share and
profitability by making the operations more efficient. Britannia is in a better place on
each of those fronts. When he joined, Berry was putting in 14 -15 hour workdays. He
still does 12-hour days, invoking the frugal and execution aspects of a start up. Berry
spent the first 100 days looking closely at sales and distribution, organisational
structure and product portfolio.

He spoke to people. Berry broke down the components of fixed cost, which was a high
21% for a company that was operating on single-digit margins. "The finding that there
were 2,500 biscuits brands in the marketplace, across regions, meant Britannia had to
play its value equation with customers and trade well. It’s made a start, by tackling
various facets of operations with new energy. "Most leaders who worked in
multinationals tend to be very market-focused. Berry has this holistic 360 degree
approach to business, from looking at operational efficiencies and manufacturing to
supply chain.
 Chapter 3

Industry Analysis

The FMCG market in India is expected to grow at a CAGR of 20.6 per cent and is
expected to reach US$ 103.7 billion by 2020.The growth in sales of major FMCG
companies like Dabur, HUL, Marico, is signalling the revival of consumer demand
in India. As the market continues to grow at a rapid pace, Indian Retailer takes a
look at Porter’s five force threats that may affect the FMCG industry.  

Porter’s Five Force Analysis of FMCG Industry

 Threat of Substitutes

With high presence of multiple brands in the market, it is not a challenge for
consumers to switch from one product to another. Strategic decisions like price
point and quality play key roles in attracting consumers. With narrow product
differentiation under many brands, it’s rather easy for a consumer to switch to
another brand. The threat of substitutes is informed by switching costs, both
immediate and long-term, as well as a buyer's inclination to change.

 Competitive Rivalry

Many players are expanding into new geographies and categories and modern
retail share is expected to be valued $180 billion in 2020. The FMCG industry has
been a highly fragmented industry as more companies enter the market. If Wipro
is diversifying and expanding its product range in  energy drinks, detergents and
fabric conditioners, Patanjali will spend US$743.72 million in various food parks
across the country. Also, launch of private label brands by big retailers, which
are competitively priced with offers and discounts, will limit competition for
weak brands.

 Bargaining Power of Buyers

While rising incomes and growing youth population have been key growth
drivers of the sector, brand consciousness has also aided demand. With low
switching cost inducing customers to shift to other products, there will only be
more demand for new products. Also, the availability of same or similar
alternatives, backed by strong influence of marketing strategies will help the
sector. India’s consumer spending is expected to increase to US$ 3.6 trillion by
2020.

 Threat of new entrants

Any new competition in the market poses threat to the existing players in the
industry. With investment approvals of up to 100 per cent foreign equity in
single brand retail and 51 per cent in multi-brand retail, the market is expected
to be crowded. Also, companies will be forced to spend aggressively on
advertisement, which will only hurt the business in the long run.  

 Bargaining power of suppliers

Big FMCG companies are often in a position to dictate prices through local
sourcing from a fragmented group or key commodity suppliers.  Suppliers can
exert pressure on businesses and even buyers by raising prices, lowering quality
or reducing product availability. Such decisions mostly affect the buyers.  

Porter’s Five Force Analysis of FMCG Industry

Threat of Substitutes - High

Competitive Rivalry - High

Bargaining Power of Buyers - High

Threat of new entrants - High

Bargaining power of suppliers - High

 Chapter 4

Discussion

IV.1 Objective Assessment

ITC Limited is an Indian multinational conglomerate company headquartered in

Kolkata, West Bengal. Established in 1910 as the Imperial Tobacco Company of India
Limited, the company was renamed as the India Tobacco Company Limited in 1970 and
later to I.T.C. Limited in 1974. 

ITC has business over all the three sectors i.e in the Agri sector, Manufacturing sector
and Service sector. It has 13 businesses in 5 segments.

 According to the Annual Report of 2018 - 2019 ITC had a Gross Sale of over 75309
crore.

Gross Sales of ITC

75309

67082
64174
60196
57799

2019 2018 2017 2016 2015

Series 1

Over the last 5 years there is 26.302% increase in the Gross Sales of ITC.
.

 ITC’s Business segments and the share of its overall sales

Sales

3% 12%

41% 21%

23%

Paperboard and Packaging Agriculture FMCG Food and Others

Cigarettes Hotels

 ITC Paperboards and Packaging is a market leader in the segment an icon of

environmental stewardship it contributed about 12 % of its overall sales.
 ITC is India’s leading FMCG marketer ITC Foods is the 3rd largest in India and
contribute 23% of it net sales.
 ITC Hotels is one of India’s pre-eminent hospitality chains ITC is a pioneer in Green
Hoteliering and its contribution is 3%.
 ITC is a pioneer in rural transformation through ITC e-Choupal One of India’s
largest exporter of agricultural commodities and the net sales is 21%.

 The Company posted a steady performance during the quarter amidst a particularly
challenging operating environment as aforestated. Gross Revenue for the quarter
stood at Rs. 11912.16 crores, representing a growth of 5.0%, driven mainly by
Hotels, Agri Business and FMCG-Others (excluding the Lifestyle Retailing Business).
 Gross Segment Revenue – Q3 19/20

In crores

Q3
2019 – 2020 2018 – 2019 %

Segment Revenue (Gross)

a) FMCG – Cigarettes 5311 5073 4.7

Others
3312 3201 3.5
8623 8274 4.2
Total FMCG

552 452 22.2

b) Hotels
2095
1925 8.8
c) Agri Business
1543 6.8
1555
d) Paperboards and
Packaging
Total 12826 12193 5.2
914 853 7.1
Less: Inter segment
revenue
11912 11340 5.0
Gross Revenue from sale
of products & services

 The Gross Revenue of the ITC went to 5% to Rs 11912 crore for the third quarter
end 31 December 2019.
 ITC FMCG and Others had moderate growth in both the rural and urban areas.
There is further slowdown in the FMCG sector as per the Quarterly report of
December 2019 in rural and urban markets.

The slow down is due to lowest demand and low consumption in both the rural and
urban areas.

 ITC Ltd reported a 22.23% growth in its hotels business at ₹552.31 crore. There was
all-round improvement, with both existing and new properties recording robust
increase in RevPAR and F&B sales. Higher room rates and operating leverage aided
margin expansion. The Business continues to receive industry recognition, winning
4 prestigious Travel + Leisure magazine awards during the quarter. ITC Hotels was
acknowledged as the 'Best Luxury Hotel Chain' in the country, ITC Grand Goa as the
'Best Wedding Venue (Domestic)', ITC Royal Bengal as the 'Best New Hotel
(Domestic)' and Club ITC as the 'Best Hotel Loyalty Programme.

The Business also made steady progress during the quarter in the construction of an
ITC Hotel in Ahmedabad and Welcomhotels in Guntur & Bhubaneswar.

 The agri-business revenue grew by 8.8% at Rs 2094.71 crore. The growth is due to
the increase opportunities, especially in Oilseeds, Pulses & Coffee and scaled up its
portfolio of value-added products. Subdued demand for leaf tobacco in international
markets, relatively steeper depreciation in currencies of competing origins and
adverse business mix weighed on Segment Results.

 The paperboards, paper and packaging segment revenue was up 0.83% to

Rs1,555.37 crore. The sales at the paperboards, paper and packaging
business witnessed muted growth on a relatively firm base due to slowdown in the
FMCG and liquor industry and depressed realisations on softening of global pulp
prices.

 ITC Branded packaging products showed a steady growth in the performance this
includes Ashirvad Atta, Bingo, Candyman, Vivel, Mangaldeep Agarbathis, Classmate,
Yippee Noodels, this hike is due to the result of anchored on innovative product
 launches and impactful communication campaigns in conventional and digital
media.

 ITC is the market leader in cigarettes in India

Market Share of Cigarette Industry in India

8%
8%

12%

72%

ITC Godfrey Philips

Vazir Sultan Tobacco Company Others

The Business sustained its leadership position in the industry through its unwavering
focus on nurturing a portfolio of world-class brands anchored on superior consumer
insights, a robust innovation pipeline and superior product development capabilities.
The Business continues to introduce new variants and augment its product portfolio,
catering to continuously evolving consumer preferences. Key market interventions in
recent months include the launch of innovative and differentiated offerings such as Gold
Flake Indie Mint, Gold Flake Neo and Classic Rich & Smooth in the premium end,
deployment of focused offers under the 'American Club', 'Wave', 'Player's Gold Leaf',
'Pall Mall' and 'Flake' trademarks in strategic markets.

ITC’s cigarette business, which accounts for three of every four cigarettes sold legally,
reported 4.7% growth in revenue at Rs 5310.98 crore. The Cigarette business during
the quarter reflects the persistent weakness in the overall demand environment,
especially in rural markets and wholesale channel, tight market liquidity conditions and
the increasing salience of illicit trade especially at the premium end.

 The share price of ITC Ltd stock has been going down since announcement Budget
2020

Reasons for falling of ITC share price

 The increase in taxes on cigarettes is on the back of an increase in National Calamity

Contingent Duty (NCCD).
 NCCD in 2020 Budget was increased to Rs.44.5 paisa/stick for all segments which
will result in a 14% increase in total tax per stick and in turn 5% downgrade to
projected Earnings.
 Government’s Idealistic stand against liquor/cigarette addiction.
 There was a 10–12% increase in cigarette prices as the company passes on the tax
 burden to the smokers. And the increased prices impacted on the volumes of
cigarettes sold.

In order to tackle the problem ITC has decided to offer 80-85 per cent of its profit after
tax (PAT) as dividend to its shareholders, which will be effective from the current
financial year. But this would be applicable only in a medium term.

The recent change in dividend policy, the stock is trading at an attractive dividend yield.
Brokerage also believes that the company would be able to sustain the earnings growth
in the long run backed by improvement in cigarettes as well as FMCG segments . The
current Dividend Pay out of ITC is 56%.

Suggestions

 As per Government announcement on increase of excise duty of Cigarettes to 10 – 14

%, ITC can use the opportunity to rise the cigarette product price so that the tax
burden is passed on to end customer.
 ITC can use the opportunity of price hike to improve its profitability and took
advantage of inelastic demand of Cigarettes and hence results in steady growth in
revenue and profits from tobacco business.
 ITC has a steady performance in the growth representing significant improvements
in the sales and profit as per the financial report recorded on December 2019.
Particulars Months ended Months ended 31.12.2018
31.12.2019

Gross Revenue from sale of products 11912.16 11340.15

and services
Other operating revenue 100.85 91.11
REVENUE FROM OPERATIONS 12013.01 1143.26
OTHER INCOME 983.62 836.39
TOTAL INCOME 12996.63 12267.65

EXPENSES
Cost of materials consumed 3360.82 3414.82
Purchases of stock-in-trade 743.90 838.57
Changes in inventories of finished
goods, stock-in-trade, work-in progress 441.77 47.12
and intermediates
Employee benefits expense 669.11 629.17
Finance costs 12.44 5.61
Depreciation and amortization expense 416.21 335.36
Other expenses 2184.74 2175.81
7828.99 7446.46
TOTAL EXPENSES

PROFIT BEFORE EXCEPTIONAL ITEMS 5167.64 4821.19

AND TAX
EXCEPTIONAL ITEMS (132.11)
PROFIT BEFORE TAX 5035.53 4821.19
TAX EXPENSE 893.60 1612.12
 Current Tax 1075.13 1537.25
(181.53) 74.87
 Deferred Tax
4141.93 3209.07
PROFIT FOR THE PERIOD
OTHER COMPREHENSIVE INCOME (364.22) 427.94
A
 Items that will not be (367.62) 390.33
reclassified to profit or loss
 Income tax relating to items .43 13.21
that will not be reclassified to
profit or loss
B.
 Items that will be reclassified 3.52 37.51
to profit or loss
  Income tax relating to items (.55) (13.11)
that will be reclassified to
profit or loss
TOTAL COMPREHENSIVE INCOME 3777.71 3637.01

 ITC reported a 29.07% jump in its December quarter stand-alone profit, . Net profit
rose to ₹4,141.93 crore in the three months ended 31 December, up from ₹3,209
crore a year earlier.
 ITC’S gross revenue went up by 5% to Rs 11,912.16 crore for the third quarter ended
December 31, compared with the same period last year, which the company attributed to
the hotel, agriculture and non-cigarette FMCG businesses

The Gross Revenue of the ITC went to 5% to Rs 11912 crore for the third quarter end 31
December 2019