Term Paper

A Study on FMCG Sector in India and HUL

Its Capabilities, Grand Strategies and Benchmarking

Course: Strategic Management Course Code: MGT 612 Submitted By: Varun Puri

10800464 RR1805 A 19

Submitted To: Rajan Giridhar

Department of Management Lovely Professional University

Acknowledgement

Words are the dress of thoughts, appreciating and acknowledging those, who are responsible for the successful completion of the project. My sincere gratitude goes to Mr. Rajan Giridhar who assigned me responsibility to work on this project and provided me all the help, guidance and encouragement to complete this project. The encouragement and guidance given by him have made this a personally rewarding experience. I thank him for her support and inspiration, without which, understanding the details of the project would have been exponentially difficult With Sincere Thanks, (Varun Puri)

DECLARATION

Declaration

I, "Varun Puri, hereby declare that the work presented herein is genuine work done originally by me and has not been published or submitted elsewhere for the requirement of a degree programme. Any literature, data or works done by others and cited within this dissertation has been given due acknowledgement and listed in the reference section.

(Varun Puri) Registration No.:- 10800464 Date: 09-05-2010

Table of Contents

Introduction to Subject............................................................................................................1 1.1 1.2 FMCG Sector in India.......................................................................................................1 Constituents of FMCG Sector in India.............................................................................2 HOUSEHOLD CARE...............................................................................................2 PERSONAL CARE...................................................................................................2 FOOD AND BEVERAGES......................................................................................2

1.2.1 1.2.2 1.2.3 1.3 1.4 1.5 2

FMCG Sector: Statistics....................................................................................................3 Demand Dynamics............................................................................................................4 Rise in Disposable Income................................................................................................4 Higher Penetration of the Rural Population...............................................................4

1.5.1 2.1 2.2 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8

Company profile......................................................................................................................6 HUL- Background.............................................................................................................6 Over 100 Years Link with India.......................................................................................7 The new Hindustan Lever: Focused on FMCG..............................................................13 FMCG still offers enormous potential............................................................................13 Portfolio of Strong Brands..............................................................................................14 Better Value....................................................................................................................14 Bigger Role in Consumers Lives...................................................................................14 Technology, the Key Differentiator................................................................................15 Winning with Customers................................................................................................15 Opportunities Ahead.......................................................................................................16 Food.........................................................................................................................16 Beverages.................................................................................................................16 Exports.....................................................................................................................17 Investment in the FMCG sector...............................................................................17

Capabilities & Strengths........................................................................................................13

3.8.1 3.8.2 3.8.3 3.8.4 4

Grand Strategies.....................................................................................................................18

4.1 4.2

Types of Grand Strategies...............................................................................................18 Grand Strategies Adopted by HUL.................................................................................18 Concentrated Growth & Market Development........................................................18 Joint Venture............................................................................................................18 Backward Integration...............................................................................................19 Product Development..............................................................................................19 Divestiture................................................................................................................19

4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 5 5.1

Benchmarking........................................................................................................................21 India Competitiveness and Comparison with the World................................................21 Large domestic market............................................................................................21 India - a large consumer goods spender..................................................................21 Materials availability...............................................................................................22 Cost competitiveness...............................................................................................23 Presence across value chain.....................................................................................24 POLICY...................................................................................................................24 5.1.1 5.1.2 5.1.3 5.1.4 5.1.5 5.1.6

6 7

Conclusion:............................................................................................................................26 References..............................................................................................................................27

References

List of Charts

Chart 1: Rise in Disposable Income (In USD Thousands)..............................................................4 Chart 2: Rural Vs. Urban Households Growth................................................................................5 Chart 3: Investments in FMCG Sector (August 1991- April 2004)..............................................17 Chart 4:- Consumption pie.............................................................................................................21 Chart 5:- Consumer Expenditure on Food (Worldwide)...............................................................22 Chart 6:-Labor cost comparison (Worldwide)...............................................................................23 Chart 6:-Labor cost comparison (Worldwide)

1 Introduction to Subject
1.1 FMCG Sector in India
Fast Moving Consumer Goods (FMCG) are products that are sold quickly at relatively low cost. Though the absolute profit made on FMCG products is relatively small, they generally sell in large quantities, so the cumulative profit on such products can be large. FMCG products are generally replaced or fully used up over a short period of days, weeks, or months, and within one year. This contrasts with durable goods or major appliances such as kitchen appliances, which are generally replaced over a period of several years The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. It has a strong MNC presence and is characterized by a wellestablished distribution network, intense competition between the organised and unorganised segments and low operational cost. Availability of key raw materials, cheaper labor costs and presence across the entire value chain gives India a competitive advantage. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products. Growth is also likely to come from consumer 'upgrading' in the matured product categories. With 200 million people expected to shift to processed and packaged food by 2010, India needs around US$ 28 billion of investment in the food-processing industry.

1.2 Constituents of FMCG Sector in India

1.2.1 HOUSEHOLD CARE The size of the fabric wash market is estimated to be $1 billion, household cleaners to be $239 million and the production of synthetic detergents at 2.6 million tonnes. The demand for detergents has been growing at an annual growth rate of 10 to 11 per cent during the past five years. The urban market prefers washing powder and detergents to bars. The regional and small un-organized players account for a major share of the total volume of the detergent market. 1.2.2 PERSONAL CARE The size of the personal wash products is estimated at $989 million; hair care products at $831 million and oral care products at $537 million. While the overall personal wash market is growing at one per cent, the premium and middle-end soaps are growing at 10 per cent. The leading players in this market are HLL, Nirma, Godrej Soaps and Reckitt & Colman. The oral care market, especially toothpastes, remains under penetrated in India (with penetration level below 45 per cent). The industry is very competitive both for organised and smaller regional players. The Indian skin care and cosmetics market is valued at $274 million and dominated by HLL, Colgate Palmolive, Gillette India and Godrej Soaps. The coconut oil market accounts for 72 per cent share in the hair oil market. In the branded coconut hair oil market, Marico (with Parachute) and Dabur are the leading players. The market for branded coconut oil is valued at approximately $174 million. 1.2.3 FOOD AND BEVERAGES The size of the Indian food processing industry is around $ 65.6 billion, including $20.6 billion of value added products. Of this, the health beverage industry is valued at $230 million; bread and biscuits at $1.7 billion; chocolates at $73 million and ice creams at $188 million. The size of the semi-processed/ready-to-eat food segment is over $1.1 billion. Large biscuits & confectionery units, soya processing units and starch/glucose/sorbitol producing units have also come up, catering to domestic and international markets. The three largest consumed categories of packaged foods are packed tea, biscuits and soft drinks. The Indian beverage industry faces over supply in segments like coffee and tea. However, more

than half of this is available in unpacked or loose form. Indian hot beverage market is a tea dominant market. Consumers in different parts of the country have heterogeneous tastes. Dust tea is popular in southern India, while loose tea in preferred in western India. The urbanrural split of the tea market was 51:49 in 2000. Coffee is consumed largely in the southern states. The size of the total packaged coffee market is 19,600 tonnes or $87 million. The total soft drink (carbonated beverages and juices) market is estimated at 284 million crates a year or $1 billion. The market is highly seasonal in nature with consumption varying from 25 million crates per month during peak season to 15 million during offseason. The market is predominantly urban with 25 per cent contribution from rural areas. Coca cola and Pepsi dominate the Indian soft drinks market. Mineral water market in India is a 65 million crates ($50 million) industry. On an average, the monthly consumption is estimated at 4.9 million crates, which increases to 5.2 million during peak season.

1.3 FMCG Sector: Statistics

The size of the food processing industry exceeds US$65.6 billion. The size of the semi-processed/ready-to-eat food segment is over $1.1 billion. Of the food processing industry, Bread and biscuits sales exceeds US$1.7 billion; Health beverage sales exceeds US$ 230 million; Ice cream exceeds US$188 million Chocolates sales exceeds US$73 million In the hot beverage market, tea rather than coffee dominates. Coffee is consumed largely in the southern states. The soft drink (carbonated beverages and juices) market is in excess of US$1 billion, predominantly urban (>70%), and its consumption is highly seasonal. Major players in this segment include Hindustan Lever, Nestle, Cadbury and Dabur

1.1 Demand Dynamics

The general factors driving the growth of the FMCG sector are increase in disposable income, rural areas, and companies aggressive promotion of product awareness.

1.2 Rise in Disposable Income

With increasing disposable income and subsequent rise in quality of living and hygiene concerns, the average Indians spending on grocery and personal care products will likely increase.

Currently, the average Indian spends about 48%, also the majority, of his total income on groceries (~40%) and personal care products (~8%)1. Chart 1: Rise in Disposable Income (In USD Thousands)

Sources: Euro Monitor, Goldman Sachs BRICS Report 1.1.1 Higher Penetration of the Rural Population Many companies are deepening their penetration in the rural areas as: The FMCG sector in the urban areas is becoming quite saturated (though it will continue to dominate in the next 8 10 years2) while the penetration in the rural areas are only about 1%3. The rural areas have and will continue to make up more than 50% (153 million) of Indias total households and accounting for more than its current 66% contribution to total FMCG consumption4. Rural India has a large consuming class with 41 per cent of India's middle-class and 58 per cent of the total disposable income5. Currently, nearly 34% of the off take of FMCG companies come from rural areas.

1 2

KSA Technopak Consumer Outlook 2004 Red Orbit news:

http://www.redorbit.com/news/business/1359302/indias_fmcg_brands_ready_to_move_into_the_fast_lane/index.html

3 The Hindu Business Line: http://www.thehindubusinessline.com/2005/07/19/stories/2005071903080400.htm 4 Equitymaster.com: http://www.equitymaster.com/researchit/sectorinfo/consprds 5 IBEFs Fast Moving Consumer Goods Report

 Companies like HUL, ITC and Colgate have already established good distribution networks in these regions. Other companies would start catering to these regions in near future6. Between 2005 and 2010, the FMCG sector in the rural and semi-urban areas will experience some 50% growth, at a CAGR of 10% and increase its market size to nearly US$ 23 billion from the 2005 level of US$11.4 billion. Chart 2: Rural Vs. Urban Households Growth

Sources: Statistical Outline of India (2001-02), NCAER

6 Equity Master: http://www.equitymaster.com/detail.asp?date=1/9/2008&story=2

1 Company profile
1.1 HUL- Background
Hindustan Unilever Limited (HUL) is India's largest fast moving consumer goods company, touching the lives of two out of three Indians with over 20 distinct categories in home & personal care products and food & beverages. They endow the company with a scale of combined volumes of about 4 million tonnes and sales of over Rs. 13,000 crores. HUL is also one of the country's largest exporters; it has been recognised as a Golden Super Star Trading House by the Government of India. HUL was formed in 1933 as Lever Brothers India Limited and came into being in 1956 as Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati Mfg. Co. Ltd. and United Traders Ltd.. It is headquartered in Mumbai, India and has an employee strength of over 15,000 employees and contributes for indirect employment of over 52,000 people. The company was renamed in June 2007 to Hindustan Unilever Limited. In 2007, Hindustan Unilever was rated as the most respected company in India for the past 25 years by Businessworld, one of Indias leading business magazines.7 The rating was based on a compilation of the magazines annual survey of Indias Most Reputed Companies over the past 25 years. HUL is the market leader in Indian consumer products with presence in over 20 consumer categories such as soaps, tea, detergents and shampoos amongst others with over 700 million Indian consumers using its products. It has over 35 brands. Sixteen of HULs brands featured in the ACNielsen Brand Equity list of 100 Most Trusted Brands Annual Survey (2008).8 According to Brand Equity, HUL has the largest number of brands in the Most Trusted Brands List. Its a company that has consistently had the largest number of brands in the Top 50 and in the Top 10 (with 4 brands). Hindustan Unilever's distribution covers over 1 million retails outlets across India directly and its products are available in over 6.3 million outlets in India, i.e., nearly 80% of the retail outlets in India. It has 39 factories in the country. Two out of three Indians use the companys products and

7 Businessworld Most Respected Company 2007 8 Brand Equity Most Trusted Brands

HUL products have the largest consumer reach being available in over 80 per cent of consumer homes across India. The Anglo-Dutch company Unilever owns a majority stake (52%) in Hindustan Unilever Limited. HUL was one of the eight Indian companies to be featured on the Forbes list of Worlds Most Reputed companies in 2007

1.2 Over 100 Years Link with India

YEAR MILESTONES 1888 1895 1902 1903 1905 1913 1914 1918 1922 1924 1925 1926 1930 Sunlight soap introduced in India. Lifebuoy soap launched; Lever Brothers appoints agents in Mumbai, Chennai, Kolkata, and Karachi. Pears soap introduced in India. Brooke Bond Red Label tea launched. Lux flakes introduced. Vim scouring powder introduced. Vinolia soap launched in India. Vanaspati introduced by Dutch margarine manufacturers like Van den Berghs, Jurgens, Verschure Creameries, and Hartogs. Rinso soap powder introduced. Gibbs dental preparations launched. Lever Brothers gets full control of North West Soap Company. Hartogs registers Dalda Trademark. Unilever is formed on January 1 through merger of Lever Brothers and Margarine Unie.

1931 1935 1937 1939

Hindustan Vanaspati Manufacturing Company registered on November 27; Sewri factory site bought. United Traders incorporated on May 11 to market Personal Products. Mr. Prakash Tandon, one of the first Indian covenanted managers, joins HVM. Garden Reach Factory purchased outright; concentration on building up Dalda Vanaspati as a brand. Agencies in Mumbai, Chennai, Kolkata and Karachi taken over; company acquires own sales force. Unilever takes firm decision to "train Indians to take over junior and senior management positions instead of Europeans". Personal Products manufacture begins in India at Garden Reach Factory. Reorganisation of the three companies with common management but separate marketing operations. Pond's Cold Cream launched. Mr. Prakash Tandon becomes first Indian Director. Shamnagar, Tiruchy, and Ghaziabad Vanaspati factories bought. 65% of managers are Indians. Three companies merge to form Hindustan Unilever Limited, with 10% Indian equity participation. Unilever Special Committee approves research activity by Hindustan Unilever. Research Unit starts functioning at Mumbai Factory. Surf launched. Mr. Prakash Tandon takes over as the first Indian Chairman; 191 of the 205 managers

1941

1942 1943 1944 1947 1951 1955 1956 1957 1958 1959 1961

are Indians. 1962 1963 1964 1965 Formal Exports Department starts. Head Office building at Backbay Reclamation, Mumbai, opened. Etah dairy set up, Anik ghee launched; Animal feeds plant at Ghaziabad; Sunsilk shampoo launched. Signal toothpaste launched; Indian shareholding increases to 14%. Lever's baby food, more new foods introduced; Nickel catalyst production begins; 1966 Indian shareholding increases to 15%. Statutory price control on Vanaspati; Taj Mahal tea launched. 1967 1968 1969 1971 1973 1974 Hindustan Unilever Research Centre, opens in Mumbai. Mr. V. G. Rajadhyaksha takes over as Chairman from Mr. Prakash Tandon; Fine Chemicals Unit commissioned at Andheri; informal price control on soap begins. Rin bar launched; Fine Chemicals Unit starts production; Bru coffee launched Mr. V. G. Rajadhyaksha presents plan for diversification into chemicals to Unilever Special Committee - plan approved; Clinic shampoo launched. Mr. T. Thomas takes over as Chairman from Mr. V. G. Rajadhyaksha. Pilot plant for industrial chemicals at Taloja; informal price control on soaps withdrawn; Liril marketed. Ten-year modernisation plan for soaps and detergent plants; Jammu project work 1975 begins; statutory price control on Vanaspati and baby foods withdrawn; Close-up toothpaste launched. 1976 1977 Construction work of Haldia chemicals complex begins; Taloja chemicals unit begins functioning. Jammu synthetic Detergents plant inaugurated; Indian shareholding increases to

18.57%. 1978 1979 1980 1982 1984 1986 1988 1990 1991 1992 Indian shareholding increases to 34%; Fair & Lovely skin cream launched. Sodium Tripolyphospate plant at Haldia commissioned. Dr. A. S. Ganguly takes over as Chairman from Mr. T. Thomas; Unilever shareholding in the company comes down to 51%. Government allows 51% Unilever shareholding. Foods, Animal Feeds businesses transferred to Lipton. Agri-products unit at Hyderabad starts functioning - first range of hybrid seeds comes out; Khamgaon Soaps unit and Yavatmal Personal Products unit start production. Launch of Lipton Taaza tea. Mr. S. M. Datta takes over as Chairman from Dr. A. S. Ganguly. Surf Ultra detergent launched. HUL recognised by Government of India as Star Trading House in Exports. HUL's largest competitor, Tata Oil Mills Company (TOMCO), merges with the 1993 company with effect from April 1, 1993, the biggest such in Indian industry till that time. Merger ultimately accomplished in December 1994; Launch of Vim bar; Kissan acquired from the UB Group. HUL forms Unilever Nepal Limited, HUL and US-based Kimberley-Clark Corporation 1994 form 50:50 joint venture - Kimberley-Clark Lever Ltd. - to market Huggies diapers and Kotex feminine care products. Factory set up at Pune in 1995; HUL acquires Kwality and Milkfood 100% brandnames and distribution assets. HUL introduces Wall's. HUL and Indian cosmetics major, Lakme Ltd., form 50:50 joint venture - Lakme Lever 1995 Ltd.; HUL enters branded staples business with salt; HUL recognised as Super Star Trading House.

Mr. K. B. Dadiseth takes over as Chairman from Mr. S. M. Datta; Merger of Group 1996 company, Brooke Bond Lipton India Limited, with HUL, with effect from January 1; HUL introduces branded atta; Surf Excel launched. 1997 Unilever sets up International Research Laboratory in Bangalore; new Regional Innovation Centres also come up. Group company, Pond's India Ltd., merges with HUL with effect from January 1, 1998 1998. HUL acquires Lakme brand, factories and Lakme Ltd.'s 50% equity in Lakme Lever Ltd. Mr. M. S. Banga takes over as Chairman from Mr. K. B. Dadiseth, who joins the 2000 Unilever Board; HUL acquires 74% stake in Modern Food Industries Ltd., the first public sector company to be disinvested by the Government of India. 2002 2003 2005 2006 HUL enters Ayurvedic health & beauty centre category with the Ayush range and Ayush Therapy Centres. Launch of Hindustan Lever Network; acquisition of the Amalgam Group Launch of "Pureit" water purifiers Brookefields food operations moved to Mumbai Company name formally changed to Hindustan Unilever Limited after receiving the 2007 approval of share holders during the 74th AGM on 18 May 2007 Sales of Brooke Bond and Surf Excel each cross the Rs 1,000 crore mark 2008 HUL completes 75 years on 17th October 2008

2 Capabilities & Strengths

2.1 The new Hindustan Lever: Focused on FMCG
In 2000, 75% of their sales came from FMCG businesses. The rest came from several nonFMCG businesses which were not profitable, and did not offer prospects for long-term leadership. Besides, they were a drain on the core FMCG business, both in terms of resource and focus. They decided to disengage from all non-FMCG or commodity businesses. In all, we have divested and discontinued 15 businesses including Animal Feeds, Speciality Chemicals, Nickel Catalyst, Adhesives, Thermometers, Seeds, Mushrooms etc. with sales of Rs.1,750 crores as in 1999. Today they are a focused on FMCG company with our branded business accounting for over 90% of sales, consisting of 35 brands across 20 categories. These will be their main engines of growth, with higher levels of resource concentration, be it technology, people talent or media spend.

2.2 FMCG still offers enormous potential

As the largest FMCG player it was up to them to reverse the downtrading to realize its true growth potential. They could achieve this by raising the bar and becoming world class in what their brands offered and how they worked. Nothing less would do. Penetration levels in several of the categories and consumption levels in all of the categories is low by any comparison. Across the world, they are seeing a strong correlation between income levels and the size of FMCG markets. Over the next 10 years, per capita income in India is likely to touch Chinas current levels. At those levels, the FMCG market will be over Rs.100,000 crores from a current value of Rs.40,000 crores. This is an opportunity that they have to seize.

2.3 Portfolio of Strong Brands

Their main challenge was to reverse the downtrading in the categories and re-establish the relevance of their brands in the mind of the consumer. In 2000, they had 110 brands, many undifferentiated and lacking scale. They chose to focus on 35 power brands covering all consumer appeal and price segments. They are already seeing the benefits. Six brands Brooke

Bond, Lifebuoy, Lux, Fair & Lovely, Rin and Wheel have emerged as mega brands in the last five years, each with sales of more than Rs.500 crores.

2.4 Better Value

The first step was to ensure that they offer world class quality and real differentiation backed by technology to give them the advantage over low priced competition. They have invested over Rs.400 crores, or 5% of sales, in the last three years to upgrade the brands. In several cases they reduced prices to make the brands more affordable. Better quality and more affordable prices have increased the value to the consumer. They have also launched several low unit size and price packs for single use to make the brands more accessible to all income groups. For example, they are the first to introduce a branded toothpaste in a tube at Rs.5 and a branded quality shampoo in a bottle at Rs.5.

2.5 Bigger Role in Consumers Lives

Perhaps the most significant change has been to move the brands beyond merely making functional claims to playing a bigger and deeper role in the lives of consumers. They had to move from selling a soap or a detergent to something far more important and central to the consumers life. How often have we heard someone say, A soap is a soap is a soap! Or indeed, All detergents clean clothes as well. In the case of Lifebuoy, it was only when they associated it with the promise of health and

protection against disease that it claimed a larger space in the consumers mind. It moved from being a mere soap to a health essential. Today Lifebuoy, their oldest brand, has grown at over 15% for the last three years. Similarly, in the laundry market, Surf Excel went well beyond the benefit of great clean by saving two buckets of water with every wash. Imagine the importance of that benefit to consumers in cities, who often get running water for only a couple of hours a day. Surf Excel is one of their fastest growing brands today. Both Lifebuoy and Surf Excel have succeeded because they are relevant to two key concerns of the Indian housewife: family health and the scarcity of water.

In addition to the growing consciousness of health, consumers today are looking for ways to look good and feel good so that they can get much more out of life. In short, consumers are seeking Vitality in their lives. Their portfolio of 35 power brands is uniquely positioned to offer nutrition, hygiene and personal care benefits and thereby deliver Vitality.

2.6 Technology, the Key Differentiator

Their brands and sound understanding of the local consumer are supported by a world class Research and Development capability. They have over 200 of the brightest scientists and technologists based in India. Their recent reorganization leverages the talent pool from across 16 global technology centres, of which four are in India. In all, they have over 4,000 high quality minds across Unilever working relentlessly to provide new benefits that make a real difference to the consumers.

2.7 Winning with Customers

Hindustan Lever has historically had a strong bond with its customers. They have strengthened this and reinvented the way they manage their distribution channels and their customers. The sales structure has been transformed to leverage scale and build expertise in servicing Modern Trade and Rural Markets. They have also de-layered their sales force to improve the response times and service levels. Their customers are serviced on continuous replenishment. This is possible because of IT connectivity across the extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stockists. They have also combined backend processes into a common Shared Service infrastructure, which supports the units across the country. All these initiatives together have enhanced operational efficiencies, improved the service to the customers and have brought us closer to the marketplace.

2.8 Opportunities Ahead

2.8.1 Food According to the Ministry of Food Processing, the size of the Indian food processing industry is around US$ 65.6 billion including US$ 20.6 billion of value added products. Of this, the health beverage industry is valued at US$ 230 billion; bread and biscuits at US$ 1.7 billion; chocolates at US$ 73 million and ice creams at US$ 188 million.

The size of the semi-processed/ready to eat food segment is over US$ 1.1 billion. Large biscuits & confectionery units, soyaprocessing units and starch/glucose/sorbitol producing units have also come up, catering to domestic and international markets. The three largest consumed categories of packaged foods are packed tea, biscuits and soft drinks. (IBEF FMCG Report, 2009) 2.8.2 Beverages The Indian beverage industry faces over supply in segments like coffee and tea. However, more than half of this is available in unpacked or loose form. Indian hot beverage market is a tea dominant market. Consumers in different parts of the country have heterogeneous tastes. Dust tea is popular in southern India, while loose tea in preferred in western India. The urban-rural split of the tea market was 51:49 in 2000. Coffee is consumed largely in the southern states. The size of the total packaged coffee market is 19,600 tonnes or US$ 87 million. The urban rural split in the coffee market was 61:39 in 2000 as against 59:41 in 1995. The total soft drink (carbonated beverages and juices) market is estimated at 284 million crates a year or US$ 1 billion. The market is highly seasonal in nature with consumption varying from 25 million crates per month during peak season to 15 million during offseason. The market is predominantly urban with 25 per cent contribution from rural areas. Coca cola and Pepsi dominate the Indian soft drinks market. Mineral water market in India is 65 million crates (US$ 50 million) industry. On an average, the monthly consumption is estimated at 4.9 million crates, which increases to 5.2 million during peak season. 2.8.3 Exports India is one of the world's largest producers for a number of FMCG products but its exports are a very small proportion of the overall production. Total exports of food processing industry were US$ 2.9 billion in 2001-02 and marine products accounted for 40 per cent of the total exports. Though the Indian companies are going global, they are focusing more on the overseas markets like Bangladesh, Pakistan, Nepal, Middle East and the CIS countries because of the similar lifestyle and consumption habits between these countries and India. HLL, Godrej Consumer, Marico, Dabur and Vicco laboratories are amongst the top exporting companies.

2.8.4 Investment in the FMCG sector The FMCG sector accounts for around 3 per cent of the total FDI inflow and roughly 7.3 per cent of the total sectoral investment. The food-processing sector attracts the highest FDI, while the vegetable oils and vanaspati sector accounts for the highest domestic investment in the FMCG sector. Chart 3: Investments in FMCG Sector (August 1991- April 2004)

3 Grand Strategies
Grand Strategies are Comprehensive, long-term plan of essential actions by which a firm plans to achieve its major objectives. Key factors of this strategy may include market, product, and/or organizational development through acquisition, divestiture, diversification, joint ventures, or strategic alliances.

3.1 Types of Grand Strategies

Consortia Concentrated Growth Market Development Product Development Innovation Horizontal Integration Vertical Integration Concentric Diversification Conglomerate Diversification Turnaround Divestiture Liquidation Bankruptcy Joint Ventures Strategic Alliances

3.2 Grand Strategies Adopted by HUL

3.2.1 Concentrated Growth & Market Development The erstwhile Brooke Bond's presence in India dates back to 1900. By 1903, the company had launched Red Label tea in the country. In 1912, Brooke Bond & Co. India Limited was formed. Brooke Bond joined the Unilever fold in 1984 through an international acquisition. The erstwhile Lipton's links with India were forged in 1898. Unilever acquired Lipton in 1972, and in 1977 Lipton Tea (India) Limited was incorporated. HUL made many acquisitions in Tea segment; they first acquired Brooke Bond & Co, which was an Indian co. in 1984, while they already had Lipton brand in their Tea Segment which was acquired in 1977. When they acquired Brooke Bond in 1984 it was a strategy aimed at market development as the Lipton brand was meeting the needs of Premium segment, while Red Label Brand aimed to meet the needs of middle segment. 3.2.2 Joint Venture Simultaneously, deregulation permitted alliances, acquisitions and mergers. In one of the most visible and talked about events of India's corporate history, the erstwhile Tata Oil Mills Company (TOMCO) merged with HUL, effective from April 1, 1993. In 1995, HUL and yet

another Tata company, Lakme Limited, formed a 50:50 joint venture, Lakme Unilever Limited, to market Lakme's market-leading cosmetics and other appropriate products of both the companies. Subsequently in 1998, Lakme Limited sold its brands to HUL and divested its 50% stake in the joint venture to the company. In1994, the company entered into a strategic alliance with the Kwality Ice-cream Group families and in 1995 the Milk food 100% Ice-cream marketing and distribution rights too were acquired 3.2.3 Backward Integration As a measure of backward integration, Tea Estates and Doom Dooma, two plantation companies of Unilever, were merged with Brooke Bond. Then in July 1993, Brooke Bond India and Lipton India merged to form Brooke Bond Lipton India Limited (BBLIL), enabling greater focus and ensuring synergy in the traditional Beverages business. 1994 witnessed BBLIL launching the Wall's range of Frozen Desserts. By the end of the year, the company entered into a strategic alliance with the Kwality Icecream Group families and in 1995 the Milkfood 100% Icecream marketing and distribution rights too were acquired. 3.2.4 Product Development HUL made a strategic acquisition aimed at development of new product, In January 2000, in a historic step, the government decided to award 74 per cent equity in Modern Foods to HUL, thereby beginning the divestment of government equity in public sector undertakings (PSU) to private sector partners. HUL's entry into Bread is a strategic extension of the company's wheat business. In 2002, HUL acquired the government's remaining stake in Modern Foods. In 2003, HUL acquired the Cooked Shrimp and Pasteurised Crabmeat business of the Amalgam Group of Companies, a leader in value added Marine Products exports 3.2.5 Divestiture HUL puts its leather business sale on hold9 Hindustan Unilever (HUL) has put the sale of its leather business on hold as it failed to find a suitable buyer. The business is run by Ponds Exports, a wholly-owned subsidiary of HUL. The annual report said leather exports had a difficult year due to forex volatility and recessionary
9 DasGupta, P, (2009), HUL puts its leather business sale on hold, Mumbai, Accessed From: http://www.mydigitalfc.com/companies/hul-puts-its-leather-business-sale-hold-299

conditions in Europe. Indias competitive advantages of good quality leather and the ability to service small orders were neutralized by Chinas significant cost advantages and a welldeveloped market for components. Conglomerate Diversification In 1993, it acquired the Kissan business from the UB Group and the Dollops Icecream business from Cadbury India. As at that time both of the business concerns were on peak & the best promising businesses.

4 Benchmarking
4.1 India Competitiveness and Comparison with the World
4.1.1 Large domestic market India is one of the largest emerging markets, with a population of over one billion. India is one of the largest economies in the world in terms of purchasing power and has a strong middle class base of 300 million. Around 70 per cent of the total households in India (188 million) resides in the rural areas. The total number of rural households is expected to rise from 135 million in 2001-02 to 153 million in 2009-10. This presents the largest potential market in the world. The annual size of the rural FMCG market was estimated at around US$ 10.5 billion in 2001-02. With growing incomes at both the rural and the urban level, the market potential is expected to expand further. 4.1.2 India - a large consumer goods spender An average Indian spends around 40 per cent of his income on grocery and 8 per cent on personal care products. The large share of fast moving consumer goods (FMCG) in total individual spending along with the large population base is another factor that makes India one of the largest FMCG markets. Chart 4:- Consumption pie

Even on an international scale, total consumer expenditure on food in India at US$ 120 billion is amongst the largest in the emerging markets, next only to China. Chart 5:- Consumer Expenditure on Food (Worldwide)

4.1.3 Materials availability India has a diverse agro-climatic condition due to which there exists a wide-ranging and large raw material base suitable for food processing industries. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and fruits & vegetables. India also has an ample supply of caustic soda and soda ash, the raw materials in the production of soaps and detergents India produced 1.6 million tonnes of caustic soda in 2003-04. Tata Chemicals, one of the largest producers of synthetic soda ash in the world is located in India. The availability of these raw materials gives India the locational advantage.

4.1.4

Cost competitiveness Chart 6:-Labor cost comparison (Worldwide)

Apart from the advantage in terms of ample raw material availability, existence of low-cost labor force also works in favor of India. Labor cost in India is amongst the lowest in Asian countries. Easy raw material availability and low labor costs have resulted in a lower cost of production. Many multi-nationals have set up large low cost production bases in India to outsource for domestic as well as export markets. 4.1.4.1 Leveraging the cost advantage Global major, Unilever, sources a major portion of its product requirements from its Indian subsidiary, HLL. In 2003-04, Unilever outsourced around US$ 218 million of home and personal care along with food products to leverage on the cost arbitrage opportunities with the West. To take another case, Procter & Gamble (P&G) outsourced the manufacture of Vicks Vaporub to contract manufacturers in Hyderabad, India. This enables P&G to continue exporting Vicks Vaporub to Australia, Japan and other Asian countries, but at more competitive rates, whilst maintaining its high quality and cost efficiency.

4.1.5 Presence across value chain Indian firms also have a presence across the entire value chain of the FMCG industry from supply of raw material to final processed and packaged goods, both in the personal care products and in the food processing sector. For instance, Indian firm Amul's product portfolio includes supply of milk as well as the supply of processed dairy products like cheese and butter. This makes the firms located in India more cost competitive. 4.1.6 POLICY India has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions, reduced excise duties, automatic foreign investment and food laws resulting in an environment that fosters growth. 100 per cent export oriented units can be set up by government approval and use of foreign brand names is now freely permitted. 4.1.6.1 FDI Policy Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector except malted food, alcoholic beverages and those reserved for small scale industries (SSI). 24 per cent foreign equity is permitted in the small-scale sector. Temporary approvals for imports for test marketing can also be obtained from the Director General of Foreign Trade. The evolution of a more liberal FDI policy environment in India is clearly supported by the successful operation of some of the global majors like PepsiCo in India. 4.1.6.2 Removal of Quantitative Restrictions and Reservation Policy The Indian government has abolished licensing for almost all food and agro-processing industries except for some items like alcohol, cane sugar, hydrogenated animal fats and oils etc., and items reserved for the exclusive manufacture in the small scale industry (SSI) sector. Quantitative restrictions were removed in 2001 and Union Budget 2004-05 further identified 85 items that would be taken out of the reserved list. This has resulted in a boom in the FMCG market through market expansion and greater product opportunities.

4.1.6.3 Central and state initiatives Various states governments like Himachal Pradesh, Uttaranchal and Jammu & Kashmir have encouraged companies to set up manufacturing facilities in their regions through a package of fiscal incentives. Jammu and Kashmir offers incentives such as allotment of land at concessional rates, 100 per cent subsidy on project reports and 30 per cent capital investment subsidy on fixed capital investment upto US$ 63,000. The Himachal Pradesh government offers sales tax and power concessions, capital subsidies and other incentives for setting up a plant in its tax free zones. Five-year tax holiday for new food processing units in fruits and vegetable processing have also been extended in the Union Budget 2004-05. Wide-ranging fiscal policy changes have been introduced progressively. Excise and import duty rates have been reduced substantially. Many processed food items are totally exempt from excise duty. Customs duties have been substantially reduced on plant and equipment, as well as on raw materials and intermediates, especially for export production. Capital goods are also freely importable, including second hand ones in the food-processing sector. 4.1.6.4 Food laws Consumer protection against adulterated food has been brought to the fore by "The Prevention of Food Adulteration Act (PFA), 1954", which applies to domestic and imported food commodities, encompassing food color and preservatives, pesticide residues, packaging, labelling and regulation of sales.

5 Conclusion:
Hindustan Unilever was the most preferred Brand in India. It has wide range of products varying from Home care to food care and Other FMCG categories. It has also launched water purifier. It was listed in ET-500 ranking of Indias biggest Companies and its ranking was number 32. Though HUL, as a brand have good perception from its consumers, following are the major threats waiting for any FMCG company in the market. So those things have to be considered in order to posses the same consumer perception towards HUL! Private Label/In-house Branding: Ongoing increase in the number of supermarkets, hypermarkets & other such concept business results in the promotion of their own brands. So there I a possibility of change in behavior of consumers towards HUL Quality Management:- Because of multi production centers, the qualitu of the same nrand product has to be maintained to retain the consumer. Introduction of variants has to be done only by keeping flagship product without any change.

Brand Loyalty: Essential aspect to be considered in this rival competitive world! Recently Rin & Tide comparative advertisement made it clear even big giants like HUL finds no way to dominate the market without gaining the loyalty of tits consumers. This is a try to change the fickle minds of consumers towards rival bands

1 References
Books Pearce II, J.A., Robinson Jr., RB and Mital, A., Strategic Management: Formulation, Implementation and Control, 10th Ed., Tata McGraw-Hill, New Delhi, 2008 Journals, Publications & Websites DasGupta, P, (2009), HUL puts its leather business sale on hold, Mumbai, Accessed From: http://www.mydigitalfc.com/companies/hul-puts-its-leather-business-sale-hold-299 Equitymaster.com: http://www.equitymaster.com/researchit/sectorinfo/consprds Equity Master: http://www.equitymaster.com/detail.asp?date=1/9/2008&story=2 IBEFs , Fast Moving Consumer Goods Report 2009, Accessed from:www.ibef.org The Hindu Business Line: 19-7-2005 http://www.thehindubusinessline.com/2005/07/19/stories/2005071903080400.htm Red Orbit news: http://www.redorbit.com/news/business/1359302/indias_fmcg_brands_ready_to_move_into_the _fast_lane/index.html