IndiaFMCG

ITC tries to find its feet in personal care

noreply@blogger.com (Doshi Saurabh) — Sun, 09 May 2010 12:25:00 +0000

Cigarettes to hotel major ITC entered the consumer products business in 2007. In three years, it has managed to corner a two per cent market share.

But ITC feels that's no mean achievement for a late entrant. The consumer and personal care products market is highly competitive, dominated by well-entrenched brands from companies such as Hindustan Unilever (HUL), Procter and Gamble, L’Oreal India, Dabur India and Cavinkare. The lion's share is with HUL, whose brands — Lux, Dove, Sunsilk and Clinic Plus — have about half the market.

Some analysts agree with ITC’s view. Anand Shah of Angel Broking, says it takes about five years for a brand to break even. If ITC gains 5 to 10 per cent market share in 10 years, that should start earning the company profits, Shah adds.

In absolute terms, two per cent of the personal care market is not a small share. According to Nielsen, the personal care market between March 2009 and February 2010 touched Rs 16,313 crore, which is a growth of 10 per cent over the same period in the previous year. While the men’s personal care market is estimated at Rs 1,429 crore and growing at 10 per cent, that for women is worth Rs 6,678 crore and growing at nearly 21 per cent.

ITC knows it’s a tough fight and is willing to give time. Innovation and extensive marketing are the company’s mantra to strengthen its footprint in the personal care domain.

“We intend to build on innovations to find a foothold in the already cluttered personal care market,” says Sandeep Kaul, chief executive of ITC’s personal care business. The Fiama Di Wills transparent gel bathing bar is an example of product innovation which is developed with liquid crystal freezing technology that intends to combine a shower gel in a bathing bar format. ITC’s current personal-care portfolio includes soaps, shampoos and fragrances. These products are marketed under the Fiama Di Wills, Superia and Vivel brands. Superia caters to the mass consumer segment, Vivel targets the premium and Fiama the so-called super-premium market.

According to Kaul, the personal care sector holds immense appeal for ITC due to the category’s size and growth potential.

But the personal care segment in India is immensely competitive. Anand Ramanathan, analyst with KPMG, says, “In categories like soaps, the competition is quite intense. But ITC is likely to combat it with its distribution muscle. However, because of intense competition, ITC would be under margin pressure and so the personal care business for the company would not be as profitable as its other businesses.”

“ITC, however, can recover from the margin pressure to some extent with the help of premium products in niche categories,” Ramanathan points out.

Devangshu Dutta, chief executive of specialist management consultancy firm, Third Eyesight, feels that market leaders like HUL still feels it reaches only 60 per cent of the market. So, even a new entrant like ITC can find potential in the personal care segment.

“ITC has diversified over the last 10 years as part of its strategy to expand into non-cigarette categories. The real challenge will be effective communication and marketing”,Dutta adds.

Ramanujam Sridhar, CEO, Brand-Comm, says: “There is a reasonable amount of loyalty among consumers for personal care products, especially in skincare, which can pose a challenge for any new entrant, including ITC.

However, ITC enjoys a strong brand recall and its strongest qualifier is its distribution muscle, which should help the company establish itself in newer categories as well.”

Fast-moving food business

noreply@blogger.com (Doshi Saurabh) — Sun, 09 May 2010 12:24:00 +0000

In August 2001, ITC made a modest entry into the food business with its Kitchens of India ready-to-eat preparations. The company ran popular restaurants, Bukhara and Dum Pukht, in its hotels. These restaurants, the company felt, were successful because it understood the Indian palate well. Hence, the new line of business. A more serious effort was made a year later when ITC launched its flour under the Aashirvaad brand. This was followed by candies, biscuits, snacks, salt, pasta and spices. The size of the food market was just too tempting. Within fast-moving consumer goods, food has always been the largest category. A large part of that is still sold loose; so the upside for packaged foods remains sizeable.
The news is that ITC has crossed the first hump in terms of volume, market share and profits. Its food business is over Rs 2,500 crore in size. If beverages are excluded, investment analysts reckon, this should put ITC amongst the top three food companies in the country after Nestlé and Hindustan Unilever. ITC Foods Chief Executive Chitranjan Dar runs 40 food factories across the country and a product development centre in Bangalore. It is the market leader in one category — flour —, and is second in confectionery, salt and packaged snack, and third in biscuits. It has in its portfolio six brands (Aashirvaad, Sunfeast, Bingo, Kitchens of India, Minto and Candyman).

And it has turned profitable. Till recently, profitability of this division was a huge concern for ITC. Not any longer. Investment analysts say the profit margins are below 5 per cent, and the company’s next task should be to raise it to the industry norm of 5 to 10 per cent.

ITC’s competitive advantage from day one has been procurement of commodities. The agri-business division of ITC connects with 5 million farmers in 170 districts of 16 states. The company leverages this to good advantage for all the commodities it requires for the food business: Wheat, sugar, edible oil, potatoes et al. Such commodities account for almost 60 per cent of the costs of the business. This is the reason why Dar is not too bothered about the private food labels of large retailers. Most of them buy commodities from the spot market. So, when prices rise, like wheat from September to December, they find themselves in a jam. “The sharbati variety of wheat this year is not available. It’s fully sold out. That’s where our strength lies,” says Dar. ITC uses sharbati wheat for its premium flour called Aashirvaad Select. The other advantage has been ITC’s retail network for cigarettes. About a third of the company’s food products apart from flour (snacks, biscuits and candies) are retailed through these shops.

Local preferences
The company was also quick to realise that the foods business in India requires sound knowledge of local tastes and preferences. Food habits in the country change after every hundred miles. So, this is a business in which local companies stand a better chance of success. It is an entry barrier for multinational corporations, though the two largest food companies in the country are foreign-owned. “Food is a very personalised category. It’s not like soap. You can get some space if you can create differentiation,” says Dar, a veteran of 25 years at ITC. “Brands will need to be fragmented to cater to local tastes and preferences. So there can be no omnibus product which can be a national hit.”

ITC’s biggest brand is Sunfeast — biscuits and now pasta. In biscuits, ITC is ranked third after Britannia and Parle. (See table.) The journey so far may have been easy because ITC has grown at the cost of local brands. The days ahead could be tough. “In biscuits,” says Dar, “you can take on formidable rivals with formidable products. The most successful products are 30 to 40 years old. Cookies or glucose biscuits belong to the 1980s and before.” In the mid to premium category, Dar feels there are several taste buckets and categories available on the health & nutrition, indulgence and convenience platforms. “In these three platforms there is still a lot to be exploited. It is possible to innovate around that. One who does it the best will walk away with the market.”

Some time back, ITC came out with Sunfeast pasta. This remains a small category. Market estimates suggest that it was till six months ago just 2.5 per cent of the Rs 1,100-crore market for instant noodles, which may have doubled with Nestlé’s entry into the segment. This has fuelled the buzz that the next stop for Sunfeast will be instant noodles. Dar denies there’s any plan for instant noodles, “at least not in the next quarter”. The problem here will be to create a product that stands out from Nestlé’s Maggi. Over the years, Nestlé has come out with so many variants of the product that there isn’t much left to add. Dar admits that ITC’s product development team has worked on instant noodles but could not come out with a killer recipe. There has also been speculation that ITC will take Sunfeast to newer categories like packaged water, tea and bread. Dar denies all such talk.

Flourishing with flour
Aashirvaad is ITC’s brand for staples. Branded flour sales in the country are around Rs 4,000 crore, which is just 4 per cent of the market — rest is all sold loose. (Conversion to packaged flour is happening at about 8 per cent per annum.) Out of this, national brands like Aashirvaad, Shaktibhog, Annapurna and Pilsbury sell around Rs 1,700 crore. Aashirvaad’s share of the market is above 50 per cent, market analysts say. This perhaps is the reason why the brand is not heavily advertised in mass media. “Somebody has to pay for it. In the South we do advertise, because it a nascent concept there. In the North, we work at the points of purchase,” says Dar. Aashirvaad is available in outlets that sell 80 per cent of the packaged flour in the country. The product is tweaked, claims Dar, for different markets. The one sold in Delhi, for instance, is a blend of four flours. The mix is changed right through the year to give the same quality to consumers, says he.

ITC first extended the brand to salt. Its market share is 10 per cent, next only to Tata Chemicals’ Tata Salt (over 30 per cent). Here, ITC’s focus is on the rural markets. Unlike flour, rural households have converted swiftly to packaged salt. So, its retail network is not the same as packaged flour. ITC, says Dar, has therefore appointed a whole army of traditional wholesalers to reach these remote markets. Since this market is not scientifically tracked, Dar says he doesn’t know how deep he has penetrated.

Next was the turn of Aashirvaad spices. This industry has a handful of national bands like Ashok, MDH and Everest which are personally driven by their promoters. This makes them formidable opponents. ITC’s strategy here has been to go for blends, so that the brand can charge a premium over others. The problem is that all rivals have come out with various blends. To create a differentiation, ITC will have to come out with something really new and different. That’s the challenge that the company’s researchers in Bangalore face. To begin with, ITC has decided to sell in the South where consumers are a little particular about the spices they buy. The northern markets will come later.

Would ITC like to come out with other staples under the brand, like rice and sugar? Dar rules out the possibility. For rice, he says that ITC does not have a procurement infrastructure in place. Basmati rice, that is what Aashrivaad could look at, is grown in Punjab, Haryana, Jammu and parts of Uttarakhand — not ITC’s stronghold. “As and when our agri-business division begins to export basmati rice, we will also start to sell in the local market,” says he. Sugar too doesn’t excite him because there is no opportunity to create differentiation.

Bang on with Bingo
ITC’s most audacious move in foods so far has been Bingo, its ready-to-eat snack, which took on the might of Frito Lays (market share: 60 per cent; brands: Lays, Kurkure, Aliva and Uncle Chipps.) Bingo has grown through some innovative products and kickass promotion. Its share of the Rs 3,000-crore market is 10 to 12 per cent. Frito Lays has hit back with its new range of Indian snacks. Parle too has entered the market with aggression. Sector experts point out another challenge: Bingo’s positioning is such that it needs to come out with new flavours and advertisements all the time. “It’s a dangerous game,” says a Mumbai-based analyst. “Customers can lose interest if we do not innovate continuously,” Dar admits, “So you need to look at new textures, flavours and shapes regularly. In terms of flavours, our target is one or two launches a year. In texture and shape, there should be one new product in two years. There are eight to ten flavours always in the pipeline in various stages of development.”

In confectionery, ITC lags behind Perfetti because it doesn’t have a chewing gum in its portfolio, though it has candies, éclairs, toffees, chews, lacto and so on. “There is a lot of proprietory work in gums that needs to be done. You need to develop the gum base, for instance. We don’t want to outstretch our limited means,” says Dar. That leaves in Dar’s portfolio Kitchens of India, which is small. That category may not be more than Rs 30 crore. In fact, export of the brand could be five times more than domestic sale. But the North American markets, which ITC has in its crosshairs, could be tough because of the inability to export meats there. Dar says the company could look at local production to get over the problem. But that can wait: Dar’s hands are full with other brands now.

Blog Hack

noreply@blogger.com (Doshi Saurabh) — Wed, 17 Feb 2010 15:22:00 +0000

Dear Readers,

It has been observed in past few weeks that spam matter is being posted anonymously which are nowhere related to FMCG. Kindly note it seems the blog is being hacked & is being accessed by certain unwanted users.

We will try to fix the problem as soon as possible. As a last measure to solution to this problem, we might have to create a new blog.

This is to bring to your notice!!!

Best Regards,

IndiaFMCG

Game for more

noreply@blogger.com (Doshi Saurabh) — Thu, 21 Jan 2010 16:38:00 +0000

T his new year began with Marico Ltd, the mid-sized fast moving consumer goods company, announcing a major acquisition. This time it was the hair care brand Code 10 of Malaysia. The trend of smaller FMCG companies such as Wipro, Godrej and Marico steadily building their portfolio of international brands continues, but whether such brands have been adequately leveraged remains an open question. However, it is the ‘healthy balance sheet' of such FMCG majors which makes it possible for them to graduate from organic to inorganic growth.

“Smaller FMCG companies such as Godrej and Marico have had excellent organic growth. But considering the paucity of good-quality Indian brands and their disproportionate brand values, they are unrealistic buys. However, there are international companies with high equity brands available at a good price and there is bound to be more of such cherry picking for international brands among Indian FMCG companies,'' observes M. Unni Krishnan, Country Manager of brand valuation firm Brand Finance.

Last month FMCG major Godrej Consumer Products Ltd (GCPL) decided to raise funds up to a limit of Rs 3,000 crore through a combination of debt and equity instruments to buy out smaller companies. Announcing the decision, Dalip Sehgal, Managing Director, GCPL, said, “The equity dilution would be limited and it would be more of debt which would be raised for onshore and offshore acquisitions.'' Considering there is a possibility of buying out the balance 51 per cent equity in the Godrej Sara Lee joint venture, the funds would also be utilised towards this purpose. As Sehgal said, “We would need upto Rs 800 crore to buy the remaining stake of Sara Lee in the joint venture company. Besides, the rest of the funds would be used for acquisitions in categories such as household insecticides, hair colours and personal wash. We would be acquiring brands in categories in which we already exist and those that are adjacent to it.'' In the past GCPL has acquired hair care brands such as Kinky and Rapidol in South Africa and Keyline Brands in the UK.

Today there is no stopping the owner of brands such as Cinthol and Colour Soft – there are unconfirmed reports suggesting that it is close to acquiring an Indonesian household company (Megasari) next, apart from bidding for the global pesticides business of joint venture partner Sara Lee.

GCPL's management's outlook is positive towards the acquisitions strategy. “Aside from organic growth, acquisitions both in India and globally of brands and businesses that GCPL believes have the potential to deliver EVA (economic value added) positive returns in the medium term will continue to be a growth strategy for the company in its endeavour to enhance its competitive position, drive profitable growth and enhance shareholder value,'' states a report published on the eve of its analyst and investor meet last year.

In fact, the smaller FMCG companies have been becoming more confident making such deals over the years. “Companies such as Godrej and Marico have gone through the value chain and learning curve and now have developed a certain level of comfort. They have now developed enough systems and processes to derive value from some of these undervalued brands,'' says Unni Krishnan.

But there are also risks associated with such acquisitions and FMCG companies do realise that reaping profits may take a while. Commenting on the dangers that go with inorganic growth, a management analysis made by Marico states: “FMCG companies have identified inorganic growth as one of the avenues for growth. They may make acquisitions and enter into strategic relationships in the future as part of their strategy in India and overseas. However, it might be difficult to identify or conclude appropriate or viable acquisitions in a timely manner. Further, the acquisitions may not necessarily contribute to profitability in the short run and divert management attention or require the company to assume a high level of debt or contingent liabilities. In addition, they may experience difficulty in integrating operations and harmonising cultures leading to a non-realisation of anticipated synergies or efficiencies from such acquisitions.''

However, this has not stopped Marico from announcing yet another acquisition this month. After bringing in Egyptian hair care brands such as Fiancée and Hair Code, it decided to add to its international hair care portfolio by buying out P&G-owned hair care brand Code 10 in Malaysia for an estimated Rs 28 crore. With rights to the brand in Malaysia, Singapore and Brunei, Marico is already hoping to bag a 10 per cent share in the Rs 200-crore hair care category in these markets.

Says Vijay Subramaniam, CEO, International Operations, Marico, “This is our fourth acquisition in the past three years. We have identified the emerging markets of Asia and Africa as the growth avenues. We expect our international operations to grow in excess of 20 per cent in the next three years.'' Marico has also got some niche hair brands in South Africa and a couple of soap brands in Bangladesh.

According to Deepti Singh, Research Analyst at Fortune Financial Services India, “During the past few years, some companies in the sector have used the inorganic route to grow at a faster pace. They expect to derive the key benefits of a diversified portfolio – impressive growth rates, larger customer base, to mention a few – and transform themselves from Indian majors to global conglomerates.”

At the same time, most of the international FMCG companies are going through a rough patch given the current economic scenario in some of their respective countries. As Brand Finance's Unni Krishnan says, “FMCG companies in developed countries are facing a tough time in their markets. Given that scenario, it may not be surprising if more targets appear on the horizon for Indian FMCG companies.''

But on the face of it Indian FMCG companies' acquisition spree has not been adequately leveraged. “Indian companies have a tendency to leave the acquisitions alone and do not believe in changing the management team. While they may not want to radically alter the brand they must do specific things in marketing as the optimal value of the brand is not being leveraged, ‘'observes Unni Krishnan. Take the case of Tata's acquisition of the Tetley brand in the UK, where it has almost taken a decade for the Tatas to get some value out of the brand. Considering that the Indian Managing Director of Tata Tea, Percy Siganporia, recently re-located to London to take charge of the Tetley operations, this in itself has set the ball rolling for the Tetley brand, believes Unni Krishnan. “Indian companies are generally risk-averse and thereby lose out on significant opportunities to grow the value of the brand. While none of the acquisitions have been a disaster, neither of them have delivered full value for such brands,'' he adds.

However, now the ‘full value' of such acquisitions will soon get reflected on the balance sheets of companies with the implementation of the IFRS (International Financial Reporting Standards) Act. “IFRS 3, which will become mandatory in all M&A transactions, requires brand and identifiable intangible assets to be recognised on the balance sheet of the acquiring entity. All companies are being called upon to shine a light onto goodwill - the raison d'etre of future economic value which will provide managements a better and more objective understanding of value of these precious intangible assets, which are often least understood in deal-making,'' explains Unni Krishnan.

As the overseas brand acquisition spree continues, both big and small FMCG companies hopefully will now be in a position to leverage the intrinsic value of the acquired brands.

Crossover Merchandising

noreply@blogger.com (Doshi Saurabh) — Sat, 28 Nov 2009 16:01:00 +0000

In times like these when consumers don’t come easy and loss of revenue is easier done than said, some Indian retailers have been smart enough to deploy a strategy that allows them to manoeuvre shoppers’ impulses even as customers undertake pre-planned shopping trips.

If one thought that the key to success for any retail business in India lay in inflating the number of stores, better supply chain management, technology deployment and such incomprehensible jargons, there is something more subtle that has been evident all across, yet has evaded our eyes because we never realised our shopping may have been manipulated by the retailer.

Cross merchandising is a practice that works on the principle that there is an element of lateral thinking and logic in a consumer’s purchase, and thus this technique can be made use of not only to make shopping more convenient for the existing customer base, but also to poach a new set of consumers. While to a retailer, such a practice leads to incremental sales, for the consumer it is shopping assistance without much cognitive effort. Sample the instance of cross-selling, (which though differing from cross merchandising follows the same marketing principle) at McDonald’s, when consumers are unfailingly asked if they want French Fries and a beverage to go along with their order.

Deploying lateral thinking, cross merchandising is thus based on the concept of lateral marketing, which is a work process which, when applied to existing products or services, produces innovative new products and services that cater to new needs and situations and hence, offers a high chance of creating new categories or markets.

Defining cross merchandising from a retailer’s perspective, Samar Singh Sheikhawat, VP, marketing of Spencer’s Retail says, “Typically complementary products that make up similar buying behaviours for the consumers are defined as cross merchandising. It could straddle displaying and selling a product, promoting a basket of goods and visual merchandising as well.”

An extremely interesting characteristic of this practice is that it is intricately related to studying shopping behaviour and adapting merchandising of retail stores as per demands of the catchments. However, the technique also works backwards in that a retailer can educate his consumer as to what all additional products can go along with his usual basket of goods. Viney Singh, MD of Max hypermarkets explains: “Cross merchandising is the practice of displaying products from different categories together, which is aimed at improving the overall customer experience. Hence, we provide such opportunities to the customer to primarily facilitate convenience while shopping. It also generates additional revenue or incremental purchase.”

“A customer may not always remember every item on her shopping list and so a little prompting always helps. Hence, cross-merchandise is a very important aspect of retail, both from the customer journey experience as well as from the retailer’s financial viability. It creates a win-win situation for both the retailer and the customer.”

Thomas Varghese, CEO of Aditya Birla Retail Limited corroborates, “Cross merchandising is the setting up of displays of complementary merchandise so that they are placed near each other. Therefore, the customer shopping for one item gets tempted to ‘cross-over’ to other related product placed near it. It is definitely a powerful medium to boost sales, if deployed correctly.”

Having said that, cross merchandising is a tool that works across categories, but in the process of execution, not every category turns out to be so convenient to cross-present. For instance, in the frozen foods category, there are operational issues that factor in because this segment is highly ‘equipment-dependent’ and this is compounded by the space constraints that many modern food retailers face. Singh states that in this category (frozen foods) it becomes difficult to display the frozen foods’ complementarities along with the refrigeration units where these foods are stored.

While there is substantial unanimity in retailers’ views on the frozen foods segment, there is also subjectivity in the way a retailer perceives the difficulties in cross-presenting different categories.

Cross-aisle merchandising – placing related items on facing shelves – is an offshoot of conventional cross merchandising thinking.

Sheikhawat says that largely all categories are feasible for this practice; however, it is the staples section that is a mite tricky to display in a visually attractive manner. “It is very difficult to bring in the elements of aesthetics and glamour, for instance, in a rice shelf. At best, there is a possibility of putting it together with certain utensils like a rice plate or a storage container, but that still does not really prevent it from looking drab,” he says.

“All categories generally offer some promise to cross merchandise. It is most often the extent that varies,” says Singh. “For instance, in the range of utensils, most SKUs can be cross merchandised, but the same cannot be said for luggage, which is a difficult category in which to do this. Most foods are crossed with general merchandise but due to space constraints, it becomes physically impossible to display the merchandise properly.”

Varghese informs that for him, health and baby food supplements are most difficult to cross-merchandise. “In ‘planned-shopping’ categories like fruits and vegetables and staples etc, it gets tough to cross-present as the customers who come to shop for these categories have a pre-set shopping plan and a budget that has limited flexibility. This concept does really well in impulse purchase items,” he notes.

Impulse planning

While it is largely considered that cross merchandising is more effective in triggering impulse purchases, there are varying opinions on the same. Worldwide, and as Sheikhawat also mentioned earlier, this practice is an integral part of in-store merchandising since it is proven to be a tool for boosting incremental sales. The technique has been a rage among all the retail stores in the west as the motive has been to maximise the gross profit per shopper.

“Cross merchandising is fundamental to retail, and boosts incremental sales and impulse purchases. However, one should be careful to the extent and the way in which it needs to be done. This is very important as consumers may get confused if it is overdone,” Singh says. “Cross merchandising is not limited to tapping impulse purchases only – it helps to give ideas to consumers. They are then free to choose from a range of products that the cross merchandise represents.”

Singh informs that the kitchen linen category at Spar recorded a 22 per cent increase in sales owing to it being cross-presented with kitchen utensils. “This is a form of ‘suggestive selling’ and often it creates a thought process that may not have existed in the customer’s mind previously. This often then translates into planned purchases,” Singh states.

Elaborating on the practice at More stores, Varghese says, “We use different permutations and combinations of presenting snacks and beverages, sweeteners with tea and coffee, noodles with soups, oils with wheat flour, rice with flour, sugar with rice and, oils with fruits and vegetables, etc.”

“Broadly, the categories we do this (cross-merchandise) in at Spar are utensils, kitchen linen, travel, toys, stationery, small appliances and in a more limited way in food and grocery,” Singh elaborates.

“We are currently applying the practice by cross merchandising between and within various non-food categories like utensils with kitchen Linen or Irons with Ironing Boards, cookers and non stick with grinders and mixies, buckets with detergents, cartoon mugs with children’s gifts, lunch bags with lunch boxes /water bottles, note pads with telephones and bath towels and bath salts/oils,” he adds.

“The direction will be to smartly cross merchandise between food and non-food categories, something we have begun to do. For instance, apples and pairing knives, toys and batteries, wines with glasses, cheese with cheese boards and knives, peppermills with peppercorns, and so on.” Some more examples in the food & grocery categories are sauces, mustards and spices being merchandised at Spar delicatessen counters, syrups, toppings, masalas in the frozen foods segment, the pet food category placed next to garden plants, snacks & cold beverages in the liquor section, wine glasses in the wine section, and masalas and dry fish in the fresh fish & meat counters, according to Singh.

What’s the right cross?

After seeing the differences in the extent of cross merchandising at India’s leading retail stores, the next issue that comes to mind is how two merchandise categories are aligned together so that they make for a perfect cross-merchandise display. This is, in fact, the point that Sheikhawat contends is that the biggest challenge in cross merchandising – to understand which category goes well with which one. Thus, while a particular retailer may present cheese with a cheese grater, another might display cheese with wine or olives or even bread, depending on the demands of the respective catchment. Sheikhawat suggests that in a cosmopolitan location, one could probably do an Italian book with olive oil, or an Italian music CD, but in a tier II town one would need to be more grounded in basics – with presentations such as a cola with a pack of chips, and so on. However, Sheikhawat specifies that consumer receptiveness for cross-presented merchandise remains the same across all catchments. Singh agrees. “Products may vary across different catchments, but the concept remains constant as customer behaviour is much the same in all locations,” he points out.

“To be effective, cross-presented merchandise must relate in a logical way. For example, coordinating items that would be used together, such as pasta sauces, pasta cookware and pasta cookbooks; items that are colourcoordinated, a range of products that offer customers choice within a particular category such as cappuccino or espresso coffee-makers and plain or patterned dinnerware that can be mixed and matched, products that offer themed ideas such as baby gifts, stocking stuffers or a fondue story,” he adds.

Sheikhawat believes that cross merchandising, from the display point of view, is more of an art than a science. However, even as an art, the cross merchandising technique has more to do with the category management philosophy, he adds.

The next level

The practice is certainly no cakewalk and there are numerous operational hurdles to it. Singh elaborates that primarily space constraints, assortment issues and certain operational implementation issues have been
deterrents to this practice being embraced in India to its fullest potential. Varghese reiterates this when he says, “There are a number of implementation issues at the store level.”

Elaborating on the assortment issues, Singh says that at times it becomes difficult to cross merchandise the complete assortment of a particular product. For instance, there may be an excellent range of cheese knives available with a store, but at the cross-merchandised point it becomes hard to decide which one to cross present, even as the whole assortment deserves an exposure at such location.

Sheikhawat holds that it is also difficult to templatise the results of cross merchandising, from the viewpoint of indicating its impact on sales, footfalls and such other aspects.

That being said, if the practice in more developed markets is anything to go by, cross merchandising has been used as an extremely flexible tool, which incorporates crossselling, cross-promotions, crosssampling and even cross-presenting non-complementary categories.

Cross-aisle merchandising, which includes placing related items on facing shelves, is another offshoot of the same. This perhaps, could prove useful when presenting the whole assortment becomes important, something that Singh spoke about earlier.

Further, while convenience is the driving factor behind cross merchandising, it cannot be denied that it is also a potent tool to alter shoppers’ preferences and behaviour inside the store. Thus, while the loyalty of a shopper may rise with greater convenience of shopping, a new set of consumers may be created by exposing them to all that the store has to offer. The aspect of loyalty however, can only be better gauged if a retailer has a successful loyalty programme by which one can evaluate a consumer’s basket and then make efforts to expand it through better cross merchandising.

Moreover, the ‘suggestive’ characteristic of cross merchandising has been aggressively utilised by retailers in the west to build traffic and to cater to the existing customer base in a better manner. Many western retailers have been experimenting with ‘category destination programmes’ by re-routing shoppers from high-traffic zones to lowtraffic areas in order to boost the turnover of the low-traffic categories. Thus, shoppers at the relatively high-traffic baby diapers section can be routed to a laundry baskets’ department, for instance, while at the same time being supported with an appropriate advertising display and promotion.

Saumil Thanawala, director, marketing of Amalgam Speciality Foods, however, expresses caution when cross merchandising is being used to promote a relatively weaker brand or category. “Cross merchandising should be done in the right light so that it helps the retailer build consumer loyalty and preserve the brand image as well,” he cautions.

The end result

There indeed is a long way for a niche practice as cross merchandising to evolve in India. There is perhaps, also a need to expand the scope of this exercise, to include superior exposure to a large number of brands, as brand loyalty in India is still low in many categories and there is a huge opportunity for every new brand to leave a mark.

However, before that is achieved, retailers need to put in place more efficient Market Basket Analysis (MBA) methods which, among other things, would help them gauge a shopper’s price point sensitivity; a consumer’s likelihood to substitute items due to cross-promotions, out-of-stocks or item deletions; customer base for different brands and, consumer segment purchase preferences and traffic analysis. This would not only help in better management of categories, but also in building ‘consumer-centric merchandising.’

Last but not the least, the concept of collaboration with brands will need to transcend the battles of margins and slotting allowances. Cross merchandising is more about creating a consumer base for posterity.

Since there are no statutes to dictate and oversee the implementation of cross merchandising, there is always a room to tailor the practice if the retailer is benefiting from it. Sheikhawat and Singh admit that brands and manufacturers are quite receptive to this practice. “Some manufacturers who have been in business for long enough and who understand modern retailing would understand the concept and benefits of cross merchandising,” Varghese concurs.

Having said that, it is equally important to know what the brand manufacturers think. Thanawala contends that cross merchandising is largely made use of by strong brands. “Weaker brands do not feature in this practice, as they are perceived in as slow movers, and hence, are kept away from promotions.”

“Getting across to a retailer with a cross-merchandise idea is usually time consuming; I would rather work with the brand manager I want to partner with, to get the promotion going. This way I can measure the effectiveness and also tweak the promotion based on consumer responses,” he comments.

“Many manufacturers appreciate the concept of cross merchandising,” says Singh. “But, as a whole, its implementation is left more to the retailer’s discretion at this stage. Cross merchandising is very likely to be a win-win gameplan if it is a collaborative effort.”

Cold Wave

noreply@blogger.com (Doshi Saurabh) — Sat, 28 Nov 2009 15:57:00 +0000

One of the pre-requisites of best-in-class food & grocery retail is a state-of-the-art supply chain and cold storage infrastructure. India’s largest cold chain company, Snowman Frozen Foods Ltd, realises this all too well, and is set to leverage the rapid spread of modern retail and cash-and-carry formats in the next few years across India.

Snowman Frozen Foods Ltd., is a joint venture between Gateway Distriparks Limited, Singapore and Mitsubishi Corporation, Mitsubishi Logistics Corporation and Nichieri Logistics Group Inc. of Japan. In India, Snowman happens to be the only cold chain logistics company to receive ISO 22000 certification from TUV, Germany.

With its current network of 16 cold storages and over 100 reefer trucks of different capacities, the company’s focus is to improve efficiency of distribution processes by proving cost-effective and high- tech logistic solutions to various clients across food sectors.

The company provides total integrated end-to-end supply chain solutions from source-to-store, taking care of transportation/storage, handling, and retail distribution of frozen and chilled foods across 20 locations within the country including Delhi, Chennai, Cochin, Hyderabad, Kolkata, Goa and Nagpur.

The wide range of products handled by Snowman include ice creams, poultry, dairy products, fruits and vegetables, meat products, and healthcare and pharmaceutical products. Snowman puts into use a customised fleet management software to monitor and control the cargo as well as the entire fleet (all the software is located at a central server in Bangalore), while a tailored Tally 9 package is used for superior control and checks on all financial transactions.

According to company officials, wherever one sees a temperature-controlled product in India, in all probability the logistics would have been handled by Snowman. Apart from offering cold storage solutions, the company also offers dry logistic solutions to select clients. It is also the only company in India to provide part load transportation for frozen cargo. The service runs on a fixed schedule covering around 100 cities across the country.

Up the ante

By December 2009, the company plans to make a new storage facility in Sriperumbudur near Chennai, in Tamil Nadu, functional. The Chennai warehouse is expected to be the largest multi-temperature storage facility of Snowman with a capacity of 3,000 pallets (one pallet = one tonne).

“Chennai is a major sea port in South India with high volumes of imports and exports of perishables. There is minimal or virtually no competition from any organised operator in the region. Competition, if any, emanates only from a few local operators. Chennai also has a good potential for food processors due to the large output of seasonal fruits,” explains Ravi Kannan, chief executive officer of Snowman Frozen Foods Limited, when asked why the capital of Tamil Nadu was chosen to set up the company’s largest warehouse facility.

“For importers, this new warehouse will serve as a single-door service option to de-stuff the containers, assist in in-transit storage location, thus facilitating de-stuffing, sorting, storing and effective distribution planning on a pan-India basis. For cut food-processors also this new storage facility will prove to be a huge help, as not only will it enable them to store semi-finished products during the volume produce of crop, but they will also be able to store in bulk and be able to meet the price and export demands,” he adds.

Snowman also appears to be preparing to extend its core competence to traditionally non-core areas. “So far, we have been involved in storage, primary transportation and last mile secondary distribution, essentially source-to-stores,” Kannan says. “But going forward, we will be getting into processing activity (F&V packaging, repacking, grading, kitting, bulk breaking etc., ripening chambers) mainly in fruits such as bananas, apples etc, blast freezing and dry warehousing (storage of any product at ambient temperature).”

The objective is to not just build critical mass for the business, but to also evolve into an end-to-end service provider in every sense of the expression. “It (the decision to backward integrate) follows from a customer requirement. All our clients want a single contact point; they do not want to deal with multiple vendors for their various requirements. So, since we are expanding now, we want to be able to provide some comprehensiveness and be a one-stop-solutions provider for our clients – a first again for any cold chain logistics company in India,” Kannan says.

“Our tie ups with the analytical labs is also a first-of-its-kind achievement for a company like ours in the country,” he adds. “Thanks to these alliances, we will be able to certify to our customers that all products stored in our warehouses are stored at the right temperature and hence safe for human consumption. We want to create benchmarks in the industry.”

In addition to this, Snowman is also shortly to synergise with the parent company, Gateway Distriparks, to simplify import clearance processess and avail of the bonded-warehouse facility. “All our clients — new and existing — will now be able to avail this service; the client will now not have to worry about imports and storage. Our role would begin as soon as a vessel pulls into the port and the containers are dropped off. We will inform Distriparks about the offload, they will go and pick up the container and take it to their bonded facility for storage. As and when the client requires the cargo it will be sent to our warehouse – thus offering one solution from end-to-end.”

As in all other Snowman storage facilities, the new Chennai unit will also feature all basic specifications in place, which includes maintaining the air temperature for storage at -20 degree centigrade in order to retain the temperature of product stored at -18 degree centigrade (international standard for frozen food). In order to offer optimum food safety standards, the freezer storages have been designed for operation at -25 degree centigrade with flexibility of incoming materials up to -15 degree centigrade.

All the company’s cold storages are made up of insulated sandwich panels made of polyurethane lined with metal skins on both sides having density of 37 kg/m3 square with thickness of 150 mm. Made from CFC-free polyurethane materials, the panels are supported with steel structural framework acting as building, which is covered up well with steel sheetings to protect it from the vagaries of nature.

Inside the cold storage sections, the temperatures are controlled by using an advanced refrigeration system (operates on CFC-free R404a gas manufactured by Dupont USA) using two-stage reciprocating compressors with suitable air handling units and evaporated condensers with proper control system.

The material storage arrangement is on standard two deep racking systems, which can store materials on Euro pallets of size 1000 x 1200 x 1500 mm with four-level vertical arrangements. Battery electric forklifts assist in the pallet movement. These forklifts are equipped for lifting material from the fourth level and second depth of the rack.

Dock levelers and dock shelters help in loading and unloading of materials from or into the refrigerated trucks. The dock shelters aid in air-locking the trucks into the cold storage area while the leveler matches the floor level of the truck with that of the cold storage.
With many national grocery chains having slowed the pace of store expansion in the first three quarters of the year, many support companies have taken a hit in topline growth. Did Snowman also feel the heat of this so-called slowdown in the food retail business?

Not really, says Kannan. “There has really been no impact as such of the slowdown; in reality, food imports are steady and have risen also to some extent. On the other hand, what did impact the topline was the H1N1 flu-virus outbreak and the multiplex closure to any new movie releases for approximately three months – foodservice brands felt the bite as consumers were not going to food courts, malls or restaurants to eat or hang out as much as earlier.”

Way forward

New cold storage facilities with features virtually similar to the ones in the Chennai warehouse are expected to come up in Bangalore by April 2010 and in Mumbai by July 2010. In the next two to three years, new storage facilities are expected to come up in eight more locations pan-India. With an existing Snowman cold storage capacity of 10,860 pallets, the company plans to add additional capacity for 8,440 pallets by September 2010.

The company is also contemplating getting into dry warehousing in a major way. According to Kannan future plans for providing dry warehousing facilities include offering two lakh square feet storage space in four locations, one in North (Delhi), one in South (Chennai), in West (Mumbai) and in the East (Kolkata).

Explaining further he notes, “From 1st of April 2010 the Goods and Services Tax (GST) is expected to come into place. With a uniform GST, all big companies would be in the process of closing and consolidating their small warehouses, which they will have across different states due to various tax issues. These four major distribution centres will feed all the smaller locations. Very soon we will be coming out with a retail strategy plan as well.”

Snowman is also looking at greenfield projects with large customers. Clients looking for Snowman warehouses in specific locations dedicated specifically for their use will also be serviced. According to Kannan, Snowman will build state-of-the-art warehouses for any such clients and manage the show for the specified period of time. Such an arrangement is already underway for one of Snowman’s clients in Pune, where an exclusive distribution centre is currently being built for the client.

Mid-sized FMCG cos' big swipe at MNCs

noreply@blogger.com (Doshi Saurabh) — Thu, 23 Jul 2009 15:01:00 +0000

Analysts say they have more product ideas, nimbler market responses than the giants.

Harsh Mariwala’s face lights up while recounting his favorite story. In the late 90s, Keki Dadiseth, the then Hindustan Lever (now Hindustan Unilever) chairman, wanted to buy his company, Marico. Many of his friends advised him to cash out when the going was good, but Mariwala dug in his heels. “Marico is a dream for me and I was in no mood to sell my dream,” he says. So, one of the high points in his life was when Marico bought the multinational giant’s hair oil brand, Nihar, for Rs 240 crore in 2006.

The dream run of Mariwala and his counterparts at other mid-sized FMCG companies is continuing, and much of the robust growth they are enjoying is at the expense of the FMCG behemoths. Companies such as Marico, Dabur and Godrej Consumer Products (GCPL) have been growing at a compounded annual growth rate of over 20 per cent over the past three years, compared to HUL’s 14 per cent. The respective sales volume growth are 10-15 per cent and 5 per cent.

Analysts say their relatively smaller size is one reason why the mid-tier companies found it easier to respond to the market. For example, towards the end of 2008, raw material and packaging material prices started sliding as oil prices dipped, and these companies were quick in passing on the benefit to consumers by paring product prices. HUL also cut prices but took its own time to do so. Result: HUL’s volumes dipped four per cent in the quarter ended March 2008-09, while the mid-sized FMCG firms clocked a volume growth of over 20 per cent in the same quarter.

Innovative strategies are another reason. For example, Marico’s mantra is to find niches where MNCs are not present, making it easier for the company to dominate that space. The leadership position in products like Saffola and Parachute (over 48 per cent marketshare) is evidence of that. Last year, Marico launched ‘hot oil’, which does away with the need to heat the oil. Likewise, it forayed into services with Kaya clinics (a space vacated by HUL). Kaya clocked close to 60 per cent growth year-on-year in the last financial year.

"We are continuously prototyping and at any given time, have at least five to six products in the test market," said Sameer Satpathy, chief marketing officer, Marico. In the last financial year, the company saw its revenues grow by 25 per cent, to Rs 2,388 crore.

Sunil Duggal, chief executive officer, Dabur, attributes the winning away of market share from established MNCs to the company’s new products and variant launches, and inorganic growth strategy (acquisition of Balsara and Fem). "We saw the fastest organic growth in a decade last year,” Duggal said.

A large part of this growth was volume-driven; Dabur had the highest volume growth in the FMCG industry. In the shampoo market, for instance, Vatika has been the fastest selling brand for three years in a row. Dabur Red Toothpaste has become a Rs 100-crore brand within just five years of its launch. Its skin care portfolio, with Dabur Gulabari, saw a 40 per cent growth in the last financial year.

So, too, for the Rs 1,450 crore GCPL, the soaps and hair colours major, which has been pursuing both organic and inorganic growth. Its international operations now account for Rs 300 crore of its overall revenues, post the acquisitions of Rapidol, Kinky and Keyline. Soaps account for Rs 800 crore of its Rs 1,150 crore domestic revenues. In the last financial year, Nielsen says the company saw its marketshare grow from 9.1 per cent to 9.9 per cent in this category.

Most agree that price is not the only reason why the mid-sized firms have gained marketshare. For example, GCPL Managing Director Deepak Sehgal says Godrej No 1 soap has been gaining marketshare in the downturn even though several rival brands like Breeze, Nirma and Diana were at lower price points. “Others such as Santoor, Rexona and Lux have also dropped their prices and are now in the same price band as us. But we are still gaining traction and are market leaders in five states, which shows there is a preference for the brand," Sehgal said.

Profits of mid-sized FMCG companies also grew at a faster clip than big competitors, due to their better rural focus. GCPL , for example, is planning to increase its marketshare in rural areas to 50 per cent from 38 per cent now, through better pricing and focus on regional advertising. "We have plans to increase our small-town distribution reach from 3,000 to 6,000 and village reach from 17,500 to 50,000 over the next two to three years,” Sehgal said.

Dabur, whose rural sales are now almost half of its overall sales, covers villages with a population of under 3,000 across seven states.

FMCG cos to see robust volume growth

noreply@blogger.com (Doshi Saurabh) — Thu, 23 Jul 2009 14:59:00 +0000

Fast moving consumer goods (FMCG) companies, say analysts, may register a lower year-on-year (YoY) sales growth but higher volume growth for the quarter ending June 30. The full benefits of falling commodity prices and lower input costs should also increase the gross margins of these companies, they said.

A survey by five brokerage houses — SBICap Securities, Angel Broking, ICICI Securities, Motilal Oswal and HSBC Securities — reveals that after a volatile calendar year which saw input costs rise to record levels in the first half and then fall dramatically in the second half, FMCG companies will now see the benefit, as it usually takes a quarter for falling costs to show in the results.

“The FMCG universe is likely to register lower sales growth of 10.9 per cent year-on-year (y-o-y) due to muted sales growth in Hindustan Unilever (HUL) and ITC, and lower price growth for most other companies. However, volume growth is expected to be strong for most categories. Lower input costs and excise benefits will result in margin expansion and, hence, we expect operating profits for the sector to grow 21.5 per cent y-o-y,” say ICICI Securities’ analysts.

“The volume-led growth will be led by led by companies like GlaxoSmithKline Consumer Healthcare, Nestle and Dabur,” forecasts Anand Shah, FMCG sector analyst with Angel Broking, who expects the sector to record a 12 per cent net sales growth.

With most companies either effecting a direct rollback in prices (HUL, Marico) or offering various trade and consumer promotions, growth in sales will be mainly volume driven. “FMCG companies will post 8.7 per cent growth in sales, 15.2 per cent in Ebitda and 13.6 per cent in net profit. Excluding HUL, the growth would be much better at 15.4 per cent in sales, 20.2 per cent in Ebitda and 24.3 per cent in net profit,” says Pritee Panchal, FMCG sector analyst with SBICap Securities.

However, going ahead, while the makers of personal and packaged goods should benefit with no letdown in consumer demand, especially with the benefits of the National Rural Employment Gurantee Scheme and farm loan waivers causing rural demand to hold strong, weak macro-economic conditions, coupled with falling income levels, could lead to moderation in consumer spending in the ensuing quarters.

“If the monsoon is poor, it will affect consumer purchasing power. There could be a risk to revenues for the next three quarters, but this will be at least partially mitigated by social sector spending, as laid out in the Union Budget,” cautions an HSBC Securities results forecast.

ST-MOVER ADVANTAGE
Company	Net Profit Range	Net Sales Range
HUL	6.2-15	2.9-8.6
ITC	14.7-23.9	3-8.7
Nestle	9.5-30.7	12.5-18.8
Dabur	8.6-29.1	18-20
Marico	20.2-37.3	13.3-16
GCPL	49.7-66.4	10-19.5
Britannia	15.3-29.7	10-18
GSK Consumer	14.4-31.7	22-27.5
(Figures in per cent) Source: Analyst reports

Horlicks stretches out

noreply@blogger.com (Doshi Saurabh) — Thu, 23 Jul 2009 14:51:00 +0000

GlaxoSmithKline Consumer Healthcare is leveraging on Horlicks' brand equity to get into new categories. Will the move pay off? Walk in to any small eatery in the southern and eastern parts of the country and you will find it hard to miss the bottle of Horlicks at the cash counter. Horlicks is not a young brand — it has been around for decades. After imports were disallowed in 1955, Hindustan Milkfood Manufacturers started making the drink in the country in 1960 and now it’s owned by GlaxoSmithKline Consumer Healthcare. But there are no evident signs of ageing. Horlicks’ market share of the Rs 2,305-crore milk beverages market is above 50 per cent (source: The Nielsen Company). Rivals know beating Horlicks in the market place is a tough act. Nestlé has stopped making Milo and new entrant Dabur India has decided to stay clear of Horlicks and pitch its Chyawan Junior against GSK Consumer Healthcare’s other beverage brand, Boost.

It would be foolish not to leverage the equity of such a brand. Thus, GSK Consumer Healthcare has decided to use the brand to get into new categories. In the last few months, it has launched biscuits for children, a nutrition drink for women, an energy bar and chilled milk. More could follow in the days to come.

“Our business was doing well as was the economy. So both from our point of view as also from the consumers’ perspective, it was a good time to shift gears,” says GSK Consumer Healthcare Managing Director Zubair Ahmed. Ahmed believes the new products will make a meaningful contribution to the company’s top line in the next few years. “These categories are relevant and our research shows that consumers need these products. We are not creating needs, we’re simply fulfilling them.”

Those who know Ahmed well will hardly be surprised by the fast pace of product launches. As the chief executive of Gillette, his previous assignment, he tried to grow the business rapidly with a slew of new shaving products. He left the grooming products company two years ago after it was acquired by Procter & Gamble to run GSK Consumer Healthcare.

Something for everyone

Ahmed is aware that new products do sometimes end up as casualties but he has taken confidence from the strength of the Horlicks brand. “We’re riding the equity of Horlicks and supplementing it with consumer insights,” says he. Horlicks may be the country’s sixth most-trusted brand but GSK Consumer Healthcare is playing in a market where consumers can be demanding. And rival brands are no rabbits: Cadbury’s Bournvita and Heinz’s Complan each with a 15 per cent share.

So far though, GSK Consumer Healthcare has succeeded in segmenting the customer base by catering for specific needs of women at the same time cashing in on the increasing population of children with Horlicks. Ogilvy & Mather Country Head (planning) Madhukar Sabnavis feels “the brand today talks to every member of the family rather than the entire family.”

With Junior Horlicks, launched in 1995, GSK Consumer Healthcare had positioned a product exclusively for children between the ages of two and five. That, Anand Ramanathan, who advises companies in the FMCG space at consulting firm KPMG, points out is a crucial segment given that India is a young country — a clever ploy to engage consumers at a very young age. The Junior Horlicks brand has grown to become a Rs 150-crore brand now, says GSK Consumer Healthcare head of marketing Shubhajit Sen. Taking advantage, the company launched Junior Horlicks biscuits last month. Again, five years ago, GSK Consumer Healthcare had reached out to pregnant and lactating mothers with Mother’s Horlicks; last year it came up with Women’s Horlicks catering for women across age groups.

“The idea is to address all age groups. There’s Horlicks Lite for the elderly who often have a sugar problem and for the youth we have Horlicks Nutribar which we launched in February this year,” says Ahmed.

With Horlicks Nutribar, positioned on the twin planks of health and convenience, GSK Consumer Healthcare has leveraged the brand to venture into an entirely new product category — energy cereal bars. Says Ernst & Young Partner Ashish Nanda: “When you’ve created a strong brand, it opens up doors to new variants and even new categories. Unless you enter a completely unrelated area, there’s little risk in extending the brand to other products.”

While the company hopes that Horlicks Nutribar will chip in with about Rs 100-150 crore of revenues in five years, it hasn’t stopped there. In April this year, it invited consumers to taste its summer drink called Horlicks Chilled Doodh (milk), available in four flavours. Sen concedes that the product will be up against some keen competition in the Rs 45-crore chilled milk category from Amul Kool and strong regional players like MAFCO in Mumbai, but he hopes the brand can pull in revenues of Rs 50-100 crore in about five years — more than the current market size.

Of course, GSK Consumer Healthcare will promote other brands too — it does need to hedge its risks, after all. Thus, in April, Glaxo ActiGrow, a protein supplement for children, was unveiled. Ahmed explains that the company is cashing in on the brand equity that Glaxo still has with mothers and will leverage that for specialist products like ActiGrow. “We’re looking at new products across food and beverages, like healthy snack foods because the opportunities aren’t taken care of simply by Horlicks,” says Ahmed.

Full of beans
At the moment, Horlicks takes care of GSK Consumer Healthcare’s top line. The brand, which was worth around Rs 800 crore in the early parts of the decade, is today 50 per cent bigger at close to Rs 1,200 core, bringing in the bulk of the company’s annual turnover of Rs 1,580 crore.

If Indians drink more than five million cups of Horlicks everyday it’s because GSK Consumer Healthcare has worked on the product. At one time, in the late 1990s, market research showed that Horlicks was seen “as a nourishing, but boring drink” and was beginning to lose significance. What’s more, consumers were beginning to prefer flavours over nutrients.

So, in 2003, the brand was revamped: It was made tastier and launched in two new flavours — vanilla and honey. The company had earlier launched a chocolate version to try and win over consumers in the North and West who typically prefer chocolate-flavoured drinks. But the success was limited. Nearly half of its sales are still generated from the South, while 35 per cent come from East. But that doesn’t seem to bother investment analysts. IDFC SSKI Managing Director Nikhil Vora points out that GSK Consumer Healthcare has held on to its market share in a space that’s grown at around 20 per cent in the last couple of years. “As the market leader, the brand could yield some share but volumes have grown in double digits for five consecutive quarters.”

Not just higher tonnage, the company does succeed in extracting a price from consumers. In January this year, for instance, prices were upped by about 5 per cent. What has worked in the company’s favour, says KPMG’s Ramanathan, is Horlicks value-for-money positioning. “Horlicks may not be a cheap product but it’s been communicated as a value-for-money product. Parents today are willing to spend more on nutrition for their children and that has helped GSK Consumer Healthcare.”

To that extent, Horlicks may have gained over competitors such as Complan which are perceived to be more expensive, a perception that hasn’t changed over time. Says Ahmed: “Compared to competitors, Horlicks is the best money proposition and, moreover, the consumer gets value for the money spent.” For the new launches too, he has in mind a similar value proposition, though final prices will be fixed keeping in mind the target group. “Women’s Horlicks is far more expensive than the base Horlicks but that’s because the consumer is getting much more and there’s no other product available. Horlicks Nutribars will be primarily a metro phenomenon to start with, so the pricing has been decided accordingly.”

Nourishing the brand
Horlicks does not feel the need for a brand ambassador, though GSK Consumer Healthcare has engaged expensive celebrities like Kapil Dev, Sachin Tendulkar and Mahendra Singh Dhoni to endorse Boost. Still, the several new launches could push up the ad budget of one of the country’s top advertisers, most of which is spent on television. Sen believes that spends could inch up over the Rs 194 crore that GSK Consumer Healthcare spent on advertising and promotions last year. Typically, FMCG companies spent 12 to 13 per cent of their turnover on brand promotion.

The radio, through which Horlicks reached out to mothers even 40 years ago, is still an effective channel in states such as Bihar or Orissa where consumers don’t have access to television or where power cuts are frequent. In the early years, mothers were the sole target audience since the product catered to the entire family. However, once pester power became big in the 1990s, the Horlicks advertisements started talking to children too. The change worked because it was also the time when mothers’ mindset was changing — they had become more indulgent and let children drink what they liked, rather than imposing on them a drink of their own choice.

Today, JWT Client Service Director Debarpita Banerjee believes, the Internet can be a good way to connect with kids. So, there are tips posted on examinations on the website — “Exams ka bhoot bhagao” (Drive the exam demon away). Besides, the company has also reached out to children with Wizkids, a contact programme that provides a platform for schoolchildren across 25 cities to showcase their talent.

Adding rural reach
Under Ahmed, GSK Consumer Healthcare has upped the ante on distribution. In an aggressive ‘Go to Market’ approach earlier this year, it created a second layer of distributors in the smaller towns to supplement the existing chain of around 500 big distributors. Most of these 4,000 sub-distributors were appointed in the eastern and southern parts of the country. The idea, according to Vice-president (sales) Navneet Saluja, is to increase the retail reach by at least 30 per cent. “Right now we reach out to around 25 per cent of the rural market and we hope to extend this reach to about 40 per cent of the hinterland in a couple of years. We’re looking to have a presence in towns that have a population of 5,000 people.”

As for reaching out to customers in the urban markets, Sen has begun to work with retailers to create excitement and awareness. “In some outlets, we even created play areas for children,” he says. Although modern trade remains a relatively small channel currently, fetching just 4.5 per cent of the firm’s sales, Saluja’s aiming for higher shares. Ahmed’s not worried about the expense. “We’ll be leveraging the P&L (profit and loss account) for some time because we need to invest in the business and new products,” he says. Clearly, no effort is being spared to grow Horlicks.

Mother of all rural marketing schemes

noreply@blogger.com (Doshi Saurabh) — Fri, 27 Mar 2009 03:16:00 +0000

Khurrampur, Uttar Pradesh: What worries Gita Devi most about her business is not the economic slowdown but the tea that her neighbours are drinking. “They’re drinking City Gold and Tata Tea,” she tells Dharmender Mishra, her supervisor. “And they sing their praises. Why don’t they like Brooke Bond then?”“Maybe we should plan a tea party for them,” Mishra says.

“Maybe,” Gita Devi replies, looking uncertain.

“We’ll do the tea party—we’ll do some sampling and a demonstration,” Mishra says, reassuring her.

It’s important for Gita Devi that her neighbours drink Brooke Bond. Gita Devi is Hindustan Unilever Ltd’s (HUL’s) chief salesperson for her village of Khurrampur and the nearby village of Shalimarbad, and one of at least 45,000 village entrepreneurs enrolled in Project Shakti, the rural marketing initiative of the country’s biggest home products maker.

If the neighbours of all those entrepreneurs—or Shakti ammas (literally, “mother”, a respectful way to address women), as they’re called—drink Brooke Bond, bathe with Lifebuoy and plump for HUL’s other consumer goods, it will bear out Project Shakti’s promise: to cultivate the vast markets of rural India, sourcing saleswomen from the very villages that it hopes to tap.

Project Shakti was launched in Andhra Pradesh’s Nalgonda district in 2001, and it has swept the country with such success that Anglo-Dutch multinational firm Unilever is now customizing it to rural markets in Sri Lanka, Bangladesh and Vietnam. In 15 states, it has worked with self-help groups and non-governmental organizations to identify underprivileged women and train them to be saleswomen. Its timing has been fortunate: Its operational run has coincided almost exactly with a decade-long rise in rural India’s purchasing power, the last two years yielding a particularly rapid rate of growth.

Nurturing rural markets

Analysts agree that rural markets will prove more resilient to the simmering global economic trouble. “Compared to last year, rural FMCG sales have grown at 6-8% over the last couple of months, while urban sales have grown at 4%,” says Debashish Mukherjee, a principal at AT Kearney in New Delhi. “For many of these FMCG companies, rural markets contribute 40-50% of revenues, which is very impressive.”

HUL is one of the few companies that could have pulled off Project Shakti, says Pradeep Lokhande, founder of Rural Relations, a consumer relations firm. “It was possible because they have a basket of products to sell,” he says. “Another issue is cost—HUL has small packs, and they can push that so that the rural consumer can afford it.” (HUL says it does not track Project Shakti’s contribution to its profits, although a spokesperson says that it has “played an important role in growing rural markets for HUL”).On average, a Shakti amma records monthly sales of Rs10,000, on which she earns Rs600-800; those earnings come out of a 3% discount that HUL gives her on its products, as well as a trade margin of approximately 10%. A really outstanding Shakti amma—a Diamond Shakti amma—can even book Rs30,000-40,000 of sales every month, often turning her house into an HUL store.

The ideal Shakti amma candidate is probably Rojamma, the woman from an Andhra Pradesh village who stars in her own 6-minute film on the HUL website. Abandoned by her husband, and with two young daughters to raise, Rojamma was rescued from that cinematically dire life by Project Shakti. “Everybody knows me, I am someone now,” a voice-over says on her behalf, “And I can have big dreams.”

Gita Devi’s situation wasn’t quite as precarious when she became an ammathree years ago; her husband drives a tractor, and she joined to supplement that income and to better care for her five daughters and one son.

“I was able to pay for my daughter’s sewing classes,” she says, indicating a girl who, ill with typhoid and hooked up to an intravenous line, smiles feebly from a bed. “I also bought that television,” she adds, pointing to a set perched high in one corner, above a poster for the Mimoh Chakraborty filmHome-to-home

In a room at the back, next to portraits of assorted deities and another, smaller poster of Jimmy, is Gita Devi’s stock of HUL products: soaps, shampoos, washing powder, lotions and creams. “I sell regularly to 70 houses in this village, and 50 houses in the next, so I visit those home-to-home once a week,” she says. “Otherwise, I go out for an hour every morning to new houses...to convince them not to buy from anywhere else.”This routine would ordinarily be inefficient and time-consuming, but in a village where the Shakti amma knows everybody—knows what they can afford to buy and when they buy—and where everybody knows her, the inefficiencies fall away. “I can just go up on my roof and call out to Gita Devi, and she’ll come over and give me what I want,” says Krishna Sharma, a housewife next door.

Earlier, Sharma made the trek to Muradnagar, at least 12km away, to shop. “There were small kirana stores in this village, but they had no range,” she says. “They didn’t have this, for instance”—she pulls a Pears soap bar out of Gita Devi’s bag—“or this”—iodized salt.

Every 15 days, on such visits, Gita Devi is accompanied by Mishra, who as a Shakti trainer helps his wards pitch HUL to prospective customers. Mishra supervises 25 Shakti ammas, helping them keep records, listening to their problems, and liaising with rural distributors; he and 40-odd other trainers are managed, in turn, by one of Uttar Pradesh’s 14 rural sales officers. Gita Devi is thus FMCG’s equivalent of last-mile connectivity.

Mishra’s rural sales officer, P.K. Aggarwal, lives in Ghaziabad but makes village runs nearly every day, monitoring the network of Shakti trainers andammas under him. Earlier, he worked with Project Shakti in eastern and central Uttar Pradesh, and he calls the state’s western segment “far better off”.“The average income of a family in this belt is around Rs3,000 per month, and I’ve seen that rise by 6% or 7% in the last year and a half,” Aggarwal says, adding that four out of every five of the villages’ households are engaged in some way in wheat cultivation. Ghaziabad is one of the state’s most prosperous districts, a sign of which is that the number of households in the district demanding employment under the National Rural Employment Guarantee Act is one of the three lowest in Uttar Pradesh.

Not cheap

To do business in rural India is not a cheap alternative. Apart from orienting an urban-centric supply chain to access smaller villages, companies have to accept that rural consumers often have illogical or impenetrable loyalties. “Rural consumers are a more sensitive to getting value for their money, especially with consumer goods,” Lokhande says. “Now a secondary school student is an opinion leader. He knows what he wants, and his parents will listen to him.”

Show and tell: Roshni, a Shakti amma from Dhindaar village in Uttar Pradesh, says sales of Fair and Lovely improved after she conducted a seminar to show her customers the right way to apply the cream. Ramesh Pathania / Mint

HUL learned very early that Shakti ammas should be encouraged to sell to retail shops as well as homes if they were to feel optimistic about their earning potential. “We also advise our Shakti ammas not to sell on credit,” says Prashant Jain, an area sales and customer manager for central Uttar Pradesh (rural) with HUL. “Recovery is sometimes difficult, because many of these customers are also relatives or known to her in the village, so they feel embarrassed to ask for money. So we advise them to sell (for) cash only.”

Another lesson rose out of Project Shakti’s logistics. Jain describes how HUL initially thought it viable to only target villages with a population of 2,000 or more, how market strategists sat down with census lists, and how ammaswere found in those selected villages and started off with a minimum of Rs10,000 worth of stock.

When HUL started delivering stock to these ammas twice a month, however, it realized that it was also in its best interests to cultivate Shakti ammas in the villages that lay along that route, however small they were. “Even if we are just dropping off stock worth Rs1,000 or Rs2,000 at these villages on the way, it makes economic sense,” Jain says.

Unorthodox solutions

Some of the ammas’ problems require unorthodox solutions. Last year, Roshni, a Shakti amma in a neighbouring village called Dhindaar, found that her customers were dissatisfied with the effects of the Fair & Lovely she sold them. So she organized a seminar devoted to showing the women the correct way to use Fair & Lovely—what her Shakti trainer, Jitendra Kumar, calls the “aath ka funda”, the method of daubing spots of the cream in a figure of eight on the face, and then massaging it in. “And now it sells much better,” Roshni says.

The Fair & Lovely seminar was similar to the tea party that Gita Devi and Mishra are planning for Khurrampur—a marketing event to help persuade their audience to buy Brooke Bond tea. It’s a sound idea, although Jain admits that to replicate such events across a state as large as Uttar Pradesh can prove costly, and the returns are not always commensurate with that expense.“But, more importantly, as a businesswoman, she needs marketing support. Having given her the business, it is my duty to give her the marketing support she needs as well,” Jain says. “The good thing is that she’s coming out and asking for it—she’s not passive, she wants to actively sell. That’s the most heartening part of it all."

Under pressure to structure supply chain and storage

noreply@blogger.com (Doshi Saurabh) — Wed, 11 Mar 2009 09:38:00 +0000

There is stiff competition amongst FMCG companies putting pressure on their wafer thin margins but they are using IT as a business enabler to their manufacturing processes. With tight supply chain schedules and intense competition the pressure is always on to bring new products to the marketplace. These companies are now using enterprise solutions to gain visibility into their schedules, customer requirements and their inventories. All of them have invested on desktops and notebooks too to enable their top management and mobile workforce to stay connected.

As per the survey, many FMCG companies consider storage as an important IT asset and want to have DR policies along with regularly archiving their e-mail and databases that contains vital sales and marketing information and customer leads.

The top three

As per the survey, the top technology areas on which the FMCG/consumer durables companies had invested were EAS (enterprise application software), followed by desktops and then storage.

As far as enterprise application software is concerned of the ten FMCG firms surveyed that had invested in enterprise applications, all had invested in ERP. This was followed by the investments on databases and messaging with 70 percent having invested in each of these and then CRM with 50 percent. While investment in ERP will continue with 42 percent of 12 respondents planning to invest in ERP this year and around 50 percent in CRM and a third of them want to streamline their supply chain.

By investing in EAS, FMCG companies have already experienced better utilisation of resources, faster time to market and have been able to formulate effective marketing strategies. Through effective use of EAS they have been able to improve service levels with their dealers in getting up-to-date information of potential stock-out scenarios, which has been made possible due to better visibility in sales, inventories and production-in-progress data.

EAS has been the top IT investment area for FMCG companies because they want to enhance productivity. Take the case of Hindustan Lever Ltd (HLL) where consolidation of information has led to operational excellence at its manufacturing plants across the country. Since finance, planning and inventory are all integrated, the company can focus on its core business—production.

Parle Products Ltd is using a home-grown ERP system, which has modules such as material management, finance and accounting and payroll. The company has also developed a home-grown depot management system, which is required to keep control over its depots located across the country. Gaurav Sharma, EDP In charge, Parle Products Ltd says, “Through the depot management system we get weekly reports on how many trucks were booked and the number of boxes dispatched in each truck. This helps us keep tight control over the goods being dispatched from our depots.”

The consolidation of enterprise-wide information has also helped these companies conduct better market analysis. There has been a continuous increase in the level of competition in the market, and EAS has helped these companies understand customer preferences. EAS has helped them improve their intimacy with customers and they have been able to analyse consumer behaviour and understand brand performance in the market. This has helped FMCG companies innovate with products as per customer preferences. Many of these companies are using business intelligence (BI) tools for better market analysis. FMCG companies are also forecasting cash flows through their ERP systems and have been able to significantly speed up accounts closure by more than 50 percent. Many companies such as HLL have experienced a reduction in potential stock-out scenarios and there has been visibility of inventory across locations thereby reducing the load on the system.

According to K G Mohan, vice president-IT, Hindustan Lever Limited, HLL has been able to enhance its supply chain system, check stock inventory online, and gain a deeper understanding of customer requirements. It has also eased the process of capturing market data and there is more visibility throughout the organisation. It has also helped in formulating market strategies by providing better understanding of market conditions and has improved the decision-making process leading to better inventory management, and structured production planning. It is now easy for the company to analyse the performance of its sales staff, thereby leading to enhanced productivity.

EAS has also helped FMCG companies manage their unprecedented growth. Take the case of LG Electronics Ltd, which has deployed additional modules of its ERP system to manage its growth. The most important one being costing (CO) and evaluation, which the company has added to the Oracle E-Business Suite (ERP) that it uses. Both these modules have been developed in-house and customised as per the company’s requirement. Daya Prakash, program manager, LG CNS Global says, “The costing module helps us analyse the exact cost of the finished product looking at the materials procured to manufacture it. It also helps in fixing the margin and price of the product. The evaluation system helps us in performance evaluation of our sales team as to how they are performing—keeping track of operations, daily targets/monthly targets, leads generated and follow up on the same and the like.”

In a FMCG company, a smoothly functioning supply chain is crucial if businesses are to survive in competitive markets. Mumbai-based FMCG major Marico Industries Ltd. is no exception. Its biggest challenge was to create efficiencies in distribution, this being the area in which the greatest competitive advantage can be achieved in India. Marico has a big supply chain to cover the country. Its supply chain consists of five factories, around 15 plus contract manufacturers, two consolidation centres to manage logistics activities, 30 depots, with hundreds of super distributors, distributors, stockists, wholesalers and retailers.

Vinod Kamath, chief, Finance and IT, at Marico who had been associated with the supply chain initiatives says, “We had standalone systems at the headquarters and in each of our 30 depots, and they weren’t integrated with each other. All the planning was done in Excel, which meant that we lacked data visibility and the management reports were inconsistent.” The result was obvious—inaccurate forecasts, long planning cycles, no transparency of warehouse stock, and a delayed response to customer needs. “It would have been impossible to improve the efficiency of the distribution based on this method,” says Kamath. What the company needed was a state-of-the art IT system to streamline the supply chain and minimise time-to-market. Kamath adds that Marico works with low levels of stock and its responses must be lightning-fast.

With SAP APO, the company has managed to shorten its planning cycles and introduce online reporting. Before implementing SAP, distributors had a warehouse stock out of around 30 percent each. Within six months of the implementation, Marico had managed to reduce stock outs to 20 percent. Kamath says, “This 10 percent reduction in stock outs means a corresponding increase in revenue.” The monitoring functionality of mySAP SCM APO allows the effectiveness of each distributor to be measured, and helps pinpoint the reasons for any changes.

Desktops: the next priority

All the surveyed FMCG companies have invested in PCs and 92 percent on notebooks. One in four had deployed Thin Clients. As per the survey, 67 percent of FMCG companies are planning to invest on notebooks, 58 percent on PCs and one in four on Thin Clients.

Take the case of Electrolux, now part of the Videocon Group. The company had outsourced its desktop management to Wipro Infotech. Now it wants to invest in desktops and do away with the AMC with Wipro Infotech. Anil Bhatia, senior manager-Business Solution Group, Electrolux, says, “We would now like to manage the desktops ourselves as we have to incur heavy cost in the outsourcing model. We want our offices desktop PCs to be linked to the ERP system (presently J D Edwards but soon migrating to SAP because Videocon is using SAP ERP) and for this we require desktops and they are strategic to us.” Electrolux has also provided notebooks to about 90 of its employees and these notebooks are helpful in cases where the workforce is on the move.

Similarly LG Electronics has also invested in desktops and a majority of them are desktops with LCD monitors. According to Prakash, there are around 2,000 PCs in the organisation. These PCs are used across the country for LG Electronics India employees and the choice of LCD monitors was because it occupies less space and is power efficient vis-a-vis CRT monitors. The company has provided 500 plus notebooks to its managerial staff, which provides them flexibility in accessing corporate data using Wi-Fi at its corporate office in Noida.

Many FMCG companies are also opting for thin clients these days and they are displacing PCs in part. D Banerjee, assistant general manager—Systems, DCM Shriram Industries Ltd says, “We have both LCD PCs as well as thin clients. Notebook usage is still confined to senior executives and mainly used to provide connectivity to the corporate network while the executives are out of the office.”

Thin clients are proving to be formidable alternatives to branded PCs at some FMCG companies. Many companies are replacing PCs with thin clients. What’s interesting is the fact that the low cost of thin clients is not the primary reason for their deployment. Thin-clients bring with them ease of manageability. Many FMCG companies have offices spread across locations and hence it is easier to manage thin-clients from a central server, thus requiring minimal support staff. Thin clients also address security aspects well.

That said it is likely that when some FMCG companies are successful in getting the same PC functionality with better manageability and security they will go for thin clients in the future. Thin clients can be a competitive alternative to branded PCs, particularly if the Total cost of Ownership (TCO) is taken into account. If one compares the cost of managing thin-clients it is a direct saving for a large enterprise in the FMCG sector. Thin clients also consume less power; this can prove to be a big saving for an enterprise. A thin client consumes 10 watts, whereas a PC consumes at least 150 Watts. For large enterprises with hundreds or thousands of machines, this can result in huge savings.

Broadly speaking large FMCG companies who have multiple offices around the country with desktops running into thousands will find it easy to manage and use thin clients. Banerjee says, “As a thin client has no hard disk or floppy drives and can be managed from a central server, maintenance is simpler and requires fewer support staff. Many FMCG companies that I know are always concerned with the issue of security. They can look to these machines as an easy and low-cost alternative to PCs.” Barring cases where performance is critical, as in engineering workstations, thin clients can easily stand in for PCs. According to industry pundits the total cost of ownership (TCO) can be 30 to 60 percent lower in the case of thin-clients.

Storage gains ground

Many FMCG companies have offices spread across locations and hence it is easier to manage thin-clients from a central server, thus requiring minimal support staff. Thin clients also address security aspects well

Of the ten respondents from this vertical who had invested in storage, 70 percent had already invested on SAN technology, the highest in all verticals surveyed. A significant number, 60 percent, continue to use DAS—which we feel will change this year, as they will be investing in networked storage.

As far as the adoption of secondary storage by FMCG companies is concerned, 75 percent of 8 respondents had invested on tape drives. About 25 percent were using Virtual Tape Libraries (VTL). Tape continues to be a major investment area followed by VTL. Also as part of their storage strategy, 86 percent of 7 FMCG respondents had invested on database archiving software to back up the data on tape drives followed by 57 percent who had gone for e-mail archiving software. 42 percent of 12 respondents intend to invest in e-mail and database archiving software in the coming year as well.

The penetration of network storage was very high amongst large FMCG companies as per the survey. The logic behind going in for network storage is the requirement to go in for multiple Disaster Recovery sites and also for a BCP (Business Continuity Plan). Electrolux has adopted SAN for block storage purposes—mainly CAD/CAM/CAE data that are used for product design. Bhatia says, “Block-level storage is very important for our organisation as many of our users used to accidentally delete design files. Thanks to the SAN, all the files are safely stored.” The company is also following a comprehensive e-mail archiving policy. Most Electrolux employees use Lotus Notes for e-mail and all their messages are archived using a storage solution from EMC-Legato. As per policy, these messages are archived for a few months. DCM Shriram Industries Ltd uses DAS but it is also considering and evaluating networked storage so that it can plan a DR strategy.

FMCG companies have realised the importance of VTL, as it is an archival storage technology that makes it possible to save data as if it were being stored on tape although it may actually be stored on hard disk or on another storage medium. VTL is facilitating faster backup and recovery and lower operating costs. VTL can be used with a hierarchical storage management (HSM) system in which data is moved as it falls through various usage thresholds to slower but less costly forms of storage media. VTL is also used as part of a (SAN) where less-frequently used or archived data can be managed by a single virtual tape server for a number of networked computers.

LG Electronics India has a proper DR set-up across its two manufacturing plants located in Noida and Pune. On a normal day, Noida’s (manufacturing plant and corporate office) users are connected to the Noida server and the Pune (plant) users are connected to the Pune server. If the Noida server fails all the critical users–both plant and corporate–would be connected to the Pune server to execute critical activities such as sales and production. A similar connection to Noida is made if the Pune server fails. LG Electronics India has classified all the information into two categories–critical and sensitive. (Critical data refers to the ERP and business-related data while sensitive data includes all e-mail, Excel sheets and PowerPoint presentations).

The company also has an e-mail and database archiving solution from Hitachi Data Systems (HDS) which it is using for storing e-mail of all its employees who are on Lotus Notes. Prakash says, “E-mail archiving is part of our ILM strategy which we are following as we have to adhere to statutory compliance requirements. We have a policy whereby we store all our transactional data for more than eight years and all our e-mail messages are stored for more than one year.”

In a similar fashion database and e-mail archiving holds the utmost importance for Parle Products, which is using a storage solution from Intransa for this purpose. The company has kept its storage solution at a Reliance data centre in Bangalore with the aim of bringing about storage consolidation for the purpose of putting in place a Disaster Recovery set-up. The company strongly believes in having an effective DR policy for data protection and in turn having a robust storage policy.

Technology is a high priority for FMCG companies in order to stay ahead of competition and also in analysing the competition which is equally important for them. Enhancing information delivery capabilities using front-end reporting tools for better market and self analysis will continue to be a priority for Indian FMCG companies. Additionally Web enabling all their applications and consolidation of information through EAS will help FMCG companies in bringing efficiency to their processes as they will have real time online information about their manufacturing plants, distribution points, distributors and retailers. In order to provide access to different applications to their employees they will need to invest on desktops and in order to preserve all the information they will need to invest on having effective storage strategies and policies.

Wishes

noreply@blogger.com (Doshi Saurabh) — Wed, 11 Mar 2009 09:27:00 +0000

IndiaFMCG Wishes all its readers that Every1 Has Lyfe As Colourful As Da Colours Of HOLI...

God Bless All

Cheers!!

Expansion spree sans strong back-end did Subhiksha in

noreply@blogger.com (Doshi Saurabh) — Sat, 28 Feb 2009 18:53:00 +0000

The collapse of Subhiksha presents a case study for existing and prospective retail companies in India. The Chennai retail major, which grew exponentially since its inception in 1999, is battling for survival, despite two investors in tow — ICICI Venture and Azim Premji’s private investment firm Zash Investment Company. The 1,300 store-strong chain has scripted the first rise-and-fall in the history of India’s fledgling retail industry. Viewed as a sunrise industry, the retail sector has suddenly caved in, with most players either putting expansion plans on hold or re-negotiating rentals. Though rentals are coming down in most parts of the country because of the economic slowdown, rapid expansion without a proper supply chain in place has added to the woes of retail companies. So, was the Subhiksha model flawed or was it just a management failure? The chain was envisaged as a low-cost, no-frills neighbourhood convenient store, which actually did work for some time. But soon enough, the promoters, who held around 60 per cent stake, went on an expansion spree without strengthening the back-end. As a result, customers often had to come back from the store without getting the products that they wanted. To top it, Subhiksha failed to establish an emotional connect with its customers, even though it had built a large consumer base. Hence, its fall can largely be attributed to mismanagement leading to irrational expansion without spreading out the equity base. Also, the retail chain tried to procure supplies against cash, which, many analysts say, was irrational. As if this wasn’t enough, the market meltdown forced the company to defer its proposed initial public offer (IPO) in 2008. The situation worsened in the second half of the year, when a liquidity crisis throttled Indian companies. Subhiksha, which was facing a severe cash crunch, had to face the ire of its suppliers and stockists as well as real estate owners, for delayed payments. By then, the neighbourhood retail chain had lost its credibility and image. Today, the company’s founder R Subramanian is under fire from stakeholders, who have alleged that they were kept in the dark. Following complaints from Subhiksha’s former directors, who stepped down from the board in January, the Registrar of Companies has appointed KPMG as auditor. Meanwhile, the blame game continues. ICICI Venture, which holds 23 per cent stake in Subhiksha, has held the management squarely responsible for the chain’s operational failure. Renuka Ramnath, managing director and CEO of ICICI Venture, claimed that Subhiksha’s board did not receive audited figures even after repeated attempts. The last available figures, according to Ramnath, were for the year-ended March 2007. Subhiksha, however, has refuted these charges. As the company lies in a shambles, what the investors and promoters need to do quickly is get on to the business of rebuilding it. A positive sign is that both ICICI Venture and Zash have said that they are working on a revival plan. Stakeholders, too, are awaiting the next move by lenders, who have an exposure of around Rs 750 crore, and are trying to sew up a revival package. However, the most daunting task for Subhiksha will be to re-establish the consumer connect, without which no retail company can survive.

SHOPPERS WARY - Inventories pile up at retail stores despite heavy discounts

noreply@blogger.com (Doshi Saurabh) — Wed, 18 Feb 2009 14:38:00 +0000

Unsold merchandise is piling up at retail outlets and warehouses as consumers faced with an economic downturn hesitate to spend, squeezing the already wafer-thin margins of retailers further and limiting their capacity to repay debt.

Heavy discounts that ranged up to 70% in an extended sale season failed to convince shoppers to open their wallets, leaving retailers holding inventory that was supposed to supply stores they have either shut down or decided not to open.

"I don't think sales have picked up despite the discounts," said Hemant Patel, an analyst at Enam Securities Pvt.

Ltd. "Consumer footfalls were not coming despite the sales." The economy is forecast by the government to grow 7.1% in the fiscal year ending 31 March—the slowest pace in six years. The slowdown, after four years of growth that averaged 8.9%, has caused firms to stall expansion plans, put hiring on hold and reduce staff, denting consumer confidence.

The country's largest listed retailer, Pantaloon Retail (India) Ltd, said so-called samestore sales were down in December for the first time in years. Same-store sales typically denote sales by outlets that have been open for at least a year.

Pantaloon managing director Kishore Biyani attributed the December contraction to slack sales of furniture, electronics, mobile phones and some other merchandise.

Pantaloon's The Great Indian Shopping Festival was spread over almost a month in December and January. Pantaloon followed up with its annual discount season at the Big Bazaar hypermarket chain, but analysts say January sales were lacklustre because of subdued consumer response and competition from other retailers that marked down prices similarly.

Figures released by Pantaloon showed same-store sales in January were up for the socalled value and lifestyle segments, by 4% and 12%, respectively. Home segment sales were down 4%.

A New Delhi-based analyst, who asked not to be named, said Pantaloon has about Rs1,700 crore of inventory. "As per the past track record, it's marginally on the upper side," this analyst said.

"Our inventory is best in terms of industry standards and we have standard stocks," Biyani said.

Shoppers' Stop Ltd, Tata group's Trent Ltd and other retailers also offered hefty discounts on select merchandise.

Even Reliance Retail Ltd, for the first time since its inception about two years ago, organized the first concerted sale across different store formats.

"This year even discounts could not boost sales," said Ritesh Doshi, an analyst at First Global Securities Ltd.

"They are not able to clear their inventory," he said.

"Once they (merchandise) become obsolete, they have to write (it) off and (that) is affecting their margins." A person close to the situation said Reliance Retail fell well short of its target of opening 1,500 outlets by September and was able to open only about 850 stores until early this year. As a result, the chain was left holding unsold goods that had been ordered for hundreds of additional stores whose opening may have only caused more losses, this person said.

"We deny any such situation," a Reliance Retail spokesperson said in an email reply to Mint.

Girish Solanki, a research analyst at Mumbai-based Angel Broking, says Bombay Stock Exchange-listed Vishal Retail Ltd has a "pretty high level" of inventory that could last as long as seven months.

"There is a big problem there," said Solanki, who attributed the inventory pile-up to stalled expansion plans in the face of a funding squeeze.

Manmohan Agarwal, chief executive for corporate affairs at Vishal Retail, said the economic slowdown had caused the retailer to curtail its expansion. Agarwal said the company had Rs800 crore worth of inventory at the end of December. "Our sales for the Repub lic Day campaign were good," he said, but declined to give the current value of inventory.

According to analyst Ankur Periwal of Religare Securities Ltd, Vishal has about Rs480 crore in "stuck up" inventory.

Vishal may have to get rid of the inventory at below cost price, he said.

The mountain of unsold goods and extended discounts would further squeeze the already low margins of retail chains and restrict their ability to repay debt, analysts say.

Doshi of First Global expects margins at Pantaloon to narrow to 2.3 percentage points for the year ending June, from about 2.6 percentage points a year ago.

Meanwhile, Indian exporters hit by the global meltdown, which has led many international buyers to cancel orders, are dumping their products in the local market, according to Solanki at Angel Broking.

"That is also putting pressure on the existing inventory," he said.

CavinKare forays into distribution business

noreply@blogger.com (Doshi Saurabh) — Sun, 01 Feb 2009 16:14:00 +0000

Chennai-based FMCG major CavinKare has forayed into distribution business. It has tied-up with Paris-based international fragrancemarketer Coty to market and distribute Adidas and Jovan range of personal care products in India.

The Adidas men's range, which includes deodorants, shower gels, perfumes and after shave lotions, will be available across India by mid-February. The Jovan range of products would be available after three to four months.

"The alliance will help in increasing the accessibility of adidas products in India, which is a fundamental pat of our Asian strategy. There is a huge potential in the personal care segment here," said Coty Beauty Far East Export regional managing director Venkatesh Babu at a press meet in Chennai on Thursday.

The range would be sold through about 50,000 outlets in the first year, mainly at modern and large-format stores. CavinKare hopes to achieve a turnover of Rs 50 crore in the first year, thus cornering a 10% share of the deo-spray and fragrance market in India. The size of the Indian deo-spray category is estimated to be Rs 300 crore and s growing at a rate of 18% annually.

"CavinKare mainly addressed the mass market. This strategic alliance will help us get into the premium segment where we do not have a presence," CavinKare chairman and managing director CK Ranganathan said.

CavinKare will use a mix of above and below the line approach to market the products, mainly the out of home media, TV commercials and the internet. The ad spend on this range will stand at Rs 10 crore for first year to be shared by CavinKare and Coty.

CavinKare hopes to close this fiscal with a turnover of Rs 700 crore, a 25% increase over the previous year.

FMCG cos go slow on launches despite growth

noreply@blogger.com (Doshi Saurabh) — Tue, 27 Jan 2009 13:36:00 +0000

t a time when growth in consumer products sector is quite upbeat, there have been surprisingly very few brand launches in the personalcare category this year.

According to a recent FMCG market survey by the UK-based DataMonitor, total new product launches in personal care in the FMCG market dropped to 360 in 2008 as compared to an all-time high of 483 in 2007. In categories like soap, shampoo, skincare and toothpaste, number of product launches have decreased from 144 (2007) to 120 (2008), 67 to 47, 244 to 182 and 28 to 11, respectively.

Industry officials say the focus has been more on mass-market products in terms of new product launches or even relaunches.

“Most companies have been unable to reinvent and margins too are thinner owing to competition. Also, new brand launches are much more expensive than launching variants,” said Hoshedar K Press, executive director and president of GCPL. Hindustan Unilever (HUL) too focused on relaunching mass brands like Sunsilk and Ponds, Procter and Gamble’s last big-ticket new product introduction was the launch of Olay in 2007.

“The growth opportunity in the Indian market is across the value chain of induction, consumption and upgradation. Our portfolio which includes premium brands for the affluent, value-for-money brands for the middle-income consumers and affordable quality products for low-income consumers provide us a well entrenched capability to leverage the opportunity across the pyramid of consumer value chain,” said an HUL spokesperson.

Comparatively, players like Dabur India and Marico launched a host of mass market products in personal care.

“In the first six months alone, we have introduced at least 15 new products and variants ranging from a range of Vatika hair products, hard surface cleaners under the Dazzl brand, Gulabari skin care range and Dabur healthcare range. And, most of our new launches are targeted at the mainstream market,” said Dabur India vice-chairman Amit Burman.

Industry analysts point out that this mirrors the general sentiment in the market. “With most industries reeling under recession and consumers tightening their purse-strings, it just makes better business sense to target the popular price points, a segment that has clearly not witnessed any drop in demand,” said an FMCG analyst.

Unilever copying HUL's project Shakti globally

noreply@blogger.com (Doshi Saurabh) — Tue, 27 Jan 2009 13:31:00 +0000

nglo-Dutch consumer goods major Unilever is exporting Hindustan Unilever’s innovative rural distribution model led by women’s self-helpgroups to several developing world markets.

Launched in 2001, the initiative, Project Shakti , helped HUL reach the so-called media-dark regions by turning rural women into direct-tohome distributors of its mass-market products.

With emerging markets contributing roughly 44% to global revenues, Unilever—a Fortune 500 foods, home and personal care product giant with operations in about 100 countries—is betting on Project Shakti to reach to the bottom of the pyramid in Asian, African and Latin American markets.

The project is being customised and adapted to Sri Lanka, Vietnam and Bangladesh. In Bangladesh and Sri Lanka, it is being promoted as Joyeeta and Saubaghya, respectively.

The effort is expected to help Unilever tap fresh growth avenues in emerging markets in the face of recessionary trends in the US and Europe.

The rural micro-enterprise has helped the Rs 13,717-crore Hindustan Unilever to push growth rates in several categories such as personal wash, fabric wash, shampoos, oral care and skin care. Brands like Annapurna, Lux, Lifebuoy, Breeze, Wheel, Fair & Lovely, Lakme, Ponds, Clinic Plus and Pepsodent have sold good numbers in smaller markets, company sources said, Overall, around 50% of HUL’s revenues came from the rural markets in India.

The project was started in 2001 to empower underprivileged rural women by providingincome-generating opportunities, health and hygiene education. Shakti’s ambit already covers about 15 million rural population. Several rural pockets are populated by less than 2000 individuals but are seen as unreachable and remain untapped by consumer goods makers.
Rural women are appointed as Vanis (communicators ) and trained to communicate in social forum such as schools and village get-togethers .

Shakti operates in fifteen states: Andhra Pradesh, Karnataka, Tamil Nadu, Gujarat, Madhya Pradesh, Chattisgarh, Maharashtra, Uttar Pradesh, Punjab, Haryana, Rajasthan, West Bengal , Bihar, Jharkhand and Orissa.

There are over 45,000 Shakti entrepreneurs covering over 135,000 villages across 15 states.

Industry officials say the awareness of rural consumers about products and brands is lesser than the urban markets. Also, urban business models are not really successful in tapping the full potential of several small clusters of consumers across remote markets.

REACHING TO THE BOTTOM

Project Shakti is a low-cost distribution network HUL launched in 2001 in tie-up with rural women’s self-help groups A typical Shakti entrepreneur gets an income in excess of Rs 1,000 per month Project Shakti serves over 1,35,000 villages across 15 states through more than 45,000 entrepreneurs.

Giving depth to Pond’s

noreply@blogger.com (Doshi Saurabh) — Mon, 26 Jan 2009 05:12:00 +0000

Do consumers really downtrade in times of a slowdown? The makers of Pond’s, Hindustan Unliver’s premium skincare brand, think otherwise. This winter, it has devised a new concept show based on romance with TV channel StarOne to ensure th e brand remains top of mind for its ‘affluent’ set of consumers. Branded as Pond’s Age Miracle Salaam–e-Ishq on Star One, the new show features couples reliving the romance of their relationships. With its new reality show this season, Pond’s is out to capture its association with the essence of romance based on these real life couples.

With continuous investments in the brand, Pond’s is the ‘growth driver’ for Hindustan Unilever Ltd’s (HUL’s) skincare portfolio. While making money at the premium end of the market may take a while, the media spends will continue. As Govind Rajan, General Manager (Skincare), HUL says, “The challenge for us is to figure out what the next growth opportunity is, which is why we have decided to invest ahead of time and be in investment mode.”

For the past two years HUL has made a conscious effort to focus on the premium end of the skincare market, positioning its heritage brand Pond’s as a ‘masstige’ brand. With its two ranges under skin lightening and anti-aging, Pond’s is now geared to aggressively build the category and capture consumers who are willing to upgrade to this segment. “We have decided to amplify on romance with Pond’s. The focus is on the quality of how to reach people rather than the frequency and quantity of reach,” claims Rajan. Considering the slowdown has not affected the top end of the market, Pond’s would continue to lure more consumers into its franchise. Helping it grow the premium category further is its nearest competitor P&G with Olay which is targeting a similar consumer group.

Convinced that the slowdown is least likely to affect the relatively small and nascent premium skincare category, Pond’s is going all out to woo its consumers.

“The slowdown will not immediately impact volumes, in what is anyway a small segment. People who use these products are not facing the heat. In an economic downturn it’s discretionary spending of big ticket items such as holidays which usually get impacted. The premium skincare segment is not even 10 per cent of the face care market today and is the least affected by the slowdown,” elaborates Rajan.

At the same time attractive pricing is being introduced to lure more consumers into sampling the brand. For instance, last year, Pond’s had offered a trial price of Rs 295 (from Rs 595) for its 50 ml Pond’s Age Miracle Cream. It even followed the practice of its nearest competitor Olay by giving out a new jar of cream in exchange for an old one. “In the last two quarters we have not cut prices for Pond’s but we did have a programme for a trial price as the purpose was to get in as many consumers as possible,” says Rajan. In fact, currently that is the main challenge for the brand compared to the rest of the brands in its skincare portfolio. “The challenges faced by Pond’s will be different from the challenges it faced in the past. Getting in as many consumers to try the revolutionary new products under Pond’s is the challenge today. Also, educating consumers on the right regime is another challenge,” says Rajan.

Meanwhile, the rest of HUL’s skincare brands such as Fair & Lovely and Vaseline have been extending their franchise. Vaseline has graduated from being a petroleum jelly to entering the men’s care segment with a range of products. With a 65 per cent share in the body lotion category, Vaseline too has entered the premium segment with a slew of intensive body care moisturisers. “We have kept up the brand salience for Vaseline and the objective is to increase its penetration as the category is growing at 30 per cent,” claims Rajan. Shedding the image it had of being a winter care brand, Vaseline has also launched an aloe vera variant for the summer.

As for HUL’s mass brand of Fair & Lovely, its extension into the premium segment (under the brand of Perfect Radiance) did not work in the past and since then it has gone back to its original positioning. With a 78 per cent share in the fairness cream category, it has held on to its dominant position for the past 25 years with four variants under its fold. Last year HUL re-launched the core Fair & Lovely brand with multivitamins and enhancement will be an ongoing exercise. “The challenge for Fair & Lovely is to be better than today’s product and keep improving it so that consumers continue to bond with the brand,” says Rajan. A possibility is extending its franchise to a cleansing range. “We have to have a portfolio approach with Fair & Lovely and it could go beyond being a single product. After all, Fair & Lovely cannot be expected to do everything,” says Rajan.

Besides, HUL’s acquired brand of Lakme today complements its skincare portfolio with its sun care, cleansing and moisturising range and its ‘cosmetic’ positioning. “Lakme has a heritage as a cosmetic brand and fits into the skincare range with its sun care and moisturising range,” says Rajan

Meanwhile, controlling prices will be an ongoing effort for HUL. “We have the ability to control costs with our scale. At the same time since we have strong brands we have better pricing power,” states Rajan. In fact, HUL believes that as it has these heritage brands in its kitty, consumers would be more acceptable to it commanding a premium compared to the lesser established skincare brands.

At the same time making money at the premium end of the market will take time. “While HUL has taken the onus to grow the premium market, getting returns from the business is going to be a long haul. Profitability will be an issue with its premium skincare range,” say analysts. But the FMCG behemoth believes that making profits will be linked to the rate at which it is able to grow the premium end of the market. “It all depends on the intensity of competition and if you grow the market fast enough, you will start getting returns early,” observes Rajan. Knowing that competition will only increase in the future, HUL is thinking ahead. “We believe the competitive intensity of the market will only increase and that we have to be ready for the next-generation market,” says Rajan. Stepping up media spends and celebrating romance through its new show for Pond’s are attempts to stay ahead of the competition.

Appologies for Break

noreply@blogger.com (Doshi Saurabh) — Mon, 26 Jan 2009 05:09:00 +0000

Dear Readers.

I am Saurabh Doshi. Owner of this blog. I would like to appologise to all the readers as i could not edit new matters on IndiaFMCG as was really busy with some tasks since long. I would definitly try and make it a point that i keep it updated.

Inconvenience regretted.

Regards

Saurabh Doshi

Brand rise and fall: What does it say about consumer trust?

noreply@blogger.com (Doshi Saurabh) — Wed, 25 Jun 2008 13:05:00 +0000

Over the last five years, legions of Brand Equity readers have religiously tracked the upsand-downs and swings in fortunes of various brands that have featured in the Most Trusted Brands survey. One year, one set of brands climbs up the rankings, displacing another set. The next year, the snakes-and-ladders routine sees more brands — some new, some old — coming into the list, replacing the previous year’s incumbents in a near-karmic cycle.

But what exactly do all these ups-and downs and changes in ranking really amount to? Do they merely signify small changes in consumer perception year on year? Or do they harbour larger trends that show how the consumer’s outlook on the relative importance of brands — and even entire categories — is changing? Brand Equity analyses the last five years’ data and pieces together some answers on the shifting role of brands and categories in the average Indian’s life.

The most obvious finding — and for marketers , the most reassuring one — is that trust is hard earned, but once it’s been earned, shaking its foundations is far from easy. The Top 10 list over the last five years shows that five brands (Colgate, Lux, Pond’s , Dettol and Britannia) have figured in the list all five years, two (Tata Salt and Vicks) have featured four times, while Rin has been there three times. In fact, apart from Nokia and Lifebuoy — and Bata in the past — no brand has managed getting into the Top 10 list two times. Fair & Lovely, LIC, Close-up, Tata Tea and Surf have all appeared in the list just once, but never quite managed holding on to the hardwon privilege.

This does not, however, mean that consumer trust is immutable. Rin, which was in the Top 10 in the 2004, 2005 and 2006 surveys (at No 8, No 3 and No 9, respectively), slipped to No 17 last year, and is at No 21 this year. And Bata has plummeted to No 43 this year, after occupying the No 9 and No 10 slots in 2005 and 2006, respectively.

There is marginally greater churn in the Top 20 list, though. Twelve brands (Colgate, Lux, Pond’s , Pepsodent, Tata Salt, Britannia, Dettol, Lifebuoy, Vicks, Fair & Lovely, Closeup and Horlicks) have featured all five years, while two — Parle and Rin — make an appearance four times. In the Top 20 list, Nokia and Parle are two brands that have steadily gained, while LIC, Pepsi, Tata Tea and Zandu Balm have been yo-yoing in and out of the list. It takes quite a bit of staying power to remain in the Top 20 list too, and some brands seem to be learning it the hard way: Rin, for instance, finds itself out of the Top 20 for the first time in five years. And Titan — which was in the list in 2004, 2005 and 2006, but dropped to No 52 in 2007 — is clearly finding it hard to bounce back, despite recovering well to settle at No 24 this year. Surf, for its part, dropped out of the list last year (to No 26), and this year the brand has receded even further (No 33).

It’s in the Top 50 and Top 100 lists that changes are more evident. The brands that have made steady progress into the Top 50 list over the last three years are Nokia (No 44, No 4 and No 1), Head & Shoulders (No 42, No 50 and No 22), Airtel (No 83, No 46 and No 27), Reliance Mobile (No 95, No 70 and No 30), Cadbury Dairy Milk (No 26, No 37 and No 34), BSNL (No 72, No 79 and No 39) and Tide (No 71, No 44 and No 41). Glucon-D debuted last year at No 25, and this year the brand has risen to the No 16 position . Brands like Sony, Mirinda, Onida, Godrej (it stood at No 28 in 2004) and LG have been going in and out of the Top 50 list.

The brands that appear to be losing their grip on the Top 50 list are Philips (which has slid from No 16 in 2004 to No 47 this year), Rasna (No 15 in 2004), Goodnight (No 21 in 2005), Ujala (No 22 in 2004), Nirma (No 32 in 2004), Limca (No 26 in 2004), Iodex (No 23 in 2004), Crocin (No 50 in 2004) and HMT (No 36 in 2004). Philips apart, all these brands are out of the Top 50 list, with Crocin now at No 81 and HMT at No 94.

In the Top 100 list, the steady gainers include Lehar Kurkure (No 166 in 2005 to No 61 this year), Tata Indicom (No 148 in 2005 to No 68 this year), LG Mobile, Sprite, Motorola (No 159 in 2005 to No 83 this year), Indian Oil (No 142 in 2005 to No 90 this year), Sunfeast (No 125 in 2006 to No 91 this year) and Samsung Mobile (No 137 in 2006 to No 92 this year). Sony Ericsson (No 188 in 2006 to No 104 this year) and Garnier (No 176 in 2006 to No 105 this year) are two other brands that have scaled ranks rapidly.

Overall, prominent brands featuring in the Top 100 (at one time or the other) that have slipped significantly include Crocin, Cinthol, Mortein, Amrutanjan, Lakme, Liril, Brooke Bond, Eveready, Hamam, Uncle Chips, Saffola, Tata Sumo, Boroline, Boost, Raymond, ICICI Bank, Vimal, Disprin, Maruti 800, Whisper, Haldiram’s , Lijjat, Timex, Liberty Shoes and Robin Blue.

The rise of younger, new-age brands — and the attendant fall of many older, stuffier brands — suggests consumers are, indeed, tiring of brands that are running on the momentum of legacy alone. Interestingly though, unlike the telecom brands, many of the tech-related consumer durables brands don’t seem to have capitalised on the Indian consumers quest for new trust icons. But it’s anybody’s guess what the Top 100 list would look like five years hence.

Colgate drops in rankings across board

noreply@blogger.com (Doshi Saurabh) — Wed, 25 Jun 2008 12:55:00 +0000

In a glorious coming together of the unimaginable and the inevitable, Colgate - the No 1 in the survey over the last four years - has ceded the top slot to Nokia this time. The toothpaste brand, which commands a 48.5% share in the Rs 2,500-crore toothpastes market, still leads among FMCG brands and is the overall No 2. But Nokia overtaking Colgate signifies a subtle change in the trust equilibrium. "The change does indicate a shift in the way consumers look at brands. A much more happening category like mobile has scored over an old FMCG player," says one former Colgate official.

Colgate, in the last four quarters, has been aggressive with the launch of Colgate Active Salt and Colgate MaxFresh to widen the gap between itself and the competition. But as Sameer Deshmukh, analyst at IL&FS, believes, with such a huge market share in a heavily penetrated category, the company can only look at sustaining market share.

Colgate's ranking across categories

Even that might prove to be a hard task, going by the survey results from this year and the last. Take the zonal rankings: in the north, Colgate was the No 1 brand last year, while Pepsodent figured at No 8. This year, Pepsodent has moved up to No 3, while Colgate has plunged to No 10. In the west, Colgate has retained its ranking from last year (No 3), even as Pepsodent has slipped one place to No 6. However, Closeup, which ranked No 31 last year in the west, has jumped to No 9. In the east and south, Colgate ranks No 12 and No 8, respectively - last year, Colgate was No 2 and No 1 in the two regions. And this year, Close-up has managed to retain its position at No 6 in the south.

In the top four metros, Colgate has managed to retain its No 3 ranking in Mumbai, while Pepsodent has dropped to No 14. But in Delhi, Colgate which was No 4 last year, has dropped to No 15, while Pepsodent has improved from No 32 to No 17. In Kolkata and Chennai as well, Colgate has seen fall in rank - from No 8 to No 25 in Kolkata, and from No 18 to No 23 in Chennai. The news isn't good in the respondent-wise breakup either. Among young adult males, last year Colgate was No 2, but this year it has slipped to No 7 - with Pepsodent taking the No 2 position. Among young adult females, Colgate was No 1 last year, but is down to No 5 now, while Pepsodent has improved its standing from No 11 to No 7.

The rural market has been one of the main thrust areas for Colgate - for instance, initiatives like Project Jagruti and recently Project Disha have been undertaken. "While project Disha is aimed at establishing Colgate as a brand against lookalikes and regional players, HUL through its Project Shakti is also looking to push Pepsodent in the rural markets," says Vivek Dwivedi, founder, Rural Connect.

While the projects helped Colgate create a distribution setup to reach remote corners, analysts feel that pushing Cibaca would fetch more dividends than pushing Colgate Dental Cream (CDC). "The margins in CDC are better than in Cibaca, so Colgate pushed CDC more in the rural markets," says Deshmukh of IL&FS. Shirish Pardeshi, senior analyst of Anand Rathi, says that Colgate is now pushing Cibaca, but with CDC also in the fray, there is a chance of brand Colgate getting diluted.

The survey indicates that Colgate is feeling the heat even in semi-urban markets. In the less-than-Rs 2,500 income group, Colgate, which was No 1 last year, now stands at No 12. In the Rs, 2,501-Rs 5,000 bracket, the brand is No 3. Among town class segments, in Class 1 towns, Colgate is No 2, but in Class 2 towns, it has fallen to No 10 position - from No 1 last year.

Chocolate Market in India - (Source: fmcgmarketers.com)

noreply@blogger.com (Doshi Saurabh) — Tue, 24 Jun 2008 12:45:00 +0000

Facts & Figures
1. Chocolate market is estimated to be around 1500 crores (ACNielson) growing at 18-20% per annum
2. Cadbury is the market leader with 72% market share
3. The per capita consumption of chocolate in India is 300 gram compared with 1.9 kilograms in developed markets such as the United Kingdom
4. Over 70 per cent of the consumption takes place in the urban markets
5. Margins in the chocolate industry range between 10 and 20 per cent, depending on the price point at which the product is placed
6. Chocolate sales have risen by 15% in 2007 to reach 36000 tonnes according to one estimate. Another estimate puts the figure at 25000 tonnes
7. The chocolate wafer market (Ulta Perk etc) is around 35 % of the total chocolate market and has been growing at around 13% annually
8. As per Euromonitor study, Indian candy market is currently valued at around USD 664 million, with about 70%, or USD 461 million, in sugar confectionery and the remaining 30%, or USD 203 million, in chocolate confectionery
9. Entire Celebrations range marketshare is 6.5%
10. The global chocolate market is worth $75 billion annually

Companies
1. The chocolate market in India has only three big players, Cadbury, Nestle and Amul
2. New brands such as Sweet World, Candico and Chocolatiers are present in several malls
3. The largest target segment for Cadbury is youth
4. Delhi-based Chocolatiers, started with a small shop in south Delhi’s Chittaranjan Park and has now ventured into malls and multiplexes in NCR, Mumbai and Bangalore, with focus on high-end or designer chocolates, a niche market of their own
5. Candico India is aiming for 400 locations across malls and multiplexes in the country by 2010.
Companies & Brands
1. Cadbury - Cadbury, 5 Star, Bytes (chocolate snack), Celebration, Dairy Milk, Gems, Perk
2. Nestle - Bar One, Kit Kat, Milkybar, Munch, Nestle
3. Amul - Amul (Chocozoo, Chocomines)
4. Dairy Milk is the market leader
5. 5 Star (heritage brand which came to India in 1969) has a marketshare of over 14%

Consumer Trends
1. Mithai- the traditional Indian sweats is getting substituted by chocolates among upwardly mobile Indians. Instead of buying sweats on Raksha Bandhan, sisters prefer offering chocolates to their brothers. This is the reason for sudden spurt in advertisement between July & Sep by most of the companies
2. The range and variety of chocolates available in malls seems to be growing day by day, which leads to lot of impulse sales for chocolate companies
3. Chocolates which use to be unaffordable, is now considered mid-priced. Convenience over Mithai in terms of packaging and shelf life in making both middle class and rich Indians opt for chocolates
4. Designer chocolates have become status symbols. They are linked to one’s aspiration and lifestyle and malls are perfect points of sale as people usually are happy and gay at these destinations
5. Cadbury initial communication for Celebrations was concentrated on occasions like Diwali and Rakshabandhan. Over the last seven to eight years, the brand emerged as a good gift proposition for occasions and enabled people to come closer. Research done by Cadbury suggested that they should extend the plank of occasion-based gifting to social gifting i.e. all-year-round gifting options
6. Consumers can choose from wide range of chocolates, which initially was limited to Milk chocolates like DairyMilk and MilkyBar. In past few years we have seen so many SKUs with almonds, raisins and all sort of nuts. And how can we forget latest 5 star crunchy and Ulta Perk, which has opened new windows for consumers
7. In past, consumers had negligible inclination for dark chocolates. But now we have seen a change in the Indian palate, which is increasing the base of this sub-segment

Advertisement Trends (AdEx - division of TAM Media Research)
1. Chocolate advertising rose by 30 per cent during January-November 2007 compared to January-November 2006
2. Maximum chocolate advertising was during Raksha Bandhan across 2005 and 2006 and January-November 2007
3. As expected chocolate advertising skewed towards kids channels and regional GEC took the second position
4. Cadbury India Ltd rules chocolate advertising on television
5. 17 per cent more advertising during third quarter 2007 (Raksha Bandhan festival) compared to first quarter 2007
6. Regional GEC took the second place with a 21 per cent share ad volumes of chocolates, followed by Hindi movie with 13 per cent share during January-November 2007
7. Among regional GEC, maximum advertising of chocolates was on Malayalam and Bengali channels
8. Cadbury India Ltd was way ahead of its peers with 66 per cent share followed by Nestle India Ltd and Parle Products Pvt Ltd during January-November 2007
9. During January-November 2007 the number of new chocolate brands advertised decreased to seven from 12 during 2006
10. Nestle Munch Pop Chocolate led the chart of new chocolate brands advertised on television during January-November 2007

Some BTL Activities
1. Cadbury India has tied up with leading coffee chain Café Coffee Day for direct sampling of the product in top cities

External Environment
1. The prices of cocoa and milk, the chief ingredients used in chocolates, have gone up by 50 per cent, while the price of sugar, another important raw material, has come down. The overall input costs have gone up by 20 per cent. If the prices of these commodities keep increasing, companies will be forced to increase the prices. India imports most of its cocoa requirements. The prices of cocoa have risen globally due to unavailability of the commodity
2. US-based chocolate-maker Hersheys is mulling a foray into the Indian chocolate market through its joint venture with Godrej

noreply@blogger.com (Doshi Saurabh) — Tue, 24 Jun 2008 10:11:00 +0000

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Retailers adopt new techniques to improve sales

noreply@blogger.com (Doshi Saurabh) — Tue, 24 Jun 2008 06:22:00 +0000

Anonymous shoppers are becoming passe. As domestic retailers expand, they are adopting newer techniques to unravel the mysteries behind people’s buying patterns. As a result, investment on tracking consumer behaviour is at an all-time high for almost all the top-line chains, including Future Group, Reliance Retail, Landmark, Raymond, Shoppers Stop and Koutons Retail.

Big retailers are experimenting with a host of newer methods — IT solutions, RFID, factory visits for customers, monitoring surveillance system footage, point-of-sales system and appointing trained researchers for front line sales positions — to tap consumer behaviour. Such data is used to improve the store layout, merchandise range and service quality, all of which ultimately translate into improved sales.

“Mystery shoppers mainly generate information on service-related issues. But as retailers grow in scale, that alone is not enough. Hence, the need is now felt to initiate a direct touch with consumers through newer methods,” says Landmark COO Himanshu Chakrawarti. In Landmark’s case, such research has already paid off. Based on consumer feedback, the chain has introduced personal technology products like MP3 and MP4 players, which are doing very well.
Adds Raymond president (retail & FMCG) Aniruddha Deshmukh: “Besides mystery shopping, we use footage from surveillance cameras, which is a very useful indicator for observing customer behaviour. We also get useful feedback from our specialised premium circle programme. There’s also a point-of-sales system, which captures transactions and billing, and shows us the patterns of purchases by customers.”

The chains have undertaken a lot of innovations. “Shoppers Stop, for instance, does a preview of new collections to loyal customers to see their reactions. Similarly, Kirtilals, a jewellery player, flies down a group of customers to its factory units in Coimbatore for a day. Pantaloons does a lot of focus groups, as does Shoppers Stop. A direct interface with key customers elicits information and helps gauge their preferences,” Retailers Association of India CEO Gibson Vedamani told ET.

While global biggies like Wal-Mart, Carrefour and Tesco have adopted radio frequency identification (RFID), the likes of Future Group and Reliance Retail are in the early stages of RFID adoption. “RFID has high implementation cost. But several Indian retailers have tested such RFID solutions and this will now pick up,” said Dharmesh Lamba, country manager, Checkpoint Systems, an US-based retail technology solutions provider.

Till lately, there have been instances when senior management officials of retail stores used to frequent shop floor to get a first-hand view of consumer feedback. But with expansion now becoming the mantra across the sector, the chains are adopting newer solutions on the lines of their Western counterparts

FMCGs try to fend off price warriors

noreply@blogger.com (Doshi Saurabh) — Tue, 24 Jun 2008 06:20:00 +0000

It’s deja vu for the FMCG industry. Down-trading, a phenomenon which disappeared from the FMCG universe a few years ago, is expected to make a comeback, thanks to high inflation.

Fearing the worst, consumer goods companies, which were getting used to high-margin products gaining ground riding on higher disposable incomes, are revisiting strategies for their price-warrior brands and are turning them into focus areas.

Discount detergent brands like Nirma, Ghadi and Fena, toothpaste brands like Ajanta and Anchor and a host of other brands in soap, hair oil and biscuit categories, could once again pose a threat to the big players, as consumers have started looking for cheaper alternatives. This will be a repeat of 2003-04, when these smaller players forced the big brands to significantly alter their marketing and pricing strategies.

Neeraj Chandra, biscuits major Britannia India’s vice-president (sales, marketing & innovation) said, “In the current scenario, some amount of downtrading is certainly expected. We have started preparing for this not only by stepping up focus on our mass brands, but also by exploring new value price points which may emerge.”

The mass-priced Tiger, Britannia’s biggest brand by volumes, could be specially vulnerable to losing share from smaller regional brands. It’s the same story for soaps. “There may be a resurgence of downtrading across categories. To counter this, we have decided to increase focus on our price-warrior brands, specially Godrej No 1 soap,” said Godrej Consumer Products executive director and president, Hoshedar Press.

Among the company’s leading brands, Godrej No 1 competes directly against HUL’s Breeze and Nirma beauty soap.
Dabur is another company gearing up to cope with downtrading. Dabur India chief executive officer, Sunil Duggal, said, “We are taking a closer look at some of our competitively-priced brands.”

Stating that Dabur was well-equipped to deal with downtrading, Mr Duggal said the company would consider giving more footprint to its low-priced brands such as Anmol and Babool, mainly in terms of distribution.

The real impact of the downtrading, if it actually happens in big measure, will be reflected in the next two-three quarters. Brokerage firm Angel Broking’s FMCG analyst, Anand Shah said, “For the past couple of years, pricing power was buoyant and companies could afford to hike prices without fearing any negative impact. However, the companies, which have a portfolio of brands positioned on the mass segment, have reasons to be apprehensive, as their brands may lose share to cheaper regional brands.”

Analysts say that Hindustan Unilever is better placed than most of the other companies to deal with the prevailing situation thanks to its diversified portfolio. “Because of the number of brands in its portfolio across price points, HUL can keep the consumer within its fold, even if, for example, it means a consumer downtrading from Lux to Breeze,” said an analyst.

The maximum downtrading is expected in the mid-tier, middle-class urban segment. “The impact of inflation on the urban rich is not very significant because in real terms the economy is growing and high-margin products could continue to do well. As for the rural demand, it is strongly linked to the monsoon, which is looking good,” said another analyst.

The past few years have seen market shares of discount brands shrinking significantly. For the 12-month period between April 2007 and March 2008, for example, Anchor toothpaste’s all-India value market share stood only at 3.8%, while that of Ajanta was even smaller at 1.9%, as per AC Nielsen data. This could change if inflation persists at the current rate.