a study of fmcg sector in india & hul

8/8/2019 A Study of FMCG Sector in India & HUL

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Term Paper

A Study on FMCG Sector in India and HUL

Its Capabilities, Grand Strategies and

Benchmarking

Course: Strategic Management

Course Code: MGT 612

Submitted By:

Varun Puri

10800464

RR1805 A 19

Submitted To: Rajan Giridhar

Department of Management

Lovely Professional University


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Acknowledgement

Words are the dress of thoughts, appreciating and acknowledging those, who are

responsible for the successful completion of the project. My sincere gratitude goes

to Mr. Rajan Giridhar who assigned me responsibility to work on this project and

provided me all the help, guidance and encouragement to complete this project.

The encouragement and guidance given by him have made this a personally

rewarding experience. I thank him for her support and inspiration, without which,

understanding the details of the project would have been exponentially difficult

With Sincere Thanks,

(Varun Puri)


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Table of Contents

1 Introduction to

Subject............................................................................................................1

1.1 FMCG Sector in

India.......................................................................................................1

1.2 Constituents of FMCG Sector in

India.............................................................................2

1.2.1 HOUSEHOLD

CARE...............................................................................................2

1.2.2 PERSONAL

CARE...................................................................................................2

1.2.3 FOOD AND

BEVERAGES......................................................................................2

1.3 FMCG Sector:

Statistics....................................................................................................3

1.4 Demand

Dynamics............................................................................................................4

1.5 Rise in Disposable

Income................................................................................................4

1.5.1 Higher Penetration of the Rural

population............................................................4

2 Company

profile......................................................................................................................6

2.1 HUL-

Background.............................................................................................................6

2.2 Over 100 Years Link with

India.......................................................................................7


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3 Capabilities &

Strengths........................................................................................................13

3.1 The new Hindustan Lever: Focused on

FMCG..............................................................13

3.2 FMCG still offers enormous

potential............................................................................13

3.3 Portfolio of Strong

Brands..............................................................................................14

3.4 Better

Value....................................................................................................................14

3.5 Bigger Role in Consumers

Lives...................................................................................14

3.6 Technology, the Key

Differentiator................................................................................15

3.7 Winning with

Customers................................................................................................15

3.8 Opportunities

Ahead..................................................................................................16

3.8.1

Food.........................................................................................................

................16 3.8.2

Beverages................................................................................................

.................16 3.8.3

Exports.....................................................................................................

.......17

3.8.4 Investment in the FMCG

sector.........................................................17

4 Grand

Strategies.....................................................................................................................

18

4.1 Types of Grand

Strategies...............................................................................................18

4.2 Grand Strategies Adopted by

HUL.................................................................................18


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4.2.1Concentrated Growth & Market

Development........................................................18

4.2.2Joint

Venture............................................................................................................1

8

4.2.3Backward

Integration...............................................................................................19

4.2.4 Product

Development...........................................................................................

...19

4.2.5Divestiture.......................................................................................

.........................19

5

Benchmarking..............................................................................................................

..........21

5.1 India Competitiveness and Comparison with the

World................................................21

5.1.1 Large domestic

market............................................................................................21

5.1.2 India - a large consumer goods

spender..................................................................21

5.1.3 Materials

availability...............................................................................................22

5.1.4 Cost

competitiveness...............................................................................................2

3

5.1.5 Presence across value

chain....................................................................................24

5.1.6POLICY.............................................................................................

......................24

6

Conclusion:...................................................................................................................

.........26


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7

References....................................................................................................................

..........27

List of Charts

Chart 1: Rise in Disposable Income (In USD

Thousands)..............................................................4

Chart 2: Rural Vs. Urban Households

Growth................................................................................5

Chart 3: Investments in FMCG Sector (August 1991- April

2004)..............................................17

Chart 4:- Consumption

pie.............................................................................................................21

Chart 5:- Consumer Expenditure on Food

(Worldwide)...............................................................22

Chart 6:-Labor cost comparison

(Worldwide)...............................................................................23


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1 Introduction to Subject

1.1 FMCG Sector in India

Fast Moving Consumer Goods (FMCG) are products that are sold quickly at relativelylow cost. Though the absolute profit made on FMCG products is relatively small,

they generally sell in large quantities, so the cumulative profit on such products can

be large.

FMCG products are generally replaced or fully used up over a short period of days,

weeks, or months, and within one year. This contrasts with durable goods or major

appliances such as kitchen appliances, which are generally replaced over a period

of several years.

The Indian FMCG sector is the fourth largest sector in the economy with a total

market size in excess of US$ 13.1 billion. It has a strong MNC presence and ischaracterized by a wellestablished distribution network, intense competition

between the organised and unorganised segments and low operational cost.

Availability of key raw materials, cheaper labor costs and presence across the

entire value chain gives India a competitive advantage.

The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in

2015. Penetration level as well as per capita consumption in most product

categories like jams, toothpaste, skin care, hair wash etc in India is low indicating

the untapped market potential. Burgeoning Indian population, particularly the

middle class and the rural segments, presents an opportunity to makers of brandedproducts to convert consumers to branded products.

Growth is also likely to come from consumer 'upgrading' in the matured product

categories. With 200 million people expected to shift to processed and packaged

food by 2010, India needs around US$ 28 billion of investment in the food-

processing industry.


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1.2 Constituents of FMCG Sector in India

1.2.1 HOUSEHOLD CARE

The size of the fabric wash market is estimated to be $1 billion, household cleaners

to be $239 million and the production of synthetic detergents at 2.6 million tonnes.

The demand for detergents has been growing at an annual growth rate of 10 to 11

per cent during the past five years. The urban market prefers washing powder and

detergents to bars. The regional and small un-organized players account for a major

share of the total volume of the detergent market.

1.2.2 PERSONAL CARE

The size of the personal wash products is estimated at $989 million; hair care

products at $831 million and oral care products at $537 million. While the overall

personal wash market is growing at one per cent, the premium and middle-end

soaps are growing at 10 per cent. The leading players in this market are HLL, Nirma,

Godrej Soaps and Reckitt & Colman. The oral care market, especially toothpastes,

remains under penetrated in India (with penetration level below 45 per cent). The

industry is very competitive both for organised and smaller regional players.

The Indian skin care and cosmetics market is valued at $274 million and dominated

by HLL, Colgate Palmolive, Gillette India and Godrej Soaps. The coconut oil market

accounts for 72 per cent share in the hair oil market. In the branded coconut hair oil

market, Marico (with Parachute) and Dabur are the leading players. The market forbranded coconut oil is valued at approximately $174 million.

1.2.3 FOOD AND BEVERAGES

The size of the Indian food processing industry is around $ 65.6 billion, including

$20.6 billion of value added products. Of this, the health beverage industry is

valued at $230 million; bread and biscuits at $1.7 billion; chocolates at $73 million

and ice creams at $188 million.


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The size of the semi-processed/ready-to-eat food segment is over $1.1 billion. Large

biscuits & confectionery units, soya processing units and starch/glucose/sorbitol

producing units have also come up, catering to domestic and international markets.

The three largest consumed categories of packaged foods are packed tea, biscuits

and soft drinks. The Indian beverage industry faces over supply in segments likecoffee and tea. However, more than half of this is available in unpacked or loose

form. Indian hot beverage market is a tea dominant market. Consumers in different

parts of the country have heterogeneous tastes.

Dust tea is popular in southern India, while loose tea in preferred in western India.

The urbanrural split of the tea market was 51:49 in 2000. Coffee is consumed

largely in the southern states. The size of the total packaged coffee market is

19,600 tonnes or $87 million.

The total soft drink (carbonated beverages and juices) market is estimated at 284

million crates a year or $1 billion. The market is highly seasonal in nature withconsumption varying from 25 million crates per month during peak season to 15

million during offseason. The market is predominantly urban with 25 per cent

contribution from rural areas. Coca cola and Pepsi dominate the Indian soft drinks

market. Mineral water market in India is a 65 million crates ($50 million) industry.

On an average, the monthly consumption is estimated at 4.9 million crates, which

increases to 5.2 million during peak season.

1.3 FMCG Sector: Statistics

The size of the food processing industry exceeds US$65.6 billion.

The size of the semi-processed/ready-to-eat food segment is over $1.1 billion.

Of the food processing industry,

Bread and biscuits sales exceeds US$1.7 billion;

Health beverage sales exceeds US$ 230 million;

Ice cream exceeds US$188 million

Chocolates sales exceeds US$73 million

In the hot beverage market, tea rather than coffee dominates. Coffee is

consumed largely in the southern states.

The soft drink (carbonated beverages and juices) market is in excess of US$1

billion, predominantly urban (>70%), and its consumption is highly seasonal.


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Major players in this segment include Hindustan Lever, Nestle, Cadbury and

Dabur

1.4 Demand Dynamics

The general factors driving the growth of the FMCG sector are increase in

disposable income, rural areas, and companies aggressive promotion of product

awareness.

1.5 Rise in Disposable Income

With increasing disposable income and subsequent rise in quality of living

and hygiene concerns, the average Indians spending on grocery and

personal care products will likely increase.

Currently, the average Indian spends about 48%, also the majority, of his

total income on groceries (~40%) and personal care products (~8%)1. Chart

1: Rise in Disposable Income (In USD Thousands)

Sources: Euro Monitor, Goldman Sachs BRICS Report

1.5.1 Higher Penetration of the Rural Population

Many companies are deepening their penetration in the rural areas as:

The FMCG sector in the urban areas is becoming quite saturated

(though it will continue to dominate in the next 8 10 years2) while the

penetration in the rural areas are only about 1%3.


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The rural areas have and will continue to make up more than 50%

(153 million) of Indias total households and accounting for more than its

current 66% contribution to total FMCG consumption4.

Rural India has a large consuming class with 41 per cent of India's

middle-class and 58 per cent of the total disposable income5.

Currently, nearly 34% of the off take of FMCG companies come from

rural areas.

Companies like HUL, ITC and Colgate have already established good

distribution networks in these regions. Other companies would start catering

to these regions in near future.

Between 2005 and 2010, the FMCG sector in the rural and semi-

urban areas will experience some 50% growth, at a CAGR of 10% andincrease its market size to nearly US$ 23 billion from the 2005 level of

US$11.4 billion.

Chart 2: Rural Vs. Urban Households Growth

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


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2 Company profile

2.1 HUL- Background

Hindustan Unilever Limited (HUL) is India's largest fast moving consumer goods

company, touching the lives of two out of three Indians with over 20 distinct

categories in home & personal care products and food & beverages. They endow

the company with a scale of combined volumes of about 4 million tonnes and sales

of over Rs. 13,000 crores. HUL is also one of the country's largest exporters; it has

been recognised as a Golden Super Star Trading House by the Government of India.

HUL was formed in 1933 as Lever Brothers India Limited and came into being in

1956 as Hindustan Lever Limited through a merger of Lever Brothers, Hindustan

Vanaspati Mfg. Co. Ltd. and United Traders Ltd.. It is headquartered in Mumbai,

India and has an employee strength of over 15,000 employees and contributes for

indirect employment of over 52,000 people. The company was renamed in June

2007 to Hindustan Unilever Limited.

In 2007, Hindustan Unilever was rated as the most respected company in India for

the past 25 years by Businessworld, one of Indias leading business magazines. The

rating was based on a compilation of the magazines annual survey of Indias Most


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Reputed Companies over the past 25 years. HUL is the market leader in Indian

consumer products with presence in over 20 consumer categories such as soaps,

tea, detergents and shampoos amongst others with over 700 million Indian

consumers using its products. It has over 35 brands. Sixteen of HULs brands

featured in the ACNielsen Brand Equity list of 100 Most Trusted Brands Annual

Survey (2008).8 According to Brand Equity, HUL has the largest number of brands inthe Most Trusted Brands List. Its a company that has consistently had the largest

number of brands in the Top 50 and in the Top 10 (with 4 brands).

Hindustan Unilever's distribution covers over 1 million retails outlets across India

directly and its products are available in over 6.3 million outlets in India, i.e., nearly

80% of the retail outlets in India. It has 39 factories in the country. Two out of three

Indians use the companys products and

HUL products have the largest consumer reach being available in over 80 per centof consumer homes across India.

The Anglo-Dutch company Unilever owns a majority stake (52%) in Hindustan

Unilever Limited. HUL was one of the eight Indian companies to be featured on the

Forbes list of Worlds Most Reputed companies in 2007

2.2 Over 100 Years Link with India

YEAR MILESTONES1888 Sunlight soap introduced in India1895 Lifebuoy soap launched; Lever Brothers

appoints agents in Mumbai, Chennai, Kolkata,and Karachi

1902 Pears soap introduced in India1903 Brooke Bond Red Label tea launched1905 Lux flakes introduced

1913 Vim scouring powder introduced1914 Vinolia soap launched in India1918 Vanaspati introduced by Dutch margarine

manufacturers like Van den Berghs, Jurgens,Verschure Creameries, and Hartogs

1922 Rinso soap powder introduced1924 Gibbs dental preparations launched1925 Lever Brothers gets full control of North West

Soap Company


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Mumbai1968 Mr. V G Rajadhyaksha takes over as Chairman

from Mr. Prakash Tandon. Fine Chemical Unitat Adhenri ; informal price control on soapbegins

1969 Rin bar launched; Fine Chemicals Unit starts

production; Bru coffee launched1971 Mr V G Rajadhyaksha presents plan fordiversification into chemicals to UnileverSpecial Committee - plan approved; Clinicshampoo launched

1973 Mr T Thomas takes over as Chairman from MrRajadhyaksha.

1974 Pilot plant for industrial chemicals at Taloja;informal price control on soaps withdrawn; Lirilmarketed

1975 Ten-year modernisation plan for soaps anddetergent plants; Jammu project work 1975begins; statutory price control on Vanaspati

and baby foods withdrawn; Close-uptoothpaste launched1976 Construction work of Haldia chemicals

complex begins; Taloja chemicals unit beginsfunctioning

1977 Jammu synthetic Detergents plantinaugurated; Indian shareholding increases to18.57%

1978 Indian shareholding increases to 34%. Fair &Lovely skin Cream launched

1979 Sodium Tripolyphospate plant at Haldiacommissioned

1980 Dr. A S Ganguly taken over as chairman from

Mr. T Thomas; Unilever shareholding in thecompany comes down to 51%

1982 Government allows 51% Unilevershareholding

1984 Foods, Animal Feeds businesses transferred toLipton

1986 Agri-products unit at Hyderabad startsfunctioning - first range of hybrid seeds comesout; Khamgaon Soaps unit and YavatmalPersonal Products unit start production

1988 Launch of Lipton Taaza tea1990 Mr. S M Datta takes over as Chairman from Dr

A S Ganguly

1991 Surf Ultra detergent launched1992 HUL recognised by Government of India as

Star Trading House in Exports1993 HUL's largest competitor, Tata Oil Mills

Company (TOMCO), merges with the 1993company with effect from April 1, 1993, thebiggest such in Indian industry till that time.Merger ultimately accomplished in December1994; Launch of Vim bar; Kissan acquired from


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the UB Group

1994 HUL forms Unilever Nepal Limited, HUL andUS-based Kimberley-Clark Corporation form

50:50 joint venture - Kimberley-Clark Lever Ltd- to market Huggies diapers and Kotexfeminine care products Factory set up at Punein 1995; HUL acquires Kwality and Milkfood100% brandnames and distribution assets.HUL introduces Wall's.

1995 HUL and Indian cosmetics major, Lakme Ltd ,form 50:50 joint venture - Lakme Lever Ltd ;HUL enters branded staples business with salt;HUL recognised as Super Star Trading House

1996 Mr. K. B Dadiseth takes over as Chairmanfrom Mr S M Datta; Merger of Group 1996company, Brooke Bond Lipton India Limited,

with HUL, with effect from January 1; HULintroduces branded atta; Surf Excel launched

1997 Unilever sets up International ResearchLaboratory in Bangalore; new RegionalInnovation Centres also come up

1998 Group company, Pond's India Ltd , mergeswith HUL with effect from January 1, 1998 HULacquires Lakme brand, factories and LakmeLtd

2000 Mr. M S Banga takes over as Chairman fromMr K B Dadiseth, who joins the 2000 UnileverBoard; HUL acquires 74% stake in ModernFood Industries Ltd , the first public sector

company to be disinvested by the Governmentof India

2002 HUL enters Ayurvedic health & beauty centercategory with Ayush Range and Ayush TherapyCenters

2003 Launch of Hindustan Lever Network;acquisition of the Amalgam Group

2005 Launch of "Pureit" water purifiers2006 Brookefields food operations moved to

Mumbai2007 Company name formally changed to

Hindustan Unilever Limited after receiving the2007 approval of share holders during the

74th AGM on 18 May 2007 Sales of BrookeBond and Surf Excel each cross the Rs 1,000crore mark

2008 HUL completes 75 years on 17th October2008


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had 110 brands, many undifferentiated and lacking scale. They chose to focus on 35

power brands covering all consumer appeal and price segments. They are already

seeing the benefits. Six brands Brooke

Bond, Lifebuoy, Lux, Fair & Lovely, Rin and Wheel have emerged as mega brands

in the last five years, each with sales of more than Rs.500 crores.

3.4 Better Value

The first step was to ensure that they offer world class quality and real

differentiation backed by technology to give them the advantage over low priced

competition. They have invested over Rs.400 crores, or 5% of sales, in the last threeyears to upgrade the brands.

In several cases they reduced prices to make the brands more affordable. Better

quality and more affordable prices have increased the value to the consumer.

They have also launched several low unit size and price packs for single use to

make the brands more accessible to all income groups. For example, they are the

first to introduce a branded toothpaste in a tube at Rs.5 and a branded quality

shampoo in a bottle at Rs.5.

3.5 Bigger Role in Consumers Lives

Perhaps the most significant change has been to move the brands beyond merely

making functional claims to playing a bigger and deeper role in the lives of

consumers. They had to move from selling a soap or a detergent to something far

more important and central to the consumers life. How often have we heard

someone say, A soap is a soap is a soap! Or indeed, All detergents clean clothes

as well.

In the case of Lifebuoy, it was only when they associated it with the promise of

health and protection against disease that it claimed a larger space in theconsumers mind. It moved from being a mere soap to a health essential. Today

Lifebuoy, their oldest brand, has grown at over 15% for the last three years.

Similarly, in the laundry market, Surf Excel went well beyond the benefit of great

clean by saving two buckets of water with every wash. Imagine the importance of

that benefit to consumers in cities, who often get running water for only a couple of

hours a day. Surf Excel is one of their fastest growing brands today.


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Both Lifebuoy and Surf Excel have succeeded because they are relevant to two key

concerns of the Indian housewife: family health and the scarcity of water.

In addition to the growing consciousness of health, consumers today are looking for

ways to look good and feel good so that they can get much more out of life. In

short, consumers are seeking Vitality in their lives. Their portfolio of 35 power

brands is uniquely positioned to offer nutrition, hygiene and personal care benefits

and thereby deliver Vitality.

3.6 Technology, the Key Differentiator

Their brands and sound understanding of the local consumer are supported by a

world class Research and Development capability. They have over 200 of the

brightest scientists and technologists based in India.

Their recent reorganization leverages the talent pool from across 16 global

technology centres, of which four are in India. In all, they have over 4,000 high

quality minds across Unilever working relentlessly to provide new benefits that

make a real difference to the consumers.

3.7 Winning with Customers

Hindustan Lever has historically had a strong bond with its customers. They have

strengthened this and reinvented the way they manage their distribution channels

and their customers. The sales structure has been transformed to leverage scale

and build expertise in servicing Modern Trade and Rural Markets. They have also

de-layered their sales force to improve the response times and service levels.

Their customers are serviced on continuous replenishment. This is possible becauseof IT connectivity across the extended supply chain of about 2,000 suppliers, 80

factories and 7,000 stockists. They have also combined backend processes into a

common Shared Service infrastructure, which supports the units across the country.

All these initiatives together have enhanced operational efficiencies, improved the

service to the customers and have brought us closer to the marketplace.


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3.8 Opportunities Ahead

3.8.1 Food

According to the Ministry of Food Processing, the size of the Indian food processing

industry is around US$ 65.6 billion including US$ 20.6 billion of value added

products. Of this, the health beverage industry is valued at US$ 230 billion; bread

and biscuits at US$ 1.7 billion; chocolates at US$ 73 million and ice creams at US$

188 million.

The size of the semi-processed/ready to eat food segment is over US$ 1.1 billion.

Large biscuits & confectionery units, soyaprocessing units and

starch/glucose/sorbitol producing units have also come up, catering to domestic and

international markets. The three largest consumed categories of packaged foods

are packed tea, biscuits and soft drinks. (IBEF FMCG Report, 2009)

3.8.2 Beverages

The Indian beverage industry faces over supply in segments like coffee and tea.

However, more than half of this is available in unpacked or loose form. Indian hot

beverage market is a tea dominant market. Consumers in different parts of the

country have heterogeneous tastes. Dust tea is popular in southern India, while

loose tea in preferred in western India. The urban-rural split of the tea market was

51:49 in 2000. Coffee is consumed largely in the southern states. The size of the

total packaged coffee market is 19,600 tonnes or US$ 87 million. The urban ruralsplit in the coffee market was 61:39 in 2000 as against 59:41 in 1995.

The total soft drink (carbonated beverages and juices) market is estimated at 284

million crates a year or US$ 1 billion. The market is highly seasonal in nature with

consumption varying from 25 million crates per month during peak season to 15

million during offseason. The market is predominantly urban with 25 per cent

contribution from rural areas. Coca cola and Pepsi dominate the Indian soft drinks

market.

Mineral water market in India is 65 million crates (US$ 50 million) industry. On an

average, the monthly consumption is estimated at 4.9 million crates, whichincreases to 5.2 million during peak season.

3.8.3 Exports

India is one of the world's largest producers for a number of FMCG products but its

exports are a very small proportion of the overall production. Total exports of food


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processing industry were US$ 2.9 billion in 2001-02 and marine products accounted

for 40 per cent of the total exports. Though the Indian companies are going global,

they are focusing more on the overseas markets like Bangladesh, Pakistan, Nepal,

Middle East and the CIS countries because of the similar lifestyle and consumption

habits between these countries and India. HLL, Godrej Consumer, Marico, Dabur and

Vicco laboratories are amongst the top exporting companies.

3.8.4 Investment in the FMCG sector

The FMCG sector accounts for around 3 per cent of the total FDI inflow and roughly

7.3 per cent of the total sectoral investment. The food-processing sector attracts

the highest FDI, while the vegetable oils and vanaspati sector accounts for the

highest domestic investment in the FMCG sector.

Chart 3: Investments in FMCG Sector (August 1991- April 2004)

+


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4.2.1 Concentrated Growth & Market Development

The erstwhile Brooke Bond's presence in India dates back to 1900. By 1903, the

company had launched Red Label tea in the country. In 1912, Brooke Bond & Co.

India Limited was formed. Brooke Bond joined the Unilever fold in 1984 through an

international acquisition. The erstwhile Lipton's links with India were forged in 1898.Unilever acquired Lipton in 1972, and in 1977 Lipton Tea (India) Limited was

incorporated.

HUL made many acquisitions in Tea segment; they first acquired Brooke Bond &

Co, which was an Indian co. in 1984, while they already had Lipton brand in their

Tea Segment which was acquired in 1977. When they acquired Brooke Bond in 1984

it was a strategy aimed at market development as the Lipton brand was meeting

the needs of Premium segment, while Red Label Brand aimed to meet the needs of

middle segment.

4.2.2 Joint Venture

Simultaneously, deregulation permitted alliances, acquisitions and mergers. In one

of the most visible and talked about events of India's corporate history, the

erstwhile Tata Oil Mills Company (TOMCO) merged with HUL, effective from April 1,

1993. In 1995, HUL and yet another Tata company, Lakme Limited, formed a 50:50

joint venture, Lakme Unilever Limited, to market Lakme's market-leading cosmetics

and other appropriate products of both the companies. Subsequently in 1998,

Lakme Limited sold its brands to HUL and divested its 50% stake in the joint venture

to the company.

In1994, the company entered into a strategic alliance with the Kwality Ice-cream

Group families and in 1995 the Milk food 100% Ice-cream marketing and distribution

rights too were acquired

4.2.3 Backward Integration

As a measure of backward integration, Tea Estates and Doom Dooma, two

plantation companies of Unilever, were merged with Brooke Bond. Then in July

1993, Brooke Bond India and Lipton India merged to form Brooke Bond Lipton India

Limited (BBLIL), enabling greater focus and ensuring synergy in the traditional

Beverages business. 1994 witnessed BBLIL launching the Wall's range of FrozenDesserts. By the end of the year, the company entered into a strategic alliance with

the Kwality Icecream Group families and in 1995 the Milkfood 100% Icecream

marketing and distribution rights too were acquired.

4.2.4 Product Development


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HUL made a strategic acquisition aimed at development of new product, In January

2000, in a historic step, the government decided to award 74 per cent equity in

Modern Foods to HUL, thereby beginning the divestment of government equity in

public sector undertakings (PSU) to private sector partners. HUL's entry into Bread

is a strategic extension of the company's wheat business. In 2002, HUL acquired the

government's remaining stake in Modern Foods.

In 2003, HUL acquired the Cooked Shrimp and Pasteurised Crabmeat business of

the Amalgam Group of Companies, a leader in value added Marine Products exports

4.2.5 Divestiture

HUL puts its leather business sale on hold

Hindustan Unilever (HUL) has put the sale of its leather business on hold as it failed

to find a suitable buyer. The business is run by Ponds Exports, a wholly-owned

subsidiary of HUL. The annual report said leather exports had a difficult year due to

forex volatility and recessionary conditions in Europe. Indias competitive

advantages of good quality leather and the ability to service small orders were

neutralized by Chinas significant cost advantages and a welldeveloped market for

components.

Conglomerate Diversification

In 1993, it acquired the Kissan business from the UB Group and the Dollops

Icecream business from Cadbury India. As at that time both of the business

concerns were on peak & the best promising businesses.

5 Benchmarking

5.1 India Competitiveness and Comparison with the World

5.1.1 Large domestic market

India is one of the largest emerging markets, with a population of over one billion.India is one of the largest economies in the world in terms of purchasing power and

has a strong middle class base of 300 million.

Around 70 per cent of the total households in India (188 million) resides in the rural

areas. The total number of rural households is expected to rise from 135 million in

2001-02 to 153 million in 2009-10. This presents the largest potential market in the

world. The annual size of the rural FMCG market was estimated at around US$ 10.5


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billion in 2001-02. With growing incomes at both the rural and the urban level, the

market potential is expected to expand further.

5.1.2 India - a large consumer goods spender

An average Indian spends around 40 per cent of his income on grocery and 8 per

cent on personal care products. The large share of fast moving consumer goods

(FMCG) in total individual spending along with the large population base is another

factor that makes India one of the largest FMCG markets.

Chart 4:- Consumption pie

Even on an international scale, total consumer expenditure on food in India at US$

120 billion is amongst the largest in the emerging markets, next only to China.

Chart 5:- Consumer Expenditure on Food (Worldwide)


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5.1.3 Materials availability

India has a diverse agro-climatic condition due to which there exists a wide-ranging

and large raw material base suitable for food processing industries. India is the

largest producer of livestock, milk, sugarcane, coconut, spices and cashew and is

the second largest producer of rice, wheat and fruits & vegetables.

India also has an ample supply of caustic soda and soda ash, the raw materials in

the production of soaps and detergents India produced 1.6 million tonnes of

caustic soda in 2003-04. Tata Chemicals, one of the largest producers of synthetic

soda ash in the world is located in India. The availability of these raw materials

gives India the locational advantage.

5.1.4 Cost competitiveness

Chart 6:-Labor cost comparison (Worldwide)


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Apart from the advantage in terms of ample raw material availability, existence oflow-cost labor force also works in favor of India. Labor cost in India is amongst the

lowest in Asian countries. Easy raw material availability and low labor costs have

resulted in a lower cost of production. Many multi-nationals have set up large low

cost production bases in India to outsource for domestic as well as export markets.

5.1.4.1 Leveraging the cost advantage

Global major, Unilever, sources a major portion of its product requirements from its

Indian subsidiary, HLL. In 2003-04, Unilever outsourced around US$ 218 million of

home and personal care along with food products to leverage on the cost arbitrage

opportunities with the West.

To take another case, Procter & Gamble (P&G) outsourced the manufacture of Vicks

Vaporub to contract manufacturers in Hyderabad, India. This enables P&G to

continue exporting Vicks Vaporub to Australia, Japan and other Asian countries, but

at more competitive rates, whilst maintaining its high quality and cost efficiency.


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5.1.5 Presence across value chain

Indian firms also have a presence across the entire value chain of the FMCG

industry from supply of raw material to final processed and packaged goods, both in

the personal care products and in the food processing sector. For instance, Indian

firm Amul's product portfolio includes supply of milk as well as the supply ofprocessed dairy products like cheese and butter. This makes the firms located in

India more cost competitive.

5.1.6 POLICY

India has enacted policies aimed at attaining international competitiveness through

lifting of the quantitative restrictions, reduced excise duties, automatic foreign

investment and food laws resulting in an environment that fosters growth. 100 per

cent export oriented units can be set up by government approval and use of foreign

brand names is now freely permitted.

5.1.6.1 FDI Policy

Automatic investment approval (including foreign technology agreements within

specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and

Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food

processing sector except malted food, alcoholic beverages and those reserved for

small scale industries (SSI). 24 per cent foreign equity is permitted in the small-

scale sector. Temporary approvals for imports for test marketing can also be

obtained from the Director General of Foreign Trade. The evolution of a more liberal

FDI policy environment in India is clearly supported by the successful operation of

some of the global majors like PepsiCo in India.

5.1.6.2 Removal of Quantitative Restrictions and Reservation Policy

The Indian government has abolished licensing for almost all food and agro-

processing industries except for some items like alcohol, cane sugar, hydrogenated

animal fats and oils etc., and items reserved for the exclusive manufacture in the

small scale industry (SSI) sector. Quantitative restrictions were removed in 2001

and Union Budget 2004-05 further identified 85 items that would be taken out of

the reserved list. This has resulted in a boom in the FMCG market through market

expansion and greater product opportunities.

5.1.6.3 Central and state initiatives

Various states governments like Himachal Pradesh, Uttaranchal and Jammu &

Kashmir have encouraged companies to set up manufacturing facilities in their

regions through a package of fiscal incentives. Jammu and Kashmir offers incentives

such as allotment of land at concessional rates, 100 per cent subsidy on project


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reports and 30 per cent capital investment subsidy on fixed capital investment upto

US$ 63,000. The Himachal Pradesh government offers sales tax and power

concessions, capital subsidies and other incentives for setting up a plant in its tax

free zones. Five-year tax holiday for new food processing units in fruits and

vegetable processing have also been extended in the Union Budget 2004-05.

Wide-ranging fiscal policy changes have been introduced progressively. Excise and

import duty rates have been reduced substantially. Many processed food items are

totally exempt from excise duty. Customs duties have been substantially reduced

on plant and equipment, as well as on raw materials and intermediates, especially

for export production. Capital goods are also freely importable, including second

hand ones in the food-processing sector.

5.1.6.4 Food laws

Consumer protection against adulterated food has been brought to the fore by "The

Prevention of Food Adulteration Act (PFA), 1954", which applies to domestic andimported food commodities, encompassing food color and preservatives, pesticide

residues, packaging, labelling and regulation of sales.


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6 Conclusion:

Hindustan Unilever was the most preferred Brand in India. It has wide range of

products varying from Home care to food care and Other FMCG categories. It has

also launched water purifier. It was listed in ET-500 ranking of Indias biggest

Companies and its ranking was number 32.

Though HUL, as a brand have good perception from its consumers, following are the

major threats waiting for any FMCG company in the market. So those things have to

be considered in order to posses the same consumer perception towards HUL!

Private Label/In-house Branding: Ongoing increase in the number of

supermarkets, hypermarkets & other such concept business results in the

promotion of their own brands. So there I a possibility of change in behavior of

consumers towards HUL

Quality Management:- Because of multi production centers, the qualitu of

the same nrand product has to be maintained to retain the consumer. Introduction

of variants has to be done only by keeping flagship product without any change.

Brand Loyalty: Essential aspect to be considered in this rival competitive world!

Recently Rin & Tide comparative advertisement made it clear even big giants like

HUL finds no way to dominate the market without gaining the loyalty of tits

consumers. This is a try to change the fickle minds of consumers towards rival

bands


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7 References

Books

Pearce II, J.A., Robinson Jr., RB and Mital, A., Strategic Management: Formulation,Implementation and Control, 10th Ed., Tata McGraw-Hill, New Delhi, 2008

Journals, Publications & Websites

DasGupta, P, (2009), HUL puts its leather business sale on hold, Mumbai,

Accessed From: http://www.mydigitalfc.com/companies/hul-puts-its-leather-

business-sale-hold-299

Equitymaster.com: http://www.equitymaster.com/researchit/sectorinfo/consprds

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

IBEFs , Fast Moving Consumer Goods Report 2009, Accessed from:www.ibef.org

The Hindu Business Line: 19-7-2005

http://www.thehindubusinessline.com/2005/07/19/stories/2005071903080400.htm

Red Orbit news:

http://www.redorbit.com/news/business/1359302/indias_fmcg_brands_ready_to_mov

e_into_the _fast_lane/index.html
http://www.mydigitalfc.com/companies/hul-puts-its-leather-business-sale-hold-299http://www.mydigitalfc.com/companies/hul-puts-its-leather-business-sale-hold-299http://www.equitymaster.com/research%E2%80%90it/sector%E2%80%90info/consprdshttp://www.equitymaster.com/detail.asp?date=1/9/2008&story=2http://www.thehindubusinessline.com/2005/07/19/stories/2005071903080400.htmhttp://www.mydigitalfc.com/companies/hul-puts-its-leather-business-sale-hold-299http://www.mydigitalfc.com/companies/hul-puts-its-leather-business-sale-hold-299http://www.equitymaster.com/research%E2%80%90it/sector%E2%80%90info/consprdshttp://www.equitymaster.com/detail.asp?date=1/9/2008&story=2http://www.thehindubusinessline.com/2005/07/19/stories/2005071903080400.htm

a study of fmcg sector in india & hul

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