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Prepared by:-Prateek Jain

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Introduction0 The Indian FMCG sector is the fourth largest sector in the

economy.

0 Intense competition between the organized and unorganizedsegments.

0 Availability of key raw materials, cheaper labor costs and

presence across the entire value chain gives India acompetitive advantage.

0 Even during the slowdown of the economy, the FMCG sectorhas registered a growth rate of 14.5 per cent for the year2007-08.

0 The key players in FMCG sector are HUL,ITC, Dabur IndiaLimited, Procter & Gamble Hygiene & Health Care Limited,Nirma Limited, Emami Limited, Colgate Palmolive IndiaLimited, Godrej Consumer Products Limited.

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KEY SEGMENTS

0 Household Care

0 Personal Care

0 Food & Beverage

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PORTER'S FIVE FORCES MODEL

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Rivalry among Competing

Firms0 In the FMCG Industry, rivalry among competitors is very

fierce.

0

There are scarce customers because the industry is highlysaturated and the competitors try to snatch their share of

market.

0 Market Players use all sorts of tactics and activities from

intensive advertisement campaigns to promotional stuff

and price wars etc. Hence the intensity of rivalry is very

high.

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Potential Entry of New

Competitors:

0 FMCG Industry does not have any measures which can

control the entry of new firms.

0 The resistance is very low and the structure of the industry

is so complex that new firms can easily enter and also offer

tough competition due to cost effectiveness. Hence

potential entry of new firms is highly viable.

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Potential Development of

Substitute Products

0 There are complex and never ending consumer needs and

no firm can satisfy all sorts of needs alone. There are plentyof substitute goods available in the market that can be re-

placed if consumers are not satisfied with one.

0

The wide range of choices and needs give a sufficient roomfor new product development that can replace existing

goods. This leads to higher consumers expectation.

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Bargaining Power of Suppliers

0 The bargaining power of suppliers of raw materials and

intermediate goods is not very high.

0 There is ample number of substitute suppliers available

and the raw materials are also readily available and most

of the raw materials are homogeneous.

0 There is no monopoly situation in the supplier side

because the suppliers are also competing among

themselves.

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Bargaining Power of

Consumers0 Bargaining power of consumers is also very high. This is

because in FMCG industry the switching costs of most of

the goods is very low and there is no threat of buying oneproduct over other.

0 Customers are never reluctant to buy or try new things off

the shelf.

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VALUE CHAIN

0 Tool for identifying ways in which value could becreated/enhanced by a firm.

0 Used for competitor analysis -to analyse competitiveposition within the industry.

0 Value creation requires performance of each department &coordination of activities within a department.

0 value chain of a company may be useful in identifying andunderstanding crucial aspects to achieve competitivestrengths and core competencies in the marketplace.

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0

Hindustan Unilever's distribution network is recognised as one of itskey strengths. Its focus is not only to enable easy access to our brands,but also to touch consumers with a three-way convergence - of productavailability, brand communication, and higher levels of brandexperience.

0 HUL's products, manufactured across the country, are distributedthrough a network of about 7,000 redistribution stockists coveringabout one million retail outlets. The distribution network directlycovers the entire urban population.

0 The general trade comprises grocery stores, chemists, wholesale,kiosks and general stores. Hindustan Unilever services each with atailor-made mix of services. The emphasis is equally on using storesfor direct contact with consumers, as much as is possible through in-store facilitators.

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What are HUL and ITC Ltd.?

HUL (Hindustan Unilever Ltd.)

0This Company is earlier known as Hindustan

Lever Ltd. This is Indians largest FMCG sector

company with all type of household products

available with it. It has Home & Personal Care

products, and also food and Water Purifier

available with it. According to Brand Equity, HULhas largest no of brands in most trusted brands

list.

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0 16 of HULs brands featured in AC-Nielson Brand

Equity list of 100 most trusted brands in 2008 in an

annual survey. For the entire year ending March -2009 net turnover of company is Rs. 20239.33 Crore

which is 47.99% higher than 31st December 2007s

Rs. 13675.43 Crore driven mainly by domestic FMCGs

with net profit stood at Rs. 2496.45 Crore.

0 Products of HUL are: Annapurna; Ayush; Axe; Breeze;

Bru; Brooke bond; Clinic; Dove; Fair & Lovely;

Hamam; Liril; Lux; Pears; Ponds; Pepsodent; Pureit;

Rexona; Rin; Sunlight; Surf excel; Vaseline; Wheel.

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ITC Limited

0 This Company was earlier known as Imperial Tobacco

Company of India Ltd.

0 It is Currently headed by Yogesh Chander Deveshwar.

0 Company mainly operates in the industry likeTobacco, Foods, Hotels, Stationary and Greeting Cards

with the major products constitutes Cigarettes,

packed foods, hotels, and apparels.

0 For the entire year ending Mar-2009 the turnover ofcompany is at Rs. 15388 Crore which is 10.3% higher

than previous years Rs. 13947.53 Crore, driven mainly

by robust 20% growth in non cigarette FMCG business

with net profit stood at Rs. 3324 Crore.

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Analysis of Both Companies

0 HUL & ITC are major companies in FMCG market in

India.

0

When we compare both companies on the basis oftheir strategies i.e. , their competitive strategies in the

present market.

0 When we look at the present segment breakup for

both of the companies then we came to know that

their different products vary too much in the market.

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HUL Segment Breakup ITC Segment Breakup

In crore rupees

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FIVE MAIN COMPETITIVE

STRATEGIES ARE: Overall low cost leadership strategy

Best cost providers strategy

Broad differentiation strategy

Focused low cost strategy

Focused differentiation strategy

Here competitive strategy varies from sector to sector and

company to company. Thus, it is not easy to predict a single

or to find a single strategy for the whole sector. When we

come on to FMCG Sector main strategies lay behind market

strategies, cost, and quality strategies.

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COMPARATIVE ANALYSIS OF BOTH THE

COMPANIES UNDER SOME HEADS:

HUL ITC

0 Hindustan Unilever (HUL)is the largest pure-playFMCG company in the

country and has one of thewidest portfolio ofproducts sold via a strongdistribution channel.

0 It owns and marketssome of the most popularbrands in the countryacross various categories,including soaps,detergents, shampoos, teaand face creams.

0 ITC is not a pure-playFMCG company, since

cigarettes is its primarybusiness.

0 It is diversifying intonon-tobacco.

0 FMCG segments likefoods, personal care,paper products, hotelsand agri-business toreduce its exposure tocigarettes.

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PERFORMANCE

0 After stagnating between 1999 and 04, the company

is back on the growth track. In the past three years, till

2008 HULs net sales have witnessed a CAGR of 11%,

while net profit has posted a CAGR of 17%.0 Despite diversification, ITCs reliance on cigarettes is

still huge. The tobacco business contributes 40% to its

revenues, and accounts for over 80% of its profit. This

cash-generating business has enabled it to take

ambitious, but expensive bets in new segments and

deliver modest profit growth.

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Risk for both the companiesHUL ITC

0 Being an MNC operating inIndia, HUL is more conservativein its strategies than its Indiancounterparts. Moreover, givenincreasing competition, it facesthe risk of being overtaken by

domestic players in variouscategories. Prolonged inflationmay lead to margin contraction,in case HUL is not able to passon this burden to consumers.The company's large size also

poses a problem, since it doesnot give HUL the agility toaddress the competition it facesfrom national and regionalplayers

0 Increased regulatory clamps on

tobacco, along with rising taxburden, pose a business risk for

ITC. So, it has started an

ambitious diversification plan,

which has its own set of risks.

With its foray into theconventional FMCG space, ITC

has entered the high-clutter

branded products market. This

will burden its resources in

terms of ad spend and brand-

building. Creating brand recall

and building market share in

new products are ITCs key

challenges. Export ban and rising

crop prices pose a threat for its

agri-business, taxing its margins.

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OVERALL STRATEGYHUL ITC

0 HUL always believes in

customer friendly products

with major emphasis on low

cost overall without

compromising on the quality of

the product.

0 They are leveraging the

capabilities and scale of the

parent company and focusing

on the value of execution.

0 The entire product portfolio is

also being tweaked to include

premium offerings such as

Ponds Age Miracle and dove

shampoo in skin and hair care.

0 ITC is focusing on deliveringvalue at competitive prices.Its tremendous reachthrough extensivedistribution chain has been a

competitive advantage.0 Additionally, the company's

e-choupal model for directprocurement is well knownunder which ITC partnerswith over 100,000 farmersfor spices and wheatprocurement and an evenlarger number for oilseeds.This kind of rural pedigree ishard to beat

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Growth DriversHUL ITC

0 The Company has beenlaunching new productsand brand extensions,with investments beingmade towards brand-

building and increasing itsmarket share. HUL is alsostreamlining its variousbusiness operations, inline with the One Unileverphilosophy adopted by theUnilever group worldwide.Introduction of premiumproducts and addition ofnew consumers via marketexpansion will be HULs

growth drivers.

0

ITCs backward integrationto ensure that its productspass efficiently from thefarms to consumers hashelped it to cut downsupply and procurement

costs. ITCs non-cigaretteFMCG business leveragesthe large distributionnetwork the company hasdeveloped by sellingcigarettes over the years.

A rich product mix, alongwith ramp-up ofinvestments in its newsectors, will beinstrumental in chartingITCs growth path.

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Conclusion

0 HULs up-and-running business model is a treat forinvestors seeking exposure in the FMCG segment. Thecompany has delivered in the past and has thepotential to do better in future. In the small andmedium term. ITCs growth story is still evolving.

0 ITC is eyeing the pie which HUL and other FMCGplayers currently enjoy. Though risky, the companiesbusiness model will pay off in the long run. ITC hasproved its expertise in the cigarettes, hotels, paperand agri-businesses. Investors who want to bank onits execution ability in FMCG can consider the stockwith a long-term horizon.

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