Term Paper

A Study on FMCG Sector in India and HUL

It’s Capabilities, Grand Strategies and
Benchmarking

Course: Strategic Management

Course Code: MGT 612
Submitted By:
Varun Puri
10800464

RR1805 A 19

Submitted To: Rajan Giridhar

Department of Management
Lovely Professional University
 Acknowledgement

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

With Sincere Thanks,

(Varun Puri)
 DECLARATION

Declaration

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

(Varun Puri)

Registration No.:- 10800464

Date: 09-05-2010
Table of Contents

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
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
 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
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
1 Introduction to Subject

1.1 FMCG Sector in India

Fast Moving Consumer Goods (FMCG) are products that are sold quickly at relatively
low cost. Though the absolute profit made on FMCG products is relatively small,
they generally sell in large quantities, so the cumulative profit on such products can
be large.

FMCG products are generally replaced or fully used up over a short period of days,
weeks, or months, and within one year. This contrasts with durable goods or major
appliances such as kitchen appliances, which are generally replaced over a period
of several years.

The Indian FMCG sector is the fourth largest sector in the economy with a total
market size in excess of US$ 13.1 billion. It has a strong MNC presence and is
characterized by a wellestablished distribution network, intense competition
between the organised and unorganised segments and low operational cost.

Availability of key raw materials, cheaper labor costs and presence across the
entire value chain gives India a competitive advantage.

The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in
2015. Penetration level as well as per capita consumption in most product
categories like jams, toothpaste, skin care, hair wash etc in India is low indicating
the untapped market potential. Burgeoning Indian population, particularly the
middle class and the rural segments, presents an opportunity to makers of branded
products to convert consumers to branded products.

Growth is also likely to come from consumer 'upgrading' in the matured product
categories. With 200 million people expected to shift to processed and packaged
food by 2010, India needs around US$ 28 billion of investment in the food-
processing industry.
1.2 Constituents of FMCG Sector in India

1.2.1 HOUSEHOLD CARE

The size of the fabric wash market is estimated to be $1 billion, household cleaners
to be $239 million and the production of synthetic detergents at 2.6 million tonnes.
The demand for detergents has been growing at an annual growth rate of 10 to 11
per cent during the past five years. The urban market prefers washing powder and
detergents to bars. The regional and small un-organized players account for a major
share of the total volume of the detergent market.

1.2.2 PERSONAL CARE

The size of the personal wash products is estimated at $989 million; hair care
products at $831 million and oral care products at $537 million. While the overall
personal wash market is growing at one per cent, the premium and middle-end
soaps are growing at 10 per cent. The leading players in this market are HLL, Nirma,
Godrej Soaps and Reckitt & Colman. The oral care market, especially toothpastes,
remains under penetrated in India (with penetration level below 45 per cent). The
industry is very competitive both for organised and smaller regional players.

The Indian skin care and cosmetics market is valued at $274 million and dominated
by HLL, Colgate Palmolive, Gillette India and Godrej Soaps. The coconut oil market
accounts for 72 per cent share in the hair oil market. In the branded coconut hair oil
market, Marico (with Parachute) and Dabur are the leading players. The market for
branded coconut oil is valued at approximately $174 million.

1.2.3 FOOD AND BEVERAGES

The size of the Indian food processing industry is around $ 65.6 billion, including
$20.6 billion of value added products. Of this, the health beverage industry is
valued at $230 million; bread and biscuits at $1.7 billion; chocolates at $73 million
and ice creams at $188 million.
The size of the semi-processed/ready-to-eat food segment is over $1.1 billion. Large
biscuits & confectionery units, soya processing units and starch/glucose/sorbitol
producing units have also come up, catering to domestic and international markets.

The three largest consumed categories of packaged foods are packed tea, biscuits
and soft drinks. The Indian beverage industry faces over supply in segments like
coffee and tea. However, more than half of this is available in unpacked or loose
form. Indian hot beverage market is a tea dominant market. Consumers in different
parts of the country have heterogeneous tastes.

Dust tea is popular in southern India, while loose tea in preferred in western India.
The urbanrural split of the tea market was 51:49 in 2000. Coffee is consumed
largely in the southern states. The size of the total packaged coffee market is
19,600 tonnes or $87 million.

The total soft drink (carbonated beverages and juices) market is estimated at 284
million crates a year or $1 billion. The market is highly seasonal in nature with
consumption varying from 25 million crates per month during peak season to 15
million during offseason. The market is predominantly urban with 25 per cent
contribution from rural areas. Coca cola and Pepsi dominate the Indian soft drinks
market. Mineral water market in India is a 65 million crates ($50 million) industry.
On an average, the monthly consumption is estimated at 4.9 million crates, which
increases to 5.2 million during peak season.

1.3 FMCG Sector: Statistics

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

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

• Of the food processing industry,

○ Bread and biscuits sales exceeds US$1.7 billion;

○ Health beverage sales exceeds US$ 230 million;

○ Ice cream exceeds US$188 million

○ Chocolates sales exceeds US$73 million

• In the hot beverage market, tea rather than coffee dominates. Coffee is
consumed largely in the southern states.

• The soft drink (carbonated beverages and juices) market is in excess of US$1
billion, predominantly urban (>70%), and its consumption is highly seasonal.
 • Major players in this segment include Hindustan Lever, Nestle, Cadbury and
Dabur

1.4 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 Indian’s 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.
 ○ The rural areas have and will continue to make up more than 50%
(153 million) of India’s 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% and
increase its market size to nearly US$ 23 billion from the 2005 level of
US$11.4 billion.

Chart 2: Rural Vs. Urban Households Growth

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

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 India’s leading business magazines. The
rating was based on a compilation of the magazines annual survey of India’s Most
Reputed Companies over the past 25 years. HUL is the market leader in Indian
consumer products with presence in over 20 consumer categories such as soaps,
tea, detergents and shampoos amongst others with over 700 million Indian
consumers using its products. It has over 35 brands. Sixteen of HUL’s brands
featured in the ACNielsen Brand Equity list of 100 Most Trusted Brands Annual
Survey (2008).8 According to Brand Equity, HUL has the largest number of brands in
the Most Trusted Brands List. It’s 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 company’s products and

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

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

Unilever Limited. HUL was one of the eight Indian companies to be featured on the
Forbes list of World’s Most Reputed companies in 2007

2.2 Over 100 Years Link with India

YEAR MILESTONES
1888 Sunlight soap introduced in India
1895 Lifebuoy soap launched; Lever Brothers
appoints agents in Mumbai, Chennai, Kolkata,
and Karachi
1902 Pears soap introduced in India
1903 Brooke Bond Red Label tea launched
1905 Lux flakes introduced
1913 Vim scouring powder introduced
1914 Vinolia soap launched in India
1918 Vanaspati introduced by Dutch margarine
manufacturers like Van den Berghs, Jurgens,
Verschure Creameries, and Hartogs
1922 Rinso soap powder introduced
1924 Gibbs dental preparations launched
1925 Lever Brothers gets full control of North West
Soap Company
1926 Hartogs registers Dalda Trademark
1930 Unilever is formed on January 1 through
merger of Lever Brothers and Margarine Unie
1931 Hindustan Vanaspati Manufacturing Company
registered on November 27; Sewri factory site
bought
1935 United Traders incorporated on May 11 to
market Personal Products
1937 Mr. Prakash Tandon, one of the first Indian
covenanted managers, joins HVM
1939 Garden Reach Factory purchased outright;
concentration on building up Dalda Vanaspati
as a brand
1941 Agencies in Mumbai, Chennai, Kolkata and
Karachi taken over; company acquires own
sales force
1942 Unilever takes firm decision to "train Indians
to take over junior and senior management
positions instead of Europeans"
1943 Personal Products manufacture begins in India
at Garden Reach Factory
1944 Reorganisation of the three companies with
common management but separate marketing
operations
1947 Pond's Cold Cream launched
1951 Mr Prakash Tandon becomes first Indian
Director Shamnagar, Tiruchy, and Ghaziabad
Vanaspati factories bought
1955 65% of managers are Indians
1956 Three companies merge to form Hindustan
Unilever Limited, with 10% Indian equity
participation
1957 Unilever Special Committee approves
research activity by Hindustan Unilever
1958 Research Unit starts functioning at Mumbai
Factory
1959 Surf launched
1961 Mr. Prakash Tandon takes over as the first
Indian Chairman; 191 of the 205 managers are
Indians.
1962 Formal Exports Department starts
1963 Head Office building at Backbay Reclamation,
Mumbai, opened
1964 Etah dairy set up, Anik ghee launched; Animal
feeds plant at Ghaziabad; Sunsilk shampoo
launched
1965 Signal toothpaste launched; Indian
shareholding increases to 14%
1966 Lever's baby food, more new foods
introduced; Nickel catalyst production begins;
1966 Indian shareholding increases to 15%
Statutory price control on Vanaspati; Taj Mahal
tea launched
1967 Hindustan Unilever Research Centre, opens in
 Mumbai
1968 Mr. V G Rajadhyaksha takes over as Chairman
from Mr. Prakash Tandon. Fine Chemical Unit
at Adhenri ; informal price control on soap
begins
1969 Rin bar launched; Fine Chemicals Unit starts
production; Bru coffee launched
1971 Mr V G Rajadhyaksha presents plan for
diversification into chemicals to Unilever
Special Committee - plan approved; Clinic
shampoo launched
1973 Mr T Thomas takes over as Chairman from Mr
Rajadhyaksha.
1974 Pilot plant for industrial chemicals at Taloja;
informal price control on soaps withdrawn; Liril
marketed
1975 Ten-year modernisation plan for soaps and
detergent plants; Jammu project work 1975
begins; statutory price control on Vanaspati
and baby foods withdrawn; Close-up
toothpaste launched
1976 Construction work of Haldia chemicals
complex begins; Taloja chemicals unit begins
functioning
1977 Jammu synthetic Detergents plant
inaugurated; Indian shareholding increases to
18.57%
1978 Indian shareholding increases to 34%. Fair &
Lovely skin Cream launched
1979 Sodium Tripolyphospate plant at Haldia
commissioned
1980 Dr. A S Ganguly taken over as chairman from
Mr. T Thomas; Unilever shareholding in the
company comes down to 51%
1982 Government allows 51% Unilever
shareholding
1984 Foods, Animal Feeds businesses transferred to
Lipton
1986 Agri-products unit at Hyderabad starts
functioning - first range of hybrid seeds comes
out; Khamgaon Soaps unit and Yavatmal
Personal Products unit start production
1988 Launch of Lipton Taaza tea
1990 Mr. S M Datta takes over as Chairman from Dr
A S Ganguly
1991 Surf Ultra detergent launched
1992 HUL recognised by Government of India as
Star Trading House in Exports
1993 HUL's largest competitor, Tata Oil Mills
Company (TOMCO), merges with the 1993
company with effect from April 1, 1993, the
biggest such in Indian industry till that time.
Merger ultimately accomplished in December
1994; Launch of Vim bar; Kissan acquired from
 the UB Group

1994 HUL forms Unilever Nepal Limited, HUL and

US-based Kimberley-Clark Corporation form
50:50 joint venture - Kimberley-Clark Lever Ltd
- to market Huggies diapers and Kotex
feminine care products Factory set up at Pune
in 1995; HUL acquires Kwality and Milkfood
100% brandnames and distribution assets.
HUL introduces Wall's.
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 Chairman
from Mr S M Datta; Merger of Group 1996
company, Brooke Bond Lipton India Limited,
with HUL, with effect from January 1; HUL
introduces branded atta; Surf Excel launched
1997 Unilever sets up International Research
Laboratory in Bangalore; new Regional
Innovation Centres also come up
1998 Group company, Pond's India Ltd , merges
with HUL with effect from January 1, 1998 HUL
acquires Lakme brand, factories and Lakme
Ltd
2000 Mr. M S Banga takes over as Chairman from
Mr K B Dadiseth, who joins the 2000 Unilever
Board; HUL acquires 74% stake in Modern
Food Industries Ltd , the first public sector
company to be disinvested by the Government
of India
2002 HUL enters Ayurvedic health & beauty center
category with Ayush Range and Ayush Therapy
Centers
2003 Launch of Hindustan Lever Network;
acquisition of the Amalgam Group
2005 Launch of "Pureit" water purifiers
2006 Brookefields food operations moved to
Mumbai
2007 Company name formally changed to
Hindustan Unilever Limited after receiving the
2007 approval of share holders during the
74th AGM on 18 May 2007 Sales of Brooke
Bond and Surf Excel each cross the Rs 1,000
crore mark
2008 HUL completes 75 years on 17th October
2008
3 Capabilities & Strengths

3.1 The new Hindustan Lever: Focused on FMCG

In 2000, 75% of their sales came from FMCG businesses. The rest came from
several nonFMCG businesses which were not profitable, and did not offer prospects
for long-term leadership. Besides, they were a drain on the core FMCG business,
both in terms of resource and focus.

They decided to disengage from all non-FMCG or commodity businesses. In all, we

have divested and discontinued 15 businesses including Animal Feeds, Speciality
Chemicals, Nickel Catalyst, Adhesives, Thermometers, Seeds, Mushrooms etc. with
sales of Rs.1,750 crores as in 1999.

Today they are a focused on FMCG company with our branded business accounting
for over 90% of sales, consisting of 35 brands across 20 categories. These will be
their main engines of growth, with higher levels of resource concentration, be it
technology, people talent or media spend.

3.2 FMCG still offers enormous potential

As the largest FMCG player it was up to them to reverse the downtrading to realize
its true growth potential. They could achieve this by raising the bar and becoming
world class in what their brands offered and how they worked. Nothing less would
do.

Penetration levels in several of the categories and consumption levels in all of the
categories is low by any comparison. Across the world, they are seeing a strong
correlation between income levels and the size of FMCG markets. Over the next 10
years, per capita income in India is likely to touch China’s current levels. At those
levels, the FMCG market will be over Rs.100,000 crores from a current value of
Rs.40,000 crores. This is an opportunity that they have to seize.

3.3 Portfolio of Strong Brands

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

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

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 three
years to upgrade the brands.

In several cases they reduced prices to make the brands more affordable. Better
quality and more affordable prices have increased the value to the consumer.

They have also launched several low unit size and price packs for single use to
make the brands more accessible to all income groups. For example, they are the
first to introduce a branded toothpaste in a tube at Rs.5 and a branded quality
shampoo in a bottle at Rs.5.

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 consumer’s life. How often have we heard
someone say, “A soap is a soap is a soap!” Or indeed, “All detergents clean clothes
as well”.

In the case of Lifebuoy, it was only when they associated it with the promise of
health and protection against disease that it claimed a larger space in the
consumer’s mind. It moved from being a mere soap to a health essential. Today
Lifebuoy, their oldest brand, has grown at over 15% for the last three years.

Similarly, in the laundry market, Surf Excel went well beyond the benefit of ‘great
clean’ by saving two buckets of water with every wash. Imagine the importance of
that benefit to consumers in cities, who often get running water for only a couple of
hours a day. Surf Excel is one of their fastest growing brands today.
 Both Lifebuoy and Surf Excel have succeeded because they are relevant to two key
concerns of the Indian housewife: family health and the scarcity of water.

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

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 because

of IT connectivity across the extended supply chain of about 2,000 suppliers, 80
factories and 7,000 stockists. They have also combined backend processes into a
common Shared Service infrastructure, which supports the units across the country.
All these initiatives together have enhanced operational efficiencies, improved the
service to the customers and have brought us closer to the marketplace.
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 rural
split in the coffee market was 61:39 in 2000 as against 59:41 in 1995.

The total soft drink (carbonated beverages and juices) market is estimated at 284
million crates a year or US$ 1 billion. The market is highly seasonal in nature with
consumption varying from 25 million crates per month during peak season to 15
million during offseason. The market is predominantly urban with 25 per cent
contribution from rural areas. Coca cola and Pepsi dominate the Indian soft drinks
market.

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

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

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
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)

+
4 Grand Strategies

Grand Strategies are Comprehensive, long-term plan of essential actions by which a

firm plans to achieve its major objectives. Key factors of this strategy may include
market, product, and/or organizational development through acquisition,
divestiture, diversification, joint ventures, or strategic alliances.

4.1 Types of Grand Strategies

Consortia Horizontal Integration Divestitu

re
Concentrated Vertical Integration Liquidati
Growth on
Market Concentric Diversification Bankrupt
Development cy
Product Conglomerate Diversification Joint
Development Ventures
Innovation Turnaround Strategic
Alliances

4.2 Grand Strategies Adopted by HUL

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 Frozen
Desserts. By the end of the year, the company entered into a strategic alliance with
the Kwality Icecream Group families and in 1995 the Milkfood 100% Icecream
marketing and distribution rights too were acquired.

4.2.4 Product Development

HUL made a strategic acquisition aimed at development of new product, In January
2000, in a historic step, the government decided to award 74 per cent equity in
Modern Foods to HUL, thereby beginning the divestment of government equity in
public sector undertakings (PSU) to private sector partners. HUL's entry into Bread
is a strategic extension of the company's wheat business. In 2002, HUL acquired the
government's remaining stake in Modern Foods.

In 2003, HUL acquired the Cooked Shrimp and Pasteurised Crabmeat business of
the Amalgam Group of Companies, a leader in value added Marine Products exports

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 Pond’s 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. India’s competitive
advantages of good quality leather and the ability to service small orders were
neutralized by China’s 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
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)

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)

Apart from the advantage in terms of ample raw material availability, existence of
low-cost labor force also works in favor of India. Labor cost in India is amongst the
lowest in Asian countries. Easy raw material availability and low labor costs have
resulted in a lower cost of production. Many multi-nationals have set up large low
cost production bases in India to outsource for domestic as well as export markets.

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.
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 of
processed 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
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 and
imported food commodities, encompassing food color and preservatives, pesticide
residues, packaging, labelling and regulation of sales.
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 India’s 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
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/research‐it/sector‐info/consprds

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

IBEF’s , “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