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INTRODUCTION

FMCG Concept and Definition:

The term FMCG (fast moving consumer goods), although popular and frequently used
does not have a standard definition and is generally used in India to refer to products of everyday
use. Conceptually, however, the term refers to relatively fast moving items that are used directly
by the consumer. Thus, a significant gap exists between the general use and the conceptual
meaning of the term FMCG.

Further, difficulties crop up when attempts to devise a definition for FMCG. The problem
arises because the concept has a retail orientation and distinguishes between consumer products
on the basis of how quickly they move at the retailers shelves. The moot question therefore, is
what industry turnaround threshold should be for the item to qualify as an FMCG. Should the
turnaround happen daily, weekly, or monthly?

One of the factors on which the turnaround depends is the purchase cycle.
However, the purchase cycle for the same product tend to vary across population segments.
Many low-income households are forced to buy certain products more frequently because of lack
of liquidity and storage space while relatively high-income households buy the same products
more infrequently. Similarly, the purchase cycle also tends to vary because of cultural factors.
Most Indians, typically, prefer fresh food articles and therefore to buy relatively small quantities
more frequently. This is in sharp contrast with what happens in most western countries, where
the practice of buying and socking foods for relatively longer period is more prevalent. Thus,
should the inventory turnaround threshold be universal, or should it allow for income, cultural
and behavioral nuances?


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The term fast moving consumer goods refers to goods of daily use bought by retail consumers,
like tooth-paste, soaps and detergents, deodorants, etc. Fast moving consumer goods are called
so because the basic unit of sale is a fast moving consumer good that needs to be made available
at point of sale, and replenished. This sector has two types of sales, primary sales and secondary
sales, and these refer to sales from manufacturer to distributor and sales from distributor to
retailer and finally to consumer. Big retailers like malls (Target, Wal-Mart, Subhiksha) deal
directly with the manufacturer as part of organized retail while other retailers like the
neighborhood stores deal with re-sellers like distributors. The role of a sales and marketing
person is channel management, and will be covered in detail further in this article. The sales
channel includes both company staff and outsourced partners like direct sales agents and direct
marketing agents.

Characteristics of FMCG Products:

Individual items are of small value. But all FMCG products put together account for a
significant part of the consumer's budget.

The consumer keeps limited inventory of these products and prefers to purchase them
frequently, as and when required. Many of these products are perishable.

The consumer spends little time on the purchase decision. Rarely does he/she look for
technical specifications (in contrast to industrial goods). Brand loyalties or
recommendations of reliable retailer/dealer drive purchase decisions.

Trial of a new product i.e. brand switching is often induced by heavy advertisement,
recommendation of the retailer or neighbors/friends.



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These products cater to necessities, comforts as well as luxuries. They meet the
demands of the entire cross section of population. Price and income elasticity of
demand varies across products and consumers.



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OVERVIEW

With a population of over one billion, India is one of the largest economies in the world in terms
of purchasing power and increasing consumer spending, next to China. The Indian FMCG
industry, with an estimated market size of ~`2 trillion, accounts for the fourth largest sector in
India. In the last decade, the FMCG sector has grown at an average of 11% a year; in the last five
years, annual growth accelerated at compounded rate of ~17.3%. The sector is characterized by
strong presence of global businesses, intense competition between organized and unorganized
players, well established distribution network and low operational cost. Availability of key raw
materials, cheaper labor costs and presence across the entire value chain gives India a
competitive advantage. During 2012, the country witnessed high inflation, muted salary hikes
and slowing economic growth, which affected the FMCG sector with companies posting
deceleration in volume growth in their quarterly results. However, the trend seen in 2012 is
likely to accelerate in 2013 as growth will come from rural dwellers that are expected to see a
rise in their disposable incomes.

Fast Facts: Indian FMCG Industry
countrys GDP.

years driven by rising income levels, increasing urbanisation, strong rural demand and
favourable demographic trends.
9% of the nations total FDI inflows in April 2000- September
2012. Cumulative FDI inflows into India from April 2000 to April 2013 in the food processing
sector stood at `9,000.3 crore, accounting for 0.96% of overall FDI inflows while the soaps,
cosmetics and toiletries, accounting for 0.32% of overall FDI at `3,115.5 crore.
-third of the sectors revenues.
accounts for 50% of the total FMCG market.
expected to cross $80 bn by 2026 in towns with population of up to 10 lakh.

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after China & Indonesia, giving it a
competitive advantage over other countries.
Pacific cross border inbound merger and acquisition (M&A) deal so far in FY14 and is the fifth
largest India Inbound M&A transaction on record till date.
-14, which would hit
major industrial conglomerates like ITC, VST Industries in the short term.

FMCG sector Overview
The fast-moving consumer goods (FMCG) sector is an important contributor to Indias GDP and
it is the fourth largest sector of the Indian economy. Items in this category are meant for frequent
consumption and they usually yield a high return. The most common in the list are toilet soaps,
detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, and
household accessories and extends to certain electronic goods. The Indian FMCG sector, which
is the fourth biggest sector in the Indian economy, has a market size of `2 trillion with rural India
contributing to one third of the sectors revenues. The Indian FMCG sector is highly fragmented,
volume driven and characterized by low margins. The sector has a strong MNC presence, well
established distribution network and high competition between organized and unorganized
players. FMCG products are branded while players incur heavy advertising, marketing,
packaging and distribution costs. The pricing of the final product also depends on the costs of
raw material used. The growth of the sector has been driven by both the rural and urban
segments. India is becoming one of the most attractive markets for foreign FMCG players due to
easy availability of imported raw materials and cheaper labour costs.







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FEATURES OF FMCG BUSINESS

FMCG have wide distribution network and they sell their products directly to the consumers.
Major features of this sector include the following:

DESIGN AND MANUFACTURING
Low capital intensity: most of the products in FMCG require minor investment in plan
and machinery and other fixed assets. Low working capital is required as most of sales
are done on cash basis.
Technology: technology required for manufacturing is easily available and is simple.
Modifications and improvements rarely change the basic process.
Third party manufacturing: manufacturing by third party vendors is very common.
Benefits associated with third party manufacturing includes:
Flexible production and inventory planning
Flexibility in controlling labor cost
Logistics- sometimes it is essential to get certain products manufactured near the market.

MARKETING AND DISTRIBUTION
Major features of marketing function includes the following
High initial launch cost: new products requires large amount of investment in product
development, market research, test marketing and launch. Creating awareness for a new
brand requires enormous initial expenditure on launch advertisements, free samples and
product promotion. Launch costs are as high as 50-100% of revenue in the first year. For
established brands advertising expenditure varies from 5-12% depending on the category.
Limited mass media option: the challenge associated with launch initiatives is that few
mass media options are available. TV reaches 65% of the urban consumers and 35% of
the rural consumer. Alternatives like wall paintings, vieodes, special packaging becomes
an expensive but required activity associated with successful FMCG.
Huge distribution network: India is a home for six million retail outlets including 2
million in 5,160 towns, and 4 million in 627,000 villages. Super markets virtually do not

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exist in India. This makes logistics for especially new players very difficult. Critical
factors for success are the ability to build, develop and maintain a robust distribution
network.

COMPETITION
Significant presence of unorganized sector - factors that enable small, unorganized players with
local presence to flourish include the following.
Basic technology for most products is fairly simple and easily available
The small scale sector in India enjoys exemption/low rates of excise duty, sales tax etc.
A highly scattered market and poor transport infrastructure limits the ability of MNCs
and national players to reach out to remote rural areas and small towns.
Lower overheads due to limited geography, family management, focused product lines
and minimal expenditure on marketing.



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MAJOR SEGMENT IN FMCG SECTOR



Household care
The fabric wash market size is estimated to be ~USD 1 billion, household cleaners to be USD
239 million, with 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% during the past five years. On
account of convenience of usage, increased purchasing power, aggressive advertising and
increased penetration of washing machines, the urban market prefers washing powder and
detergents to bars. The regional and small unorganized players account for a major share of the
total detergent market in volumes. Household Care category recorded robust volume and value
growth during the year through focused innovation in the portfolio to provide greater consumer
value. Vim bar continues to delight consumers by delivering superior performance and new
offerings like the Anti-Germ Bar and the Monthly Tub Pack. Vim liquid continues to develop the
liquid dish wash category driven by superior product quality and strong advertising. It has
FMCG
Industry
Household care
Fabric wash,
Household
cleaners
Personal care
Oral care, hair
care, skincare,
cosmetics,
hygiene and
paper products
Food &
Beverages
Health beverages,
staples/cereals,bakery
,snacks,chocolates,
icecream,tea/coffee/s
oftdrinks,processed
fruits & vegetables,
dairy products &
branded flour

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effectively accomplished the dual job of growing the liquids market by reaching out to more
households, while increasing consumption in existing households. Domex continued to provide
clean and germ free toilets to the consumers.

Personal Care
The personal care products (PCP) market in India is estimated to be worth ~USD 4 bn p.a.
Personal hygiene products (including bath and shower products, deodorants etc.), hair care, skin
care, colour cosmetics and fragrances are the key segments of the personal care market. Each of
these segments exhibits its unique trends and growth patterns. For example, the largest segment
of personal hygiene products, largely dominated by bar soaps, has grown at ~5% p.a. over the
last five years. In comparison, the second largest segment, hair care products has seen a much
higher growth of ~9-10% p.a. during the same period.
The hair care market can be segmented into hair oils, shampoos, hair colorants &
conditioners, and hair gels. The coconut oil market accounts for 72% share in the hair oil
market.
The skin care market is at a primary stage in India. With the change in life styles,
increase in disposable incomes, greater product choice and availability, people are
becoming more alert about personal grooming.
The oral care market can be segmented into toothpaste 60%; toothpowder 23%;
toothbrushes 17%.

Food & Beverages
Food processing industry is one of the largest industries in India, ranking fifth in terms of
production, growth, consumption, and export. The total value of Indian food processing industry
is expected to touch USD 194 billion by 2015 from a value of USD 121 billion in 2012,
according to Indian Council of Agricultural Research (ICAR). The packaged food segment is
expected to grow 9% annually to become a `6 lakh crore industry by 2030, dominated by milk,
sweet and savoury snacks and processed poultry, among other products, according to the report
by CII-McKinsey.The ready-to-drink tea and coffee market in India is expected to touch `2,200
crore in next four years, according to estimates arrived at the World Tea and Coffee Expo 2013.

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Branding could drive the next growth wave in the countrys food processing sector.The total soft
drink (carbonated beverages and juices) market is estimated at ~USD 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 more than
25% contribution from rural areas. Coca cola and Pepsi dominate the Indian soft drinks market.







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ADVANTAGE INDIA

Attractive opportunities
Low penetration levels in rural market offers room for growth
There is a growing market for premium products
Exports is another growth segment
India is one of the worlds biggest producers of a number of FMCG products but the
countrys exports account for a very small proportion of the overall output.
Food-processing Industry: With 200 million people expected to shift to processed and
packaged food,

Increasing investments
Industry witnessed healthy FDI inflows as the sector accounted for 1.9 per cent of the
countrys total FDI inflows over April 2000 - September 2012
Many players are pursuing inorganic growth by acquiring regional players

Policy Support
Investment approval of up to 100 per cent foreign equity in single brand retail and 51 per
cent in multi-brand retail
Introduction of Goods and Service Tax (GST) as a single unified tax system likely from
April 2013

Growing Demand
Rising incomes and a growing young population have been the key growth drivers for the
sector
Brand consciousness have also aided demand
Rural demand is set to rise with rising incomes and greater awareness of brands
Globally, the cosmetics sector is witnessing a flat growth scenario. This growth is coming from
geographic expansion into emerging markets, and also through domain expansion, through

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introducing a new variety of products, as exemplified by a shift to organic products. While
luxury brands have not witnessed a great drop in sales in the emerging markets during the
ongoing credit crisis, nevertheless, in developed countries, consumers have put off large
purchases in view of the tightened credit market. Also, higher mortgage payments are forcing
consumers to purchase more at discount stores than luxury retailers. Meanwhile, in Asia, Eastern
Europe, and Latin America, rising incomes have resulted in the increasing adoption of higher-
end personal care products.
The consumer goods sector is being driven to cost efficiencies by Wal-Marts recent
greener moves. Wal-Mart will be soon forcing all its suppliers to monitor and manage
carbon emissions. It is going to sell only concentrated laundry detergents in all its stores
by May 2008, thus saving an enormous amount of resources. Wal-Mart had experimented
with this on Unilever first. Unilever has been estimated to save about the same amount of
resources through introducing Small & Mighty in the past two years.
Developing markets are showing a greater preference for anti-aging, moisturizing, and
whitening creams. Male personal care products are the fastest growing segment in skin
care.
Facing a threat from retailers private labels, FMCG (fast moving consumer goods)
companies are looking into channel expansion and promoting more masstige products as
well. In developing countries like India, FMCG companies are providing the same
discounts to small retail stores as they offer to large retailers. In India, FMCG companies
currently derive a maximum portion of their revenues through small retail stores in the
unorganized market, in contrast to the organized market, which accounts for only 4% of
the total retail market.







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GROWTH DRIVERS

Growth drivers of the FMCG sector in India
Rise of rural consumers
Increasing per capita income of urban and rural population
Governments pro-industry policies
Growing popularity of organised retail
FDI support


1. Higher incomes have aided growth in both urban and rural
markets

Per-capita income in the country
expanded at a CAGR of 12.5 per cent
over 2001-11.
Strong income growth is set to continue
in future as well; IMF forecasts point to a
CAGR of 8.8 per cent over 2012-17 to
USD2,428.5.
An important consequence of rising
incomes is growing appetite for premium
products, primarily in the urban segment

Urban segment the biggest contributor to the sectors revenue
The urban segment is the biggest contributor to the sector, accounting for two-thirds of total
FMCG sector revenue. The semi-urban and rural segments which are growing at a brisk pace,
currently account for 33.5% of revenues of the FMCG sector. FMCG products account for 53%
of total rural spending. During FY 11, over 80% of FMCG products grew at a faster pace in rural
markets as compared to urban ones with premium skin care brands growing twice as fast in rural
areas than urban brands. Lower priced packs have increased the penetration of the FMCG sector

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in rural India. The sectors that are witnessing high growth include salty snacks, refined edible oil,
healthcare products, iodised salt, etc. Hair oils, toothpastes and shampoos have quite high
penetration in both urban and rural markets while the sales of instant noodles, floor cleaners and
hair dyes is increasing in rural markets due to higher awareness. There are a total of 12-13
million retail outlets in India, with kirana stores being the majority of them. Some of the major
FMCG players in India include ITC, HUL, Nestle, Dabur, Godrej Consumer, etc.

Growth in rural market bodes well for the FMCG sector
The rural market is currently worth approximately USD 9 billion in consumer spending in the
FMCG space annually. Rural India accounts for 700 million consumers or 70% of the countrys
population, accounting for one -third of the total FMCG market. According to a report by
Nielsen, the Indian rural market is tipped to grow more than ten-fold to USD 100 billion by
2025, presenting a huge opportunity for leading FMCG brands. One of the key drivers of the
rural FMCG market has been the unprecedented growth of smaller packaging options. Lower
priced packs have improved accessibility and increased the pace of penetration of FMCG
products in rural areas. According to Nielsen, FMCG growth in the rural sector for the quarter
ended March 2012, stood at 17.2%, surpassing the urban segment at 16.5%. The purchasing
power in rural areas has outpaced that of urban areas as non-farm incomes improve, bolstering
consumer spending on FMCG products. Rural consumption growth has outpaced urban
consumption with the percentage increase in monthly per capita expenditure in rural markets
surpassing its urban counterparts during the period 2009-2012. Significant progress in literacy
levels, higher government spending on welfare programs, growing support to agricultural sector,
which is the major occupation of rural India and better infrastructure and DTH and mobile
connections have also acted as a catalyst in bolstering rural demand for FMCG products. Several
measures taken by the government to support the rural population including higher minimum
support prices (MSPs), loan waivers, and disbursements through the National Rural Employment
Guarantee Act (NREGA) programme have bolstered the purchasing power of this segment.




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Government initiatives for rural development

The Indian government has been supporting
the rural population with higher MSPs, loan
waivers, and disbursements through the NREGA
programme
These measures have helped in reducing
poverty in rural India and have thus propped up
rural purchasing power.



2. Foreign firms betting big on FMCG sector
In the recent quarters, many of the foreign firms have increased their exposure in the FMCG
companies like Hindustan Unilever, Godrej Consumer Products, Britannia Industries etc,
motivated by their robust financial performance and attractive valuations. The reason is quite
simple. Irrespective of how the economy is performing, the demand for consumer goods, daily
necessities like food and toothpastes, remains stable. During difficult times, people will reduce
spending on discretionary items such as cars and air-conditioners but continue to buy basic
essentials. As per a report, Foreign Institutional Investors (FII), betting primarily on Large Caps,
have increased their holding in more than 11 Indian companies during the middle of FY13,
while domestic institutional investors, being positive largely on Mid-Caps raised their holdings
in a number of FMCG companies. The defensive appeal and attractive valuation of FMCG
companies makes the FIIs to show interest in the sector.

India eyes M&A deals in FMCG space
Despite of global economic slowdown, it is expected that the Indian FMCG industry will
continue to witness merger and acquisitions (M&A), as well as private equity investment. As the
M&A deals provide the Indian FMCG players the platform to gain market share and footprint in

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other fast growing countries/regions through acquisitions and also access to an established and
well invested distribution infrastructure capable of leveraging existing products that will be
adaptable to the new geography, the Indian firms are keen on focusing on higher growth markets
such as South-East Asia, Africa, Latin America. With Godrej and Wipro taking the lead, the
domestic companies have been quite active in M&A activities in order to gain significantly from
an inorganic growth route.

The 2013 fiscal witnessed a number of M&A deals in India. The major player in the Indian
FMCG market, with leading Household and Personal Care Products, Godrej Consumer products
Ltd (GCPL) made a series of acquisitions across various geographies. The FMCG major has
successfully completed the acquisition of 60% stake in CosmeticaNacional, a leading hair
colorant and cosmetics Company in Chile, through its subsidiary Godrej Netherlands B.V and
51% stake in Darling Group operations in Kenya through its subsidiary Godrej East Africa
Holdings Ltd. Further, Hindustan Unilever's (HUL) $5.4 billion deal, announced on May 1 2013,
with parent, Unilever Plc was the largest Asia-Pacific cross border inbound merger and
acquisition (M&A) deal so far in FY14.




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3. Growing popularity of modern retail bodes well for FMCG sector

This Indian FMCG market is highly fragmented and a major part of the market constitutes of
unorganized players selling unbranded and unpackaged products. FMCG goods are marketed by
two primary sales channels - General Trade and Modern Trade. General Trade includes kirana
stores, which are the largest sales channel forming 95% of overall retail sales. While, the Modern
trade facilitates comfortable and modern store experience, availability of a wide variety of
categories and brands under a single roof and compelling value-for-money deals, which attracts
consumers to organized retail in a big way. However, modern trade is still an urban phenomenon
with 17 key metros contributing to 73% of overall modern trade in India. FMCG product
segments such as packaged rice, liquid toilet soaps, floor cleaners, breakfast cereals, air
fresheners & mosquito repellent equipment have a higher penetration in modern trade channel.

The growing popularity of modern retail is expected further to bolster the growth of the FMCG
sector by aiding distribution channels. Rural distribution network has improved through projects
like Shakti Choupal Sagar, Aadhar and Hariyali Bazaar, increasing penetration of FMCG
products into the segment. While the share of modern retail in India currently stands at only 6%
of total retail industry; it is estimated to reach to reach 10.2% or `4.87 lakh crore by 2015 as
private label products gain popularity while shoppers become aware of increased choices and
various deals being offered. In urbanized distribution, organized retail boosts shelf space
visibility.

Increasing its direct coverage, HUL doubled its products coverage to the remotest areas of the
country through a combination of increasing HULs direct coverage through distributors and its
flagship rural distribution programme, Project Shakti. A rural distribution initiative that targets
small villages, Project Shakti benefits us by enhancing our direct rural reach and also creates
employment opportunities for people in rural India. Through Project Shakti, it has 48,000 Shakti
entrepreneurs (Shakti ammas) in 15 states. The Shakti ammas cover over 135,000 villages and
serve 3.3 million households.

Daburs ambitious Project Double, which was aimed at enhancing direct coverage in rural India,
has been successfully implemented across 10 key states that contribute to 72% of the rural

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FMCG potential. Within these states, 287 prosperous districts were targeted for this drive. Field
resources were more than doubled as a part of the project. Rural salesmen were provided mobile
devices through which they report sales and coverage data. Post the implementation of this
project it has witnessed an increase in its product width in rural markets which has translated into
higher and more profitable sales.

Increasing awareness and easier access is driving growth of modern
retail
Growing awareness, easier access, and
changing lifestyles has meant growing
consumer spending in modern retail stores
Spending at modern retail stores in India
shot up by 31 per cent in 2011 compared to
the previous year
Modern retail spending is expected to
shoot up to USD5 billion in 2015 from
USD1.8 billion in 2011



4. Rising per capita income and changing lifestyle augers well for
the FMCG sector

Indias per capita income, a measure of living standards, is projected to have increased 11.7 per
cent to `5,729 per month in 2012-13 at current prices, up from `5,130 in the previous fiscal. The
per capital income at current prices during 2012-13 is estimated to have stood at `68,747, up
from `61,564 in FY 2011-12. Rising per capital incomes are likely to bolster discretionary
spending, driving growth in the Indian FMCG sector. The per capita income in real terms (at
2004-05 constant prices) during 2012-13 is likely to attain a level of `39,143 as compared to the

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First Revised Estimate for the year 2011-12 of `38,037. According to the IMF, Indias per capital
income is tipped to grow at a CAGR of 8.8 per cent to USD 2,228.5 over a period of 2012-17. In
2012-13, Indias per capita income stood at USD 1,535.6. Also, rising number of working
women and the reducing popularity of the joint family system has increased the demand for
processed and packaged food products. Further, rising awareness has also boosted demand for
personal care and healthcare products. People in the rural areas have become more open to
consuming modern packages food products and personal grooming products as satellite TV and
internet powers awareness.

Also, the fast growing economy provides scope for growth in FMCG space. Despite the current
slowdown, India remains one of the fastest growing global economies, giving huge opportunities
for leading FMCG players to expand their brand presence, introduce new products and foray into
untapped markets. Being a consumer-driven economy, India is one of the leading FMCG
markets in the world.

5. Government Policies and Regulatory Framework
Goods and Service Tax (GST): GST, which will replace the multiple indirect taxes levied
on FMCG sector with a uniform, simplified and single-pint taxation system, is likely to
be implemented soon (the benefits are likely to come in by the end of FY14). The rate of
GST on services is likely to be 16% and on goods is proposed to be 20%. A swift move
to the proposed GST may reduce prices, bolstering consumption for FMCG products.

Food Security Bill: The food security Bill has been passed recently by the Union Cabinet.
As per the Bill, 5Kg of food grains per person per month will be provided at subsidized
prices from State Governments under the targeted public distribution system. With
additional demand, the agriculture sector would receive a boost and this could lead to
more investments in improving agriculture productivity and making it more competitive.

FDI in retail: The decision to allow 51% FDI in multi brand retail and 100% FDI in
single brand retail augers well for the outlook for the FMCG sector. The move is

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expected to bolster employment, and supply chains, apart from providing high visibility
for FMCG brands in organized retail markets, bolstering consumer spending, and
encouraging more product launches. FDI of 100% under the automatic route is allowed in
the food processing sector, which is considered as a priority sector. FMCG sector
accounted for 1.9% of the nations total FDI inflows in April 2000- September 2012.
Cumulative FDI inflows into India from April 2000 to April 2013 in the food processing
sector stood at `9,000.33 crore, accounting for 0.96% of overall FDI inflows while that in
the soaps, cosmetics and toiletries was `3,115.54 crore in, accounting for 0.32%. The
food processing sector attracted FDI inflows of `6,198 crore during April 2009 to
December 2012.

Relaxation of license rules: Industrial licenses are not required for almost all food and
agro-processing industries, barring certain items such as beer, potable alcohol and wines,
cane sugar, and hydrogenated animal fats and oils as well as items reserved for exclusive
manufacturing in the small-scale sector.


6. Monsoon raised hope for growth
This year, the arrival of monsoon has brought liveliness to the Indian FMCG companies, as it has
increased the expectations of growth in uptake in the rural market, which accounts for upto 50%
of sales of the FMCG companies. The dependence of FMCG sector on agriculture is high, so
good monsoon is a positive add-on for the rural economy. As the monsoon arrives, disposable
income in rural India increases, as a consequence, there would be increased consumption of
FMCG products. The early arrival and prospects of a good monsoon are making FMCG firms
such as Emami, Dabur, Marico and GSK Consumer Healthcare quite optimistic as 50% of their
sales come from rural demand.

It was reported that Emami which gets about 40-45% of total sales from rural India, expects
increased consumption of FMCG products due to a good monsoon. Moreover, nearly 50% of
Dabur's domestic sales are from rural India and the company has registered a total sale of `6,146
crore from the region. For Marico, the proportion of income from the rural area has increased

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over time and is currently around 30%.So, with a good monsoon, it is expected that there will be
an improvement in rural consumption sentiment.


Export potential

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% of the total exports. In order
enhance the global presence, Indian companies have started eying 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. India's exports of processed food
were `413.1 billion in 2012-13, accounting nearly 13% of the countrys total exports. Indias
exports of cosmetics/ toiletries stood at `15.5 billion in April-May 2013, accounting for 0.59% of
total exports. HUL, Godrej Consumer, Marico, Dabur and Vicco laboratories are amongst the top
exporting companies.

Rupee depreciation and fluctuation in commodity prices may hit
margins of companies

Despite higher interest rates and elevated inflation, the Indian FMCG sector grew at a healthy
15-20 per cent rate last year driven by robust rural and urban demand. The sector is generally
considered resilient to harsh economic conditions as need for some FMCG goods such as home
cleaning equipments, soaps, etc. will always be there. But the recent volatility in commodity
prices and weakness in Indian rupee makes it difficult for companies to finalize raw material
prices, which affect the final price of the product. With the Indian consumer known to be value
conscious, FMCG players face a tough decision whether to pass on the price hike to consumers.
At the same time, higher input costs may force a reduction in advertising and promotional
budgets. Further, the record depreciation of the Indian rupee in recent weeks as negative for
companies who import raw materials such as Marico, Godrej Consumer Products, Colgate,

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Dabur, as it may crimp margins unless they raise prices. The power shortage in the economy,
coupled with adequate transportation and agricultural infrastructure remain the major obstacles
for the growth of the Indian FMCG industry as many untapped regions remain inaccessible.

7. New launches and product extension by FMCG companies to
boost growth and market share

New launches, innovation and product augmentation are many of the few motivational factors
for a FMCG company that has the potential to increase their profitability to a greater extent. As
Indian customers are becoming more global in their aspirations and desires, their appetite to
consume products is also increasing. Robust demand for existing FMCG products are
encouraging more FMCG players to extend their existing brand and expand their product
portfolio as well, bolstering the Indian FMCG space. Moreover, in a bid to garner higher market
share and sustain long-term growth, most of the FMCG companies are going for brand extension
strategy. Various big industrial players launched new and innovative products and ideas during
FY13. For instance,

HULs one of the largest brands, Lifebuoy aims to change hand washing behavior of
people by educating them about health and hygiene. At the Mahakumbh Mela, Lifebuoy
partnered with over 100 restaurants to raise awareness about hand hygiene. Over 2.5
million Rotis (carried the stamp Lifebuoy se haath dhoye kya? and reminded people to
wash their hands before eating.

HULs Kissan strengthened its natural advantage by re- positioning itself on Goodness
of 100% real. The idea was to give consumers a real experience in the products they
buy and through participation in activities that help them connect to nature. This inspired
the launch of Kissanpur.

Marico entered the breakfast category by launching Saffola oats in various flavors. It also
launched new products in the hair care and skin care segments. The acquisition of Paras

23

Healthcare last year helped it extend into the male personal care business where it gained
some traction.

For Godrej, the growth came in from new channels, product innovation, and pollination
across regions and expansion of the distribution network. New launches such as creme-
based hair colour and extension of Cinthol into categories such as face wash and
moisturizers gave an added impetus to the overall business. HUL also went in for
extensions in brands such as Lux, Pepsodent and Pureit.

For Dabur, the year 2012 undertook a mega initiative to substantially expand its
distribution footprint and drive profitable growth. This initiative was aimed at doubling
the direct distribution reach in rural markets, customizing trade promotions and providing
focused servicing through a dedicated sales team in these markets.



Challenges Before FMCG Sector
At macro level Indian economy will be equanimous to remain resilient at 8.5% growth. This
economic growth would impact large number of population, thus leading to more money in
hands of the consumer.

One of the major challenges which FMCG has to face is rural marketing. Rural India is vast
with immense opportunities. 70% of Indian population resides in rural areas and these can bring
in much needed volume and help FMCG companies to achieve higher growth. This should be a
melody for FMCG companies who have reached saturation point in urban India.

Rural India sounds attractive but FMCG companies have to face difficulties in order capture this
segment. One major difficulty which will arise would be that most FMCG players do not have
critical size for going out for rural marketing.

One of other major problem which FMCG faces is distribution.

24


The following measures might result in reduction of distribution problems:

Reducing supply chains cost by reducing intermediaries:
Organized retail chains have set up systems for inventory management and quick servicing,
thereby offering, the opportunity for company supplier to reduce distribution cost by reducing
intermediaries and supplying directly to warehouse retail chain.

Increasing sales by driving channel width
The relative shares of grocers to FMCG sales have dropped from 50% in early 1990s to 35% in
late 1990s.
FMCG market remains fragmented with unpackaged and unbranded products. This presents
tremendous opportunities for makers of branded products who can convert consumer to branded
products.
The boom has also been fueled by reduction in excise duties, dereservation of small scale sector
and enormous efforts of the personal care companies to tap the potentials of the segment of
middle class through product and packaging innovations.

It was a year with some high points. Despite hectic lobbying, the government refused to budge
from its stated intent of standardising packs of fast-moving consumer goods (FMCG), a move
first notified in 2011. The norms were eventually implemented in November, nearly four months
after these were supposed to debut.
The paradigm shift meant firms manufacturing products from 19 identified categories could no
longer tweak with grammage as they earlier did when input cost pressures became
unmanageable. The only concession was the exemption of small packs from the norms.
Typically, value packs, which fall in the Rs 1-10 price range, constitute 25-30 per cent of overall
sales for an FMCG company. In the case of biscuits, it could be higher at about 55-60 per cent.
Analysts say the move not to standardise small packs will help companies since they act as
recruiter packs, that is, entry-level products familiarising consumers to the brand. This is critical,
they say, as introducing standard packs at the entry-level could lead to odd pricing, discouraging
consumption.

25

While firms stand to gain with the exclusion of small packs, the bigger fallout of standardisation
will be its impact on pricing. This will be on the watch list of most in 2013. "There will be an
increase in the cost of beverages, cereals, edible oil, detergent, flour, salt and mineral water,
among other categories. This is clearly an issue," says Gaurav Sharma, vice-president at
consultancy Tecnova India. At a time when consumers continue to battle inflation, the likely
impact on pricing hardly bodes well for them.
While 2013 brings with it new hope that interest rates will eventually go down, challenges
abound. Harsh Mariwala, chairman and managing director, Marico Ltd, puts it simply: "I think
growth in FMCG will take off with economic growth. In the last two quarters, there has been
some pressure on volumes due to consumers cutting back on spends. It would be worth noting
how things shape up in 2013."
This volume slowdown has affected companies across the board from Hindustan Unilever (HUL)
to Marico. HUL saw volume growth come down to seven per cent in the quarter ended
September from nine-10 per cent in the previous four quarters. Marico, too, saw its volume
growth taper in brands like Saffola, which was down to six per cent from 13-14 per cent.
There are challenges in the short term. Over the last few months, we have begun to see some
slowdown in discretionary categories, where there is an opportunity for the consumer to defer the
choice between today and tomorrow," Nitin Paranjape, managing director and CEO of HUL, had
said at the time of announcing the firms second-quarter results in October. Predictably, as
Maricos Mariwala says, economic growth will be key to fuelling demand. But that remains a bit
of a question mark at the moment with estimates suggesting otherwise. From about eight to 8.5
per cent growth levels that the Indian economy has seen in the past few years, estimates have
now been pegged at about six to 6.5 per cent for the current financial year. Consumer companies
are nervous that lower growth estimates will not kickstart sufficient demand for their products in
the marketplace.
Durables
Says Shantanu Dasgupta, vice-president, corporate affairs and strategy, South Asia, Whirlpool of
India Ltd: "Demand for home appliances suffered in 2012 due to a combination of factors: high
interest rates, persistent price hikes, etc. I am hoping it will ease in 2013."

26

Among durable categories, products like washing machines, air conditioners, refrigerators and
microwave ovens were worst hit in 2012. But categories like LED TVs, mobile phones and
tablets didnt suffer this fate. Their growth was in double digits.
The consumer electronics market is expected to show further momentum in 2013. Pricing
would be linked with input costs and any change in taxation would determine further steps in
pricing. We expect the trend in terms of flat panel television sets, especially LED TVs, to
continue as category consumption grows in smaller towns, says Mahesh Krishnan, vice-
president, Samsung India. Similarly mobile phones are expected to sustain their growth linked
with replacement demand in metros and larger cities and growing penetration in smaller
markets.
Most consumer goods firms remain optimistic about their prospects in rural areas, which today
give them nearly a-third of their sales. The year 2012 saw demand for Daburs consumer
products in rural markets grow much faster than in urban markets. We will continue to drive
growth on the back of our distribution enhancement initiatives, unique promotional activities and
product innovation in these areas, says Daburs Chief Executive Officer Sunil Duggal.
Soft drinks makers, who witnessed a 20 per cent volume growth during April-June, are also
betting on the rural market. According to a Coca-Cola spokesperson, Indias per capita
consumption of products manufactured by Coca-Cola India is still lower than countries like
China, where per capita consumption is 38 bottles a year against 12 bottles a year in India. The
Indian market, especially in rural areas, has a huge untapped potential, he adds.









27

PORTERS FIVE FORCE ANALYSIS OF INDIAN FMCG
INDUSTRY



To determine industry attractiveness and long-run industry profitability of the Indian FMCG
Industry, we chose to apply the

Porters five forces in our analysis. Porters five forces are: (1) Barriers to Entry and exit, (2)
Threat of substitutes, (3) Buyer bargaining power, (4) supplier bargaining power, and (5)
Industry Competition.

1. Barriers to Entry and exit: The Indian FMCG Industry is characterized with modest entry
and exit barriers. Integrated business model and increasing capital requirement in the
industry restrict new entrants. Huge investments in setting up distribution networks and
promoting brands and competition from established companies.

2. Threat of substitutes: Being an essential commodity the demand for consumer products is
elastic. Multiple brands positioned with narrow product differentiation. Companies entering a
Industry
Competeti
veness
Barriers to
Entry and exit
Threat of
substitutes
Buyer
bargaining
power
Supplier
bargaining
power
Industry
Competition

28

category /trying to gain market share compete on pricing which increases products
substitution. Hence, threat of substitute is high in the industry.

3. Buyer bargaining power: High brand loyalty for some products, thereby discouraging
customers product shift. But low switching cost and aggressive marketing strategies under
intense competition within the FMCG companies, induce Customers to switch between
products, thereby driving value for money deals for consumers.

4. Supplier bargaining power: Prices are generally governed by international commodity
markets, making most FMCG companies price takers. Due to the long term relationships
with suppliers etc., FMCG companies negotiate better rates during times of high input cost
inflation

5. Industry Competition: Competitiveness among the Indian FMCG players is high. With
more MNCs entering the country, the industry is highly fragmented. Advertising spends
continue to grow and marketing budgets as well as strategies are becoming more aggressive.
Private labels offered by retailers at a discount to mainframe brands act as competition to
undifferentiated and weak brands.















29


BUDGET 2014: IMPACT ON FMCG

Measure: The basic customs duty on fatty acids, crude palm stearin, RBD and other palm
stearin, specified industrial grade crude oils has been reduced from 7.5 per cent to Nil for the
manufacture of soaps and oleo-chemicals; the basic customs duty on crude glycerin from 12.5
per cent to 7.5 per cent and crude glycerin used in the manufacture of soaps from 12.5 per cent to
Nil.

Impact: FMCG companies like HUL, Godrej Consumer Products and Jyothy Laboratoriess
engaged in the manufacture of soap would ensure some savings on their raw material cost bill.

Measure: The personal income tax exemption limit has been increased from Rs 2 lakh to Rs
2.5 lakh in the case of individual taxpayers who are below the age of 60 years.
Similarly, the exemption limit in case of senior citizen has been increased from Rs 2.5 lakh to Rs
3 lakh. Likewise, the investment limit under section 80C of the Income-tax Act has been
increased from Rs 1 lakh to Rs 1.5 lakh.

Impact: All FMCG companies are going to benefit from this move, which is going to increase
the disposable incomes in the hands of the individuals - giving them room to increase their
discretionary consumption.

Measure: The specific excise duty on cigarettes has been increased in the range of 11-72 per
cent. Similar increases have been proposed on cigars, cheroots and cigarillos.
Likewise, the excise duty is being increased from 12 per cent to 16 per cent on pan masala, from
50 per cent to 55 per cent on unmanufactured tobacco and from 60 per cent to 70 per cent on
gutkha and chewing tobacco.


30

Impact: For cigarette companies, the Union Budget does not have any surprises as excise duty
on cigarettes is raised in most budgets. Excise duty hike on cigarettes has limited implications on
most cigarette companies, as eventually they are able to pass on the tax burden to the consumers.
Besides, this time other tobacco products like cigar, cheroots, cigarillos, pan masala, gutkha,
chewing tobacco and unmanufactured tobacco have also attracted similar increase in excise duty,

Industry body, The Tobacco Institute of India said the extremely steep excise duty increase of
11% to 72% on cigarettes coming on the back of sharp increases in the two preceding years, will
provide a further fillip to the growing illegal trade in India which is already a significant 19% of
overall cigarette industry.
"In particular, the increase on the less than 65mm segment will give a huge boost to the domestic
tax evaded illegal cigarettes which is sold at Re1. Moreover, the very high increase will further
accelerate the shift in tobacco consumption from cigarettes to cheaper and revenue inefficient
tobacco products. As a consequence the share of the legal cigarette industry, which is a mere
12% of total tobacco consumption in India, will be further eroded. In overall terms, the duty
increase on cigarettes will neither help revenue enhancement nor serve the objective of tobacco
control," the Tobacco Institute said in a statement.
Analysts said the excise duty hike will impact market leader ITC's cigarette volume. "But as a
business, ITC has strong pricing power. Despite of the hike in duties in last two years, ITC's
cigarette EBIT grew by 19% CAGR over FY 12-14. The company can potentially gain share as
hike in 64mm will be harsher for other cigarette players who have higher saliency in this
segment,"
The hike in excise duty for cigarettes was widely expected since prime minister Narendra Modi
had recently tweeted about reducing tobacco consumption in India. The union health minister too
has been championing the cause of reducing tobacco consumption.
The budget also increased basic excise duty from 12% to 16% on pan masala, from 50% to 55%
on unmanufactured tobacco and from 60% to 70% on zarda scented tobacco, gutkha and
chewing tobacco.




31


THE INNOVATIVE IMPERATIVE

What do the Asian and Indian FMCG markets look like?
1. Asias FMCG market
A. Selected FMCG trends in Asia
Growth in other Asian market
Evolving Consumer tastes and Preferences
Focus on Innovation ans R&D
Rising influence in Asia

Outlook for the Retail and Consumer Products Sector in Asia








32

2. Indias FMCG market
A. Selected FMCG Trends in India
Products must offer value for money
Upgrading in some categories (e.g. skincare)
Demand for new categories (e.g. mens grooming)
Entry for new brands, brands like extensions






FMCG
growth is a
function of:
Desire to
experiment
with brands
and products
Evloving
consumer
lifestyles
New
product
launches
Growth of
modern trade
Availibility
of online
channel to
shop
Rising
incomes
driving
purchases
Greater
awareness of
brands,
products

33

Defining innovation
Different innovation types exist to serve different objectives: Breakthrough and radical extend
beyond the incremental.











Incremental innovation
Small changes in existing products and services via improvements in technology or
changes to the business model
Typically 5 to 25% improvements in cost, performance or customer value (i.e. speed,
value, price)
Characterised as better, faster, cheaper products and services that do not drive above
average revenue growth

Breakthrough innovation
Significant change to either the technologies or business models of a product or service
Based on entirely new components of technology or business model or new ways to
organise and use existing components

34

Typically greater than 25% improvement in cost, performance or customer value
Significant new competitive advantages that drive higher than average revenue growth



Radical innovation
Substantial changes to both technology and business model
New value to customer, new players in the value network and new technologies for
making and delivering the product or service
New basis of competition in existing markets (e.g. new technology platform or cost
basis)
Or, creates entirely new markets that provide customers with new value Or, creates very
high revenue growth rates



















35


The FMCG innovation imperative
Innovation is more than just launching new products
Innovation is a wide concept which aside from creating, launching and marketing new products
also includes improving shopping processes, providing consumers with a range of tools to
purchase products as also ensuring that the entire organisation is focused on the singular goal of
improving the customers overall experience. As Indian consumers become more global in their
aspirations and desires, as they travel abroad and are exposed to global products, their appetite to
consume products in their home market will only increase. To meet this demand, FMCG
companies need to focus on R&D and innovation as a means to grow the business. At the same
time, product lifecycles are shrinking, companies across categories (e g., consumer durables and
electronics) are launching new products, and the pressure to market new products, quickly, is
strong. Innovation is a survival tactic.

Most FMCG CEOs believe that long-term demand and growth are significant in markets like
India, Brazil, Russia, etc. In addition, the opportunity for FMCG products is large given that per
capita consumption in India is lower than in most markets. The opportunity in terms of
incremental penetration and consumption is present. Most FMCG brands are rushing to design,
create, test and launch new products to capture the attention of Indian consumers.












36


Health and wellness: A lifestyle change impacting the FMCG sector
FMCG brands focused on R&D and
innovation as a means of growth have a
culture that promotes using customer
insights to create either the next
generation of products or in some cases,
new product categories.
Not that creating the next big thing is
easy. According to a survey by Consumer
Goods Technology and Sopheon
Corporation, obstacles to the successful
development and launch of new consumer
products can be found in the earliest
stages of the innovation process. While
most companies participating in the
survey had little difficulty generating product ideas, less than 20% of those ideas resulted in
products considered to be highly innovative. The remainder were product revisions, line
extensions or promotional ideas and packaging changes.
One area that we see global and local
FMCG brands investing in is health and
wellness. Health and wellness is a mega
trend shaping consumer preferences and
shopping habits and FMCG brands are
listening. Leading global and Indian food
and beverage brands have embraced this trend and are focused on creating new emerging brands
in health and wellness.
According to the PwC-FICCI report Winds of change: the wellness consumer, nutrition foods,
beverages and supplements comprise a INR 145 billion to 150 billion market in India, growing at
a CAGR of 10 to 12%.

37

While there are several products targeted to urban Indian
consumers, the sweet spot lies in serving the 700 million-strong
group of consumers in rural India.
Opportunities abound in Indias FMCG market given the high annual growth rates and low
penetration levels, across categories. For some categories, such as home care and personal care
products, urban and rural consumers will have the same purchase drivers:
Personal care: It makes me feel good to wear this lipstick, I buy skin cream to have
soft skin, etc.
Home care: Its important to keep my home clean, I like to have a clean home since I
am house-proud, etc.

That said, while FMCG marketers see the importance of strengthening their presence in urban
areas, many are turning to rural markets for the next wave of growth. FMCG marketers need to
keep the following aspects in mind when serving rural consumers:
What are the right products that will
appeal to this target group?
How can the products be better
marketed using the right communication
platforms (e. g. self-help groups, plays,
skits, etc.), etc. in order to tailor the key
message?
Which channels are the best to move
products quickly (e.g. agricultural formats,
online, m-commerce)?

Our thought leadership report DNA model for inclusive financial services: Driving profitability
indicates that in order to build a model for a profitable business, banks have to become more
inclusive in their approach towards consumers using the DNA model. We feel that this
perspective is also valuable and applicable to Indias FMCG industry as consumer goods
companies step up their efforts to serve this group of large and under-served consumers.

38

How does FMCG innovation differ between China and India?
I. China vs India: In which market are FMCG brands more innovative?
Innovation in China is occurring both in the B2B as well as the B2C sphere. Most Chinese
companies believe that innovation is critical to the following:
The ability to compete in overseas markets
The longevity and continued growth of the company
Remaining competitive and surviving market forces

Related to producing innovative products is how to best retail them to consumers. PwCs
research of online shoppers globally suggests that Chinese consumers are willing to use the
online channel as a means to research and buy from. This is a valuable insight that companies
serving this market need to keep in mind, as they look at being innovative in not only the
products they offer but how theyre offered. PwCs Demystifying the online shopper: 10 myths
of multichannel retailing, a survey of 11,000 online interviews across 11 countries, reveals the
following:
Demographically, Chinas online consumers are the youngest and most employed (i.e
Chinese consumers are young and relatively affluent as compared to online shoppers in
developed markets who are aging and have shrinking purchasing power)
Chinese consumers have adopted the internet as a retail channel earlier than their global
peers
Chinese consumers shop online more frequently than the global average
Chinese shoppers are ahead of the curve when it comes to using new devices and social
media









39


SUCCESS STORIES


1. Emami - one of the fastest growing FMCG companies

A. Salient Features

Niche category player and innovator
Key brands are strong market leaders in
their respective categories
Portfolio includes Zandu, one of the
strongest Ayurvedic brands
Over 80 per cent of business comes from
wellness categories
The company's revenues has expanded at a
CAGR of 21.2 per cent over the last five years

B. Awards and Recognitions

Among Asia's 'Best Under A Billion' 2010 list of companies compiled by Forbes
magazine

Emamis Zandu Balm, Navratna and Boroplus were ranked among the top 20 brands in
the country by Brand Equity Survey of Economic Times, 2012

Ranked 125
th
among BT (Business Today) Most Valuable Companies of India in private
Sector

Ranked 272
nd
among Fortune 500 Indias largest corporations on profitability


40



2. Dabur - riding on strong brand equity in India

A. Salient features
Among top four FMCG companies
in India
10 brands with sales worth over
USD20 million each
Wide distribution network covering
2.8 million retailers across the
country
17 world-class manufacturing
plants catering to needs of diverse markets
Over 30 per cent of revenues generated from international markets

B. Awards and recognitions in 2011-12
Ranked 53rd amongst the worlds top 100 beauty companies in WWD Beauty Inc.s top
100 2012
Ranked 33rd in Indias 100 most valuable brands, 2012 by 4Ps Business and Marketing
magazine
Ranked 184 in Fortune India 500 list
Ranked 78 in Super - 100 (Business India)
Ranked 45 among Most Trusted Brands in India (Brand Trust Report, India Study, 2011)
Dabur Uveda range of Ayurvedic skin care products listed amongst the '30 New Beauty
Finds' by India Today Woman
During FY12, Dabur ranked as the second most Social Brand of India



41


ITC LIMITED COMPANY PROFILE


ITC is one of India's most diversified consumer goods company having
increasingly reduced its dependence on its core cigarette business.

Background

ITC was incorporated in 1910 under the name of Imperial Tobacco Company of India Limited
(later changed to ITC Limited in 1974)

It was initially in the cigarette and tobacco business and later diversified into multiple businesses
including hotels, paperboards and speciality papers, packaging, agri-business, packaged foods
and confectionery, branded apparel, greeting cards and other FMCG products.

The company entered the hospitality business in 1975. In 1979 it entered paperboards business
by promoting Bhadrachalam Paperboards Limited, which was later amalgamated with ITC. In
1992, leveraging its agri-sourcing competency, ITC set up the International Business Division
for export of agri-commodities. More new lines of businesses have followed since 2001 in the
space of FMCG.The companys products are manufactured at multiple production facilities
across the country. Certain initiatives of the company such as the ITC e-Choupal, ITC Choupal
Saagar and the ITC social farm forestry programme have been recognised through internationally
acclaimed awards for their impact on rural life.

ITC's diversified status originates from its corporate strategy aimed at creating multiple of
growth, anchored on its core competencies of strong distribution superior brand-building
capabilities, effective supply chain management and service skills in hoteliering. Its distribution
reach is of the largest in India the business has a retail network over 2 million retailers in the
country, ranging from premium outlets in the metros to small shops in the interiors of rural India.

42


Currently British American Tobacco Company (UK)
controls 32 per cent equity stake in ITC. Domestic financial
institutions hold 35 per cent share and foreign institutions
have a 15 per cent share. Indian public and corporate bodies
hold the balance 13 per cent stake.








Products and brands
FMCG Products: ITC is the market leader in
cigarettes in India with a wide range of strong
brands. 3 of its brands (Gold Flake,Wills and
Scissors) feature amongst the top 5 FMCG
brands in the country.The Lifestyle Retailing
business of ITC was established in the year
2000 through the Wills Lifestyle chain of
exclusive speciality stores that sell apparel and
accessories under the Wills trademark .

ITC also sells mens range of apparel under
the brand name John Players through
exclusive brand outlets as well as more than
1500 multi-brand outlets.

In 2001, ITC made its entry into branded packaged foods business and rapidly expanded the
portfolio to include confectionery, staples and snack foods segments. The companys products

43

are rapidly gaining consumer franchise and have established strong market standing in this short
period of time.
ITC has leveraged its paperboard and packaging business to market branded stationery and
greeting cards.The company is also into marketing of safety matches and incense sticks, sourced
from the small-scale and cottage sector.The range of FMCG products leverage its core strengths
in marketing and distribution, brand building, supply chain management and paperboard and
packaging




44


Hotels: ITC has one of India's finest hotel chains under the brand name ITC-Welcomgroup
with 60 hotels and approximately. 5200 rooms in India. These include heritage palaces, havelis
and resorts under the sub-brand WelcomHeritage, full service budget hotels under the brand
name Fortune, super deluxe ITC Hotels and five star hotels under the brand WelcomHotel.
Currently 10 of the ITC-Welcomgroup hotels are marketed world-wide by the Sheraton
Corporation, which is part of Starwood Hotels & Resorts, the well-known global hospitality
chain.

Paperboards and packaging:
The products under the paperboards and speciality papers business include coated and uncoated
boards, writing and printing paper, kraft paper and speciality paper.The company is the country's
largest converter of paperboard into packaging for a variety of industries.

Agri-business:
The company focuses on exports of soyameal, rice (basmati and non basmati), , pulses, coffee,
black pepper, edible nuts, marine products (shrimps and prawns), processed fruits etc. Agri
exports contributes over 60 per cent of ITC's total foreign exchange earnings. Seafood products
are exported under well-known brands Gold Ribbon, Blue Ribbon,Aqua Kings,Aqua Bay, Aqua
Feast and Peninsular.The business also sources high quality wheat for the Companys branded
packaged foods business leveraging the e-choupal network which currently comprises around
6300 installations reaching out to over 3.5 million farmers. ITC pioneered the cultivation of
cigarette leaf tobaccos in India and is currently the largest buyer, exporter and processor of
Indian leaf tobacco.

Rural hypermarkets:
ITC has launched its rural hypermarkets in the year 2004 under the name Choupal Saagar. It
creates a platform for farmers to sell their produce as well as buy quality products for their farm
and household consumption. It provides farmers additional services under one roof like soil
testing, banking, insurance, medical facilities and restaurant. Going forward, these malls would
serve as part of the core infrastructure to support ITC's rural distribution strategy. 10 Choupal

45

Saagars are now operational in the 3 states of Madhya Pradesh, Maharashtra and Uttar Pradesh
while 9 more are in an advanced stage of construction.

Financial analysis

ITC has witnessed continued growth momentum ensured by the sustained leadership in the
cigarettes business and rapid ramp-up of non-cigarettes portfolio. Double-digit growth has been
reported for the company on account of new product launches and entry into new categories. The
paper business, the second largest contributor to revenues after cigarettes has been scaled up
significantly in the past through organic as well as inorganic initiatives.The companys revenues
have clocked a CAGR of 10 per cent while net profits have grown remarkably by nearly 20 per
cent in the period between 1999 and 2005.The company has maintained a low gearing and has
shown a healthy return on the capital employed.

The company has taken the lead in voluntarily reporting progress against its growing
contribution to the Triple Bottom Line. In February 2005, the company released its first
comprehensive 'Sustainability Report', which represents its attempt to strike a harmonious
balance between the needs of the economy, ecology and society.


ITC's contribution in making Made in India global

ITC has leveraged its well-diversified position in its global initiatives also. Its advent into
internationalisation is led by a balanced initiative by the various products in the portfolio. Its
products, ranging from FMCG to paper and packaging, have contributed significantly to Indias
foreign exchange earnings (more than USD 2 billion in the last decade).The cigarette business
has been expanded to competitive markets like the US and Middle East through its own brands.
In foods, the company is building a presence in ready-to-eat Indian cuisine through a range of
exotic recipes branded Kitchens of India, created by its chefs of the hotel business. The
International Business Division ranks as one of the largest Indian exporter of agri-products with
exports ofover USD 150 million. Although one of the relatively younger business divisions of

46

ITC, it has, in a short span established itself as a first-choice supply chain partner of several
leading international customers like Coca Cola,Abudhabi Flour Mill and Mitsubishi who source
agriculture commodities and food products from India.

ITCs Paperboards and Packaging division is the largest exporter of coated boards from
India.The company exports nearly 20 per cent of the coated boards it produces. Clients for
packaging include well-known companies like British American Tobacco, Surya Nepal Private
Limited,VST Industries, GTC, UB Group, Shaw Wallace, Seagrams,Allied Domecq,Whyte &
Mackay, Hindustan Lever,Tata Tetley and Nestle, Reckitt Benkiser India Limited, JK Helene
Curtis.

ITCs globalisation in different businesses









47


OTHER FACTS
ITC is also the largest buyer, processor and exporter of cigarette tobaccos in India and has been
the countrys single largest integrated source of quality tobaccos for customers in 37 countries
over the last six decades.

In addition to the above businesses, ITC has a presence in the IT industry through ITC Infotech
India Limited, a wholly owned subsidiary, based in Bangalore (Karnataka). ITC Infotech offers
in-depth domain knowledge in the areas of manufacturing, hospitality services, retail, FMCG,
paper and packaging and commodities to its clients.Through its wholly owned software
subsidiaries in the UK and US, ITC Infotech services multiple Fortune Class clients.These
include Unilever,Abbey National, British American Tobacco, ClientLogic, DHL, etc.

Factors fuelling ITC's global initiatives

Strong backward integration linkages form the foundation for ITCs global infrastructure.The
extensive backward linkages it has established with the farmers for its FMCG business are an
example of this.This networking with the farming community has enabled ITC to build a highly
cost effective procurement system. ITC has made significant investments in web-enabling the
Indian farmer. Christened e-Choupal, ITC's web plan for the farmer centres around providing
Internet kiosks in villages. Farmers use this technology infrastructure to access on-line
information from ITC's farmer-friendly websites. Data accessed by the farmers relate to the
weather, crop conditions, best practices in farming, ruling international prices and a host of other
related information. Currently, the e-Choupal websites provide information to farmers in
Madhya Pradesh, Maharashtra and Rajasthan, coffee planters in Karnataka, aquaculturists in
Andhra Pradesh and wheat farmers in Uttar Pradesh.

In the paper business, ITCs strong backward integration in the value chain and its
technologically advanced plants for packaging and printing and paperboards and speciality
papers enable it to export quality products at international prices. Its packaging and printing

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plants have been awarded the Greentech Environment award, CAPEXIL export award and
World Star,Asia Star and India.
Star awards for excellence in packaging.
Strong brands built over the years through heavy investments have resulted in a high degree of
brand loyalty among consumers, not only in India but also in global markets.The companys
production facilities have won numerous national and international awards for quality,
productivity, safety and environment management systems, making its products acceptable to the
international community.
ITC has prudently deployed the cash generated by its businesses to grow its stable of businesses
thereby mitigating business concentration risk.It has demonstrated willingness to stay invested in
its new businesses for longer duration of time. As a result, ITC today operates in a broader
spectrum of products.

Future plans
The company intends to invest USD 3.2 billion over the next five to seven years across its
different businesses. The investment plans aim at positioning each of the businesses in the ITC
portfolio as a leader in its respective market. Apart from capital expenditure for organic growth,
the strategic investment plans include outlays towards acquisitions, both in India and abroad.
Bulk of the investments would go towards upgradation of technology in the tobacco business,
creating new production facilities for the foods and apparel businesses and expansion of the hotel
chain in key locations. It would also go towards consolidation of the companys leadership
position in the paperboards / paper business with the addition of an integrated pulp and paper
facility. Investments are also planned for expansion of ITCs pioneering e-choupal rural sourcing
/ distribution network and setting up the rural hypermarket chain under the Choupal Saagar store
brand. Already a water positive corporation, the company became carbon positive in 2005-06
and is making rapid strides towards achieving zero solid waste disposal status.







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Globalisation at a glance

Contribution of more than US$ 2 billion to India's exports in the last decade
ITC's International Business Division is one of the largest Indian exporters of agri-
products and is a preferred supply chain partner to companies like Coca Cola, Mitsubishi
etc
Markets its own brand of cigarettes in the US and Middle East.
Largest exporter of coated boards from India.
Largest exporter of cigarette tobaccos from India.





















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BIBLIOGRAPHY

1. Websites
http://reports.dionglobal.in/Actionfinadmin/Reports/FDR0108201343.pdf
http://www.ibef.org/industry/fmcg-presentation
http://articles.economictimes.indiatimes.com/2014-07 10/news/51301223_1_excise-duty-
pan-masala-2-5-lakh
http://www.ibef.org/download/ITC.pdf
http://www.business-standard.com/article/companies/new-challenges-for-fmcg-durables-
113010100080_1.html