Strategic Market Management

INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
STRATEGIC MARKET
MANAGEMENT
FMCG INDUSTRY IN INDIA
GROUP PROJECT: INDUSTRY EVALUATION
IIPM
NEW DELHI
Submitted To: Submitted By:
Prof. Jayant Bose Silky Kapoor

Shakti Gupta
Harendra Singh
Section-F7
PGP\FW\2008-10
Strategic Market Management

COMPERATIVE STUDY OF INDIAN RETAIL INDUSTRY
Contents
Introduction
Profile of the Company (ITC)

FMCG market in India
Sustainable competitive advantage
Competitors Analysis (ITC vs. HUL)
Over view of Indian steel industry
Customer base of industry
Strategies of competitors
SWOT analysis of industry & competitors
BCG /Mckinsey portfolio analysis
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INDUSTRY EVALUATION
STRATEGIC MARKET MANAGEMENT
Profile of the Company (ITC)
ITC is one of India's foremost private sector companies with a market capitalization of
nearly US $ 19 billion* and a turnover of over US $ 5.1 Billion. ITC is rated among the
World's Best Big Companies, Asia's 'Fob. 50' and the World's Most Reputable Companies
by Forbes magazine, among India's Most Respected Companies by Business World and
among India's Most Valuable Companies by Business Today. ITC ranks among India's `10
Most Valuable (Company) Brands', in a study conducted by Brand Finance and published
by the Economic Times. ITC also ranks among Asia's 50 best performing companies
compiled by Business Week.ITC has a diversified presence in Cigarettes, Hotels,
Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods &
Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery,
Safety Matches and other FMCG products. While ITC is an outstanding market leader in its
traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is
rapidly gaining market share even in its nascent businesses of Packaged Foods &
Confectionery, Branded Apparel, Personal Care and Stationery.
As one of India's most valuable and respected corporations, ITC is widely perceived to be
dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a
commitment beyond the market". In his own words: "ITC believes that its aspiration to
create enduring value for the nation provides the motive force to sustain growing
shareholder value. ITC practices this philosophy by not only driving each of its businesses
towards international competitiveness but by also consciously contributing to enhancing the
competitiveness of the larger value chain of which it is a part."ITC's diversified status
originates from its corporate strategy aimed at creating multiple drivers of growth anchored
on its time-tested core competencies: unmatched distribution reach, superior brand-building
capabilities, effective supply chain management and acknowledged service skills in
hoteliering. Over time, the strategic forays into new businesses are expected to garner a
significant share of these emerging high-growth markets in India. ITC's Agri-Business is
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one of India's largest exporters of agricultural products. ITC is one of the country's biggest
foreign exchange earners (US $ 3.2 billion in the last decade). The Company's 'e-Choupal'
initiative is enabling Indian agriculture significantly enhance its competitiveness by
empowering Indian farmers through the power of the Internet. This transformational
strategy, which has already become the subject matter of a case study at Harvard Business
School, is expected to progressively create for ITC a huge rural distribution infrastructure,
significantly enhancing the Company's marketing reach.
ITC's wholly owned Information Technology subsidiary, ITC InfoTech India Limited, is
aggressively pursuing emerging opportunities in providing end-to-end IT solutions,
including e-enabled services and business process outsourcing. ITC's production facilities
and hotels have won numerous national and international awards for quality, productivity,
safety and environment management systems. ITC was the first Company in India to
voluntarily seek a corporate governance rating. ITC employs over 25,000 people at more
than 60 locations across India. The Company continuously endeavors to enhance its wealth
generating capabilities in a globalizing environment to consistently reward more than 3,
67,000 shareholders, fulfill the aspirations of its stakeholders and meet societal
expectations. This over-arching vision of the Company is expressively captured in its
corporate positioning statement: "Enduring Value. For the nation, for the Shareholder."
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HISTORY AND EVOLUTION
ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company
of India Limited'. Its beginnings were humble. A leased office on Radha Bazar Lane,
Kolkata, was the centre of the Company's existence. The Company celebrated its 16th
birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee,
(now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This decision of the
Company was historic in more ways than one. It was to mark the beginning of a long and
eventful journey into India's future. The Company's headquarter building, 'Virginia House',
which came up on that plot of land two years later, would go on to become one of Kolkata's
most venerated landmarks. The Company's ownership progressively indianised, and the
name of the Company was changed to I.T.C. Limited in 1974. In recognition of the
Company's multi-business portfolio encompassing a wide range of businesses - Cigarettes
& Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers,
Agri-Exports, Foods, Lifestyle Retailing and Greeting Gifting & Stationery - the full stops
in the Company's name were removed effective September 18, 2001. The Company now
stands rechristened 'ITC Limited'. Though the first six decades of the Company's existence
were primarily devoted to the growth and consolidation of the Cigarettes and Leaf
Tobacco businesses, the Seventies witnessed the beginnings of a corporate transformation
that would usher in momentous changes in the life of the Company. ITC's Packaging &
Printing Business was set up in 1925 as a strategic backward integration for ITC's
Cigarettes business. It is today India's most sophisticated packaging house.
In 1975 the Company launched its Hotels business with the acquisition of a hotel in
Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'. The objective of ITC's
entry into the hotels business was rooted in the concept of creating value for the nation. ITC
chose the hotels business for its potential to earn high levels of foreign exchange, create
tourism infrastructure and generate large scale direct and indirect employment. Since then
ITC's Hotels business has grown to occupy a position of leadership, with over 100 owned
and managed properties spread across India. In 1979, ITC entered the Paperboards
business by promoting ITC Bhadrachalam Paperboards Limited, which today has become
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the market leader in India. Bhadrachalam Paperboards amalgamated with the Company
effective March 13, 2002 and became a Division of the Company, Bhadrachalam
Paperboards Division. In November 2002, this division merged with the Company's Tribeni
Tissues Division to form the Paperboards & Specialty Papers Division. ITC's paperboards'
technology, productivity, quality and manufacturing processes are comparable to the best in
the world. It has also made an immense contribution to the development of Sarapaka, an
economically backward area in the state of Andhra Pradesh. It is directly involved in
education, environmental protection and community development. In 2004, ITC acquired
the paperboard manufacturing facility of BILT Industrial Packaging Co. Ltd (BIPCO), near
Coimbatore, Tamil Nadu. The Kovai Unit allows ITC to improve customer service with
reduced lead time and a wider product range.
In 1985, ITC set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British joint venture.
Since inception, its shares have been held by ITC, British American Tobacco and various
independent shareholders in Nepal. In August 2002, Surya Tobacco became a subsidiary of
ITC Limited and its name was changed to Surya Nepal Private Limited (Surya Nepal).
In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing Company
and a major supplier of tissue paper to the cigarette industry. The merged entity was named
the Tribeni Tissues Division (TTD). To harness strategic and operational synergies, TTD
was merged with the Bhadrachalam Paperboards Division to form the Paperboards &
Specialty Papers Division in November 2002. Also in 1990, leveraging its agri-sourcing
competency, ITC set up the Agri Business Division for export of agri-commodities. The
Division is today one of India's largest exporters. ITC's unique and now widely
acknowledged e-Choupal initiative began in 2000 with soya farmers in Madhya Pradesh.
Now it extends to 10 states covering over 4 million farmers. ITC's first rural mall,
christened 'Choupal Saagar' was inaugurated in August 2004 at Sehore. On the rural retail
front, 24 'Choupal Saagars' are now operatonal in the 3 states of Madhya Pradesh,
Maharashtra and Uttar Pradesh.
In 2000, ITC launched a line of high quality greeting cards under the brand name
'Expressions'. In 2002, the product range was enlarged with the introduction of Gift
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wrappers, Autograph books and Slam books. In the same year, ITC also launched
'Expressions Matrubhasha', a vernacular range of greeting cards in eight languages and
'Expressions Paperkraft', a range of premium stationery products. In 2003, the Company
rolled out 'Classmate', a range of notebooks in the school stationery segment.
ITC also entered the Lifestyle Retailing business with the Wills Sport range of
international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of
exclusive stores later expanded its range to include Wills Classic formal wear (2002) and
Wills Clublife evening wear (2003). ITC also initiated a foray into the popular segment
with its men's wear brand, John Players, in 2002. In 2006, Wills Lifestyle became title
partner of the country's most premier fashion event - Wills Lifestyle India Fashion Week -
that has gained recognition from buyers and retailers as the single largest B-2-B platform
for the Fashion Design industry. To mark the occasion, ITC launched a special 'Celebration
Series', taking the event forward to consumers. In 2007, the Company introduced 'Miss
Players'- a fashion brand in the popular segment for the young woman.
In 2000, ITC spun off its information technology business into a wholly owned subsidiary,
ITC Infotech India Limited, to more aggressively pursue emerging opportunities in this
area. Today ITC Infotech is one of India’s fastest growing global IT and IT-enabled
services companies and has established itself as a key player in offshore outsourcing,
providing outsourced IT solutions and services to leading global customers across key focus
verticals - Manufacturing, BFSI (Banking, Financial Services & Insurance), CPG&R
(Consumer Packaged Goods & Retail), THT (Travel, Hospitality and Transportation) and
Media & Entertainment.
ITC's foray into the Foods business is an outstanding example of successfully blending
multiple internal competencies to create a new driver of business growth. It began in
August 2001 with the introduction of 'Kitchens of India' ready-to-eat Indian gourmet
dishes. In 2002, ITC entered the confectionery and staples segments with the launch of the
brands mint-o and Candyman confectionery and Aashirvaad atta (wheat flour). 2003
witnessed the introduction of Sunfeast as the Company entered the biscuits segment. ITC's
entered the fast growing branded snacks category with Bingo! in 2007. In just seven years,
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the Foods business has grown to a significant size with over 200 differentiated products
under six distinctive brands, with an enviable distribution reach, a rapidly growing market
share and a solid market standing. In 2002, ITC's philosophy of contributing to enhancing
the competitiveness of the entire value chain found yet another expression in the Safety
Matches initiative. ITC now markets popular safety matches brands like iKno,
Mangaldeep, Aim, Aim Mega and Aim Metro.ITC's foray into the marketing of
Agarbattis (incense sticks) in 2003 marked the manifestation of its partnership with the
cottage sector. ITC's popular agarbattis brands include Spriha and Mangaldeep across a
range of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Sambrani and
Nagchampa.
ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath & body
care products for men and women in July 2005. Inizio, the signature range under Essenza
Di Wills provides a comprehensive grooming regimen with distinct lines for men (Inizio
Homme) and women (Inizio Femme). Continuing with its tradition of bringing world class
products to Indian consumers the Company launched 'Fiama Di Wills', a premium range of
Shampoos, Shower Gels and Soaps in September, October and December 2007
respectively. The Company also launched the 'Superia' range of Soaps and Shampoos in
the mass-market segment at select markets in October 2007 and Vivel De Wills & Vivel
range of soaps in February and Vivel range of shampoos in June 2008.
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THE ITC WAY
ITC is a board-managed professional Company, committed to creating enduring value for

the shareholder and for the nation. It has a rich organizational culture rooted in its core
values of respect for people and belief in empowerment. Its philosophy of all-round value
creation is backed by strong corporate governance policies and systems.
ITC’S CORPORATE STRATEGIES ARE:
 Create multiple drivers of growth by developing a portfolio of world class

businesses that best matches organizational capability with opportunities in
domestic and export markets.
 Continue to focus on the chosen portfolio of FMCG, Hotels, Paper, Paperboards &
Packaging,
 Agri Business and Information Technology.
 Benchmark the health of each business comprehensively across the criteria of
Market Standing,
 Profitability and Internal Vitality.
 Ensure that each of its businesses is world class and internationally competitive.
 Enhance the competitive power of the portfolio through synergies derived by
blending the diverse skills and a capability residing in ITC’s various businesses.
 Create distributed leadership within the organization by nurturing talented and
focused top management teams for each of the businesses.
 Continuously strengthen and refine Corporate Governance processes and systems to
catalyze the entrepreneurial energies of management by striking the golden balance
between executive freedom and the need for effective control and accountability.
ITC Vision
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Sustain ITC's position as one of India's most valuable corporations through world class
performance, creating growing value for the Indian economy and the Company’s
stakeholders
ITC Mission
To enhance the wealth generating capability of the enterprise in a globalizing environment,

delivering superior and sustainable stakeholder value.
ITC Leadership
Flowing from the concept and principles of Corporate Governance dopted by the Company,
leadership within ITC is exercised at three levels. The Board of Directors at the apex, as
trustee of shareholders, carries the responsibility for strategic supervision of the Company.
The strategic management of the Company rests with the Corporate Management
Committee comprising the whole time Directors and members drawn from senior
management. The executive management of each business division is vested with the
Divisional Management Committee (DMC), headed by the Chief Executive. Each DMC is
responsible for and totally focused on the management of its assigned business. This three-
tiered interlinked leadership process creates a wholesome balance between the need for
focus and executive freedom, and the need for supervision and control.
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FMCG IN INDIA
The Indian FMCG sector having a market size of US$13.1 billion is the fourth largest sector
in the economy. A well-established distribution network, intense competition between the
organized and unorganized segments, characterizes FMCG sector. FMCG in India has
strong MNC presence. FMCG in India has gained a competitive, presence across the entire
value chain. It has been expected that FMCG market will reach to US$ 33.4 billion in 2015
from US $ billion 11.6 in 2003. Most of the product categories like jams, toothpaste, skin
care, hair wash etc in India has low per capita consumption as well as low penetration level
that is a sign of untapped market potential. The middle class and the rural segments of
Indian population give the opportunity to brand makers to convert consumers to branded
products. Now gradually people are shifting to processed and packaged food and the figures
are expected to 200 million people by 2010. This left India with the requirement of US $28
million in the food processing Industry.
India is one of the largest emerging markets in FMCG sector because of large domestic
market India – an extravagant spender on consumer goods Demand-supply gap Rapid
urbanization, increased literacy and rising per capita income. Fast Moving Consumer Goods
(FMCG), are products that have a quick turnover, and relatively low cost. FMCG products,
which are generally replaced less than once a year (e.g. kitchen appliances).
 The Fast Moving Consumer Goods Sector is the fourth largest sector of Indian
economy with total market size of more than 60000 crore.
 The FMCG sector in India is expected to grow at a compounded annual growth rate
(CAGR) of 9% to a size of Rs 1, 43,000 crore by 2010 from Rs 93,000 crore at
present.
 With a growth of 52.5%, the BSE FMCG Index has, during the last one year,
outperformed the Sensex, which could manage a growth of 41% only.
 A well-established distribution network, intense competition between the organized
and unorganized segments, low operating cost, strong branding characterizes the
sector.
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Examples of FMCG generally includes a wide range of frequently purchased consumer

products such as toiletries, soap, cosmetics, teeth cleaning products, shaving products and
detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products
and plastic goods. FMCG may also include pharmaceuticals, consumer electronics,
packaged food products and drinks, although these are often categorized separately.
Examples of FMCGs are soft drinks, tissue paper, and chocolate bars.
Trends in FMCG Sector
 The FMCG sector has been registering double-digit growth in sales since the last
couple of years. Currently, with annual revenues of US$ 14. 74 billion, it is the one
of the most promising sectors.
 The FMCG sector is witnessing rapid growth in rural areas and is estimated to grow
by 40 per cent compared to the growth of 25 per cent in urban areas.
 PepsiCo has announced a US$ 500 million investment in India over the next three
years.
 FMCG companies have acquired about 15 companies and have spread their
presence in more than a dozen countries.
Indian FMCG Market Size (In US $ Billion).
(Source: IBEF FMCG Analysis)
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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%).
Rise In Disposable Income (In USD Thousand)
(Source: Euro Monitor Goldman Sachs BRIC Report)
Competition
Significant Presence of Unorganized Sector –

 Basic technology for most products is fairly simple and easily available.
 The small-scale sector in India enjoys exemption/ lower rates of excise duty,
sales tax etc. This makes them more prices competitive.
 A highly scattered market and poor transport infrastructure limits the ability of
MNCs and national players to reach rural areas and small towns.
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 Low brand awareness enables local players to market their fake look-alike
brands.
Major players in FMCG sector
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Leading competitor of ITC & their business
Hindustan Unilever Limited is India's largest Fast Moving Consumer Goods (FMCG)
Company. It is present in Home & Personal Care and Foods & Beverages categories. HUL
and Group companies have about 15,000 employees, including 1200 managers. HUL’s
brands are spread across 20 distinct consumer categories and touches the lives of two out of
three Indians. They endow the Company with a scale of combined volumes of about 4
million tonnes and sales of Rs.10, 000 crores.
The fundamental principle determining the organization structure is to infuse speed and
flexibility in decision-making and implementation, with empowered managers across the
Company’s nationwide operations.
Mission Statement
Unilever's mission is to add Vitality to life. We meet everyday needs for nutrition, hygiene,
and personal care with brands that help people feel good, look good and get more out of
life.
Code of Business Principles
Unilever has earned a reputation for conducting its business with integrity and with respect
for all those whom our activities affect. This reputation is an asset, just as valuable as our
people and our brands.To maintain this reputation requires the highest standards of behavior
– consistently observed by all of us. Unilever’s Code of Business Principles sets out these
standards and we expect all our employees to adhere to them.Being a successful business
does not just mean investing for growth and balancing short and long term interests. It also
means caring about our consumers, employees and shareholders, our business partners and
the world in which we live.We therefore want this Code to be more than a collection of high
sounding statements. It must have practical value in our day-to-day business lives and each
of us must follow these principles both in the spirit and the letter.If we do so, Unilever’s
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reputation will be enhanced, our business will perform better and our professional lives will
be all the more fulfilling.
Standard of Conduct
We conduct our operations with honesty, integrity and openness, and with respect for the
human rights and interests of our employees. We shall similarly respect the legitimate
interests of those with whom we have relationships.
Obeying the Law
Unilever companies and our employees are required to comply with the laws and
regulations of the countries in which we operate.
Employees
Unilever is committed to diversity in a working environment where there is mutual trust and
respect and where everyone feels responsible for the performance and reputation of our
Company. We will recruit, employ and promote employees on the sole basis of the
qualifications and abilities needed for the work to be performed. We are committed to safe
and healthy working conditions for all employees. We will not use any form of forced,
compulsory or child labour. We are committed to working with employees to develop and
enhance each individual's skills and capabilities. We respect the dignity of the individual
and the right of employees to freedom of association. We will maintain good
communications with employees through Company based information and consultation
procedures.
Consumers
Unilever is committed to providing branded products and services which consistently offer
value in terms of price and quality, and which are safe for their intended use. Products and
services will be accurately and properly labelled, advertised and communicated.
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Shareholders
Unilever will conduct its operations in accordance with internationally accepted principles
of good corporate governance. We will provide timely, regular and reliable information on
our activities, structure, financial situation and performance to all shareholders.
Business Partners
Unilever is committed to establishing mutually beneficial relations with our suppliers,

customers and business partners. In our business dealings we expect our business partners
to adhere to business principles consistent with our own.
Community Involvement
Unilever strives to be a trusted corporate citizen and, as an integral part of society, to fulfill
our responsibilities to the societies and communities in which we operate.
Public Activities
Unilever companies are encouraged to promote and defend their legitimate business
interests.
Unilever will co-operate with governments and other organizations, both directly and
through bodies such as trade associations, in the development of proposed legislation and
other regulations which may affect legitimate business interests. Unilever neither supports
political parties nor contributes to the funds of groups whose activities are calculated to
promote party interests.
The Environment
Unilever is committed to making continuous improvements in the management of our

environmental impact and to the longer-term goal of developing a sustainable business.
Unilever will work in partnership with others to promote environmental care, increase
understanding of environmental issues and disseminate good practice.
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Innovation
In our scientific innovation to meet consumer needs we will respect the concerns of our
consumers and of society. We will work on the basis of sound science applying rigorous
standards of product safety.
Competition
Unilever believes in vigorous yet fair competition and supports the development of
appropriate competition laws. Unilever companies and employees will conduct their
operations in accordance with the principles of fair competition and all applicable
regulations.
Business Integrity
Unilever does not give or receive whether directly or indirectly bribes or other improper
advantages for business or financial gain. No employee may offer give or receive any gift or
payment which is, or may be construed as being, a bribe. Any demand for, or offer of, a
bribe must be rejected immediately and reported to management. Unilever accounting
records and supporting documents must accurately describe and reflect the nature of the
underlying transactions. No undisclosed or unrecorded account, fund or asset will be
established or maintained.
Activities
Hindustan Lever provides Home & Personal Care products like Soaps (Lux,
Lifebuoy,etc.), Washing powders (Surl Excel, Rin,etc.), Deodorants, Cosmetics,Skin Care
products and hair care products. The food products provided by Hindustan Unilever are
Tea (Brooke Bond, Lipton), Coffee (Brooke Bond Bru), Foods (Kissan, Annapurna, Knorr)
and Ice Cream (Kwality Wall's).
Hindustan Unilever limited has launched Pureit, the most advanced in-home water
purifier in the world. It is the only purifier that gives water that is ‘as safe as boiled water '
without boiling, and without needing electricity or continuous tap water supply. That why it
is considered as the most advanced in-home water purifier in the world. Several HUL
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factories are situated in backward areas. HUL has consciously responded to the national
policy of development of backward areas by setting up manufacturing units in these places,
which provide several direct and indirect employment opportunities for these areas, and
leads to general economic development of these regions through industrialization. HUL
acknowledges that development and poverty reduction depend on economic prosperity, and
that International trade and investment creates new employment, raises skill levels and
increases economic activity. Indeed, the very business of ‘doing businesses extends
prosperity and creates new opportunities.
Today, HUL is India's largest exporter of branded Fast Moving Consumer Goods. It has
been recognized by the Government of India as a Golden Super Star Trading House.
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Performance Key Statistics:
Figures in Rs. Crores
ACCOUNT ITEM 2007 2006

Net Sales 3,184.32 2,798.05
Domestic FMCG HPC 2,251.69 2,046.70
Domestic FMCG Foods 531.18 432.13
(including Ice cream)

Domestic FMCG Total 2,782.87 2,478.83
Exports 351.93 275.53
Profit Before Interest and 378.80 333.19
Taxation
Profit After Taxation, Before 333.86 293.98
Exceptional Items
Net Profit 392.89 442.86
Hindustan Unilever limited (HUL) announced its results for March Quarter 2007. Total
Sales grew by 13.8%, while growth in continuing businesses, i.e., after eliminating impact
of disposals was higher at 14.7%. Domestic FMCG business grew by 12.3%.
Comparison of two FMCG majors; HUL & ITC

This week, ETIG presents a comparison between two FMCG majors, HUL and ITC. Risk-
averse investors interested in stable business & steady dividend income can consider HUL,
while ITC is suited for adventurous investors who are hungry for growth, rather than
stability.
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Hindustan Unilever Lever
Hindustan Unilever (HUL) is the largest pure-play FMCG Company in the country and has
one of the widest portfolio of products sold via a strong distribution channel. It owns and
markets some of the most popular brands in the country across various categories, including
soaps, detergents, shampoos, tea and face creams.
PERFORMANCE: After stagnating between 1999 and ’04, the Company is back on the
growth track. In the past three years, HUL’s net sales have witnessed a CAGR of 11%,
while net profit has posted a CAGR of 17%. The Company is set to gain further
momentum, given the revival of consumer spending. HUL sells products at different price
points straddled between the entire value chains. In the past few years, it has diversified into
processed foods, ice-creams, water purifiers and specialized chemicals. But home and
personal care (HPC) continues to remain the bread & butter segment for the Company. This
division accounted for 72% of HUL’s revenue and 91% of its profit (before interest and tax)
during the year ended December ’07. So, it won’t be wrong to call HUL a personal care
major.
GROWTH DRIVERS: The Company has been launching new products and brand
extensions, with investments being made towards brand-building and increasing its market
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share. HUL is also streamlining its various business operations, in line with the ‘One
Unilever’ philosophy adopted by the Unilever group worldwide. Introduction of premium
products and addition of new consumers via market expansion will be HUL’s growth
drivers.
FINANCIALS: HUL’s net sales have recorded a CAGR of more than 11% over the past
three years, while its net profit has posted a CAGR of 17% during the same period. While
its sales have maintained a secular growth trend, profit margins have shown an erratic trend
during the period. High dividend yield, steady growth and strong market standing in its
product categories have enabled HUL to command premium valuations, compared to other
FMCG companies.
RISKS: Being an MNC operating in India, HUL is more conservative in its strategies than
its Indian counterparts. Moreover, given increasing competition, it faces the risk of being
overtaken by domestic players in various categories. Prolonged inflation may lead to
margin contraction, in case HUL is not able to pass on this burden to consumers. The
Company’s large size also poses a problem, since it does not give HUL the agility to
address the competition it faces from national and regional players.
TO SUM IT UP: HUL’s up-and-running business model is a treat for investors seeking
exposure in the FMCG segment. The Company has delivered in the past and has the
potential to do better in future. In the small and medium term, HUL is a better bet than ITC.
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ITC
ITC is not a pure-play FMCG Company, since cigarettes is its primary business. It is
diversifying into non-tobacco FMCG segments like foods, personal care, paper products,
hotels and agri-business to reduce its exposure to cigarettes.
PERFORMANCE: Despite diversification, ITC’s reliance on cigarettes is still huge. The

tobacco business contributes 40% to its revenues, and accounts for over 80% of its profit.
This cash-generating business has enabled it to take ambitious, but expensive bets in new
segments and deliver modest profit growth. ITC’s non-cigarette FMCG business — which
contributes 15% of its revenues — eroded close to 8% of ITC’s profit last year. Its other
businesses like hotels and paper together account for over 20% of ITC’s profit. Agri-
business, which is its second-largest revenue earner, contributes one fourth to its revenues,
but only 3-4 % to its PBIT.
GROWTH DRIVERS: ITC’s backward integration to ensure that its products pass
efficiently from the farms to consumers has helped it to cut down supply and procurement
costs. ITC’s non-cigarette FMCG business leverages the large distribution network the
Company has developed by selling cigarettes over the years. A rich product mix, along with
ramp-up of investments in its new sectors, will be instrumental in charting ITC’s growth
path.
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INDUSTRY EVALUATION
FINANCIALS: During the past three fiscals, ITC’s consolidated revenue has seen a CAGR
of 22%. Its profit has grown at just 12% during the same period. ITC’s sales and profits
have displayed a secular growth trend. But the pressure of sustaining its new businesses, as
well as higher tax burden on the cigarette business, is straining its profits. After undeterred
growth spanning eight quarters, ITC witnessed a marginal de-growth in net profit for the
trailing four quarters ended June ’08.
RISKS: Increased regulatory clamps on tobacco, along with rising tax burden, pose a
business risk for ITC. So, it has started an ambitious diversification plan, which has its own
set of risks. With its foray into the conventional FMCG space, ITC has entered the high-
clutter branded products market. This will burden its resources in terms of ad spend and
brand-building. Creating brand recall and building market share in new products are ITC’s
key challenges. Export ban and rising crop prices pose a threat for its agri-business, taxing
its margins.
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INDUSTRY EVALUATION
Sustainable Competitive Advantage

Sustainable competitive advantage is the focal point of your corporate strategy. It allows
the maintenance and improvement of your enterprise's competitive position in the market.
It is an advantage that enables business to survive against its competition over a long period
of time.
Today’s' Era of Hyper competition
Hyper competition is a key feature of the new economy. New customers want it quicker,
cheaper, and they want it their way. The fundamental quantitative and qualitative shift in
competition requires organizational change on an unprecedented scale. Today, your
sustainable competitive advantage should be built upon your corporate capabilities and
must constantly be reinvented.
Distinctive Capabilities
Distinctive capabilities are the basis of your competitive advantage. According to the new
resource-based view of the Company, sustainable competitive advantage is achieved by
continuously developing existing and creating new resources and capabilities in response to
rapidly changing market conditions. Among these resources and capabilities, in the new
economy, knowledge represents the most important value-creating asset. The opportunity
for your Company to sustain your competitive advantage is determined by your capabilities
of two kinds – distinctive capabilities and reproducible capabilities - and their unique
combination you create to achieve synergy. Your distinctive capabilities - the characteristics
of your Company which cannot be replicated by competitors, or can only be replicated with
great difficulty - are the basis of your sustainable competitive advantage. Distinctive
capabilities can be of many kinds: patents, exclusive licenses, strong brands, effective
leadership, teamwork, or tacit knowledge. Reproducible capabilities are those that can be
bought or created by your competitors and thus by themselves cannot be a source of
competitive advantage.
ITC Limited is planning to aggressively scale up its FMCG business and expand the
portfolio by staging an entry into the home and personal care market, in an attempt to be the
leading FMCG player in the country. According to the 2006-07 directors' report in the
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INDUSTRY EVALUATION
Company’s annual report, this would be achieved through a combination of synergistic

investments in brand building and further enhancement of supply chain and sales and
distribution capabilities. These interventions combined with information technology
enabled transaction backbone and the e-choupal rural distribution network, are expected to
provide the basis for a low cost distribution capability for consumer products. Over the
medium to long term, these initiatives are expected to provide the basis for sustainable
growth in shareholder value by establishing ITC as the leading FMCG player in India, the
directors said in their report. While ITC sources refused to comment ahead of the
Company’s AGM, the personal care business was reportedly set for launch as the Company
had recruited scientific staff for the division. The business unit for personal care was
however yet to be launched and announcements relating to its reporting structure, the
launch date and the CEO or divisional chief executive to manage the business, are awaited.
The ITC board had approved the Company’s foray into the personal care business some
weeks ago and the Company had informed stock exchanges about it then. The ITC basket
of non-cigarette FMCG goods included branded packaged foods, lifestyle retailing,
greeting, gifting and stationery, safety matches and incense sticks (agarbattis). ITC's
FMCG sales grew by 68 per cent during 2007-06 over 2005-06 to touch Rs 1704 crore
during the year. The branded packaged foods business, which saw sales rising 51 per cent
over the previous year, is expected to accelerate growth through cheaper agri-sourcing
using e-Choupal, in-house cuisine expertise, product development capabilities and
branding, sales and distribution competencies. The vision for this business group was to
establish itself as the 'most trusted provider of food products in the Indian market'. The
present range comprised more than 150 food products under six brands. According to ITC,
it planned deeper penetration into grocery and modern format stores in towns and would use
e-choupals for distribution and sourcing in rural areas. ITC would follow up its salty snacks
range under the Bingo brand through robust product development and would use its farm
linkages to ensure access to high quality raw materials to build it into a sustainable
competitive advantage, said sources. The Company’s biscuits unit aimed launch of value
added products to help neutralize as far as possible the impact of increase in input costs.
ITC's lifestyle retailing business would expand its retail footprint through new stores in
upcoming malls and invest in enhancing capability in design and product engineering.
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INDUSTRY EVALUATION
ITC's stationery business aimed to tap the increased budgetary allocation under the
government's 'Sarva Shiksha Abhiyan' programme to scale up its notebooks business
significantly by offering a superior and differentiated product range, leveraging the
investments in incremental paper manufacturing capacity currently underway and a strong
distribution network in the coming months. In a parallel move, the 'Mangaldeep' brand of
incense sticks (agarbattis) would further develop its partnership with small and medium
enterprises to help them raise quality and process standards,
The Sustainable Competitive Advantage (SCA) the involved firms were “born” with &
which “they” developed.
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INDUSTRY EVALUATION
Role of Each Member
 Factories – Supply to 18 godowns

 Godowns & Branches
 Manage by C&F agents getting monthly remuneration
 No rent paid by ITC
 one branch – 60 WDs , 5 AMs and 20 Area Executives
 Wholesale Distributors(WDs)
 Margin – 2% of sales
 Appoints secondary Wholesalers
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INDUSTRY EVALUATION
TERMS & CONDITIONS
 WDs – Zero overnight credit basis

 WD appointed supervisor monitor the performance of sales force
 Primary expectation – no pilferage of cigarettes
MARKETING DECISIONS
Two Levels
 National level
 Brand Managers in consultation with branch managers.
 National promotion plans- sponsorships & event organizations
 Branch Level ( Two Decisions)
 Local Promotions
 Small Level Promotions
PHYSICAL DISTRIBUTION
 Demand Estimation – collaborative forecasting( Sales force with dealers)
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INDUSTRY EVALUATION
 Forecast based on last month sales

 Production plan made according to forecast
 Delivery to C & F agents within 7 days
 CFAs deliver goods to dealers on the basis of the branch office route plan
 Factory--------------CFAs- Trucks
 CFAs --------Dealers – Small Vehicles
Flow of Information in the Distribution Network
 Promotion flows
 No volume discounts to channel members
 No scope for cash discounts
 Information Flow
 Main information source- Wholesalers
 ITC ERP system
FINANCIAL TRANSACTIONS
 Zero day credit policy

 Supplies are frozen till clearance of dues
 Strict regime due to millions of retailers
 Strong bargaining power for the Company
PROBLEMS FACED by ITC CHAIN
1. Shortages in supply system

 Hoarding due to anticipation of a rise in excise duties on cigarettes
 Creates artificial shortage
 Can be solved by stricter monitoring policy during the time close to the
budget
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INDUSTRY EVALUATION
Pilferage of stock during transportation
 Due to improper action of WDs

 Can be solved by timely reporting
As part of its strategic initiative to create multiple drivers of growth in the FMCG sector,
ITC commenced marketing safety matches sourced from the small-scale sector. The
Matches business leverages the core strengths of ITC in marketing and distribution, brand
building, supply chain management and paperboard & packaging to offer Indian consumers
high quality safety matches. ITC’s range of Safety matches include popular brands like i
Kno, Mangaldeep, Aim, Aim Mega and Aim Metro. With differentiated product features
and innovative value additions, these brands effectively address the needs of different
consumer segments. The Aim brand is the largest selling brand of Safety Matches in India.
ITC also exports regular and premium safety matches brands to markets such as Middle
East, Africa and the USA. The successful acquisition of Wimco Ltd. by Russell Credit Ltd.,
a wholly owned subsidiary of ITC has consolidated the market standing of the Company's
Matches business through synergy benefits derived through combined portfolio of
offerings, improved servicing of proximal markets and freight optimization. Through its
participation, ITC aims to enhance the competitiveness of the small and medium scale
sectors through its complementary R&D based product development and marketing
strengths, especially the breadth and depth of the Company's trade marketing and
distribution. Taking stock of the FMCG block is tobacco and hotels giant ITC Ltd. A few
years ago it climbed onto the retail bandwagon, leveraging existing strengths to diversify
into areas from greetings and gifts to lifestyle retail. While it's got a long way to go to
challenge Hindustan Lever, ITC is banking on the two mainstays of consumer goods that it
does possess - a strong brand equity and a wide distribution network. The game plan is all
about strategic synergy. A year ago the Company's newest division, Bangalore-based ITC
Foods, moved into the branded packaged foods market and is leveraging the parent
Company's agricultural products division for sourcing, as well as ITC Welcomgroup's
specialist cuisine knowledge and its packaging division.
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INDUSTRY EVALUATION
The ace up ITC's sleeve, however, is the Company's established distribution network that
includes the e-Choupal system - a two-way sourcing and distribution system for farmers in
remote villages, as well as its cigarette and pan network. With this infrastructure in place
ITC Foods has launched into four branded foods areas - ready-to-eat, staples, snacks and
confectionery. Its Kitchens of India brand sells packaged gourmet Indian cuisine, which
offers recipes from ITC Welcomgroup Hotels. "We picked up popular recipes and put them
into cans", says CEO Ravi Naware. "This is five-star food prepared by our chefs and
targeted at connoisseurs of good food". The brand is marketed through up market retail
chains in Delhi, Mumbai, Bangalore, Chennai, and Ahmadabad, and select clubs in Kolkata.
The selling point is that no preservatives are added, and through 'retorting' technology the
shelf life of these foods is close to one year. ITC Foods has a contract manufacturing
facility, where quality is supervised with focus on ingredients and recipe. A panel tastes it
and approves it before processing takes place. The canned Kitchens are present in 48 towns
(of over 500,000 population) and the group plans to export its products after is has
established the brand nationally. The group sees high growth potential in the staples
segment. "The consumption of aata is 45 million tonnes in India", says Naware. "Only 2 per
cent of this is branded". ITC's branded aata is customised to cater to different tastes, to suit
markets in the north, west, and south. To differentiate each type, the package is colour-
coded - the main variant in each area is coded red, while its Ashirwad Select is coded
orange. Essentially an urban phenomenon, it covers 27 cities in India. The Company plans
to have its staples available all over India by March this year - and next on the agenda is
branded rice and salt. "There's a need to consolidate, to establish the business and the brand,
and then fill up the portfolio", says Naware. Gopal G.V.R., a supervisor at Foodworld in
Bangalore, notes: "You just can't compete with Lever's Annapurna or Godrej's Pillsbury".
However, he does point out that the awareness and demand is picking up for ITC's aata.
Kitchens of India, on the other hand, is doing well with an elite segment of consumers,
while the orange Minto confection is taking off. Minto helped to generate quick volumes in
four months, says Naware. Acquired from Candico in March 2002, Minto was reengineered
and the flavour variant - orange - introduced. "We got into the untapped potential of the
mint market", says Naware. "We brought novelty to this segment - orange mint is 50 per
cent of consumption". ITC Foods' product development centre in Bangalore is working at
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INDUSTRY EVALUATION
bringing added-value products across segments. The bid to be different "to create a buzz in
the market", says Naware, also led to the wild banana variant in the Candyman range of
sweets. The flavour was one of the two (the other being mango) chosen after a sampling of
six flavours by 3,600 schoolchildren. Here the distribution makes use of the tobacco
network: ITC services 1.1 million outlets at average frequency of three days down to
villages of population 2,000, and has 1,000 wholesale dealers. "ITC's distribution
philosophy is that of channel-tailored support. ITC and its distributors use different sales
forces to cater to the separate channels of convenience outlets, grocers, and supermarkets",
says Naware. "ITC services trade channels and not specifically one kind of outlet alone.
Thus for impulse purchases like confectionery, the bulk of our sales come from
convenience outlets. However, categories like aata, ready-to-eat foods, and snack foods are
directly distributed to grocers and key accounts, in addition to some convenience outlets".
ITC directly services more than a million outlets all over India. It has depots in key states
and the depots are geographically dispersed to optimise logistics costs, according to
Naware. He points out that for high-bulk, low-weight items (such as the most recent launch
of snack brand I Bischips), specific retail stocking and display solutions use floor and air
space for ease of placement and high visibility.
The other advantage is ITC's backward integration with the parent Company's $155 million
international business division (IBD), which markets agricultural products abroad. IBD's e-
choupal system, which sources directly from the farmers through 1,286 kiosks across 9,000
villages, also helps to develop markets and brands for ITC's consumer goods. As a
distribution channel, the two-way-functioning e-choupal is cost effective, with the added
scope of increasing in range as more kiosks and more farmers are tagged on to the sourcing
network. The e-choupals and the storage hubs - the Company has a strategically located hub
in each state - function as centres where ITC and the firms it partners can market FMCG
goods that range from agricultural products to household items. The Company also uses
local paanwalla networks to help to boost its brands. Cash-rich and networked, the
Company is cashing in on the potential of a 2.5 million-strong force of such retailers. The
group's experience in cigarettes has sensitised the system to fine-tune stock control mainly
because cigarettes are a high-value product with high inventory carrying costs. At an
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INDUSTRY EVALUATION
individual retail outlet level the Company has a supervision process that ensures
stockouts/overstocking do not take place. ITC's frequency of retail servicing is one of the
highest in the consumer-goods business. Consequently it does not need to resort to dumping
of stocks at an outlet as an insurance against stockout situations but can sell only as much as
the retailer can dispose of and top up stocks whenever and wherever necessary. This also
makes the group manage its working capital better.
Timing and data-gathering regarding stocks is crucial. "We have a fully online ERP-based
logistics system linking our distributors, godowns, and marketing branches to head office
and factories, continuously feeding in data of sales and stock positions across the entire
supply chain", says Naware. "This enables us to track pipelines and sales in real time and
keep control over all elements of the supply chain, be it raw material, packaging material,
work-in-process inventory, or finished goods." To leverage its network and distribution
reach, and to centralize the data flow between various divisions, ITC has installed Project
Infobahn, a Companywide hybrid network using a virtual private network (VPN) through
an Internet service provider. This comprises 69 leased lines, 103 ISDN lines, 10 radio
frequency devices, and four new VSAT links. This lets staff, wholesale dealers, and partner
companies access data and transact business over the Internet. It also leverages the existing
network to 'cross-sell' and 'up-sell' the Company's own business offering and enables it to
market offers from other business houses through a secured distribution network. The
network spans 110 locations and all ITC divisions. ITC complements its distribution effort
with consumer research. According to Naware, it spends Rs12 crore on consumer research.
He says that a study showed that 48 per cent of annual household expenditure goes on
buying food. Branded food comprises 5 per cent of this and the percentage will increase as
the economy improves. Naware believes expenditure on food will touch Rs100 crore in five
years' time. Meanwhile, how is ITC gearing up to take on Hindustan Lever, Nestle, and
others in the foods business? Says Naware: "Competitive advantage will come from
distribution strength, servicing of outlets, product quality, relevance, and differentiation.
These constitute the mainstay of our business strategy. We hope to leverage our brand
development capabilities and establish ourselves in the market place." Naware also points to
ITC's abilities in "building consumer brands, in distribution, in unmatched servicing of
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INDUSTRY EVALUATION
retail in India to even villages of 2,000 population as well as its ability to deal with
agricultural products". Clearly, with branded packaged foods emerging as a focus area of
growth for companies like Hindustan Lever, well-equipped ITC still has a tough battle
ahead. it's become a huge FMCG and lifestyle brand that, even though you buy it (perhaps
unknowingly, unconsciously), still surprises you with the breadth of its spread. Shirts and
skirts. Pasta and paper. Biscuits and candy. Soaps and perfumes. Cigarettes too, of course.
All ITC products. India Tobacco Company? Yes, it still drives the business - there wouldn't
be an ITC without the filter tip that earns the Company 87 per cent of its revenue. But now,
three years after it was set up, ITC Foods is nudging up the ladder. It might be a distant
fourth (it contributes over 5 per cent of the turnover) in terms of revenue to tobacco, agri-
business, and paperboards but it has already surpassed revenues from hotels in the last
quarter. And it is certainly a formidable force in the country's organised food biz. Ravi
Naware is the dapper divisional chief executive of ITC Foods and he doesn't believe in
mincing words. "We want to become the number one foods Company in India within the
next five years" he says. Wishful thinking? You couldn't be faulted for thinking so - after all
there's tough competition entrenched into the trade by big boys Unilever, Nestle and
Britannia whose distribution prowess and popularity (some of the key brands are virtually
household names) have to be matched, exceeded even, if it's to succeed.
But ITC Foods isn't balking at the challenge. Already, customer loyalty is being built up for
its buffet of food products - from biscuits, pasta, spices, confectionery and ready-to-eat
foods to branded commodity products like flour, salt and spices. The conglomerate has
begun to grab slices of the market share from its rivals in the game. Aashirwad atta, for
instance, is already the number one flour brand with a 40 per cent market share, virtually
forcing Unilever to slow down its Annapurna atta. Five months after its ready-to-eat pasta
under the Sunfeast brand was pitted against kiddie favourite Maggi noodles, it has
established its presence with 6 per cent in volumes of the branded noodles market.
Its Sunfeast biscuits are at number three position (after Britannia and Parle) with an overall
10 per cent share of the branded market. And in ready-to-eat foods, it's a close number two
behind MTR Foods. A slow starter in the confectionery segment (at number four position),
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INDUSTRY EVALUATION
its Mint-O has managed to grab a 40 per cent market share in its category. The sales figures
reflect this market thrust. This year, ITC Foods hopes to do sales in excess of Rs 800 crore,
and analysts reckon this as a growth of over 90 per cent over the previous year.
At this point, it's already 50 per cent of sales for both Hindustan Lever and Britannia, and a
third those of Nestle. And its target for 2006? To double sales once again, to Rs 1,600 crore.
Overall, ITC Foods has managed a 10 per cent market share in segments in which the others
are operating - biscuits (Rs 4,500 crore), confectionery (Rs 2,000 crore), atta and salt (over
Rs 1,000 crore) among others. Says Naware: "For the next year or two, our strategy will be
to consolidate and offer a greater range in the existing categories and grow these markets."
Strategically, the Company has kept away from those markets where it does not have the
back-end or does not see value additions. So it is unlikely to make forays into tea and coffee
("highly commoditised") or dairy products ("needs a very large infrastructure to source
milk"). In both cases too, giants in the business (Unilever, Tata Tea, local brands and a huge
unbranded tea market on the one hand, Nestle, NDDB and state-owned dairy corporations
on the other) would make any headway in the trade extremely difficult Juices? Potato
chips? Nothing is being ruled out yet, but ITC Foods is all set to invest Rs 450 crore in the
next three years (apart from the Rs 150 crore it has already put in) as part of its long-term
strategy of ruling the branded food market in India. Industry analysts are suggesting it has
earmarked a hefty 20 per cent of its sales for advertising and sales promotion, which should
grab a good deal of media space. What's ITC doing that's different from its competitors?
Well, it is working on a different model from them, but Naware says the market is too big
for anyone to worry about competition. For instance, branded and packaged foods is only 8
per cent of a total food market worth a staggering Rs 5, 00,000 crore. This is expected to
increase to 15-20 per cent in the next six years. Should that happen, there are more than
enough room, and then some more, for everyone to coexist? What is different at ITC though
is its ability to leverage its e-Choupal as a pragmatic rural supply chain system. For the
uninitiated, ITC's trading arm, the International Business Division (IBD), has set up over
5,000 e-Choupals covering 31,000 villages across the country where farmers can sell their
produce directly sans middlemen or having to go to a mandi at a fair price, and also get
information relevant to farming, weather and prices at other mandis, all on the net. The
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INDUSTRY EVALUATION
"sanchalaks" (supervisors) in some areas also sell products manufactured by the Company,
and in some cases the Company has started hypermarkets (Choupal Sagar) in rural locations
to cater to rural needs.This backward integration is at the heart of the enterprise. For
instance, the entire wheat for Aashirwad atta is procured from e-Choupals.
The advantage, says Naware is twofold: by cutting the middlemen out, it saves 2 per cent on
cost of wheat, which is significant in a low-margin commodity business; and the Company
classifies the quality of wheat and stores it separately so it does not mix with any inferior
varieties, which is common enough if you were to buy it from a mandi. The result is an
assurance of quality. Using the same route, ITC acquires spices (chilli powder), again with
a similar advantage. That it has stayed away from branded rice is because the majority of its
e-Choupals are not located in rice farming areas. The model is simple enough. ITC is
looking at creating food verticals to integrate the foods division with that of IBD and the e-
Choupal. In the case of wheat, Naware explains: "We do the first value addition by offering
branded Atta, the second value addition is through biscuits, and the third is pastas." And
points out that it would look at similar verticals for sugar (going up to confectioneries and
chocolates) once it can be freely traded. At the other end the e-Choupal has become an
alternative distribution channel for ITC products. About 10-15 per cent salt volumes are
sold through this chain; so are 5 per cent of the biscuits and confectionery items. And the
numbers will grow once more Choupal Sagars get going. The other key element ITC is
leveraging for the foods business is its tobacco distribution chain. It has over 1.5 million
tobacco retailers across the country, larger than Unilever's distribution chain of over 1
million, virtually neutralising the fact that it is a latecomer in the foods game. That's not to
say it hasn't had to create a separate distribution system to sell Aashirwad atta and other
FMCG products through kinara stores (3,50,000 outlets).But biscuits and confectioneries
are perfect complementary products that can be sold through the tobacco chain. Currently,
as much as half the tobacco retailers carry confectionery and about 3 lakh stock its biscuits.
And as much as 40 per cent of the tobacco retailers are already stacking FMCG products
other than just tobacco. But perhaps the most important factor that has helped ITC sustain
its foods business is its healthy financials backed by attractive tobacco margins that can
absorb the pressure of losses in the FMCG business.Says Mohan Krishnaswamy of ABN
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INDUSTRY EVALUATION
Amro, who tracks the Company: "ITC is leveraging the strength of its cigarette business
and does not face any immediate pressure of returns, which is not the case with the
multinational food companies. So, it can build scale and wait for 2-3 years to build a viable
business." Analysts point out that operating margins for ITC are around 35 per cent as
compared to 15 per cent for Hindustan Lever and 20 per cent for Nestle India. This despite
the fact that in ITC's non-cigarette FMCG business (which primarily includes foods)
margins are negative (minus 35 per cent), so it resulted in losses of over Rs 190 crore last
year - but ITC has the strength to absorb the losses without affecting its bottomlines. Unlike
ITC, analysts say companies like HUL, which are trying to get in line with their
international goals, are under pressure because they are concentrating on power brands and
improvements in margins.
HUL's sales of processed foods have actually come down and ice-cream sales have grown
only marginally in the six months ending June this year over last year. Clearly, part of the
foods strategy is prompted by ITC's attempt to reduce its dependence on tobacco, which
constitutes over 87 per cent of its operating profits and over 71 per cent of its turnover. But
without excise (because excise duty on cigarettes is high it distorts the turnover in their
favour) cigarettes contribute for only 55 per cent of the turnover. To that extent, the non-
cigarette FMCG business (at 5 per cent per cent of the Company's turnover) might look
small, but its contribution to turnover has already surpassed the Company's hospitality
business and is closing the gap with its paper business. And without taking excise into
consideration (excise on food items is very low) its contribution to turnover is already a
healthy10 per cent. Also, the FMCG business is growing much faster than others: FMCG
revenues in the first quarter were up 90 per cent compared to hotel growth of only 36 per
cent and paper of 22 per cent. Of course, the agri-business grew handsomely by 64 per cent
and is the second-largest revenue earner after tobacco. Not everything's hunky-dory though.
Losses in ITC's FMCG business went up in the first quarter this year from Rs 39 crore to Rs
54 crore, even though turnover went up by 90 per cent.
A Merill Lynch report on the Company cautions: "We are a little disappointed by higher
losses in the FMCG business on a y-o-y basis." It earmarks two risks : "Cigarette demand
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INDUSTRY EVALUATION
may slow down and FMCG losses may exceed expectations."FMCG analyst Kunal
Motishaw is monitorial too: "ITC has the potential to become the number one foods player,
but food is not its core competency, hence it will be a tough task.Its strategy is totally
different from that of HUL, Nestle and Britannia. ITC offers its distributors higher margins
(ITC says it offers competitive margins) and also its products are more competitively priced
as compared to its competitors, all of which has resulted in it cornering an over 10 per cent
market share in a short span of time."
HUL and Britannia have predictably declined to comment on their rival's strategy, but
another Mumbai analyst says: "ITC has no existing products so it has to first develop them,
which might take them longer. The Company right now is very clear about focussing on
market share and not profitablity."But that isn't likely to put a brake to ITC's foodie
ambitions. It has identified its immediate task to expand its reach into more cities and
towns, to garner more retailers. The target is to reach 1.2 million retailers (from 8,00,000) in
the next two years and to ensure they stack all ITC products.More importantly, it is playing
up product differentiation to catch the eye of the consumer. In the overcrowded biscuit
category, for instance, ITC has introduced the popular Marie biscuit in an orange flavour.
Customers used to the salty crackers of Parle's Monaco are being offered an alternative
flavoured with chilli flakes. In confectionery, ITC again changed the rules of the game by
introducing flavoured mints in orange and lemon for Mint-O, and as much as 50 per cent of
the mint volumes now come from this category. That apart, it also introduced a format of
six rolls (instead of 12) priced at Rs 2, which fits in well in cigarettes stores across the
country. Buoyed with the brand's success, it has now extended the brand with the launch of
cough lozenges and in a short three months, has already grabbed a 15 per cent share of the
market. As for the ready-to-eat food market, ITC has created two distinct segments - the
upper end catered through the Kitchens of India brand (based on recipes from its restaurants
in Welcomgroup hotels) and the mid-market through the Aashirwad series. ITC executives
admit that this is a small market (total size: Rs 80 crore) but it's growing at 35 per cent per
annum. And even though a large number of players are packing meals into packets,
Aashirwad is spreading the banquet across 15,000 retail stores, while Kitchens of India is
available at 7,000 outlets. Branded foods aren’t likely to be a simple market to crack. But if
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INDUSTRY EVALUATION
the record up to now is any indication, it might suggest that ITC Foods has been able to
understand the culinary palate of Indians much better than many of its competitors.
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INDUSTRY EVALUATION
Competitors operated with a clear strategic vision. If so, has his vision helped?
Britannia, one of the India’s largest biscuit brands held a market share of 38% in terms of
value. Indian biscuit industry, the third largest producer of the biscuits in the world was
highly under-penetrated. This presented numerous growth opportunities to new as well as
existing players. Apart from the presence of big players like ITC Foods and Parle, the local
manufacturers of biscuits and other Indian snacks had been raising concerns for Britannia.
Besides competition, Britannia faced critical challenges due to declining margins in the
biscuit industry due to the increasing costs of raw materials. Its profit had been on a decline
since 2005. Though Britannia had forayed into dairy and bakery products, 90% of its
revenues still came from its core business in biscuits category which was largely driven by
product innovation. The case, highlighting the Britannia’s growth strategies, provides scope
to analyse opportunities and challenges for Britannia in the Indian biscuit industry. With
competition hotting between BIG 3 , The Britannia , Parle and ITC in Indian bakery
market ,each one has to develop its own marketing strategy . Few have gone for product
enhancement calling it a health and wellness plat form other s have gone on pack size
modification from Rs 2/- pack sachet to Rs 20/- family pack .
BRITANNIA Industries Ltd is working out a product strategy aimed at capturing various
niches of the snacking segment. For one, the Company is bullish about the "on-the-go"
segment and is planning to roll out smaller packs under its major sub-brands. It would be
gradually expanding its `ticki-packs' (packs of two or four biscuits) concept across its
product range. "The market today is heterogeneous; hence, we need to adopt a segmented
approach to reach out to consumers," said Ms Vinita Bali, CEO. The market has moved into
a "consumption-oriented phase" which she describes as "lot more people with more money
to spend on newer products." Speaking about the "on-the-go" segment, Mr Neeraj Chandra,
Marketing Head, said: "It is priced in Rs 1 to Rs 5 range. We hope to bring in our key
brands under this packaging. "On-the-go" is not just about packaging, it is also about
availability in different variants and distribution." Another niche segment the Company has
identified as a potential growth driver is `in-between-meals snacking', and it would soon be
rolling out more products to address this category. The Company has in the past launched
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products targeted at the "occasion-based" (such as Diwali greetings gift packs, etc)
segment.Meanwhile, it is currently test marketing newer products, which may be taken
national subsequently.These include cup cakes in Kolkata, Marie Gold Doubles in Chennai,
and Mozzarella cheese in Mumbai.It introduced Marie Gold Doubles with the `biscuit
within a biscuit' catchline in Chennai and plans a phased launch in the rest of the country.
MARKETING STRATEGY
Marketing is not Euclidean geometry a fixed system of concept. Rather marketing is one of
the dynamic fields with in the management arena. The market faces continually a new
challenge everyday and companies must respond to it positively. Therefore it is not
surprising that new market idea keep surfacing to meet new market place challenges. The
market process is applicable to more than goods and services. Anything related to market
including ideas, events, policies, prices and personalities comes under market strategy.
However it is important to emphasize opportunity in the market through market strategy.
Following strategies adopted by the organization.
 A strong quality of the product and customer satisfaction:
Customers always believe in good quality product. in my survey I found that in percentage
term more people is quality conscious and not price conscious. Customer satisfaction is
very important part of the organization that at any cost they have to fulfill.
 A growing relationship with customer and customer retention:
Nowadays a good relation with customer is very important for organization. Sale is totally
depending on the relation with the customers. Customer's retention is also a major aspect
for growing business. It means keep the old customer and tries to make new customer.
 Focus on competitors activity:
Every organization should must be careful about its competitors step, because they can
disturb the growing sales process of the organization.
 A growing emphasis on global thinking and local marketing planning:
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Companies are increasing by pursuing market beyond their borders. When they enter other
countries they must follow the tradition of that country and also they make plan for local
market that which type of product has more demand and how can it run in the market.
 Promotional Strategy
Under the market strategy promotional idea is very important. Organization provides some
schemes or rebates to retailers or consumers. They make advertisement according to
convenient of the people and the feature of the product. So on the basis of marketing
strategy a organization runs in the market. It is several types of which makes helpful to
increase sales and turnover of the organization.
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INDUSTRY EVALUATION
HINDUSTAN Unilever Ltd (HUL)
The Company abides by a 'Code of Business Principles' and the management ensures that
it is communicated to, understood and observed by every single employee. HUL is reputed
for conducting its business in a transparent manner with honesty and integrity and with
respect for the interests of those the Company's activities can affect. HUL believes that this
reputation is an asset, just as real as its people, brands and factories.
HUL markets products, which consistently offer value in terms of price and quality and are
safe for their intended use. Its operations are run in an environmentally sound and
sustainable manner, ensuring that the processes and products conform to standards set by
the authorities. If HUL straddles the Indian corporate world, it is also single-minded in
identifying itself with Indian aspirations and devotes itself to upgrading the value of Indian
resources to globally competitive levels. Focus on exports by leveraging its position as a
cost-efficient sourcing area for Unilever globally, Company officials said. HUL reported an
18 per cent growth in exports with home and personal care, beverages and marine products
contributing substantially.
HUL FOCUSSES ON:
• Opportunities in leather, thermometer and mushroom and review them,'' HUL has a
significant advantage in the fact that it is a cost-efficient sourcing area for Unilever.
• The Company focusing on country specific products such as marine products, castor
oil, coffee and rice for the export market.
• HUL would continue to drive market growth by employing a strategy to understand
the consumer.
• HUL follows short supply chain for distributing its products.
• Optimum utilization of resources.
• Focus on Power brands
• Improving profitability of Foods business
• Securing the future of non core businesses
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Analyze the customer base of the industry, including an identification of

the key market segments.
The inception of the retail industry dates back to times where retail stores were found in
the village fairs, Melas or in the weekly markets. These stores were highly unorganized.
The maturity of the retail sector took place with the establishment of retail stores in the
locality for convenience. With the government intervention the retail industry in India took
a new shape. Outlets for Public Distribution System, Cooperative stores and Khadi stores
were set up. These retail Stores demanded low investments for its establishment. The large
pool of emerging middle class, with population of more than 350 million lies at the center
of big bets for the major retail industry players. The changing consumption patterns are
raising the demand for lifestyle products. While organized retailer sector in India is targeted
at high-income urban customers, unorganized retail sector primarily caters to traditional
customer base of lower income sections in the rural pockets of India. This is probably why
the two forms of retailing manage to co-exist in India. Organized Indian Retail Sector has
undergone rapid changes and has met morphed into a high-growth industry. With the
mushrooming of malls, multiplexes, and supermarkets consumers are treated to a
completely different shopping experience. With a gamut of services, freebies and bonanzas
as addendum, organized retail sector are getting all the customer attention.
The stature of the Indian Retail Industry is significant, with a whooping 5 million retail
outlets spanning across the country. However most of these are self-styled traditional units,
with significant local presence, lacking anything close to a modern retailing industry. For
this very reason, industry experts feel that opportunities in organized retailing are going to
increase manifold. The market research report, “India Retail Sector Analysis (2006-2007)”,
accredits the Indian Retail Industry as a significant revenue churner, with a market size of
Rs. 10 Trillion as per 2005. Organized Indian retail sector market size hovers around Rs
351 Billion and is rapidly gaining ground. An analysis Indian Retail Sector reveals that
average growth rate for this segment stands at around 32% in comparison to a modest 8% in
the unorganized sector. Rural India is the major revenue driver for unorganized retailing in
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INDUSTRY EVALUATION
India with a share of 76%.The overall Indian Retail Industry contributes 10% to the GDP
and a source of employment for more than 41 million individuals.
India retail industry is the largest industry in India, with an employment of around 8% and
contributing to over 10% of the country's GDP. Retail industry in India is expected to rise
25% yearly being driven by strong income growth, changing lifestyles, and favorable
demographic patterns.
It is expected that by 2016 modern retail industry in India will be worth US$ 175- 200
billion. India retail industry is one of the fastest growing industries with revenue expected
in 2007 to amount US$ 320 billion and is increasing at a rate of 5% yearly. A further
increase of 7-8% is expected in the industry of retail in India by growth in consumerism in
urban areas, rising incomes, and a steep rise in rural consumption. It has further been
predicted that the retailing industry in India will amount to US$ 21.5 billion by 2010 from
the current size of US$ 7.5 billion. Shopping in India have witnessed a revolution with the
change in the consumer buying behavior and the whole format of shopping also altering.
Industry of retail in India which have become modern can be seen from the fact that there
are multi- stored malls, huge shopping centers, and sprawling complexes which offer food,
shopping, and entertainment all under the same roof.
India retail industry is expanding itself most aggressively; as a result a great demand for
real estate is being created. Indian retailers preferred means of expansion is to expand to
other regions and to increase the number of their outlets in a city. It is expected that by
2010, India may have 600 new shopping centers.
In the Indian retailing industry, food is the most dominating sector and is growing at a rate
of 9% annually. The branded food industry is trying to enter the India retail industry and
convert Indian consumers to branded food. Since at present 60% of the Indian grocery
basket consists of non- branded items. India retail industry is progressing well and for this
to continue retailers as well as the Indian government will have to make a combined effort.
* India Shopping Malls
* Scope of the Indian Retail Market
* Indian Organized Retail Market
* Growth Factors in Indian Organized Retail sector
* Opportunities in Indian Organized Retail sector
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INDUSTRY EVALUATION
* Challenges facing the Indian Organized Retail sector

* Role of Supply Chain in Indian Organized Retail
* Employment Generation by Indian Organized Retail Sector
* Indian Organized Retail Sector's Impact on Lifestyles
* Emerging Trends in Indian Organized Retail Sector
* Growth of Retail Companies in India
* Evolution of Indian Retail
* FDI in Indian Organized Retail Sector
* Formats in Indian Organized Retail Sector
* Consumer Durables Retail
The Indian retail market, which is the fifth largest retail destination globally, has been
ranked the second most attractive emerging market for investment after Vietnam in the
retail sector by AT Kearney's seventh annual Global Retail Development Index (GRDI), in
2008. The share of retail trade in the country's gross domestic product (GDP) was between
8–10 per cent in 2007. It is currently around 12 per cent, and is likely to reach 22 per cent
by 2010. A McKinsey report 'The rise of Indian Consumer Market', estimates that the
Indian consumer market is likely to grow four times by 2025. Commercial real estate
services Company, CB Richard Ellis' findings state that India's retail market is currently
valued at US$ 511 billion. Banks, capital goods, engineering, fast moving consumer goods
(FMCG), software services, oil marketing, power, two-wheelers and telecom companies are
leading the sales and profit growth of India Inc in the fourth quarter of 2008-09. India
continues to be among the most attractive countries for global retailers. At US$ 511 billion
in 2008, its retail market is larger than ever and drawing both global and local retailers.
Foreign direct investment (FDI) inflows as on January 2009, in single-brand retail trading,
stood at approx. US$ 25.18 million, according to the Department of Industrial Policy and
Promotion (DIPP).
India's overall retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3
trillion by 2018, at a compound annual growth rate (CAGR) of 10 per cent. As a democratic
country with high growth rates, consumer spending has risen sharply as the youth
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INDUSTRY EVALUATION
population (more than 33 percent of the country is below the age of 15) has seen a
significant increase in its disposable income. Consumer spending rose an impressive 75 per
cent in the past four years alone. Also, organised retail, which accounts for almost 5 per
cent of the market, is expected to grow at a CAGR of 40 per cent from US$ 20 billion in
2007 to US$ 107 billion by 2013. India has emerged the third most attractive market
destination for apparel retailers, according to a new study by global management consulting
firm AT Kearney. It further says that in India, apparel is the second largest retail category,
representing 10 per cent of the US$ 37 billion retail market. It is expected to grow 12-15 per
cent per year. Apparel, along with food and grocery, will lead the organised retailing in
India. India has one of the largest numbers of retail outlets in the world. A report by Images
Retail estimates the number of operational malls to grow more than two-fold, to cross 412,
with 205 million square feet by 2010, and a further 715 malls to be added by 2015, with
major retail developments even in tier-II and tier-III cities in India.
• Marks & Spencer Reliance India is planning to open 35 more stores over the next
five years, according to Mark Ashman, CEO of the Company. The 51:49 joint
venture between UK’s Marks and Spencer and Reliance Retail Ltd already has 15
stores in India.
• Future Group has been restructured to test the new rules on FDI under Press Notes
2, 3 and 4 issued in February 2009. The Company plans to bring in up to US$ 148.7
million in foreign investment. Although FDI is permitted only in single-brand retail
and not permitted in multi-brand retail businesses like Future Group's, the
conglomerate has created two layers of operations to take advantage of the three
Press Notes that allow FDI up to 49 per cent in operating-cum-investment
companies as long as they are owned and controlled by Indians.
• Carrefour SA, Europe’s largest retailer, may start wholesale operations in India by
2010 and plans to set up its first cash-and-carry outlet in the National Capital
Region. Currently, Carrefour exports goods worth US$ 170 million from India to
Europe, UAE, Indonesia, Europe, Thailand, Singapore and Malaysia.
• Jewellery manufacturer and retailer, Gitanjali Group and MMTC are jointly setting
up a chain of exclusive retail outlets called Shuddi–Sampurna Vishwas. The joint
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venture, which plans to open around 60 stores across India by end of this year, will
retail hallmarked gold and diamond jewellery.
• Mahindra Retail, a part of the US$ 6.7-billion Mahindra Group, plans to invest US$
19.8 million by 2010 to step up its specialty retail concept 'Mom and Me'.
Policy Initiatives
100 per cent FDI is allowed in cash-and-carry wholesale formats. Franchisee arrangements
are also permitted in retail trade. 51 per cent FDI is allowed in single-brand retailing.
Road Ahead (future)
A major impediment to the growth of retail in India is the huge number of licenses and
permissions required to operate, coupled with the fact that retail does not enjoy industry
status.
According to industry experts, the next phase of growth is expected to come from rural
markets, with rural India accounting for almost half of the domestic retail market, valued
over US$ 300 billion. Rural India is set to witness an economic boom, with per capita
income having grown by 50 per cent over the last 10 years, mainly on account of rising
commodity prices and improved productivity. According to retail and consumer products
division, E&Y India, basic infrastructure, generation of employment guarantee schemes,
better information services and access to funding are also bringing prosperity to rural
households. The rural market, product design will need to go beyond ideas like smaller
sizes (such as single use sachets) to create genuinely new products, according to Ramesh
Srinivas, national industry director (consumer markets), KPMG India. According to the
Investment commission of India, the overall retail market is expected to grow from US$
262 billion to about US$ 1065 billion by 2016, with organized retail at US$ 165 billion
(approximately 15.5 per cent of total retail sales). India is expected to be among the top 5
retail markets in the world in 10 years.
According to new market research report by RNCOS titled, "Booming Retail Sector in
India", organized retail market in India is expected to reach US$ 50 billion by 2011.
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• Number of shopping malls is expected to increase at a CAGR of more than 18.9 per
cent from 2007 to 2015.
• Rural market is projected to dominate the retail industry landscape in India by 2012
with total market share of above 50 per cent.
• Organized retailing of mobile handset and accessories is expected to reach close to
US$ 990 million by 2010.
• Driven by the expanding retail market, third party logistic market is forecasted to
reach US$ 20 billion by 2011.
A market analysis of the important competitors, their strategy objectives,

weaknesses & problems. Attempt to identify the SCAs of the major
competitors.
Strengths
HUL enjoys a formidable distribution network covering over 3400 distributors and 16
million outlets. This helps them maintain heavy volumes, and hence, fill the shelves of most
outlets. The new sales organization named 'One HUL' brings "Household and Personal
Care" and foods distribution networks together, thereby aligning all the units towards the
common goal of achieving success. HUL has been continuously able to grow at a rate more
than growth rate for FMCG Sector, thereby reaffirming its future stronghold in Indian
market.
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INDUSTRY EVALUATION
Project Shakti - Rural India is spread across 627,000 villages and possesses a serious
distribution challenge for FMCG Cos. HUL has come up with a unique and successful
initiative wherein the women from the rural sector market HUL products, and hence, are
able to reach the same wavelength as of the common man in village. Apart from product
reach, the initiative also creates brand awareness amongst the lower strata of society. This
has brought about phenomenal results.
Weaknesses
HUL's market dominance, originating from its extensive reach and strong brand presence,
allowed it to raise the prices even as raw materials were getting cheaper. Hence, though the
volumes decreased, the margins grew, and Company was able to earn more profits. But
higher margins attracted competition in areas of operations. HUL's strategy remained
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INDUSTRY EVALUATION
focused on creating power brands and earning higher margins. It was not left with any other
option but to try cutting down the costs in order to protect volumes, if not increase it.
As shown in above figure, the key differentiators for an FMCG player are ability to call
shots and pricing power, and HUL has shown weakness over both these factors.
HUL's weakness was its inability to transform its strategies at the right time. They
continued with the same old strategy which helped them gain profits but was not genuine in
this changed environment. HUL's risk aversion and market myopia led to stagnation of
business, and ferocity of competition forced it into a defensive mode. Lack of pricing power
in core business and absence of growth drivers have put HUL on a deflationary mode.
Opportunities
• India is one of the world's largest producers of FMCG goods but its exports are miniscule
as compared to production. Though Indian Cos. has been going global, their focus is more
towards Asian countries because of the similar preferences. HUL is one of the top
companies exporting FMCG goods from India. An expansion of horizons towards more and
more countries would help HUL grow its consumer base and henceforth the revenues.
• Opportunity in Food Sector - The advent of modern trade has opened up greater
opportunities for HUL to diversify its brand and strength its food division. It could look at
introducing products from its parents stable like margarines and could also look at
expanding its Knorr range of products.
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Well-placed to take advantage of future FMCG Growth - HUL reach out 80% of 207
million households in the country through various brands. It has a very well-defined product
portfolio spread across many product categories. Penetration levels for some major
categories like skin-cream (22%), shampoo (38%), toothpaste (48%) and processed foods,
continue to remain low offerings but great growth opportunities products.
Threats
ITC has reduced its dependence on the cigarettes business - Contribution of the core
business in revenues has come down from 87% in FY99 to 70% in FY05. Over a period of
five years, ITC has extended its presence into areas like foods, retailing, hotels, greetings,
agri, paper, etc. These are businesses that can give it growth impetus in the long run. With
ITC gaining momentum in each of these businesses, it is turning into a consumer monolith,
and hence, the greatest threat to HUL's Business.SSKI India has gone on to say, "We
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INDUSTRY EVALUATION
maintain Out performer on ITC with a price target of Rs. 2200, while our Under performer
call on HUL remains unaltered (price target of Rs. 160)."
Figure: ITC Has Overtaken HUL in Gross Sales
Figure: ITC Overtakes HUL in Bourses
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INDUSTRY EVALUATION
A core competency is something that a firm can do well and that meets the following three
conditions specified by Hamel and Prahalad (1990):
1. It provides customer benefits
2. It is hard for competitors to imitate
3. It can be leveraged widely to many products and markets.
A core competency can take various forms, including technical/subject matter know how, a
reliable process, and/or close relationships with customers and suppliers (Mascarenhas et al.
1998). It may also include product development or culture such as employee dedication.
Modern business theories suggest that most activities that are not part of a Company's core
competency should be outsourced. If a core competency yields a long term advantage to the
Company, it is said to be a sustainable competitive advantage. As an example they gave
Honda's expertise in engines. Honda was able to exploit this core competency to develop a
variety of quality products from lawn mowers and snow blowers to trucks and automobiles.
To take an example from the automotive industry, it has been claimed that Volvo’s core
competency is safety. This however is perhaps the end result of their competency in terms
of customer benefit. Their core competency might be more about their ability to source and
design high protection components, or to research and respond to market demands
concerning safety.
Competitive advantage
When a firm sustains profits that exceed the average for its industry, the firm is said to
possess a competitive advantage over its rivals. The goal of much of business strategy is to
achieve a sustainable competitive advantage. A competitive advantage exists when the firm
is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or
deliver benefits that exceed those of competing products (differentiation advantage). Thus,
a competitive advantage enables the firm to create superior value for its customers and
superior profits for itself. Cost and differentiation advantages are known as positional
advantages since they describe the firm's position in the industry as a leader in either cost or
differentiation. A resource-based view emphasizes that a firm utilizes its resources and
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INDUSTRY EVALUATION
capabilities to create a competitive advantage that ultimately results in superior value

creation.
The Competitive Advantage model of Porter learns that competitive strategy is about taking
offensive or defensive action to create a defendable position in an industry, in order to cope
successfully with competitive forces and generate a superior return on investment.
According to Michael Porter, the basis of above-average performance within an industry is
sustainable competitive advantage.
There are 2 basics types of CA:
- cost leadership (low cost), and - Differentiation.
Both can be more broadly approached or narrow, which results in the third viable
competitive strategy: focus.
Approach 1 to Competitive advantage: Cost leadership.
•a firm sets out to become the low cost producer in its industry.
• Note: a cost leader must achieve parity or at least proximity in the bases of differentiation,
even though it relies on cost leadership for it’s CA.
• Note: if more than one Company aim for cost leadership, usually this is disastrous.
• Often achieved by economies of scale
Competitive advantage model 2: Differentiation.

•a firm seeks to be unique in it’s industry along some dimensions that are widely valued by
buyers.
• Note: a differentiator cannot ignore its cost position. In all areas that do not affect it’s
differentiation it should try to decrease cost; in the differentiation area the costs should at
least be lower than the price premium it receives from the buyers.
• Area’s of differentiation can be: product, distribution, sales, marketing, service, image,
etc.
Competitive advantage 3: Focus. = a firm sets out to be best in a segment or group of
segments.
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INDUSTRY EVALUATION
• 2 variants: cost focus and differentiation focus.

Stuck in the middle:
• Usually a recipe for below-average profitability compared to the industry
• Still attractive profits are possible if and as long as the industry as a whole is very
attractive
• Manifestation of lack of choice
• Especially risky for focusers that have been successful and then to loose their focus. They
must seek for other niches rather then compromise their focus strategy.
A firm possesses a Sustainable Competitive Advantage (SCA) when it has value-creating
processes and positions that cannot be duplicated or imitated by other firms that lead to the
production of above normal rents. An SCA is different from a competitive advantage (CA)
in that it provides a long-term advantage that is not easily replicated.
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INDUSTRY EVALUATION
A historical view of the strategies pursued by the major competitors can

be described.
The Rs 11,000-crore Hindustan Lever (HUL) is formulating a new strategy to expand its
presence in India’s rural markets. HUL is one among those companies in the country that
derives huge revenues (over 50 per cent) from the rural areas. But in the past one year,
owing to the failure of the monsoon in many parts of the country, farmers have registered a
substantial fall in incomes and consequently the purchasing power. For the Company this
has resulted in a flat growth of these markets. Witnessing the flat sales growth in rural
areas, HUL has shifted its rural markets strategy. Earlier each business division of the
Company dealt with the rural market on an individual basis; now the shift in strategy means
the Company will deal with rural markets as a single organization to achieve greater
penetration and sales.
This approach is expected to lead to better cohesion, greater push and deeper penetration,
which would eventually lead to better sales. HUL officials say it is not enough that
individual business divisions push their own strategies for the rural market; the Company
will have to work in unison in order to achieve a balanced growth.HUL plans to reach 2,
35,000 villages, up from the current 85,000; 75 per cent of the population, up from 43 per
cent today; and a message reach of 65 per cent, up from the current television reach of 33
per cent.HUL is aiming at reaching villages with populations less than 2,000. The rural
penetration exercise is going to be complemented by a 15-per cent hike in advertisement
expenditure. In 1998 HUL’s personal products unit initiated Project Bharat, the first and
largest rural home-to-home operation to have ever been prepared by any Company. The
project covered 13 million rural households by the end of 1999.
During the course of operation, HUL had vans visiting villages across the country
distributing sample packs comprising a low-unit-price pack each of shampoo, talcum
powder, toothpaste and skin cream priced at Rs 15. This was to create awareness of the
Company’s product categories and of the affordability of the products. The personal
products unit subsequently rolled out a second phase of the sampling initiative to target
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INDUSTRY EVALUATION
villages with a population of over 2,000. Along with Operation Bharat, HUL
conceptualized Project Streamline to enhance its control on the rural supply chain through a
network of rural sub-stockiest based in these villages. This gave the Company the required
competitive edge, and extended its direct reach to 37 per cent of the country’s rural
population. The Indian rural market has a huge demand base and offers great opportunities
to marketers. Two-thirds of Indian consumers live in rural areas and almost half of the
national income is generated here. As a rule the rural market is much more price elastic and
involves more intensive personal selling efforts compared to urban marketing, and here
HUL has been more than successful.
India’s largest FMCG Company Hindustan Unilever ltd (HUL) is gearing up to launch its
rural initiative ‘Project Shakti’ in Bihar and Jharkhand very soon. Project Shakti will be
operational across all states in India. The Company also plans to cover 5, 00,000 villages
with 1, 00,000 Shakti Ammas (women entrepreneurs) in the next two years. Competitor
ITC Ltd is also planning to set up 50 Choupal Sagars (rural super stores) by the end of this
fiscal year. Clearly, India’s two major FMCG players in rural markets are now extending
their reach to woo new consumers.
On HUL’s rural strategy, Dalip Sehgal, executive director (New Ventures & Marketing
Services),HUL, said: ”To support Project Shakti, we are now launching value-added
services in rural belts. With Shakti Vanis, we are educating villagers on health and hygiene.
Also, we are running campaigns on ORS (Oral Rehydration Solutions)in villages."As part
of the strategy, HUL has tied up with Skojo Foundation to offer spectacles to villagers at
low price points. As for ITC, S Sivakumar, chief executive, agri business, ITC, said: "We
have introduced ‘Choupal Prathishtan Keth’ to showcase the best farming practices to
farmers. At present, we have 10 Choupal Sagars spread across nine states, and nine more
Choupal Sagars are under construction." Interestingly, ITC and HUL are also beefing up
their marketing efforts to gain market share in urban India. For instance, ITC has just
launched ‘Choupal Fresh’ in Hyderabad. "It’s an urban initiative on retailing rural produce
like vegetables and fruits. After Hyderabad, we will launch this urban initiative in Pune,"
explained Shivakumar. To woo urban consumers, HUL is also extending the services of its
‘Ayush Therapy Centres (ATC)’ from 26 to 40 by the end of this year.
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INDUSTRY EVALUATION
Analyze the environment trends, opportunities & threats. Suggest

possible scenarios for the future.
ITC Ltd is now evolving new standards in corporate social responsibility, in terms of
environment, health and safety (EHS) - going well beyond the statutory compliance levels,
to emerge as water and carbon positive. The Company has launched a major EHS exercise
to sensitise all its employees, including the rank and file, to understand the requirements of
the voluntary "Global Reporting Initiatives" (GRI) in keeping with the goal of "enhancing
the quality, rigour and utility of sustainability reporting. He said ITC is now making efforts
to go beyond the compliance levels mandated by the various statutes governing
environment and corporate safety, and has already emerged as water positive.
Opportunities
The Company’s strengths and weaknesses and areas of development or decline are
analyzed. Financial, strategic and operational factors are considered.
• The opportunities open to the Company are considered and its growth potential assessed.
Competitive or technological threats are highlighted.
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INDUSTRY EVALUATION
• The report contains critical Company information – business structure and operations, the
Company history, major products and services, key competitors, key employees and
executive biographies, different locations and important subsidiaries
• It provides detailed financial ratios for the past five years as well as interim ratios for the
last four quarters.
• Financial ratios include profitability, margins and returns, liquidity and leverage, financial
position and efficiency ratios.
ITC is moving into new and emerging sectors including Information Technology,
supporting business solutions. e-Choupal is a community of practice that links rural Indian
farmers using the Internet. This is an original and well thought of initiative that could be
used in other sectors in many other parts of the world. It is also an ambitious project that
has a goal of reaching 10 million farmers in 100,000 villages. ITC leverages e-Choupal in a
novel way. The Company researched the tastes of consumers in the North, West and East of
India of atta (a popular type of wheat flour), then used the network to source and create the
raw materials from farmers and then blend them for consumers under purposeful brand
names such as Aashirvaad Select in the Northern market, Aashirvaad MP Chakki in the
Western market and Aashirvaad in the Eastern market. This concept is tremendously
difficult for competitors to emulate. Chairman Yogi Deveshwar's strategic vision is to turn
his Indian conglomerate into the country's premier FMCG business. Per capita consumption
of personal care products in India is the lowest in the world offering an opportunity for
ITC's soaps, shampoos and fragrances under their Wills brand.
Threats
The obvious threat is from competition, both domestic and international. The laws of
economics dictate that if competitors see that there is a solid profit to be made in an
emerging consumer society that ultimately new products and services will be made
available. Western companies will see India as an exciting opportunity for themselves to
find new market segments for their own offerings. ITC's opportunities are likely to be
opportunities for other companies as well. Therefore the dynamic of competition will alter
in the medium-term. Then ITC will need to decide whether being a diversified
conglomerate is the most competitive strategic formation for a secure future.
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INDUSTRY EVALUATION
POSSIBLE SCENARIOS FOR THE FUTURE

Our non-tobacco business comprised 38 per cent of net turnover in 2003-04, and this was
up to over 51 per cent in the second quarter of this year. While our tobacco business grew
13 per cent last year, non-tobacco grew 53 per cent. Hyderabad is in for more retail action.
The Future Group’s Food Bazaar has tied up with ITC Choupal Fresh to sell fruits and
vegetables in the twin cities. It plans to replicate the model in the other cities if the
experiment is successful, said Food Bazaar CEO Sadashiv. Choupal Fresh is ITC’s food
retail chain and operates as wholesale-cum-retail stores. It is equipped with warehousing
and cold chain facilities to stock fresh horticulture products that are directly sourced from
farmers.
The retail chain leverages on the extensive backward linkages with farmers and supply
chain efficiencies. Food Bazaar is expected to take advantage of the infrastructure by
partnering with ITC’s Choupal Fresh. “We have tied up with local dealers for the supply of
fruits and vegetables. These dealers can now tie up with ITC Choupal Fresh to make their
produce available at the Food Bazaar stores,” he said. Besides such tie-ups , the Company is
also planning to invest around Rs 200 crore to expand its reach by doubling the number of
stores by July next year with a host of new product offerings . Food Bazaar has around 90
stores now and is targeting 180 in seven top cities.
FMCG Company ITC Ltd is poised to make aggressive inroads into the market with a slew
of new launches in the branded and packaged foods business. The Company is also
contemplating the setting up a composite foods manufacturing facility in Bangalore shortly,
entailing an investment of up to Rs 700 crore. "We are consciously capitalising a lot of our
efforts to expand our existing product categories in all four segments," ITC Foods
divisional chief executive Ravi Naware said in an informal chat with mediapersons on the
occasion of Sunfeast Open 2007. ITC has a presence in four segments - ready to eat foods,
staples, confectionery and snack foods.
He, however, refused to name the segment that would witness new offerings over the next
six months. "Like Sunfeast Sachin Fit Kit's multi-grain biscuits, we are also working on
63
INDUSTRY EVALUATION
introducing higher variants in our existing range of products, in response to consumer

choice and preference in urban centre’s," On the Company's plans for a third manufacturing
unit, Mr. Naware said: "We plan to set up another manufacturing facility in Bangalore.
However we are yet to decide whether it will be a foods unit only or a 'composite facility'
manufacturing personal care products too." ITC Foods already has a unit in Haridwar
(Uttaranchal) and is slated to commission its second unit at Pune in January 2008.
If the Company decides to set up an integrated food manufacturing facility, total outlay on
the project will be in excess of Rs 700 crore upwards as a similar plant in Haridwar entailed
such an investment, Mr. Naware said. Setting up of a Bingo producing snacks food unit will
require an investment of a couple of hundred crore only. ITC's decision to locate
manufacturing facility in each region is largely prompted by packaging needs. This is also
the reason why the Company could be looking at a fourth unit in West Bengal. The
organised market for biscuits is estimated at Rs 5,000 crore, of which ITC has a 11% value
share.
Elaborating on future plans, Mr Naware said: "We are always open to opportunities for
inorganic growth, but it must be an economically viable proposition. We do not want to pay
a high price for the sake of inorganic growth." Incidentally, the Company had acquired
Mint-O brand from Candico. ITC Ltd's foods division is also planning to increase the export
component of its 'Kitchens of India' range of premium ready-to-eat Indian dishes. Kitchens
of India's vegetable curries, chutney and pastes are available in the US and Canada. It has
also started exporting Sunfeast and Aashirvaad atta in a small way.
64
INDUSTRY EVALUATION
Assess the industry from a BCG/McKinsey portfolio analysis.
India retail industry is the largest industry in India, with an employment of around 8% and
contributing to over 10% of the country's GDP. Retail industry in India is expected to rise
25% yearly being driven by strong income growth, changing lifestyles, and favorable
demographic patterns. It is expected that by 2016 modern retail industry in India will be
worth US$ 175- 200 billion. India retail industry is one of the fastest growing industries
with revenue expected in 2007 to amount US$ 320 billion and is increasing at a rate of 5%
yearly. A further increase of 7-8% is expected in the industry of retail in India by growth in
consumerism in urban areas, rising incomes, and a steep rise in rural consumption. It has
further been predicted that the retailing industry in India will amount to US$ 21.5 billion by
2010 from the current size of US$ 7.5 billion. Shopping in India have witnessed a
revolution with the change in the consumer buying behavior and the whole format of
shopping also altering. Industry of retail in India which have become modern can be seen
65
INDUSTRY EVALUATION
from the fact that there are multi- stored malls, huge shopping centers, and sprawling
complexes which offer food, shopping, and entertainment all under the same roof.
India retail industry is expanding itself most aggressively; as a result a great demand for
real estate is being created. Indian retailers preferred means of expansion is to expand to
other regions and to increase the number of their outlets in a city. It is expected that by
2010, India may have 600 new shopping centers. India's overall retail sector is expected to
rise to US$ 833 billion by 2013 and to US$ 1.3 trillion by 2018, at a compound annual
growth rate (CAGR) of 10 per cent. As a democratic country with high growth rates,
consumer spending has risen sharply as the youth population (more than 33 percent of the
country is below the age of 15) has seen a significant increase in its disposable income.
Consumer spending rose an impressive 75 per cent in the past four years alone. Also,
organised retail, which accounts for almost 5 per cent of the market, is expected to grow at
a CAGR of 40 per cent from US$ 20 billion in 2007 to US$ 107 billion by 2013.
The GE matrix / McKinsey matrix is a model to perform a business portfolio analysis on
the Strategic Business Units of a corporation.
66
INDUSTRY EVALUATION
A business portfolio is the collection of Strategic Business Units that make up a

corporation. The optimal business portfolio is one that fits perfectly to the Company's
strengths and helps to exploit the most attractive industries or markets. A Strategic Business
Unit (SBU) can either be an entire mid-size Company or a division of a large corporation
that formulates its own business level strategy and has separate objectives from the parent
Company.
The aim of a portfolio analysis is:
• Analyze its current business portfolio and decide which SBU's should receive more
or less investment, and
• Develop growth strategies for adding new products and businesses to the portfolio.
• Decide which businesses or products should no longer be retained.
The BCG Matrix (Boston Consulting Group Matrix) is the best-known portfolio planning
framework. The GE / McKinsey Matrix is a later and more advanced form of the BCG
Matrix.
The GE / McKinsey Matrix is more sophisticated than the BCG Matrix in three aspects:
Market (Industry) attractiveness replaces market growth as the dimension of industry
attractiveness. Market Attractiveness includes a broader range of factors other than just the
market growth rate that can determine the attractiveness of an industry / market. Compare
also: Porter's Five Competitive Forces model.
Competitive strength replaces market share as the dimension by which the competitive
position of each SBU is assessed. Competitive strength likewise includes a broader range of
factors other than just the market share that can determine the competitive strength of a
Strategic Business Unit. Finally the GE / McKinsey Matrix work with a 3*3 grid, while the
BCG Matrix has only 2*2. This also allows for more sophistication.
McKinsey Matrix is strategic and marketing management tool used for portfolio analysis.
Most of the time this tool is used for analyzing portfolio of products, services, and strategic
business units. GE Matrix is similar to BCG Matrix and it is an extension of the BCG
Matrix approach - multifactor portfolio analysis tool. The GE Matrix compares different
businesses on "Business Strength" and "Market Attractiveness" variables, plus the size of
the bubbles in the matrix represents the market size instead of business sales used in the
67
INDUSTRY EVALUATION
BCG Matrix. The share of the market or business sales vs. market size is represented as pie
chart inside the bubbles in the matrix. This allows business users to compare business
strength, market attractiveness, market size, and market share for different strategic
business units (SBUs) or different product offerings on one matrix or chart.
Bibliography
Strategic Market Management: Fifth Edition by David A. Aaker

http://www.rediff.com/money/2005/oct/31spec.htm
http://www.1000ventures.com/ebooks/bec_mc_sustainable_competitive_advantage.html
http://www.itcportal.com/the_itc_profile/history_evolution.html - top
http://www.itcportal.com/the_itc_profile/itc_profile.html - top
http://economictimes.indiatimes.com/articleshow/3375041.cms
http://www.itcportal.com/the_itc_profile/history_evolution.html - top
www.mdi.ac.in/.../Final%20%20-%20Strategic%20Market%20Management.pdf –
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INDUSTRY EVALUATION

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INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT

GROUP PROJECT: INDUSTRY EVALUATION

Prof. Jayant Bose Silky Kapoor

Strategic Market Management

Profile of the Company (ITC)

STRATEGIC MARKET MANAGEMENT

Profile of the Company (ITC)

HISTORY AND EVOLUTION

THE ITC WAY

ITC is a board-managed professional Company, committed to creating enduring value for

ITC’S CORPORATE STRATEGIES ARE:

 Create multiple drivers of growth by developing a portfolio of world class

To enhance the wealth generating capability of the enterprise in a globalizing environment,

Examples of FMCG generally includes a wide range of frequently purchased consumer

Indian FMCG Market Size (In US $ Billion).

(Source: IBEF FMCG Analysis)

Rise in Disposable Income

Rise In Disposable Income (In USD Thousand)

(Source: Euro Monitor Goldman Sachs BRIC Report)

Significant Presence of Unorganized Sector –

Major players in FMCG sector

Leading competitor of ITC & their business

Code of Business Principles

Obeying the Law

Unilever is committed to establishing mutually beneficial relations with our suppliers,

Unilever is committed to making continuous improvements in the management of our

Performance Key Statistics:

Figures in Rs. Crores

ACCOUNT ITEM 2007 2006

(including Ice cream)

Comparison of two FMCG majors; HUL & ITC

Hindustan Unilever Lever

PERFORMANCE: Despite diversification, ITC’s reliance on cigarettes is still huge. The

Sustainable Competitive Advantage

Company’s annual report, this would be achieved through a combination of synergistic

Role of Each Member

 Factories – Supply to 18 godowns

TERMS & CONDITIONS

 WDs – Zero overnight credit basis

 Demand Estimation – collaborative forecasting( Sales force with dealers)

 Forecast based on last month sales

Flow of Information in the Distribution Network

 Zero day credit policy

PROBLEMS FACED by ITC CHAIN

1. Shortages in supply system

Pilferage of stock during transportation

 Due to improper action of WDs

Following strategies adopted by the organization.

 A strong quality of the product and customer satisfaction:

 A growing relationship with customer and customer retention:

 Focus on competitors activity:

 A growing emphasis on global thinking and local marketing planning:

HINDUSTAN Unilever Ltd (HUL)

HUL FOCUSSES ON:

Analyze the customer base of the industry, including an identification of

* Challenges facing the Indian Organized Retail sector

Road Ahead (future)

A market analysis of the important competitors, their strategy objectives,

Figure: ITC Has Overtaken HUL in Gross Sales

Figure: ITC Overtakes HUL in Bourses

capabilities to create a competitive advantage that ultimately results in superior value

Competitive advantage model 2: Differentiation.

• 2 variants: cost focus and differentiation focus.

A historical view of the strategies pursued by the major competitors can