Posts Tagged ‘ITC’
Cash & Carry retail in India
Posted on: August 10, 2011
Cash and carry is a membership based retail store selling limited SKUs in bulk packs. Cash and carry has a membership requirement. Customers are usually members of the club and pay an annual fee in order to continue their membership. It is not like any other retail outlet where in one can go and buy items. It is limited to only certain members like wholesalers, semi-wholesalers and retailers. For example, METRO Cash and Carry India & Wal-Mart Cash & Carry, which are well-known to most people, are a good example of this format. Some of the recent entrants into this format are Carrefour and Reliance Retail.
Cash and carry models are able to sell at lower prices because of the basic, no frills format of the stores, volume of sales, low cost location and lower inventory carrying costs. Cash and Carry offers private labels as well as branded goods. The first Cash & Carry format store was opened in India by METRO in 2003. Most of the Indian companies want to tie-up with the International companies, and vice-versa, as 100% FDI is allowed in this format. This helps the Indian companies to learn the international best practices and technologies. The German company, Metro was the first one to enter the country. If you want to shop in Metro, you need to have a sales tax number with you and it is meant basically for retailers and distributors and not for consumers. And, you cannot shop for less than Rs 1,000 and, in product offerings, you cannot buy two to three, you have to buy six or more pieces of one particular product. Currently, Metro is present in six cities, present in all the Agricultural Produce Marketing Committee (APMC) licensed states.
Indian retailers are interested in venturing with foreign retailers as we do not have capability to manage the operations for a cash and carry format. We do not have the expertise as developed countries do. Cash and carry format requires a strong backend support. Foreign players are looking for joint ventures with local retailers because they are interested in MBOs or retail outlet, apart from cash and carry format. Having an Indian partner gives them local support and they enjoy the chance to capitalize on a network, which is already established by the local player.
Most of the purchases for the hotels business happen through a network of purchase managers, who have long-term relationship with, let’s say, 200 suppliers. It is very unorganized. It is a challenge to convert that habit to a unified buying structure in large hotels. Now Metro supplies the Taj and Oberoi on a national basis. This means those guys had to change the entire system of purchasing and orient themselves to one particular supplier. It takes some time to get convinced of these changes. There are now dedicated supply-chains to these hotel chains from the Cash & Carry stores.
The Cash & Carry format in India is still in its infancy and will face a lot of changes. They need to develop new channels, and optimize their supply chains for more profits. Also, it is to be seen on how the Cash & Carry format business will be affected with the government keen to allow FDI so that the global giants can set their shops in the streets.
Thank you.
Cigarettes in India
Posted on: June 1, 2011
- In: Business
- 3 Comments
Following are the different types of cigarettes in India:
Longs
Cigarette Length: 90mm, 102mm
Brands present: More, Virginia Slim
King Size Filter Tip (KSFT)
Cigarette Length: 84mm
Brands present: Wills Classic, Gold Flake King Size (Premium)
Mini King Size Filter Tip (MKSFT)
Cigarette Length: 76mm
Brands present: Navy Cut; Because of only Navy Cut this category is present.
Regular Size Filter Tip (RSFT)
Cigarette Length: 69mm
Brands present: Gold Flake Regular, and a lot of other brands
Plains – These are regulars without the filter and this is a dying category.
Micros – These are the smallest cigarettes without the filter and it is a dying category.
The total number of smokers in India are 5 million and the total number of tobacco consumption consumers are 9 million (including the ghutka, khaini, bidi). ITC commands a whopping share of around 80+% followed by Godfrey Philips with around 6-9% market share. Gold Flake is the largest selling brand in India.
Overall, the cigarette companies have tremendous challenge with regulations and taxes becoming heavier for them day by day. Already, in countries like the UK, the government has given a notice that all cigarette packs should only come in a white packaging without any branding. So, companies are trying to brand inside the pack. Also, in many countries it is counter-advertised that it is not cool anymore to smoke a cigarette.
ITC completes 100 years
Posted on: August 30, 2010
- In: Business | Marketing | Uncategorized
- 4 Comments
ITC is today the leading FMCG marketeer in India, the clear market leader in the Indian Paperboard and Packaging industry, the second largest hotel chain and a leader in establishing new benchmarks in Responsible Luxury, as well as the country’s foremost agri-business player pioneering rural transformation through its pathbreaking e-Choupal initiative.
One of ITC’s most important assets today is its pool of diverse core competencies residing in its various businesses. ITC’s hotels are at the vanguard of service excellence and are an embodiment of “Responsible Luxury”. As is well known India is grossly under-roomed and needs 50,000 rooms in the next 2 to 3 years. One of ITC’s greatest strength is that it is least affected by inflation. The company’s domination of India’s highly priced inelastic cigarettes business insulates it from the vagaries of inflation.ITC is growing very fast and may soon dominate Hindustan Unilever (HUL) in the FMCG and other businesses.
The last few years were a golden period for the FMCG industry. The economy was growing at a faster rate, imput prices were low, and inflation was low. This year the food inflation is very high around 12%, and the raw material cost has increased upto 15 to 20 percent compared to last year. The operating margins which are typically about 20 percent in the last few years have seen a drop to almost 16 percent.
High food inflation has an adverse affect on the FMCG industry. People will spend less money on discretionary items which will hit he FMCG industry. They say the fate of HUL is dependent on the monsoons. A good monsoon will not give any inflation worries and also increases the consumption power creating demand for hair oil, biscuits, soaps, shampoos, laundry, and toilet soaps.
High input costs
High input costs are another worry for existing woes. The cost of milk powder and sugar has gone up by 35 percent and 19 percent YOY and Nestle India is really struggling on its margins. The wheat used in ITC’s biscuits is up 10-15 percent thi year, the Copra used by Marico cost 10 percent more, the coconut and palm kernel oil used by Godrej Consumer has risen by 15-20 percent, and the menthol used by Emami has gone up by 20 percent. The heavy rains in Kerala might have caused the cost of Copra to increase and it doesn’t seem to be temporal. So, maintaining the margins this year is a tough task. Some of the FMCG players say that they will not increase the price of Low Unit Packs (LUPs) but may increase the prices of higher priced stock-keeping units (SKUs). The packaging cost which is very important in the FMCG sector has shot up by around 10 percent this year. They are expected to stay that way caused by the strong crude prices at $80 per barrel.
Rural Market is the way
Urban Markets are showing lower growth as compared to the rural hinterland. It is estimated that the big daddy Hindustan Unilever (HUL) gets almost 50 percent of their revenue from rural India , and Dabur gets almost 55 percent, and Marico gets 25 percent of their revenue from rural India. The Urban Markets are saturated with more and more competitors and less margins for the companies. For example, Toothpaste has a rural penetration of 40 percent as against 72 percent in the Urban areas. The underpenetrated categories such as toothpaste can be taken advantage of by companies like Colgate and HUL. Colgate started an initiative to educate people about the advantages of toothpaste and influence conversions from toothpowder and others. The volume growth in such categories will be fast.Shampoos showed a growth of 8.9 percent (Jan to May’10) compared with an urban volume growth of 2.5 percent.
The government schemes which have been launched over the past few years had helped in increasing the disposable income, in turn the purchasing power of rural India. Schemes such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) which aim to put around Rs. 40,000 crores in the hands of the rural poor, leaves a large population with higher disposable incomes. This leads to some basic changes in the consumption patterns of greater consumption of personal care and above basic food requirements.
India is one of the most challenging markets in the world which fooled big marketers and companies across the world. We have over 1500 Gods segmented into 350 broad categories, and we have a God for every single day of the week. There are 9.5 lakh pan shops, 638,667 number of villages, 612 districts, and 28 states in India. This is the country where you see a pan shop and Haagen Daz together, and a bullock cart and a Mercedes in the traffic jams. Indian market is very challenging and it really fascinates me as a marketer.A very large part of Indian population still lives in villages defining the Rural India.
Rural India is very important for many companies and there is tremendous increase in investments and strategies surrounding the rural markets. Rural India Market buys:
- 45% of all soft drinks
- 50% of motorcycles, TVs, cigarettes, washing soap, fans, blades, and a lot others.
Rural Market Opportunities
Few of the companies that are going bullish in the rural markets:
- HUL with its Project Shakti has already has a reach of 1.7 lakh villages, and aspires to reach 5 lakh villages by 2020.
- Indian Tobacco Company (ITC) has a lot of penetration in the rural markets and the eChoupals are a big hit in the rural market.
- Airtel is planning to reach around 2 lakh villages.
- Marico with its most famous brand Parachute has a reach of 1 lakh villages.
- Pepsi and Coke, the Cola giants, have a reach of 70,000 villages.
- Dabur, known for its Lal Dant Manjan and Hajmola, has a reach of 60,000 villages.
- Colgate with its Operation Jagruthi has a reach of over 60,000 villages.
- Mahindra & Mahindra sells most of its SUVs in the rural market.
Mahindra Shubhlabh is India’s largest exporter of fresh produce. Mahindra Shubhlabh engages with farmers in the production of export quality grapes, pomegranates, and apples aimed at delivering to domestic and international markets. It has a huge R&D facility in Pune to research on various modern seeds and saplings.
- Nokia 1100 with its torch is a very big hit in the rural market. It is a perfect example of understanding the needs of the consumer. Nokia realized the need for a torch in the mobile for the rural people as they walk in the dark streets and fields of the village. Nokia is set to release some low cost phones to tap more from the tier-3 and tier-4 markets.
There are other companies like Godrej, ParleG, Asian Paints, Yes Bank, Royal Enfield, ITC and Revlon.
Marketing Challenge
Delivering to the rural markets is a real challenge to many companies. In fact, the whole dynamics of these markets are so different that you need to look at a different product mix containing the 4A’s instead of the traditional 4P’s of marketing:
Acceptability – Build what the consumer wants
Affordability - Make an affordable product
Availability - Distribution plays a key role in the rural markets
Awareness - Don’t promote the brand, demonstrate the product.
Top Media in Rural Markets
Dainik group is the leading newspaper in the rural markets. In the realm of television, we have the following in the descending order of penetration in the rural markets.
- Doordarshan has a reach of 97% of the rural markets in India.
- Zee Cinema which carries with the image of movies being the favourites of rural people.
- B4u movies
- MTV
- Discovery Hindi
One of the key trends in the rural markets is people changing very quickly from cable to satellite TV. This is because of the hassle-free dish connection of the satellite TV. Most of the dish TV companies like Tata Sky, BIG TV, and Airtel are selling good in the rural markets too. Similarly, Revlon has come up with a lipstick for the rural markets and it is doing very good as against Lakme. This shows that there is huge potential in these markets and it is interesting to see how these trends will transform the lives of the rural people and in turn impact the Indian markets.
Hindustan Lever and its strengths
Posted on: March 14, 2010
- In: Business | Marketing
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Hindustan Lever Limited (HLL) is the largest detergent manufacturer in India. HLL is one of the few companies that targeted and delivered to the bottom-of-the-pyramid (BOP) markets very effectively. One of the key strengths of HLL is their distribution and marketing penetration in the BOP markets. HLL products are manufactured at around 100 locations around India and distributed via depots to almost 7500 distribution centers. HLL has the reach to all villages with atleast 2000 people.
Pricing for the BOP markets
HLL is known as the company that comes up with innovative products for which the poor are willing to pay for. In fact they base their product on peoples’ willingness to pay for the product. For example, let us consider the case of Lifebuoy. HLL does some initial market research and comes up with the requirement that the Indian rural population need germ kill soap. Now, HLL experts immediately don’t go to the laboratory and come up with the most sophisticated germ kill soap. Rather, they have a bottom-up approach which works well for the mass markets. HLL does market research to understand how much are people willing to pay for a benefit like germ killer. Considering the price to be the retail price, it evaluates its target margins it gives a challenge cost. Then it comes up with a business model which delivers that challenge cost.
Marketing and Communications Strategies
Everything seems good on paper, but how does HLL manage its competitors. The key strengths of HLL is its distribution channels available to deliver Lifebuoy at the price the market dictated. The sales and marketing strategies of HLL are based upon microfinance institutions, micro-credit lending, and rural entrepreneurship. One such project is the Project Shakti which started in Andhra Pradesh and expanded to 12 states in India.
HLL tied up with the Self-Help Groups (SHGs) and offered them products which are relevant to the rural population. A member of an SHG is selected as a Shakti entrepreneur, also called ‘Shakti Amma’ will receive stocks from HLL rural distributor. With some training from HLL, the Shakti entrepreneur sold those goods directly to the local village population. HLL witnessed 15% increase in sales from the villages of AP, which accounted for 50% of total sales of HLL products in AP.
An important reason for the success of this integrated marketing strategy for rural India is the consistencies of goals between HLL, the government units, and the NGOs. As Lifebuoy is targeted for socially desirable improved health goal, the other parties are happy to cooperate with HLL. This kind of integrated positioning, targeting, sales, marketing, and distribution strategy has given HLL a real edge over its competitors.
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