A Project Report On
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TABLE OF CONTENTS TOPIC • • •
• • • • • • • • • • • •
EXECUTIVE SUMMARY INRODUCTION INDUSTRY PROFILE SWOT ANALYSIS FMCG INTRODUCTION BCG MATRIX COMPANY’S PROFILE SWOT OF NIRMA RESEARCH METHODOLOGY FIVE FORCES ANALYSIS SWAOT OF HLL SWOT OF GODREJ FINDINGS & SUGGESTIONS CONCLUSIONS BIBLIOGRAPHY
PAGE NUMBER 3 4 6 18 19 21 24 27 46 47 49 53 62 66 67
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EXECUTIVE SUMMARY FMCG industry is the most emerging industry nowadays in Indian as well as global market. In India it is the 4th largest market, which shows that how important the industry is and how much it contributes towards our economy. FMCG includes the personal care products also like soaps, shampoos, etc. so our project mainly focuses on the market and study of BATH SOAPS IN INDIA. It consists various multi national and domestic companies. Major players are Unilever(HLL), Nirma, Godrej, Johnson & Johnson, colgate-palmolive, etc. Our main focus is on Hindustan lever ltd, Nirma, and Godrej. HLL is having largest market share within our country which gives tough competition to other local and domestic companies also. Bath soap market is gradually developing very fast and day by day many new varieties, flavours, and fragrances, are added in it by various companies to exist in the market. Our project consists study of 3 major players of bath soap market and their SWOT analysis, BCG Matrix, 5 forces model of the industry and the companies. Various suggestions and recommendations are also been given to the FMCG sector bath soap segment. HLL is the most dominating company across the world in FMCG sector due to its vertical and horizontal integration. Then also Nirma and Godrej are trying to give tough fight to it. Main mantra for success of the companies is the diversification of their business and their products. Thus the study provides detailed study of FMCG sector with focus on bath soap industry.
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INTRODUCTION History of Bath-soap Soap has been with us in one form or another for thousands of years. The story goes that in Rome in around 1,000 B.C. at a place called Sapo Hill, the women were washing their clothes in a small tributary of the river Tiber, below a religious site where animal sacrifice took place. They noticed that the clothes became clean upon contact with the soapy clay which was dripping down the hill and into the water. It was noticed later that this cleansing agent was formed by the animal fat soaking through the wood ashes and into the clay soil. Strangely, in the first century A.D., the Romans are credited with the making of a soap-like substance using urine. The ammonium carbonate in the urine was reacted with oils and fat in wool to form this 'soap'. During the Eighth Century the Spanish and Italians began making what was more like modern soap from Beech Tree ash and Goat fat, whilst the French are credited with replacing the animal fat with Olive oil. In England during the 17th century under King James I, soap makers were given 'special privileges' and the soap industry started developing more rapidly, although soaps were generally still made using caustic alkalies such as potash, leached from wood ashes and from carbonates from the ashes of plants or seaweed. The soaps made in this way were harsh and often rather unpleasant. Soap as we know it today did not come about until the 18th century, when Nicholas Le Blanc, a Frenchman, discovered a reliable and inexpensive way of making sodium hydroxide (caustic soda), or lye as it is known to the soap maker, which forms the base with which soaps are made to this day.
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Further developments in soap making were pioneered in Britain during the late 18th century with the invention of 'Transparent' soap by Andrew Pears, the son of a Cornish farmer. This refined soap was known then as it is now as Pears Transparent Soap. Over the years and to the present day, opaque soaps have remained the favourite, mainly because transparent soaps tend to be more expensive and also don't last as long. Factors likely to encourage soap marketing and consumption in developing countries in the future include: • More discriminating educated and aware consumers. • Growth of the media, especially TV • Improvements in transportation and communication networks. • Innovative R&D for raw materials and finished products. • Growth of supermarkets and retail outlets. • High speed packaging machines and attractive packaging materials. • State of the art technology to enhance productivity and reduce cost. • Increasingly talented advertising and market research agencies. • Liberalisation of markets and growth in free trade.
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INDUSTRY PROFILE The Fast Moving Consumer Goods (FMCG) sector is the fourth largest sector in the economy with a total market size in excess of Rs 60,000 crore. This industry essentially comprises Consumer Non Durable (CND) products and caters to the everyday need of the population. Product Characteristics Products belonging to the FMCG segment generally have the following characteristics: • • • • •
They They They They They
are used at least once a month are used directly by the end-consumer are non-durable are sold in packaged form are branded
Industry Segments The main segments of the FMCG sector are: •
Personal Care: oral care; hair care; skin care; personal wash (soaps); cosmetics and toiletries; deodorants; perfumes; paper products (tissues, diapers, sanitary); shoe care.
Major companies active in this segment include Hindustan Lever; Godrej Soaps, Colgate-Palmolive, Marico, Dabur and Procter & Gamble. •
Household Care: fabric wash (laundry soaps and synthetic detergents); household cleaners (dish/utensil cleaners, floor
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cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellants, metal polish and furniture polish). Major companies active in this segment include Hindustan Lever, Nirma and Reckitt & Colman. •
Branded and Packaged Food and Beverages: health beverages; soft drinks; staples/cereals; bakery products (biscuits, bread, cakes); snack food; chocolates; ice cream; tea; coffee; processed fruits, vegetables and meat; dairy products; bottled water; branded flour; branded rice; branded sugar; juices etc. Major companies active in this segment include Hindustan Lever, Nestle, Cadbury and Dabur.
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Spirits and Tobacc Major companies active in this segment include ITC, Godfrey Philips, UB and Shaw Wallace. An exact product-wise sales break up for each of the items is difficult.
The size of the fabric wash market is estimated to be Rs 4500 crore; of household cleaners to be Rs 1100 crore; of personal wash products to be Rs 4000 crore; of hair care products to be Rs 2600 crore; of oral care products to be Rs 2600 crore; of health beverages to be Rs 1100 crore; of bread and biscuits to be Rs 8000 crore ; of chocolates to be Rs 350 crore and of ice cream to be Rs 900 crore. In volume terms, the production of toilet soap is estimated to have grown by four per cent in 1999-2000 from 5,30.000 tonnes from 5,10,000 tonnes in 1998-99. The production of synthetic detergents has grown by eight per cent in 1999-2000 to 2.6 million tonnes. The cosmetics and toiletries segment has registered a 15 per cent growth in 1999-2000 as against an annual growth of 30 per cent recorded during the period 1992-93 to 1997-98. In the packaged food and beverage segment, ice cream has registered a negligible growth and the soft drink industry has registered a six per cent growth in 1999-2000.
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Toilet Soap Industry in India: Today, the FMCG sector is the fourth-largest sector in the Indian economy, with an estimated total market size of around Rs 450 bn. Further, the growth potential for all the FMCG companies is huge, as the per capita consumption of almost all products in the country is amongst the lowest in the world. Further, if these companies can change consumer's mindset and offer new generation products, they would be able to generate higher growth. For example, Indian consumers used to wear non-branded clothes for years, but today, clothes of different brands are available and the same consumers are willing to pay almost 5 times more for branded quality clothes. It is the quality and innovation of products, which is really driving many sectors. Thus, FMCG companies should use their imagination and respect the tastes of Indian consumers by offering quality products. Toilet soap industry is one of the oldest Fast Moving Consumer Goods (FMCG) industry in India. It is among the highest penetrated category within FMCG sector reaching an estimated 95% urban and 87% of the rural households. In value terms the industry is worth Rs.45000million and in volume terms it is worth .53 million . The main characteristic of the industry was severe competition and high level of brand proliferation. Toilet soaps account for more than 50% of the Consumer After expanding at a snail's pace, the market for personal wash products appears to have come to grinding halt in 2001. After posting a modest single digit growth in 1997-2000, figures for the first seven months of this year suggest that the market for toilet soaps has actually shrunk. Estimates about the extent of the decline of market size vary. Hindustan Lever, which straddles the category with a 59.9 per cent market share by value, says the market shrank by 4.4 per cent in value terms in the first half of 2001. The Indian Soaps and Toiletries Manufacturers Association, puts the decline at 1 per cent. Other industry sources suggest that the extent of `de-growth' in the first eight months of 2001 could be as high as 7 per cent. 8
This is despite the fact that this usually sleepy category has seen a spate of new players debut new offerings in recent times. Over the past couple of years, Nirma has launched a slew of lowpriced soaps under the banner of Nima and Nirma Beauty. Godrej Consumer, a long-standing player, has relaunched old brands such as Cinthol, apart from new ones such as FairGlow, Allcare, and Nikhar.
Henkel SPIC has made a maiden foray into the market with the Fa range of soaps. Colgate Palmolive has pepped up its soap range with extensions such as Palmolive Naturals and Palmolive Extra Care. The market leader HLL, has relaunched Breeze, apart from launching Skin Care and Sunscreen variants of its premium soap -- Lux International. If the shrinking market size suggests that Indian consumers have actually been cutting back on their use of toilet soaps, this is not really the case. In volume terms, the market for toilet soaps has continued to show a growth of 6 per cent in the first eight months of 2001. The major players have certainly managed to sell more toilet soaps by volume. But price competition in the segment and a slew of promotional campaigns have reduced the effective realisations per unit sold. This has probably neutralised the gains from volume expansion. Theories about the reasons for the shrinking the market size vary. Low-priced brands Industry players commonly attribute the `de-growth' in the soap market to downtrading. Toilet soaps are among the highest penetrated products within the FMCG market, reaching an estimated 95 per cent of the urban and 87 per cent of the rural households. The fairly high contribution from the rural market makes this category sensitive to the fortunes of the agricultural economy.
The prolonged drought in the North and West of the country (until 2000) and the sharp fall in farm disposable incomes (brought on by falling farm product prices) has probably persuaded low9
income households to downtrade, that is, switch from high- to lowpriced brands. This is indeed supported by the fact that within toilet soaps, it is the discount segment (soaps that cost between Rs 5 and Rs 8 per 75 grams) that has registered the highest growth rates over the past year. HLL, too appears to endorse the phenomenon of downtrading. ``There has been an inter-sectoral shift in the soap market, with consumers downtrading from premium and popular to discount soaps'', explains the company's spokesperson. However, Mr Hoshedar K. Press, Godrej Consumer Care, begs to differ. ``We think consumers have already pre-committed their incomes for instalments on durables. The substitution of soap with shampoos for hair wash has also impacted growth'', he said. Better quality The crowded market place has also brought a few benefits to the consumer as marketers of soap have tried to woo consumers through upgraded offerings and better quality soaps. Aided by low input prices, the marketers of toilet soaps have increased the TFM (total fatty matter) content in their brands, to offer better quality soaps at a lower price. Industry watchers say that the TFM content on some brands has moved up from the 50-60 per cent earlier to over 70 per cent of late. Therefore, per unit realisations on soaps have declined, the marketers of soaps have actually sacrificed a part of their margins on hiking the TFM content. Tough times ahead With competitive pressures on the rise and a larger number of brands jostling for consumer attention in a sluggish market, the soap market is likely to remain a difficult one for most players. Smaller players such as Godrej Consumer and Henkel SPIC have been in a position to report robust sales growth in the category over the past year despite the bruising competition. However, this is partly due to a relatively small base of comparison. Unless the market expands, the frenetic promotional 10
activity may soon tell on the growth rate of the players. And when it comes to sustaining a high decibel promotional campaign, HLL's size certainly gives it the wherewithal to do it. Rural revival -- A wild card It appears that a genuine boost to the market size for toilet soaps will still have to come from a revival in rural demand. Evidence from the past does appear to suggest that a sharp rise in rural incomes would have a cascading effect on FMCG demand. The pick-up in volume growth in the soap market in 1999, after a year of sluggish growth in 1998, demonstrated that a recovery in agricultural output does have an indirect impact on sales volumes of FMCG products. This year, reports of a good monsoon in the northern and western parts of the country have sparked off speculation about a revival in FMCG growth rates. The fact these two regions account for 55 per cent of the demand for FMCG products strengthens this argument. However, it appears to be a bit early in the day to call it a revival. For one, while the northern and western regions have received satisfactory rains, southern India has been the victim of a very erratic monsoon. Second, given that the good monsoon in the current year succeeds two or three consecutive years of drought in some regions, there could be a substantial time lag before higher rural incomes translate into better FMCG demand Third, the key crisis in agriculture over the past year has been that farm product prices have dropped sharply in response to a build up of surplus foodgrain stocks. Therefore, even if a good monsoon translates into a higher agricultural output, there is the question of whether this will actually expand or shrink farm incomes. These factors suggest that it may be premature to take investment exposures in companies focussed on toilet soaps in the hope of a revival. It may be better to wait for concrete signs of a pick-up in rural demand, which is certainly some way off. Nature of the global Industry The global soap market is dominated by a small number of multinational companies. Soap is only one sector of their product ranges. In multinational companies such as Unilever and Procter & Gamble, soap and detergent ranges typically account for less 11
than 20% of group turnover (in 1999). The largest toilet soaps and detergents only company, by volume sales, is the Unilever Group, which has strong presence in all regional markets in the world. The top ten leading manufacturers and distributors of soap worldwide account for more than 55% of total sales by value in 1999, totalling in excess of US$80 billion. Position 1 2 3 4
Company Unilever Procter & Gamble Gillette Group Colgate Palmolive
% Value of World 10.07 7.41 7.66 4.5
Promotion and branding Soap manufacturers start their marketing strategy by first identifying whether a marketing opportunity exists. They proceed to determine whether to target the mass market or a niche market, and subsequently position their products. Very often, “metoo” looking products, despite their superior performance, fail to break the barrier of routine buyer behaviour. Where the market is crowded, companies try to differentiate their products by new forms or new packaging concepts. With the increase in both domestic and global competition, companies are having to deal with and reconcile two conflicting elements in marketing strategy – namely profitability and market share. Greater market share involves higher marketing costs and lower profitability. In India, Hindustan Lever's share of the soap and detergent market was dented severely by the Nirma (an Indian national, privately owned company) strategy of developing a product especially for the poor, until Lever managed to develop its own product. A teaser ad on Lux soap recently unleashed by FMCG-major Hindustan Lever (HLL) gives an indication that the company is planning to launch a soap which protects fairness -- in evident competition to Godrej's FairGlow fairness soap. 12
The Lux commercial was kicked off almost in tandem with the launch of FairGlow, which is touted as India's first fairness soap. FairGlow has marked a breakthrough in the stagnant toilet soaps market and has kindled hopes of fuelling growth with the creation of a new category. The industry was rife with speculation that market leader HLL would follow in the footsteps of Godrej Soaps to launch a soap product on the same USP. While details of the proposed Lux soap are not available, the product is expected to be launched in the next fortnight. The ad depicts how, by using the soap, one can block the sun rays from tanning the skin surface. However, the ad does not reveal the name of the product. But it clearly signals that a new product offering from the Lux stable, albeit on the fairness plank, is in the pipeline. It has been a couple of weeks since the teaser ad was launched on select channels. The move is seen by industry observers as a knee-jerk reaction to combat the launch of FairGlow. The only catch here is that while Godrej Soaps directly claims delivering fairness through FairGlow, the proposed Lux product talks about protecting fairness by offering sunscreen benefits. FairGlow is being promoted as a beauty and complexion soap which contains a bio-extract called natural Oxy-G which is said to make skin fairer naturally.
For Levers, point out industry analyst, it is crucial to defend any market share erosion at a time when the industry is strutting at growth levels of 2-3 per cent per annum. Given that the Rs 2,900 crore industry has reached saturation levels in penetration in both urban and rural markets, it is becoming increasingly challenging for marketers to develop value-added soap products in the market. Industry analysts point out that manufacturers will have to design products which offer unique benefits so as to stoke volumes growth. It is not surprising then that FairGlow is targeted at both men and women. Research findings show that a section of men too are users of fairness creams.
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Production size)
(market
Unit
Est 2002- % 20032003 growth 2004 600 2% 609
EST % growth
FMCG (overall) Rs billion 1.5% Soap & Toiletries Rs billion 90 -5% 90.9 1% (overall) Soap & Toiletries Mn tonn 60 4% 60.09 1.50% (overall) There were 45 leading national brands. None of the national brands had more than 5% market share and many more regional and unorganised sector/local brands. 9Hindustan Lever was the market leader with about 30 (number) of toilet soap brands with a total market share of 67% in 1998-99 in organised sector as seen from Table-1 below, which gives the lead players and their respective market share.
Table-1: The Lead Players and their Market Share Percentage of Market Company Share HLL 67 Godrej 10 Nirma 8 Colgate Palmolive 1 Others 14 Source: Vanscom Database
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Percentage of Market Share HLL Godrej Nirma Colgate Palmolive Others
The leading brands in the market are Dove, Pears, Lux, Dettol, Liril, Rexona, Lifebuoy, Nirma, Palmolive and Hamam. A survey reported in Vanscom, which was conducted in Ahmedabad, showed that 103 toilets soap brands were available in this city alone. The industry had witnessed many innovative sales promotion activities in the recent past. Numerous factors were responsible for such a phenomenon. One of the reasons being that the market being sluggish, companies were trying to increase market share in stagnant to declining (volume terms) market in order to retain consumers, to encourage switching, to induce trials and liquidate excessive inventories. Another reason possible was that with the presence of so many brands the competition had increased severally leading to fight for market share and shelf space. Inflationary trend had made both the consumer as well as trade deal prone. Due to such a dense market like India big companies adopt different strategies and coming up with various sales promotion schemes continuously. Today big players in Indian bath-soap market are… 1. HLL (Hindustan lever limited –a subsidiary of Unilever) 2. Godrej 3. Nirma
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4. P&g (Procter and gamble) Among these players HLL is the biggest player with around 67% of market share. For HLL most of the soap has become a brand they have their own identity.LUX is the most recalled soap in the mind of the consumers. For these main four players , each soap is described in brief as an introduction about which soap belongs to which company. There is a strong MNC presence in the Indian FMCG market and out of the top 10 FMCG companies, four are multinationals while two others have significant MNC shareholdings. Unlike several other sectors where multinationals have entered after 1991, MNCs have been active in India for a long time. The top five listed FMCG companies on the basis of their sales turnover in the last financial year (either year ended December 31, 1999 or March 31, 2000) are:
Company Name
ym(finance_year) sales Rs. Crores Hindustan Lever Ltd. 199912 10978.31 I T C Ltd. 200003 7971.94 Nirma Ltd. 200003 1717.88 Nestle India Ltd. 199912 1546.43 Britannia Industries Ltd. 200003 1169.84 Colgate-Palmolive 200003 1123.53 (India) Ltd. Godfrey Phillips India 200003 1082.63 Ltd. Dabur India Ltd. 200003 1046.28 Smithkline Beecham 199912 743.38 Consumer Healthcare Ltd. Godrej Soaps Ltd. 200003 714.74 Marico Industries Ltd. 200003 649.05
Profit After Tax Rs. Crores 1073.73 792.44 234.1 98.47 51.02 51.79 42.1 77.67 97.61
61.89 35.73
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Cadbury India Ltd. 199912 Procter & Gamble 200006 Hygiene & Health Care Ltd. Reckitt & Colman Of 199812 India Ltd. I S P L Industries Ltd. 199903
511.08 492.85
36.7 75.03
435.33
31.47
21.57
0.04
Among the major companies, Hindustan Lever has a strong presence in the food, personal care and household care (detergents) sectors; ITC is the market leader in cigarettes; Nirma has a strong presence in the detergent market; Nestle and Britannia are active in the food sector and Colgate has a strong presence in the oral care segment.
Exports India is one of the world’s largest producer for a number of FMCG products but its FMCG exports are languishing at around Rs 1,000 crore only. There is significant potential for increasing exports but there are certain factors inhibiting this. Small-scale sector reservations limit ability to invest in technology and quality upgradation to achieve economies of scale. Moreover, lower volume of higher value added products reduce scope for export to developing countries.
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INDUSTRY SWOT ANALYSIS Strengths: • Well-established distribution network extending to rural areas. • Strong brands in the FMCG sector. • Low cost operations Weaknesses: •
Low export levels. • Small scale sector reservations limit ability to invest in technology and achieve economies of scale. • Several "me-too’’ products. Opportunities: • Large domestic market. • Export potential • Increasing income levels will result in faster revenue growth. Threats: • Imports • Tax and regulatory structure • Slowdown in rural demand
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FMCG Introduction The Fast Moving Consumer Goods (FMCG) sector is the fourth largest sector in the economy with a total market size in excess of Rs 60,000 crore. This industry essentially comprises Consumer Non Durable (CND) products and caters to the everyday need of the population. Product Characteristics Products belonging to the FMCG segment generally have the following characteristics: • • • • •
They They They They They
are used at least once a month are used directly by the end-consumer are non-durable are sold in packaged form are branded Industry Segments
The main segments of the FMCG sector are: • Personal Care: oral care; hair care; skin care; personal wash (soaps); cosmetics and toiletries; deodorants; perfumes; paper products (tissues, diapers, sanitary); shoe care. • Major companies active in this segment include Hindustan Lever; Godrej Soaps, Colgate-Palmolive, Marico, Dabur and Procter & Gamble. • Household Care: fabric wash (laundry soaps and synthetic detergents); household cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellants, metal polish and furniture polish).
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• Major companies active in this segment include Hindustan Lever, Nirma and Reckitt & Colman. • Branded and Packaged Food and Beverages: health beverages; soft drinks; staples/cereals; bakery products (biscuits, bread, cakes); snack food; chocolates; ice cream; tea; coffee; processed fruits, vegetables and meat; dairy products; bottled water; branded flour; branded rice; branded sugar; juices etc. • Major companies active in this segment include Hindustan Lever, Nestle, Cadbury and Dabur. • Spirits and Tobacc Major companies active in this segment include ITC, Godfrey Philips, UB and Shaw Wallace. An exact product-wise sales break up for each of the items is difficult. The size of the fabric wash market is estimated to be Rs 4500 crore; of household cleaners to be Rs 1100 crore; of personal wash products to be Rs 4000 crore; of hair care products to be Rs 2600 crore; of oral care products to be Rs 2600 crore; of health beverages to be Rs 1100 crore; of bread and biscuits to be Rs 8000 crore ; of chocolates to be Rs 350 crore and of ice cream to be Rs 900 crore. In volume terms, the production of toilet soap is estimated to have grown by four per cent in 1999-2000 from 5,30.000 tonnes from 5,10,000 tonnes in 1998-99. The production of synthetic detergents has grown by eight per cent in 1999-2000 to 2.6 million tonnes. The cosmetics and toiletries segment has registered a 15 per cent growth in 1999-2000 as against an annual growth of 30 per cent recorded during the period 1992-93 to 1997-98. In the packaged food and beverage segment, ice cream has registered a negligible growth and the soft drink industry has registered a six per cent growth in 1999-2000.
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BCG MATRIX The BCG matrix method can help understand a frequently made strategy mistake: having a one-size -fits-all-approach to strategy, such as a generic growth target. In such a scenario: A. Cash cows business units will beat their profit target easily; their management has an easy job and is often praised anyhow. Even, worse they are often allowed to reinvest substantial cash amounts in their businesses, which are mature, and not growing anymore. B. Dogs business units fight an impossible battle and, even worse, investments are made now and then in hopeless attempts to ‘turn the business around’. C. As a result (all)question marks and stars business units get mediocre size investment funds. In this way they are unable to ever become cash cows. These inadequate invested sums of money are a waste of money. Either these SBUS should receive enough investment funds to achieve a real market dominance and become a cash cow(or star), or otherwise companies are advised to disinvest and try to get whatever possible cash out of the question marks that were not selected. Limitations of BCG matrix: Some limitations of Boston consulting group matrix include: • High market share is not only success factor. • Market growth is not the only indicator for attractiveness of a market. • Sometimes dogs can even more cash as cash cows.
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BCG MATRIX..
? HLL Rexona , Pears ,Lifebuoy, breeze Johnson & Johnson -Savlon,Dettol, breeze, Maisur Sandal soap, Godrej-shikakai ,
HLL-Lux, Hamam, Dove,Liril NIRMA-beauty soap Johnson & Johnson baby soap Godrej-Cinthol, Godrej no.
HLL: Santur Nirma – soap Godrej-
lifebuoy +, nirma bath nirma lime soap camay, Fairglow
Colgate pamolive Godrej-Ganga, Godrej No.1 breeze
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Cash cow A business unit has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units. Star A business unit that has a large market share in a fast growing Industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, star will become a cash cow when its industry matures. Question mark (problem child) A business unit that has a small market share in a high growth market. These business units require resources to grow market share, but weather they will succeed and become stars is unknown. Dog A business unit that has a small market share in a mature industry. A dog may not require substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should be liquidated if there is little prospect for it to gain market share.
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COMPANY PROFILE
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NIRMA Background Toilet soaps recorded a strong 40% plus volume and value growth The Nirma story began in 1969 and since then it has expanded its detergents (cakes and powders), soaps, soap intermediates Alfa Olefin Sulphonate (AOS) to a level of Rs. 82 billion. Today, Nirma has a Rs.17 billion share in this market and has been acknowledged as a marketing miracle. Nirma known for its focus on cost effectiveness by integrating latest technology manufacturing facilities with innovative marketing strategies to create world class brands, has by passed MNCs like HLL, P&G to become the market leader (in terms of volumes) in this price-sensitive industry. In value terms, Nirma holds 16% market share in the branded detergents segment. The manufacturing and marketing operations were divided in several closely held group companies. In FY97, Nirma group restructured its operations and merged 4 companies, namely Nilinta Chemicals Ltd, Nirma Detergents Limited, Nirma Soaps and Detergents Limited and Shiva Soaps and Detergents Limited, with its flagship Nirma Limited. Kisan Industries, the sole separate detergent manufacturing unit has been merged with Nirma in March '00. Nirma now owns all the detergent manufacturing facilities of the group, besides toilet soap/other industrial chemicals manufacturing facilities and a modern packaging unit owned by Kisan. Marketing of products is carried out through a 100% subsidiary, Nirma Consumer Care Limited (NCCL). NCCL is the licensee for using the trade marks and the brand Nirma, which are owned by Nirma Chemicals Pvt Ltd. NCCL’s lease for the brand will be in perpetuity, except in the event of Karsanbhai & Associates equity stake in NCCL falling below 51%. olding Pattern
Share Holding Pattern The share capital of the company is Rs.33.9 crore and the total shares outstanding amount to 3.39 crore. The face value per share is Rs.10. The stock is currently trading at Rs. 418, as on May 28, 2001. The market capitalization of the company is Rs.1415.85 crore. The free float is 18% and the promoters hold 72% stake in the company.
Business Overview Nirma’s principal business activities pertain to manufacture and sale of detergents and toilet soap. Nirma dominates the popular detergent segment with brands like Nirma Popular powder, Nirma Detergent powder, Nirma bar, etc. Super Nirma 25 detergent powder is positioned in the mid-priced segment. Toilet soaps recorded a strong 40% plus volume and value growth driven by the success of the launch of "NIMA" brand in FY00. Nirma also sells glycerine, LAB and other industrial
Nirma Bath Soap
Toilet soap market in India was dominated by a very few MNCs which could monopolistically price their product. In 1992, sensing a strong need to expand the market through Penetrative Pricing, Nirma entered this market with the launch of ‘Nirma Bath Soap’, which is a carbolic (Red) soap. Although the carbolic soap segment is on decline, Nirma Bath has generated larger volumes each year. Packed in a red colour wrapper and available in 75 gram and 150 gram pack sizes, this soap has a Total Fatty Matter (TFM) of 60 %. Nirma Beauty Soap
With its market promise to offer “Better Products, Better Value, Better Living,” Nirma introduced ‘Nirma Beauty Soap’ in the year 1992. Available in three different variants and pack sizes, this soap has a TFM content of 70%. Due to its admirable perfume and a higher TFM content, this brand, within a short span of five years, had achieved the status of the third largest selling toilet soap brand and still continues its outstanding performance. Nirma Lime Fresh Soap
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This product had created a sensational marketing history in the Indian Toilet soaps market, when it was launched in 1997. Seventeen million packs of Nirma Lime Fresh soap were sold in the very first month of its soft launch. Packed in a poly coated 75 gm carton, which is printed on the world’s best Cerruti 8-colour printing machine, this soap is available in green colour. With a lime aroma that tingles in one’s sensory buds for a long time, this soap contains 80% TFM. The product launch of Nirma Lime Fresh had been extremely successful, being ranked as the Seventh Most Successful Brand Launch for the year 1998, as ranked by the Business Standard Marketing Derby, 1998. (as featured in The Strategist Quarterly, July-September 1998).
Strategy Nirma's large capex backward integration projects had been undertaken with a strategy to become the lowest cost detergent manufacturer in the world. Self sufficiency in key raw materials will give protection against commodity cycles besides yielding substantial savings in raw material cost. The company estimates a total cost saving of 25% in material and handling costs due to the backward integration projects. The LAB plant has yielded about 12% cost savings and the company expects a similar cost saving of about 12-15% once the soda ash plant stabilizes. Overall the backward integration has yielded a cost saving of Rs0.8-1bn last year. Post completion of backward integration the company now plans to focus on building large volumes and gain from economies of scale. The company plans to tap export markets and is alos looking at acquisition opportunities or distribution tie up arrangements in other FMCG categories. Branded salt will be launched by the end of the year. The company is also considering other categories such as shampoo, toothpaste and fabric whiteners.
Earnings sensitivity factors: Stabilization of backward integration projects Volume growth in detergents as well as toilet soaps and utilization of expanded capacity • Toilet soap market share : Success of new launches, market share growth will drive profitability. • •
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•
Commodity price movement of LAB and Soda ash will have significant impact on company’s competitive position, as Nirma will be the only company to have its own raw material production facility.
The Consumer products division continued to grow at a healthy pace of 26% yoy, driven by the success of the Nima launch. Nirma has for the first time diverted from its strategy of umbrella branding and has launched Nima as a 'fighter brand' - to fight competition and the unorganized sector. And the company has achieved tremendous success. In a scenario where the average industry has been growing at a poor 2-3%, the company has managed to almost achieve double digit volume growth.
1. HINDUSTAN LEVER LIMITED
Mission
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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. Hindustan Lever (HLL), India's largest fast-moving consumer goods company is also the country's largest company in terms of market capitalisation. It leads in home and personal care products, and foods and beverages with over 110 brands. The Far Eastern Economic Review rates HLL as the best Indian company and recognises it as one which all others want to emulate. Its market capitalisation went up 18% to Rs 324351 mln (taking it to the first position from last year's third) when the total market capitalisation of the Top 500 companies was down 22%. It now accounts for almost 8.4% of the total market capitalisation of the Top 500. HLL's rank on other parameters are - capital employed: 87, gross block: 59, sales: 8, net profit: 12, net forex earnings: 6 and trading value: 8. Products : Lux Rexona Pears Dove Breeze Hamam Liril Lifebuoy
Lux Lux stands for the promise of beauty and glamour as one of India's most trusted personal care brands. Lux continues to be a favorite with generations of users for the experience of a sensuous and luxurious bath. Since its launch in India in the year 1929, Lux has offered a range of soaps in different sensuous colors and world class fragrances. 2003 saw one of the biggest milestones in the history of Lux. From being just a beauty soap of film stars, Lux recognized the need for a compelling message about beauty that would resonate with women of today. Lux is available in four different variants – Exotic flower petals and Jojoba Oil, Almond Oil and Milk Cream, Fruit Extracts and Honey in Milk Cream and Sandal Saffron in Milk Cream.
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Rexona Rexona is one of India's pioneer brands in family soaps. Launched in 1947, it was positioned as a natural skin care soap to give silky, glowing skin. Since then the product has been constantly improved to keep up with the expectations of the consumers. In 1989 coconut was introduced in Rexona for the first time to strengthen the overall skincare appeal of the brand. Rexona has now been relaunched with cucumber extracts, in addition to coconut oil and moisturising milk cream. Its creamy lather purifies the skin, leaving it clear and flawless. It has also been enhanced with a perfume that lingers well after a bath.
Pears Introduced in India in 1902, Pears soap has no equal. It is gentle enough, even for baby's skin. Pears is manufactured like any other soap, but unlike in conventional soaps, the glycerine is retained within the soap. That is the cause if its unique transparency. After manufacturing, the soap is mellowed under controlled conditions over weeks. At the end of this maturing process, it is individually polished and packed in cartons. Today Pears is available in three variants - the traditional amber variant, a green variant for oil control and a blue variant for germ protection.
Dove Dove soap, which was launched by Unilever in 1957, has been available in India since 1995. It provides a refreshingly real alternative for women who recognise that beauty is not simply about how you look, it is about how you feel. 30
The skin's natural pH is slightly acidic 5.5-6. Ordinary soaps tend to be alkaline, with pH higher than 9. Dove is formulated to be pH neutral (pH between 6.5 and 7.5) and to be mild on skin. This makes it suitable for all skin types for all seasons. While Dove soap bar is widely available across the country, Dove Body Wash is available in select outlets. Globally, Dove has been extended to many other countries. Since the 1980s, for example, Unilever has launched a moisturising body-wash, deodorants, body lotions, facial cleansers and shampoos and conditioners, providing a comprehensive range of solutions to bring out true inner beauty.
Breeze
Breeze Scent Magic is the soap which fulfills the aspirations of women of rural India. Breeze has offered them 'beauty at an affordable price', making them look and feel beautiful. Research and consumer visits have shown that the desire for great fragrance featured highest in the daily beauty regime of discount-soap users. Breeze explores this through the proposition of 'scent in a soapScent ka kamaal, ab sabun mein' and explicitly propagates the brand promise of the "Hameshaa kuchh extra". It delivers all this and still matches consumer's needs in terms of price and quantity offered, staying true to its word. Breeze has been enriched with 19 special scent oils, which ensure that one smells good for a long time through the day. Introduced in variants like Scent Magic, Scent Magic Lime, and Scent Magic Sandal, Breeze strives towards fulfilling the company's mission of being inventive in creating value.
Hamam
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When it comes to soaps, Hamam is considered to be the most reliable option. Launched in 1934, Hamam has traditionally been a soap that takes care of your skin in a natural way. According to a research conducted By Indica Research in May 2003, 78% of Doctors in Tamil Nadu recommend Hamam. Besides being a perfectly balanced soap, Hamam takes on a very modern and trendy look. Hamam's enhanced fragrance now provides a longer lasting freshness. The new attractive oval shaped Hamam comes in an attractive and modern packaging. The ingredients that are used in Hamam Neem, Tulsi and Aloe Vera - by themselves have great therapeutic values. Hamam, the brand is very true to its tagline that says, "Everything in life is about balance". Liril
For 28 years, freshness has been clearly identified with one name – Liril Liril expressions have always set trends whether it is a bathing beauty in a waterfall or "Oof Yu Maa!" The energy and excitement levels associated with the brand have to be experienced to be believed with changing times. Liril has donned many avatars; Presently, Liril Soft Aloe Vera & Lime, Liril Icy Cool and Liril Orange splash are making waves. What's next? Wait and Watch! The show has just begun... Lifebuoy
Making a billion Indians feel safe and secure by meeting their health and hygiene needs is the mission of Lifebuoy. The world's largest selling soap offers a compelling health benefit to the entire family. Launched in 1895, Lifebuoy, for over a 100 years, has been synonymous with health and value. The brick red soap, with its perfume and popular Lifebuoy jingle, has carried the Lifebuoy message of health across the length and breadth of the country. The 2002 and 2004 relaunches have been turning points in its history. The new mix includes a new formulation and a repositioning to make it more relevant to both new and existing consumers. At the upper end of the market, Lifebuoy offers specific health benefits through Lifebuoy Gold and Plus. Lifebuoy Gold (also called Care) helps 32
protect against germs which cause skin blemishes, while Lifebuoy Plus offers protection against germs which cause body odour.
Hindustan Lever’s SWOT analysis
Strengths: With identified strengths including a strong brand portfolio; consumer understanding; R&D ability; distribution reach(networking) and high quality manpower Strong media personalities As the production is on large scale it has the benefit of economies of scale.
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Being very old and reputed company, the company and its brands achieves highest trust of the consumers.
Weaknesses: The company's weaknesses spotted thereby include Increased consumer spends on education, consumer durable, entertainment, travel, etc resulting in lower share of wallet for FMCG; Complex supply chain configuration and unwieldy number of stock keeping units (SKUs) with dispersed manufacturing locations; Price positioning in some categories that allows for low price competition and high social costs in the plantation business.
Opportunities: HLL sees its opportunities as market and brand growth through increased penetration especially in rural areas; brand growth through increased consumption depth and frequency of usage across all categories; upgrading consumers through innovation to new levels of quality and performance; emerging modern trade to be effectively used for introduction of more upscale personal care products; growing consumption in out of home categories; positioning HLL as a sourcing hub for Unilever companies elsewhere and leveraging the latest IT technologies. Threats: Perceived threats span low-priced competition now being present in all categories;
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grey imports spurious/counterfeit products in rural areas and small towns; changes in fiscal benefits.
3. GODREJ
VISION: Godrej in every home and work place. MISSION: Enriching quality of life everyday everywhere. We will provide branded products and services of superior quality and value that improve the lives of the world's consumers. As a result, consumers will reward us with leadership sales, profit, and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper. VALUES: Integrity, Trust, To serve respect, Environment. Company Overview Godrej Industries Limited, formally Godrej Soaps, is India's large manufacturer of oleochemicals. As well as the chemicals industry, Godrej also operates in the food and medical diagnostics markets. The company is part of the Godrej Group conglomerate. Godrej Industries is headquartered in Mumbai, India For the fiscal year ended March 2004, the company generated revenues of $417.34 million (Rs18.23 billion), an increase of 9.7% on the previous year. The company saw a net income of $13.14 35
million (Rs573.8 million) during fiscal 2004, an increase of 72.5% on fiscal 2003. Godrej Consumer Prodiucts Ltd (GCPL) was formed wef April1, 2001 with the demerger of the consumer business of the erstwhile Godrej Soaps Ltd. GCPL has emerged as a focussed FMCG company. Its main product lines now consist of toilet soaps, liquid detergent, cosmetics such as hair care, fairness creams, etc and men’s toiletries. The company also undertakes contract manufacturing of toilet soap for third parties. All interests of the erstwhile Godrej Soaps in other businesses such as industrial chemicals, medical diagnostics and financial investments continued to remain in the existing entity, post demerger and the company has been renamed Godrej Industries Ltd (GIL) Godrej has the distinction of being the first company in the world to develop technology to make soap with vegetable oils, way back in 1930. In the early 90’s Godrej had created strong brand equities for its leading brands Cinthol, Ganga, Marvel, Evita etc. In 1994, Godrej entered into a strategic alliance with P&G for inter alia toilet soap business, under which Godrej used to manufacture soaps, which were marketed by a joint venture company. However post marketing alliance with P&G, the company lost significant part of its market share and subsequently the arrangement was discontinued. Godrej’s entire distribution network was then taken over by P&G. Godrej reestablished a distribution network by utilizing the network of group company Godrej Hicare for marketing of its brands and in FY00 took over the entire distribution network from them. Toilet soaps account for more than 50% of the Consumer business sales. Hair Color (20%), Contract manufacturing of toilet soap for other industry players (13%), Detergents (6%) and Cosmetics and Toiletries (8%) are the other contributors to GCPL’s turnover. Exports of Godrej Brands (2% of overall sales) grew by 28% yoy in FY01.
Soaps
% of Sales 53
FY2001 FY2000 Growth 2,476
2,119
16.9
Toilet soaps – Godrej brands (53% of turnover) 36
Godrej has the distinction of being the first company in the world to develop technology to make soap with vegetable oils, way back in 1930. In the early 90’s Godrej had created strong brand equities for its leading brands Cinthol, Ganga, Marvel, Evita etc. In 1994, Godrej entered into a strategic alliance with P&G for inter alia toilet soap business, under which Godrej used to manufacture soaps, which were marketed by a joint venture company. However post marketing alliance with P&G, the company lost significant part of its market share and subsequently the arrangement was discontinued. Godrej’s entire distribution network was then taken over by P&G. Godrej reestablished a distribution network by utilizing the network of group company Godrej Hicare for marketing of its brands and in FY00 took over the entire distribution network from them. The company has been very aggressive during the year in the toilet soap business and has launched a number of new products in the market in the last two years. It pioneered the concept of a fairness soap through launch of Fairglow soap. New variants like Sandal and Natural in the Godrej No.1 brand also aided high growth. Toilet soap volumes of Godrej brands grew by 30% yoy in FY01. In value terms sales grew by 17% yoy to Rs2.5bn. The company also launched new brands like Godrej Nikhar during the year. The company’s market share in toilet soaps improved marginally to 5.6% during FY01. The company’s oldest and well know brand Cinthol is proposed to be repositioned and relaunched during FY02. Toilet soaps - Contract manufacturing (13% of turnover) Contract manufacturing of toilet soaps registered a 20% volume growth but grew by only 7% in value terms to Rs618mn. Margins earned on 3P manufacture are significantly lower as compared to its own brands. Margins on own brands are estimated to be 60% more than that on 3P manufacturing. The company manufactured 45530 tons of toilet soap in FY01. (32754 in FY00) Capacity utilization of toilet soaps has improved from 46% in Fy00 to 64% in FY01. Segment
Brands
Toilet Soap Cinthol, Fair Glow, Nikhar, Ganga, Goderj No 1
Market Share FY00 5.2
Market Share FY01 5.6
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Cinthol Cinthol is the flagship brand of Godrej Consumer Products Limited. The brand was launched in 1952 as the first Deodorant Soap in the country. In 1960 Cinthol Deodorant Talc was launched. It continued to sell as a freshness talc thereafter. The brand, over the first three decades of its existence, took the platform of protection from body odor. In 1986 , in an attempt to modernize the image "New Cinthol " soap was launched with new look packaging , shape and advertising using celebrities like Vinod Khanna and Imran Khan . This communication campaign developed strong "confident" , "active" associations with Cinthol which became a part of the essence of the brand Godrej FairGlow The Godrej FairGlow fairness soap contains a powerful fairness ingredient ' Natural Oxy-G ', which makes you fairer by reducing the dark melanin without changing the skin's natural balance. In addition, it also removes blemishes to give you a clear, glowing complexion. Godrej FairGlow Soap was India's first and is the largest selling fairness soap. It helps you become fairer in a convenient way, simply through a daily bath. It is a quality Grade 1 fairness product having 76% TFM (Total Fatty Matter). It has a pleasant fragrance and is white in colour.
Godrej no1 Godrej no.1 is another popular soap from godrej product line , it is proved popular in the rural market due to the affordable price and 38
the quality offered.it comes in three colours and flavour, it is giving good fight to the leading brands too. Godrej Shikakai soap This is also one of the popular soap of the godrej product line. This soap is used to wash hairs. Many people believes shikakai as a best thing to wash the hair . black ,long and silki hairs are result of utilization of the soap. This soap is giving fight to all the shampoo for washing the hairs. It is proved very popular among women. All of these soaps can be further classify in to three basic segments Price Segments of Bath Soaps Segment Premium Popular Economy
Price > Rs.15 Rs.815 < Rs.8
Weight 75 gm. 75 gm. 75 gm.
Godrej refreshes itself Godrej Consumer Products has beaten the stagnation in the FMCG segment through a host of initiatives that saw it introducing new price points, enter new territory and strengthen its brands.
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FORTIFYING its soap brands, introducing new price points, entering new categories such as babycare and hand sanitisers ... it has been a busy year at Godrej Consumer Products Ltd (GCPL). While FMCG categories such as toiletries, hair care and soaps have been under pressure, the company has outperformed the still sluggish FMCG industry primarily because it has been operating on a relatively smaller base compared to the biggies, and also because of the urban-centric nature of its brands. Focusing on its stronger and faster growing brands, the Rs 550crore Godrej Consumer Products began the year by extending Godrej No.1 ayurvedic soap to more markets and at an attractive price. At the same time it also decided to capitalise on the success of its FairGlow soap, instead of trying to push the languishing cream, to take on Hindustan Lever Ltd (HLL) in the fairness segment. In fact, Godrej is almost consciously targeting the fairness cream users through its newly relaunched fairness soap. `The cool way to fairness and freedom from oily skin' is the message the company wants to convey to all its prospective users. Launching the All New FairGlow soap, Hoshedar K. Press, Executive Director & President, Godrej Consumer Products, said, "There is an increasing demand among Indian women for convenient and inexpensive solutions to skincare and a need to look good naturally. The soap keeps this need in mind."FairGlow soap, a pioneer in its category which managed to find a niche in the fairness market in spite of the looming presence of HLL's mega brand Fair & Lovely, has intentions of doubling its turnover from Rs 60 crore to Rs 120 crore
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within the first year of the relaunch. The brand was relaunched last month. According to industry observers, HLL is not in a position to push its Fair & Lovely soap for fear of losing its share in the fairness cream market. This situation gives Godrej an opportunity to strengthen its position in the fairness soaps category while phasing out its cream, which in any case did not manage to register any significant volumes. In fact, the company suffered a loss in sales for its toiletries division primarily due to the failure of its FairGlow cream. Admits Press, "FairGlow cream did badly, leading us to withdraw the product. Our toiletries margins have been affected by its failure." Besides, Godrej Shave Gel for men has also failed to register any significant volumes. The relaunch of FairGlow soap is expected to add weight to Godrej's soap portfolio. Says Anand Shah, FMCG Analyst at ICICI Securities, "FairGlow has been registering declining sales over the past two years. The All New Godrej FairGlow is aimed at female teenage college students instead of the previous positioning of that for women in their early 20s. This move could help GCPL build a younger clientele and broaden its target base." Besides, the largest soap brand in Godrej's kitty, Godrej No. 1, managed to maintain robust growth and today accounts for nearly 60 per cent of GCPL's toilet soap volumes. Its low pricing and valuefor-money proposition has worked for the company and it has been steadily increasing its variants with an ayurvedic offering. Observes Shah, "Toilet soaps are likely to maintain robust growth of 15-20 per cent on the back of FairGlow's relaunch and the continuing growth of Godrej No.1." The new unit for toilet soaps in Himachal Pradesh would also lead to an improvement in profitability, as it is located in a tax-free zone. The unit would provide income-tax relief and exemption from excise duty, which is likely to improve the company's soap margins.
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Meanwhile, its Cinthol soap franchise has taken a backseat, primarily due to lack of proper positioning. "Cinthol as a brand has been over-extended and we are in the process of redefining the positioning," says Press. This is being done through a new campaign and positioning statement which is likely to be unveiled soon through its advertising agency, Orchard. Last year, Godrej decided to stretch the Cinthol brand to a hand sanitiser. "There is heightened hygiene consciousness emerging among consumers and we realised it would be ideal to introduce the hand sanitiser, a revolutionary concept for germ-free hands," says Press. Godrej already supplies hand sanitisers under the Cinthol brand to West Asia. The SARS epidemic did help in gaining sales for the product. Beefing up its rural initiatives to accelerate sales growth, Godrej also decided to increase its rural penetration by introducing small unit packs of its soap brands in the Bimaru States of Bihar, Madhya Pradesh and Uttar Pradesh. By introducing its three power soap brands - Cinthol, FairGlow and Godrej No.1 - in 50gm SKUs (stock keeping units), the prices of these respective brands have been pegged between Rs 4 and Rs 5. "We have decided to target these States with low per capita incomes through our small unit packs. This will be a great opportunity to grow since consumption levels of soap are still low in these parts. These small pack sizes will not be made available nationally and are meant specifically for these three States," says Press.
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Research methodology Need for study Fmcg sector is very vast and 4th largest sector in Indian economy in which different marketer use different strategies for the survival and make profit from their products or brands. In this sector there is very tough competition between players.they are using large number of advertising,sales promotions, positioning, and pricing strategies.
Research design We have used secondary data as a source of this research.
Data sources Secondary data: Web sites, Magazines, Newspapers
Limitations of study Lack of sufficient material. Lack of time.
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Five forces analysis of bath soap industry SUPPLY Abundant supply in metros Competition is beefing up their distribution network to penetrate the rural areas. DEMAND At an average GDP growth of 5.5% until February 2007, and the present consumer demand is set to boom by almost 60% over this period. Most fmcg companies are awaiting to tap this latent. BARRIERS TO ENTRY Huge investment in promoting brands, setting of distribution network and intense competition. BARGAINING POWER OF SUPPLIERS Many established players have a slight edge in bargaining power giving the competition among suppliers. Some of the companies have backward integration, which reduces the suppliers clout. BARGAINING POWER OF CUSTOMERS Due to increase in branded products, there is less chance that the consumer can influence, but intense competition within fmcg companies result in value for money deals for consumers.(eg getting one soap free with one unit of soap)
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COMPETITION In bath soap industry there are low profit margins about 5 – 10% but they are selling in huge volumes. To beat the competition companies mainly use various strategies like discounts and freebies. Unbranded players are size of Rs.1-3 billion and they are growing at the rate of 10%. Local players have no large distribution network so they are giving fight to the branded products by giving huge margins to retailers which is an important part of supply chain.
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Hindustan Lever’s SWOT analysis
Strengths: • • • • •
• • •
With identified strengths including a strong brand portfolio; consumer understanding; R&D ability; distribution reach(networking) and high quality manpower Strong media personalities As the production is on large scale it has the benefit of economies of scale. Being very old and reputed company, the company and its brands achieves highest trust of the consumers.
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Weaknesses: • The company's weaknesses spotted thereby include • Increased consumer spends on education, consumer durable, entertainment, travel, etc resulting in lower share of wallet for FMCG; • Complex supply chain configuration and unwieldy number of stock keeping units (SKUs) with dispersed manufacturing locations; • Price positioning in some categories that allows for low price competition and high social costs in the plantation business.
Opportunities: • HLL sees its opportunities as • market and brand growth through increased penetration especially in rural areas; • brand growth through increased consumption depth and frequency of usage across all categories; • upgrading consumers through innovation to new levels of quality and performance; • emerging modern trade to be effectively used for introduction of more upscale personal care products; • growing consumption in out of home categories; • positioning HLL as a sourcing hub for Unilever companies elsewhere and leveraging the latest IT technologies.
Threats: • Perceived threats • span low-priced competition now being present in all categories; • grey imports • spurious/counterfeit products in rural areas and small towns; • changes in fiscal benefits.
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Personal wash market: While the growth rate for the overall personal wash market is only 1 per cent compared to average growth rate of 5 per cent, premium and middle-end soaps are growing at a rate of 10 per cent. The leading players in this market are HLL (Lux, Lifebuoy, Breeze, Rexona), Nirma (Nima), Godrej Soaps (Cinthol, FairGlow, Shikakai, Nikhar), and Reckitt & Colman (Dettol).
Growth in production of FMCG
FMCG (overall) Soap & Toiletries (overall) Soap & Toiletries (overall) Fabric wash market
Rs billion
Est 2002- % 20032003 growth 2004 600 2% 609
Rs billion
90
-5%
90.9
1%
Mn tonn
60
4%
60.09
1.50%
MN tonn
50
4%
50.25
0.50%
Laundry soaps/bars
Rs billion
53.3
-6.5%
50.64
-5%
Rs billion
45
5%
45.45
1%
Rs billion
42
-3.2%
40.11
-4.5%
Production (market size)
Personal wash market Toilet soap
Unit
EST % growth 1.5%
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Projected Growth in Production of FMCG Sector
FMCG (overall) Soap & Toiletries (overall) Soap & Toiletries (overall) Fabric wash market
Rs billion
First two quarters (Apr-Sept 2003-04) Actual 1.50%
Rs billion
-4%
1.50%
MN tonn
2%
4%
Laundry soaps/bars
Rs billion
-8%
0%
Laundry soaps/bars MN Tonn Personal wash market Rs billion Toilet Soap Rs billion
-5% 7% -5%
1% 1.5% 1.5%
SECTOR
UNIT
First two quarters (Apr-Sept 200405) Projected 2%
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SWOT ANALYSIS OF GODREJ Strengths • Very old and trusted domestic company in India. • Good distribution network across the country. • Cinthol is one of the popular and strongest brand of the company. • Diversification of the products and deepens each product vertically. • Economical products with wide product line.
Weaknesses • Medium focus on advertising as compared to other competitors. • Focused attention on cinthol brand. • Less focus on product variety. • Lack of promotion of its products by influential celebrities. • Lack of concentration on bath soap segment after diversification.
Opportunities • Penetration in rural market area. • More brand loyalty of customers towards some of the brands. • Focusing more on its innovations and product variety it can become a global player. • Low market share, to be focused by aggressive marketing.
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Threats • Trust factor and emotions attached to it due to the domestic company towards localites. • Due to successful backward integration it has a benefit of low cost production. • Major focus on effective advertising. • Best infrastructure.
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Growth and expansion strategies in global scenario Market segmentation Most multinationals are active in almost all the regions profiled in this report. Their global reach has been facilitated in part by the increas ingly open economic policies that were being implemented by developing countries such as India and China during the 1990s. Corporate market expansion strategy by the multinational organizations has involved increased market segmentation to create a wide range of products especially in the toilet and laundry soap categories. The main developments during the 1990s has thus been the growth of task specific products. The market for bath products in particular, has shifted toward body cleansing, as well as moisturising, as brands become more specialised. Traditional soaps are fighting back with a move toward nostalgia, and seem to be attracting consumers back to the products they know best.
Mergers and acquisitions Production of soaps for distribution on the international market takes place as near to national markets as possible. The distance of many of the emerging markets from major industrial nations, and the sheer bulk of the bar soap and liquid soaps combine to make import uneconomical in most instances. While domestic manufacturers traditionally tend to concentrate in their countries of origin, they are increasingly seeking to increase revenues by venturing into neighbouring countries. This situation is most common in Asia and Latin America. The main strategy used by companies wishing to enter other markets is a series of mergers and acquisitions. In addition, they acquire manufacturing facilities and set up distribution agreements with local companies. With the exception of East and Central Europe, m ost soap and other toiletry markets are becoming increasingly foreign. In Latin America, Brazil stands out as an exception to this trend, having a high presence of domestic companies.
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In Asia,domestic manufacturers such as Nirma and Godrej are gradually increasing their domestic market share, particularly at the lower end of their markets. The acquisition of regional players represents a clear means of establishing or strengthening a position in a region. Acquisition is also being used as a means of balancing the geography of a portfolio where a large player is weak in a particular country. This seems to have been a major factor in Unilever’s acquisition of Helen Curtis. The alternative to acquisition or creation of a manufacturing operation in the target country, is to set up a licensing agreement with a local manufacturer.
How local companies are responding to multinational strategies Many national soap manufacturers are matching the big player’s expansion strategies by expanding into niche markets where brand loyalties are yet to form. They are becoming successful by quickly identifying and meeting consumer needs, and by offering more competitively priced products than the multinationals. Another strategy involves offering products at low retail prices and with small value shares in several sectors without occupying leading positions in any of them. While new product development will be important in the strategy of niche players, it is unlikely that it will be as innovative as that achieved by the global players. This is because investment funds are not readily available in the same way, and new product development will therefore tend to take the form of brand and line extensions. Nonetheless, many local manufacturers are identifying and exploiting pockets of innovation in niche markets especially, where global players do not have dominant positions. In any case, the findings of this research indicate that many sectors of the global market for soap are not yet saturated. It is believed that additional sales growth can be generated by targeting specific consumer groups, for example, consumers in provincial and rural regions, health conscious consumers, mothers, children and teenagers.
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Threats Without exception, all the major players and other manufacturers in the industry list the following issues as threats to the uninhibited growth of theindustry: High government custom duties on essential imported raw materials; High production excise taxes which in some cases are higher than the import duty on raw materials; High local energy costs including electricity and fuel; Increasing cost of policing their products against local artisanal soap producers. This takes the form of increasing research and development, as well as advertising and promotional expenditure to differentiate their products in the mass or lower market segment from local ones. Loopholes
in government customs machinery have led to the influx of grey imports, i.e. unofficially imported products in the local market. In addition, official relaxation of trade barriers in all regional markets has increased the entry of imported soap into most regional markets that were fairly stagnant in terms of new product d evelopment and launches. Competition has intensified significantly over the last five years and has resulted in heavy corporate investment in a wider range of technologically advanced products and new product development in general. This coincides with th e emergence of a more sophisticated consumer base, much greater segmentation in markets, and increased demand for value added products. Basic products like bar soaps remain dominant in Asia, as the bulk of consumers in most markets earn low incomes and only buy low cost items. However, this situation showed signs of change over the last three years with bar soap increasing in value shire from 68.2% to 72.1%. This was due to consumers at the lower end of the market trading up to more expensive types of soaps as their average incomes increased. Liquid soaps became increasingly popular until the 1997 economic crisis caused consumers to economize. The popularity of liquid soaps and shower gels is due to their hygienic packaging which makes them popular to use because, unlike bar soaps, it cannot be shared by members of the family for body cleansing.
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The regional market presents tremendous opportunities to the soap manufacturer in terms of the share size of the formed population. With India’s population officially exceeding one billion at the end of the last century and China’s over 1.5 billion, the majority of them living under the poverty line, appropriate marketing strategies are needed to turn this region into an area of advantage for the industry. Unilever is the most dominant player in the region with Japanese companies,
Unilever Countries of origin and bases: UK/ Netherlands Unilever, the Anglo-Dutch consumer goods company is among the world’s largest soap manufacturers. It is unusual in its structure, which involves two parent companies; Unilever NV and Unilever PLC. This structure relates back to the 1930s merger of the Lever Soap Company with the Dutch edible (oil) fats company NV Margarine Unie. Unilever started its involvement in the soap market with the manufacturers of Pearls toilet soap, a major force in the soap industry. Since the mid 1980s Unilever Has further developed strong position in the soap sector through acquisition of various established brand names. Unilever has been building its soap (skincare) activities in the developing regions through acquisition. In Eastern Europe, it acquired PTZ, the Czech state-owned producer of toilet soaps and skincare products in 1992. In 1995 the Singapore based Haze Line Company was acquired from Glaxo for US$150 million. This has strengthened Unilever’s skincare position in China and South East Asia.
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Operating structure Unilever has operations in more than 90 countries which provide it with a presence in every continent. Apart from direct presence, Unilever’s brands are on sale in a further 90 countries through import arrangements and agreements with local companies. Europe accounted for over half of the company’s turnover and operating profit in 2000. When sales from European markets and North America are combined, they account for 2/3 of global turnover The business coordinates its activities through divisions, These are (i) foods (which accounts for 50% of Group turnover in 2000) (ii) detergents, (iii) personal products including soap (accounting for 14% of Group turnover in 2000) (iv) specialty chemicals (v) other products Corporate strategy The broad ranging interests of Unilever are underpinned by a strong corporate strategy which focuses on the core activities and brands. The company has pursued a selective acquisition and disposal strategy with net expenditures on disposals and acquisitions amounting to over US$ 1billion in 1999. The company is also involved in Joint Ventures (JV) where this method is proved to be the most effective means of entering a new market For example, in Vietnam the company operates through two JV agreements. Unilever also seeks to expand through organic market development where appropriate. The key to the company’s strategy is the importance of product innovation. A world wide network of innovation centres is in place which allows rapid transfer of ideas and the identification of tailoring required for local or regional markets. While the company enjoys the benefit of owning a number of global brands, its strategy emphasizes the importance of local requirements. The company is keen to position itself as the “Multi-local Multinational” Leading brands Unilever has significant involvement in the global soap market through a portfolio of strong consumer brands marketed primarily through selective mass outlets. In the detergent market, the most established brand is Omo in the fabric detergent sector. Omo is sold in over 50 countries with a wide number of formulations to reflect
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local washing preferences. Its Lux, Rexon, Dove, Ponds and Lifebuoy brands are present in virtually every market around the world. Other leading brands include Hellmann’s', Liptons, Knorr and Ponds. Future strategy Unilever is likely to continue to strengthen its presence in and further develop its soaps and bath /shower product lines. The company will continue to use the Dove and Lux brands to expand into new skincare related categories. These brands have strong consumer loyalty which will allow the brands to cross sector barriers with relative ease.
Nirma Ltd Nirma is a private family firm, which dominates the Indian rural market. Largest national detergent maker and second largest selling soap manufacturer. Success due to undercutting multinational rivals eg. Surf. Production facilities at 6 places in India. It was able to cut costs with a model focused on the poor. Using a lower fat-towater ratio and indigenous oils in the formulation of the soap, the company was able to cut production costs dramatically, and produce a more environmentally sound product. It produces a range of industrial chemical products which primarily serve as raw material or intermediates for soap and detergent business.
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Nirma has cut the cost of distribution by doing away with intermediaries. The product travels from the factory to the d istributor's doorstep. Though the distributors have slender margins, they make money from sheer volume sold. The company makes extensive use of wallpaintings for advertising.
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FINDINGS & SUGGESTIONS Tax reforms The government has gradually removed the restrictions on imports of consumer goods in the country and also significantly reduced custom duties. The domestic tax structure of these products, however, has not been rationalised to provide level playing field for competition. This is adversely affecting the growth of the FMCG industry and could have far reaching adverse impact. The following taxation issues need urgent attention of the government: 1) Extremely high incidence of tax on certain product categories Some FMCG products such as shampoos, processed food, soft drinks and toiletries containing alcohol attract high rates of excise duty and sales tax. The total tax incidence in some cases is more than 60 per cent of the cost or more than 30 per cent of MRP. Such high tax incidence hampers growth of these product categories besides encouraging manufacture of spurious products and smuggling. It is recommended that the total excise incidence of FMCG products should not exceed 16 per cent in the case of non food items and eight per cent in the case of processed foods. Similarly, the marginal rates of sales tax, which is currently in the range of 10 to 25 per cent, should not exceed 12 per cent. 2) Irrational domestic tax structure encouraging imports Significant reduction in custom duty rates of consumer goods has made imported product cheaper as compared to indigenously manufactured products, due to irrational domestic tax structure. For instance, goods manufactured in India suffer from cascading effects of taxes on inputs as additional cost compared to imports.
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The cascading effect of sales tax and local levies on inputs used in domestic manufacture should be eliminated by providing either MODVAT credit or by introducing notional VAT covering both central and state taxes on an urgent basis. Moreover, MRP-based excise duty is levied on a large number of FMCG products. Countervailing duty on the same product when imported is charged on CIF value. The MRP based assessable value for excise duty does not allow abatement for post manufacturing costs such as advertising and selling expenses whereas CIF value considered for the purpose of import duty does not include costs of these elements incurred subsequently by importers. This differential basis creates unfair competition as tax incidence on domestic manufacture could be considerably higher in case of those products which incur significant marketing and distribution cost. There is a need to bring parity in tax incidence between domestic manufacture and imports by including all such elements of post manufacturing costs while deciding the abatement percentage of MRP based duty. 3) Inverted Duty structure for selected inputs Duty on certain raw materials is higher or the same as compared to finished products in which these materials are used. Such raw materials include oils and chemicals like Soda ash, caustic soda and LAB. In addition to customs duty, raw materials are also subject to SAD/sales tax and octroi and therefore total tax incidence and cost of indigenous manufacture goes up. The import duty on raw materials needs to be rationalised so that it does not exceed 60 to 70 per cent of the duty on finished goods. 4) Need for rationalisation of taxes on processed foods Processed food industry, with its vertical integration with the agricultural sector has significant potential for employment generation and economic growth. The existing tax structure and its high overall incidence, however, has been hampering the growth of the processed industry. The increase in excise duty in last year’s budget from eight per cent to 16 per cent has adversely affected the growth of processed foods industry. It is recommended that marginal rate of excise duty on processed foods should not be more than eight per cent and the sales tax should be levied at four per cent.
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5) Cascading effect of Special Excise Duty The special excise duty introduced last year is not "cenvatable’’ except in the case of selected products. Most FMCG products covered by tariff chapter 33 such as shampoos, ice creams and cosmetics are subject to SED. This tariff chapter also contains very wide definition of the term "manufacture’’ which includes labeling, relabeling or conversion of large packs into small packs. The levy of SED on such products therefore leads to double taxation when goods are labeled or converted into small packs after manufacture. It is recommended that SED should be made "cenvatable’’; alternatively the term "manufacture’’ needs modification , atleast for the purpose of SED by excluding labeling, relabeling or conversion into small packs.
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Other suggestions 1. A joint industry –government initiative for building a "Made in India’’ brand for FMCG products is required. With many multinationals moving into the Indian FMCG market, a concerted marketing strategy which creates strong brands will be needed for Indian FMCGs to gain recognition in the market. 2. Better packaging materials are necessary as a large number of FMCG products are perishable . The government must facilitate more R&D in packaging materials as this will help in cutting wastes and costs in the sector. The possibility of a longer shelf life will encourage production of goods of higher value addition by companies in the sector. 3. While import of most items has been allowed, the government is not geared to prevent import of spurious products. In other countries, FMCG goods have to be cleared by regulatory authorities before they are allowed to enter domestic shores. This is not happening in India and the government needs to undertake a comprehensive crackdown on these products. 4. The small-scale reservation policy should be reviewed as it hampers the growth of this sector. Many reserved products, including several FMCG products can be freely imported. Under the current policy, not only are Indian producers of many FMCG products restricted from attaining economies of scale, they also have to compete against import that do not face constraints on small scale reservations. 5. Food laws such as the PFA Act should be amended and be made contemporary.
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CONCLUSION From the above detailed study of the FMCG industry with the focus on bath soap segment we can make out that FMCG is the most emerging sector and industry not only in India but all over the world. The main leaders of the bath soap segment like HLL, NIRMA. AND GODREJ are focused in the study which shows that HLL is the leader in FMCG industry and has a large amount of market share about 67% and even the growth rate. The main reason for the success of some companies is their strategy and distribution networks. HLL is dominating due to its diversification, vertical and horizontal integration, breadth and depth product line and innovative and customer oriented product introduction. Thus the company needs to focus on its distribution channels, networking, marketing strategies, sales promotion etc to succeed in the market. From the study we can make out that nirma and godrej still needs a lot market penetration in the urban market also with focus on the premium class.
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BIBLIOGRAPHY Websites : www.infoline.com www.nirma.co.in www.hll.com www.godrej.com www.thehindubusinessline.com www.google.com Newspapers: Business Standard Economic Times
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