Sunday, October 21, 2007
Vishal Retail to open speciality store for FMCG & apparel
Delhi-based Vishal retail will soon set up a chain of speciality stores to retail its apparel and FMCG range across the country, as it firms up plans to introduce private labels for consumer durables and mobile phones. The company has also chalked out plans to launch quick service restaurants for which it is in talks with real estate developers to lease out space at prime locations including Delhi Metro stations. "We will introduce a range of private label consumer durable items and mobile phones at the stores in next 3-4 months, and the products will be sourced from China," Vishal Retail Ltd CMD Ram Chandra Agarwal said. He said the consumers will get a mix of both private labels and others brands at the stores. The company would also start retailing liquor at its stores before end of this year. On the company's foray into manufacturing mobile phones he said, "The pilot launch of the two models of our Z-line mobile phones has been successful, and since the response has been good, the mass launch will be at the stores in next 3-4 months." Vishal currently has around 65 stores across India, is focusing on developing speciality stores for apparel and FMCG items. The plan was to have a total of 90 stores March next year, of which the new ones will be a mix of both hypermarket and speciality formats.
Dabur: Adding Flavour
Dabur has a penchant for venturing into new spaces, whether it’s soaps or retailing of beauty products. The latest product from the Rs 2,172 crore firm is a malted beverage called “Chyawan Junior” positioned it as a chocolate -flavoured ayurvedic drink. Says K K Rajesh, executive vice-president, Dabur, “It contains herbs to improve the stamina and the chocolate flavour makes it more appealing to children.”
The positioning might well work but the brand is likely to remain a small one. Explains Aniruddha Joshi, analyst at Anand Rathi Securities, “There is a market for the traditional ‘chyawanprash” product so with a tastier option Dabur can perhaps create a niche. However, it’s share is unlikely to be more than 5-6 per cent.”
But Dabur’s not shying away from the competition. By pricing Chyawan Junior at Rs 120 for a 500 gm bottle, it has taken the market leader Glaxo SmithKline Consumer Healthcare’s, Horlicks, head on.
That would seem to be a bold move on the part of Daburgiven that GSK, which has four brands in Horlicks, Boost, Maltova and Viva commands a market share of over 70 per cent. The firm has only improved its share over the years.
Indeed as Nikhil Vora, partner, SSKI Securities observes, “Dabur may have wanted to redefine the pricing somewhat by opting for slightly lower margins but bigger volumes.”
After all, milk product companies such as Nestle and Amul have tried their luck with brands Milo and Nutramul respectively but in spite of having strong synergies and distribution set-ups, they haven’t really done too well.
As Arvind Mahajan, executive director, KPMG, points out, “It’s a relatively difficult market to crack. One reason for this is that because it’s a product for children, you need to get the taste right. It’s not enough if the product is nutritious. Also consumers seem to form a habit of drinking the same product so it takes time to break that habit.”
The malted beverages market, at around Rs1,540 crore (source: AC Nielsen), is crowded with half a dozen players. At around 8 per cent in value terms and less than 3.5 per cent in volumes, the growth has been modest. GSK’s Vice-President, Marketing, Shubhajit Sen, however, pegs the growth at 12-14 per cent in value and 7-9 per cent in volume terms.
The business can be a fairly profitable one though: GSK’s operating margins are in the region of 16.5-17 per cent and Horlicks and its variants are firmly entrenched with a market share of over 50 per cent.
Says Sen, “We have been able to keep the category relevant to customers. We have expanded the usage by associating with exam preparation and dampening the seasonality effect of summers by driving cold consumption with Chocolate Horlicks.”
Sen believes the growth has been driven by both new users as well as higher consumption by existing users. Adds Rajesh, “The introduction of new variants has also helped grow the market. Companies are abandoning the one-size-fits all positioning and generic selling points of the past in favour of targeted messaging based on health benefits. ” Rajesh believes the market can grow at 15 per cent in the future.
What Dabur has going for it is a strong distribution network since it already sells products such as honey and juices. Says SSKI’s Vora, “Dabur’s distribution is probably better than GSK’s and that should help it to do good volumes.”
However, as KPMG’s Mahajan points out, “Typically malted beverages have done better in the eastern and southern markets. So Dabur will need to ensure that it has a good reach in these parts of the country.”
Joshi, however believes that though the availability of milk has never been an issue in the north, Dabur might succeed with a differentiated product. Moreover, the “Chyawan” brand should come in handy though Dabur will need to spend heavily on advertising—typically GSK’s ad spends are about 12 per cent of sales. Rajesh hopes to ‘take a prominent position in the market’ in the next few years. For sure it won’t be easy but it’s well worth a try
The positioning might well work but the brand is likely to remain a small one. Explains Aniruddha Joshi, analyst at Anand Rathi Securities, “There is a market for the traditional ‘chyawanprash” product so with a tastier option Dabur can perhaps create a niche. However, it’s share is unlikely to be more than 5-6 per cent.”
But Dabur’s not shying away from the competition. By pricing Chyawan Junior at Rs 120 for a 500 gm bottle, it has taken the market leader Glaxo SmithKline Consumer Healthcare’s, Horlicks, head on.
That would seem to be a bold move on the part of Daburgiven that GSK, which has four brands in Horlicks, Boost, Maltova and Viva commands a market share of over 70 per cent. The firm has only improved its share over the years.
Indeed as Nikhil Vora, partner, SSKI Securities observes, “Dabur may have wanted to redefine the pricing somewhat by opting for slightly lower margins but bigger volumes.”
After all, milk product companies such as Nestle and Amul have tried their luck with brands Milo and Nutramul respectively but in spite of having strong synergies and distribution set-ups, they haven’t really done too well.
As Arvind Mahajan, executive director, KPMG, points out, “It’s a relatively difficult market to crack. One reason for this is that because it’s a product for children, you need to get the taste right. It’s not enough if the product is nutritious. Also consumers seem to form a habit of drinking the same product so it takes time to break that habit.”
The malted beverages market, at around Rs1,540 crore (source: AC Nielsen), is crowded with half a dozen players. At around 8 per cent in value terms and less than 3.5 per cent in volumes, the growth has been modest. GSK’s Vice-President, Marketing, Shubhajit Sen, however, pegs the growth at 12-14 per cent in value and 7-9 per cent in volume terms.
The business can be a fairly profitable one though: GSK’s operating margins are in the region of 16.5-17 per cent and Horlicks and its variants are firmly entrenched with a market share of over 50 per cent.
Says Sen, “We have been able to keep the category relevant to customers. We have expanded the usage by associating with exam preparation and dampening the seasonality effect of summers by driving cold consumption with Chocolate Horlicks.”
Sen believes the growth has been driven by both new users as well as higher consumption by existing users. Adds Rajesh, “The introduction of new variants has also helped grow the market. Companies are abandoning the one-size-fits all positioning and generic selling points of the past in favour of targeted messaging based on health benefits. ” Rajesh believes the market can grow at 15 per cent in the future.
What Dabur has going for it is a strong distribution network since it already sells products such as honey and juices. Says SSKI’s Vora, “Dabur’s distribution is probably better than GSK’s and that should help it to do good volumes.”
However, as KPMG’s Mahajan points out, “Typically malted beverages have done better in the eastern and southern markets. So Dabur will need to ensure that it has a good reach in these parts of the country.”
Joshi, however believes that though the availability of milk has never been an issue in the north, Dabur might succeed with a differentiated product. Moreover, the “Chyawan” brand should come in handy though Dabur will need to spend heavily on advertising—typically GSK’s ad spends are about 12 per cent of sales. Rajesh hopes to ‘take a prominent position in the market’ in the next few years. For sure it won’t be easy but it’s well worth a try
Fruit Drinks: Pepsi Coke in new turf war
Coca-Cola and Pepsi, which have triggered books and case studies on the cola war, are ready to battle each other on a new turf in India: fruit drinks. Pepsi is said to be ready with Tropicana Twister, an orange drink, to take on Coca-Cola’s Minute Maid, which debuted in India in February and went national in May.
According to industry and trade sources, Twister will strike next month at the time of Diwali and the executive of one retail chain said the date had been fixed as November 9. The Indian arm of PepsiCo though is playing with its cards close to its chest. An email from its public relations agency said: “PepsiCo would be happy to share the details on Tropicana Twister close to the time of the launch.”
The launch of Twister, already successful in Vietnam, will do more than add another brand to the shelves. It will mark Pepsi’s entry into a segment in India that has opened up with the entry of Minute Maid, which, full of orange pulp, is neither pure juice like Tropicana nor plain fruit drink like Coke’s own mango drink Maaza.
There is immense opportunity to be tapped in the segment of juice and fruit drinks. Its size is estimated at Rs 5,000 crore, which is not much less than the Rs 6,000 crore that the carbonated drinks market – cola, lime and orange put together – is worth. What is more, brands account for less than a quarter of the juice and fruit drinks market, leaving the field open for the big boys to take some easy pickings at the expense of small companies.
In volume terms, the total juice market in India – juices, nectars and fruit drinks – is pegged at 500 million cases. Of this, only 10 per cent is accounted for by packaged products and the rest is sold loose. Within this 10 per cent – or, 50 million cases – 85 per cent is taken up by mango-based drinks, juices and nectars. Against this, trade sources say Minute Maid sold a million cases in the first month.
In anticipation of Pepsi’s imminent challenge, Coca-Cola is not sitting quiet. It is test marketing Maaza Aam Panna, a spicy, tangy mango drink, in 1,000 stores in Agra, Bareilly and Lucknow. It is being bottled in Bhopal and sold in 200 ml tetra packs priced at Rs 12.
“In Maaza, Coca-Cola India already has the country’s number one juice drink brand. Now with the national launch of Minute Maid Pulpy Orange, we believe this would further extend Coca-Cola India’s leadership in the juice drink segment,” said Venkatesh Kini, vice-president, marketing, Coca-Cola India.
Coca-Cola and Pepsi squaring up in the fruit drink segment shows the shape of things to come as the two companies have been increasingly looking for revenue streams other than those of carbonated soft drinks. Besides, say experts, fruit beverages overcome the price barrier that the pricier pure juice brands have not.
Battleground
Pepsi to launch Tropicana Twister, an orange drink, during Diwali to take on Coca-Cola’s Minute Maid
The segment of juice and fruit drinks in India is estimated to be Rs 5,000 cr
In volume terms, the total juice market in India - juices, nectars and fruit drinks - is pegged at 500 million cases. Of this, only 10 per cent is accounted for by packaged products and the rest is sold loose
According to industry and trade sources, Twister will strike next month at the time of Diwali and the executive of one retail chain said the date had been fixed as November 9. The Indian arm of PepsiCo though is playing with its cards close to its chest. An email from its public relations agency said: “PepsiCo would be happy to share the details on Tropicana Twister close to the time of the launch.”
The launch of Twister, already successful in Vietnam, will do more than add another brand to the shelves. It will mark Pepsi’s entry into a segment in India that has opened up with the entry of Minute Maid, which, full of orange pulp, is neither pure juice like Tropicana nor plain fruit drink like Coke’s own mango drink Maaza.
There is immense opportunity to be tapped in the segment of juice and fruit drinks. Its size is estimated at Rs 5,000 crore, which is not much less than the Rs 6,000 crore that the carbonated drinks market – cola, lime and orange put together – is worth. What is more, brands account for less than a quarter of the juice and fruit drinks market, leaving the field open for the big boys to take some easy pickings at the expense of small companies.
In volume terms, the total juice market in India – juices, nectars and fruit drinks – is pegged at 500 million cases. Of this, only 10 per cent is accounted for by packaged products and the rest is sold loose. Within this 10 per cent – or, 50 million cases – 85 per cent is taken up by mango-based drinks, juices and nectars. Against this, trade sources say Minute Maid sold a million cases in the first month.
In anticipation of Pepsi’s imminent challenge, Coca-Cola is not sitting quiet. It is test marketing Maaza Aam Panna, a spicy, tangy mango drink, in 1,000 stores in Agra, Bareilly and Lucknow. It is being bottled in Bhopal and sold in 200 ml tetra packs priced at Rs 12.
“In Maaza, Coca-Cola India already has the country’s number one juice drink brand. Now with the national launch of Minute Maid Pulpy Orange, we believe this would further extend Coca-Cola India’s leadership in the juice drink segment,” said Venkatesh Kini, vice-president, marketing, Coca-Cola India.
Coca-Cola and Pepsi squaring up in the fruit drink segment shows the shape of things to come as the two companies have been increasingly looking for revenue streams other than those of carbonated soft drinks. Besides, say experts, fruit beverages overcome the price barrier that the pricier pure juice brands have not.
Battleground
Pepsi to launch Tropicana Twister, an orange drink, during Diwali to take on Coca-Cola’s Minute Maid
The segment of juice and fruit drinks in India is estimated to be Rs 5,000 cr
In volume terms, the total juice market in India - juices, nectars and fruit drinks - is pegged at 500 million cases. Of this, only 10 per cent is accounted for by packaged products and the rest is sold loose
Thursday, October 11, 2007
Great news for FMCG companies
The strong volume growth in the FMCG sector continued throughout 2006. Rising income, demographics and rising aspirational levels led to rise in sales both in urban and rural area. Value added and higher margin products too witnessed an increase in demand. The year was also witness to heightened consolidation activity in the sector, as companies acquired to spread their reach across the globe. However, on the margins front, they faced pressure due to higher input costs and inflationary pressure. Budget Measures
Farm sector has been given the top priority. Agriculture investments to go upto 2% of GDP.
Duty on edible oil has been reduced.
Customs duty on food processing machinery and their parts is being reduced from 7.5% to 5%
Excise duty has been fully exempted on biscuits of per kilogram retail sale price equivalent of Rs 50 or less.
Excise duty on food mixes, including instant food mixes, has been reduced from 16% or 8% to Nil.
Free samples and displays are exempt form the purview of FBT.
Venture capital investing in dairy industry will get a pass through status.
Better rural infrastructure development to be an area of focus.
Increase in dividend distribution tax from 12.5% to 15%.
1% higher education cess to charged.
The dividend distribution tax on dividends paid by money market mutual funds and liquid mutual funds increased to 25 % for all investors.
Budget Impact
Duty reduction on edible is a positive for companies like Marico.
Exemption of excise on biscuits is positive for Britannia, ITC and Parle.
Reduction of excise on food mixes is beneficial to ITC, as this segment is a new growth area.
With increase on focus on agriculture, the rural income is likely to go up. This will be beneficial to the FMCG companies, as rural areas are a big market for them.
FMCG companies spend a lot of money on advertising and brand building. Exclusion of samples and displays from FBT will help them in promoting their products
Better infrastructure will help better access and more distribution network to the FMCG companies. It will help them improve the supply chain.
Companies have huge investments in the liquid funds, the higher tax on dividend distribution will reduce their other income.
The impact of higher tax (cess) on the industry is likely to lower net margins, albeit marginally.
Sector Outlook
With 12.2% of the world population living in the villages of India, the Indian rural FMCG market is something no one can overlook. More focus on farm sector will boost the rural income thus providing better growth prospects to the FMCG companies. Better infrastructure facilities will improve their supply chain. Also, with rising income and growing consumerism, FMCG sectors are likely to benefit. 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 in the future.
Company impact
Britannia and ITC are l likely to benefit due to reduction in excise on biscuits.
ITC will also benefit from the reduction of excise duty on instant mixes.
HLL, Marico, Dabur, ITC amongst another FMCG companies will benefit from the free sample removal from FBT purview as they can now increase their advertising. Also all the FMCG companies will benefit from the infrastructure development and boost to rural income.
Industry Wish List
Give infrastructure status to agri processing industry. Give tax breaks and incentives to the food processing industry. Consider a uniform VAT of 4% on all basic processed foods, nil or low excise duty on food grains, condiments and spices, fruits and vegetables along with strong fiscal support for research and development (R&D) in the food-processing sector.
Measures to boost farm & rural incomes through employment generation measures and increase in infrastructure spending
Exemption of sales promotion expenses and free samples from the purview of FBT (fringe benefit tax)
Reduction in import duty on Palm Oil to curb inflation
Quality check on imported FMCG products and effective enforcement of copyright laws. This would go a long way in filtering out import of sub-quality and discarded products, benefiting both the manufacturers and the consumers. Also, there should be a comprehensive policy to hit out at contraband imports.
More focus towards networking the food supply chain, which will enable free flow of food related products across the country to the benefit of both manufacturers and consumers. For the government, it will mean effective utilisation of food stocks.
As per CII, excise duty difference between 'branded' and 'unbranded' food products existing at present should be removed to encourage consumers to move from unhygienic unbranded foods to hygienically packaged processed foods
Budget over the years
Budget 2004-05
Budget 2005-06
Budget 2006-07
Excise on biscuits reduced to 8% from 16%. Excise on soft drinks and sugar boiled confectionery also reduced All states to switch to VAT in FY04 (deadline now has been extended till end FY05) Loans to agriculture and to small-scale sector will now be available at maximum 2% above prime lending rate (PLR) Development plans for roads, ports, railways and airports Customs duty on alcoholic beverages reduced
Increase in customs duty of refined palm oil to 75% Excise duty on dairy machinery hived off from 16%. Implementation of VAT across all states Concessional rate of 5% custom duty on tea and coffee machinery Excise duty on preparations of meat, poultry and fish halved to 8% Excise duty on food grade hexane (used in the edible oil industry) halved to 16%
Excise duty on Condensed milk abolished (16% earlier). Excise duty on Pectines and Pectates, used as a gelling agent in Jams and Jellies abolished (16% earlier). Excise duty on unbranded edible preparations of oil increased from nil to 8%. Excise on biscuits manufactured without aid of power will now attract a duty of 8% (nil earlier). Excise duty on Pasta reduced from 16% to nil. Excise duty on ice-creams exempted Excise on ready to eat packaged food reduced from 16% to 8% Excise on instant food mixes exempted Excise on soaps manufactured without power will now attract 16% duty Excise duty on processed meat, fish and poultry products reduced from 8% to nil. Excise duty on yeast exempted
]
Key Positives
Growth potential: Rural penetration levels are still low. Also, according to estimates, only about 7% to 8% of the total food production (US$ 75 bn) is consumed in processed form. This speaks for itself, highlighting the scope for growth. The planned development of roads, ports, railways and airports, will increase FMCG penetration in the long term.
Increasing focus: Companies are increasingly focusing on key products and brands, cost efficiencies and rural markets to grow. This is a sign of market sophistication, both from the manufacturer's point of view as well as the consumer's point of view.
The India advantage: Owing to India's cost advantage, many MNC companies have started using their Indian operations as their manufacturing base. Alternatively, some Indian companies have tested foreign shores like Bangladesh, Sri Lanka, the Middle East and Pakistan among others.
Favourable tax structure: The introduction of VAT at the start of FY06 is a long term positive for the FMCG sector. This had been a long pending demand of the FMCG sector. Post this, the tax ambiguity will get reduced, benefiting the sector.
Modern trade growth robust: Modern retailing stores are the future and are growing at exponential rates. With the modernisation of the retail sector, rapid growth in sales of supermarkets, department stores and hypermarkets is inevitable due to the growing preference of the affluent and upper middle classes for shopping at these types of retail stores. Since FMCG companies have tied up with these retailers, growth for FMCG companies will also be faster.
Farm sector has been given the top priority. Agriculture investments to go upto 2% of GDP.
Duty on edible oil has been reduced.
Customs duty on food processing machinery and their parts is being reduced from 7.5% to 5%
Excise duty has been fully exempted on biscuits of per kilogram retail sale price equivalent of Rs 50 or less.
Excise duty on food mixes, including instant food mixes, has been reduced from 16% or 8% to Nil.
Free samples and displays are exempt form the purview of FBT.
Venture capital investing in dairy industry will get a pass through status.
Better rural infrastructure development to be an area of focus.
Increase in dividend distribution tax from 12.5% to 15%.
1% higher education cess to charged.
The dividend distribution tax on dividends paid by money market mutual funds and liquid mutual funds increased to 25 % for all investors.
Budget Impact
Duty reduction on edible is a positive for companies like Marico.
Exemption of excise on biscuits is positive for Britannia, ITC and Parle.
Reduction of excise on food mixes is beneficial to ITC, as this segment is a new growth area.
With increase on focus on agriculture, the rural income is likely to go up. This will be beneficial to the FMCG companies, as rural areas are a big market for them.
FMCG companies spend a lot of money on advertising and brand building. Exclusion of samples and displays from FBT will help them in promoting their products
Better infrastructure will help better access and more distribution network to the FMCG companies. It will help them improve the supply chain.
Companies have huge investments in the liquid funds, the higher tax on dividend distribution will reduce their other income.
The impact of higher tax (cess) on the industry is likely to lower net margins, albeit marginally.
Sector Outlook
With 12.2% of the world population living in the villages of India, the Indian rural FMCG market is something no one can overlook. More focus on farm sector will boost the rural income thus providing better growth prospects to the FMCG companies. Better infrastructure facilities will improve their supply chain. Also, with rising income and growing consumerism, FMCG sectors are likely to benefit. 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 in the future.
Company impact
Britannia and ITC are l likely to benefit due to reduction in excise on biscuits.
ITC will also benefit from the reduction of excise duty on instant mixes.
HLL, Marico, Dabur, ITC amongst another FMCG companies will benefit from the free sample removal from FBT purview as they can now increase their advertising. Also all the FMCG companies will benefit from the infrastructure development and boost to rural income.
Industry Wish List
Give infrastructure status to agri processing industry. Give tax breaks and incentives to the food processing industry. Consider a uniform VAT of 4% on all basic processed foods, nil or low excise duty on food grains, condiments and spices, fruits and vegetables along with strong fiscal support for research and development (R&D) in the food-processing sector.
Measures to boost farm & rural incomes through employment generation measures and increase in infrastructure spending
Exemption of sales promotion expenses and free samples from the purview of FBT (fringe benefit tax)
Reduction in import duty on Palm Oil to curb inflation
Quality check on imported FMCG products and effective enforcement of copyright laws. This would go a long way in filtering out import of sub-quality and discarded products, benefiting both the manufacturers and the consumers. Also, there should be a comprehensive policy to hit out at contraband imports.
More focus towards networking the food supply chain, which will enable free flow of food related products across the country to the benefit of both manufacturers and consumers. For the government, it will mean effective utilisation of food stocks.
As per CII, excise duty difference between 'branded' and 'unbranded' food products existing at present should be removed to encourage consumers to move from unhygienic unbranded foods to hygienically packaged processed foods
Budget over the years
Budget 2004-05
Budget 2005-06
Budget 2006-07
Excise on biscuits reduced to 8% from 16%. Excise on soft drinks and sugar boiled confectionery also reduced All states to switch to VAT in FY04 (deadline now has been extended till end FY05) Loans to agriculture and to small-scale sector will now be available at maximum 2% above prime lending rate (PLR) Development plans for roads, ports, railways and airports Customs duty on alcoholic beverages reduced
Increase in customs duty of refined palm oil to 75% Excise duty on dairy machinery hived off from 16%. Implementation of VAT across all states Concessional rate of 5% custom duty on tea and coffee machinery Excise duty on preparations of meat, poultry and fish halved to 8% Excise duty on food grade hexane (used in the edible oil industry) halved to 16%
Excise duty on Condensed milk abolished (16% earlier). Excise duty on Pectines and Pectates, used as a gelling agent in Jams and Jellies abolished (16% earlier). Excise duty on unbranded edible preparations of oil increased from nil to 8%. Excise on biscuits manufactured without aid of power will now attract a duty of 8% (nil earlier). Excise duty on Pasta reduced from 16% to nil. Excise duty on ice-creams exempted Excise on ready to eat packaged food reduced from 16% to 8% Excise on instant food mixes exempted Excise on soaps manufactured without power will now attract 16% duty Excise duty on processed meat, fish and poultry products reduced from 8% to nil. Excise duty on yeast exempted
]
Key Positives
Growth potential: Rural penetration levels are still low. Also, according to estimates, only about 7% to 8% of the total food production (US$ 75 bn) is consumed in processed form. This speaks for itself, highlighting the scope for growth. The planned development of roads, ports, railways and airports, will increase FMCG penetration in the long term.
Increasing focus: Companies are increasingly focusing on key products and brands, cost efficiencies and rural markets to grow. This is a sign of market sophistication, both from the manufacturer's point of view as well as the consumer's point of view.
The India advantage: Owing to India's cost advantage, many MNC companies have started using their Indian operations as their manufacturing base. Alternatively, some Indian companies have tested foreign shores like Bangladesh, Sri Lanka, the Middle East and Pakistan among others.
Favourable tax structure: The introduction of VAT at the start of FY06 is a long term positive for the FMCG sector. This had been a long pending demand of the FMCG sector. Post this, the tax ambiguity will get reduced, benefiting the sector.
Modern trade growth robust: Modern retailing stores are the future and are growing at exponential rates. With the modernisation of the retail sector, rapid growth in sales of supermarkets, department stores and hypermarkets is inevitable due to the growing preference of the affluent and upper middle classes for shopping at these types of retail stores. Since FMCG companies have tied up with these retailers, growth for FMCG companies will also be faster.
Wednesday, October 10, 2007
Big retail still gung-ho on expansion
| Even in the face of protests from trade groups, escalating real estate costs and pressure on margins, the march of domestic retail chains continues unabated. | ||||||||||||||||||
| Led by Reliance Retail, Pantaloon, Subhiksha and Spencer’s, these retail businesses are going ahead with their plans to set up about 2,500 stores, which, according to Technopak Advisors, will entail an investment of Rs 20,000 crore by December next year. | ||||||||||||||||||
Organised retail in the country is growing at 30-40 per cent a year, according to management consultancy firm PricewaterhouseCoopers, fuelled by robust 9 per cent economic growth that is putting more disposable money in consumers’ pockets.
| ||||||||||||||||||
| However, investor buoyancy is getting increasingly laced with scepticism in the face of growing backlash among those who fear that small shopkeepers will get wiped out. This backlash is slated to reach a crescendo tomorrow as tens of thousands are expected to gather in Mumbai’s Azad Maidan for the biggest rally yet against organised retail. | ||||||||||||||||||
| One of the targets of the protesters is Mukesh Ambani’s Reliance Retail, which has borne the brunt of recent protests in Uttar Pradesh, Orissa, West Bengal and Kerala. | ||||||||||||||||||
| The company is going ahead with plans that entail investments worth Rs 15,000 crore in setting up 205 stores, many of which will sell items not sold now, such as footwear. A part of this money will be spent on setting up distribution centres, according to a company executive. | ||||||||||||||||||
| It will take the number of Reliance Fresh stores to 500 from 347 in one year and increase the number of Reliance Digital stores, its consumer durables and information technology chain, to 14 from just one. The company will also set up 13 new Reliancemarts, its hypermarket chain, six Reliance Apparel stores, 21 Reliance Health and Wellness stores and seven Reliance Lifestyle stores. | ||||||||||||||||||
| Kishore Biyani’s Pantaloon Retail (PRIL) plans to increase the retail space to 10 million square feet by the end of 2008 from 6 million sq feet in 45 cities now. The company is planning a capital expenditure of Rs 650 crore and an investment of Rs 700 crore for maintaining inventory and working capital for new stores. | ||||||||||||||||||
| Pantaloon will set up 60 Big Bazaars, 15 Pantaloon stores, 100 Food Bazaars, 5 Brand Factory outlets, 7 more Central malls, 25 Depots (books and music chain), 6 Fit & Active gyms (JV with Talwarkar’s), 7 Collection-I (lifestyle furniture stores), 20 more E-zones (electronic stores) by June 2008. | ||||||||||||||||||
| Interestingly, the opening of PRIL’s major formats such as Big Bazaar and Pantaloons accounts for 85 per cent of the rollout plan. The group is also setting up 1,000 KB’s Fair Price Stores in 18 months. | ||||||||||||||||||
| “The company is targeting a turnover of Rs Rs 6,500 crore for the current financial year with 35 per cent of the turnover to be generated from the opening of new stores across different formats and concepts at locations all over the country,” said Rakesh Biyani, CEO, retail, PRIL. | ||||||||||||||||||
| Amid all the ambitious plans and looming protests by trade groups, Technopak Chairman Arvind Singhal said that though most of the players would go ahead with their plans and succeed with the change, they would now make less noise about their plans. | ||||||||||||||||||
| “Though there is no evidence at the ground level to show that retailers are less excited about the future than they were six months ago, the major factor I see going ahead is that the high-profile players will be circumspect and understand that retailing is not about investing crores of rupees, but setting up a single shop,” Singhal says. | ||||||||||||||||||
| But AT Kearney’s Hemant Kalbag believes that retailers may not be able to achieve the desired bottom lines in the next 2-3 years since realty and labour costs are going up continuously, putting pressure on margins. | ||||||||||||||||||
| “The next one year is critical for achieving as much footprint as possible and establishing itself as a strong player for all retailers,” he said. | ||||||||||||||||||
| The 300-store-strong Spencer’s is also planning to set up 500 more stores by June 2008 with an investment of nearly Rs 500 crore. The RPG Group-promoted company is expecting revenues of Rs 2,000 crore from its operations by June 2008. | ||||||||||||||||||
| “We are opening 30 stores every month. By the end of June 2008, we will do business of Rs 150 crore to Rs 160 crore per month. Our top lines are always improving,’’ said Sumantra Banerjee, CEO, RPG Retail. | ||||||||||||||||||
| South-based retail chain Subhiksha, which has nearly 910 stores, is opening nearly 600 stores in the next one year with an investment of Rs 800 crore. | ||||||||||||||||||
Male grooming gets a cosmetic touch
| Finally, the trend of the rising male vanity is spilling out of glossy city supplements and into balance sheets. The metrosexual man, believed to have been around for a while, is being re-discovered by marketers. |
| The market is still small, worth only Rs 400 crore a year. But its growth — the segment is expected to double every year in the next few years — has attracted some usual suspects, such as a bevy of cosmetics makers and, at least, one unusual one. |
| An added attraction is that, unlike the highly competitive segment of female grooming, male grooming is a relatively virgin territory and available for plunder.Emami was an early bird, which swooped down with its Fair & Handsome fairness cream in a market full of skin-whitening products for women. It soon had company in Marico, Elder Pharma and VLCC. The most recent entrant is also the most unexpected one — Mysore-based NR Group, which makes the Cycle brand of incense sticks. |
| Going by the indications, this is just the beginning. “We will introduce complete toiletries for men including creams, after-shave lotions and creams, soaps, deodorants and shampoos in a year,” says Aditya Agarwal, director, Emami, which has also launched Mr Black, a hair dye for men. The company is staying away from introducing the same range for women. |
| Says Anuj Saxena, managing director of Elder Healthcare, the personal care arm of the Elder group, “Over the next two years, we plan to increase our product portfolio in skin care, hair care and oral care. In personal care, we plan to launch 17 more products in the next two years, of which, close to 30 per cent would focus on men.” |
| Elder Healthcare already has seven products including fairness creams for men, lip balm, soaps, mouthwash, etc. |
| Emami’s launch of Fair & Handsome was driven by a study, which said 30 per cent users of skin care products were men. Within a year of its launch, Fair & Handsome registered sales worth Rs 50 crore. |
| Marico’s Kaya Skin Clinic has seen the share of men among its clientele increasing three-fold to 25 per cent in two years. In south India, it is 35 per cent. |
| Direct seller Oriflame, which sells talcum powder, after-shaves, sprays and deodorants for men, has reported 20 per cent growth in the number of male products being bought. |
| Says Fredrick Widell, managing director of Oriflame India, “We have more than 40 products for men right now and are looking at introducing some more in India. These would include tailor-made products for men to enhance stomach muscles and anti-ageing products.” |
| VLCC is also said to be launching several new products for male consumers. Says Yogesh Sethi, its CEO, “We launched Fuel brand of moisturisers, creams, etc, for men last year. We are now looking at strengthening the brand with several new launches. In the next few years, we plan a chunk of our FMCG expansion around male consumers.” |
| The NR Group is planning a range of products targeted at the upmarket, metrosexual male, beginning with after-shave lotions, shaving creams and fairness creams. Says Arjun Ranga, the company’s CEO, “After our entry into the personal care space, the next logical extension is into the male grooming category.” Sorce-Business Standard 10/10/07 |
UJALA-Brand Story (Safedi Ka Naya Rang)
Any keen follower of the Indian corporate scene will soon realise that many Indian brands have been successful in not only standing up to the competition from MNCs, but have beaten them hollow. Nirma might have the first recall. But another equally high recall Indian brand is Ujala. Read the following article to have a better understanding of the brand.
With its catchy ‘Aaya naya U j a l a . . c h a a r boondon wala’ ad jingle, the product created such a rage in the late nineties, that even today, seven years after its national launch (in October 1997), Ujala is able to whitewash the sheen off other brands in the whitener segment. Ujala’s success is a story of smart marketing and pricing coupled with a prudent understanding of the market. Its success has helped the relatively small Jyothy Laboratories to effectively create a category for a liquid fabric whitener and successfully pull customers away from bigger competitors. Ujala has not only stood up to multinational market leader Robin Blue, but has in fact changed the colour of white!
Brand History
The origin of Jyothy Laboratories lies in a proprietary concern founded by the current Chairman and Managing Director- Mr.M.P.Ramachandran in 1983. Jyothy Laboratories has originally been engaged in the production and marketing of a liquid fabric whitener product called “Ujala” since 1983. Mr. Ramachandran, with an added interest in Chemistry was dissatisfied with the fabric whiteners available in the market then. Hence, he came up with the formula for Ujala as a fabric whitener to compete with the existing brands. He launched it first in Kerala in 1982 and then extended it to the national market.
Brand Positioning
As Arindam Dasgupta, Situations Advertising, Jyothy Labs’ ad agency expounds, “Ujala was positioned as the Value For Money liquid optical fabric whitener with Insta-Whitening System technology that makes everyday wear clothes spotlessly bright and the family happy and proud.” The company was very clear of its target consumer; the average homemaker with a monthly household income within the Rs. 1500 bracket. Elaborating target customer characteristics, Dasgupta adds, “ She is a small town dweller, homely, one who cares for her family. She washes the clothes at home and is thrifty with the household budget. Hence, value for money is paramount for her and since she buys in small quantities, per unit price also acquires significance. She considers her neighbours’ and the dealer’s recommendations vital and constantly seeks her husband’s appreciation which adds a fillip to her existence.” R. Ravi, Sr. Vice President, Marketing, Jyothy Laboratories adds, “ Economy of use was our platform and the conveniently packed product was available in different sizes ranging from 30 ml to 250 ml. As the jingle suggested, only four drops were required to whiten clothes post wash.”
Brand Prmotion Startegy
Dwelling on the strategies adopted to promote the brand, Dasgupta says, “ We wanted the brand differentiation to be based on function combined with a clear brand personality.” He adds “ We also had to devise a strategy that would break down the attitudinal barriers of going against trying a new brand. We decided to devise the communication around the family and also to give it an aspirational tinge. An integrated marketing communication strategy was followed to position the brand and create strong brand values.”
Difficulties Faced
Before Ujala was launched, the common perception was, whiteners had to be blue in colour and powder in form. So, the challenge before JyothyLaboratories was to break this mindset, as Ujala was a purple liquid. The challenge was successfully surmounted through the tagline ‘Safedi ka naya rang.’ In order to drive home the message better to its target audience they used the mother-in-law in their ad as the symbol of a blocked mindset. The conversion of the mother –inlaw to Ujala was seen as the triumph of the modern over the traditional product. The value for money aspect, which was promoted as a brand differentiator, was also cleverly used throug the jingle ‘chaar boondon wala’. Dasgupta mentions about another misconception that had to be cleared, “ We had to circumvent the problem of the misconception that like neel, the colour purple too would remain on the clothes. We also had to establish the key benefit of the perceptible difference in whiteness due to the violet ‘magic’ formulation.” Therefore, the ads used a strategy of comparison to show the superiority of Ujala over other brands and demonstrate the use of the product and the quantity to be used. School going children were used to establish brand good will. Media mix included television, print media and outdoors. Press, for example, particularly the back covers of women’s magazines were used as a secondary medium. Radio is still being used as a reminder medium. These were supplemented with the use of dispensers, direct mailers, promo ads, outdoors - all carrying the basic four Violet drops, Insta- Whitening SystemTM , and slogan line.
Convincing Results
To quote the Economic Times dt.30th Jan, 2001 “Ujala has cornered a whopping 60 percent market share while Reckitt is still struggling with a meagre 6 percent. Also Ujala is marching ahead despite selling 75 ml liquid packs at Rs.8, while Reckitt is pushing its stuff at Rs.7.” Jyothy Laboratories’ official website proudly asserts (see following figures), “Ever since its national launch in India in October 1997, the market share of Ujala has been consistently on the rise. According to AC Nielsen figures, Ujala’s share in the overall fabric whitener market has gone up from 26.6 percent in September 1998 to over 65 percent in February 2001 onwards.”
Did You Know?
Ujala was ranked 55th in the Economic Times Most Trusted Brands Survey, 2004.
Expansion Startegies
Jyothy Laboratories has not rested on the laurels it has won. The company has leveraged on the understanding it has gained about the mindset of lower income consumers to expand its produc categories. Today, Jyothy Laboratories Limited is a multi-product public limited company well on its way to becoming a diversified, national-level FMCG (Fast Moving Consumer Goods) company.
The products it offers include:
- Fabric care- Ujala Detergent Washing Powder
- Mosquito Repellent and Household Insecticides- Maxo Cyclothrin mosquito Repellent
- Air Care – Incense sticks / Aroma sticks- Maya Incense and Aroma Sticks
- Surface Cleaning Preparations- Exo Dishwash Bar
- Ayurvedic (Herbal) personal Care Products – Jeeva Ayurvedic (Herbal) Soap.
Saturday, October 6, 2007
FMCGs, retailers tie up for category management
Mumbai: FMCG companies and retailers in modern trade are coming together for the first time to undertake, what is globally known as category management, for maximising sales and giving consumers a better shopping experience.
Top retailers are entering into exclusive tie-ups with FMCG majors, who are essentially market leaders in their respective categories, to design and merchandise an entire section at the retail store based on the company's expertise in the given category and consumer insights. The company which undertakes the task is termed as the category captain.
Since there is a confidentiality agreement in such tie-ups, it was difficult to ascertain which company was doing category management for which store. However, what is certain is that most of the top retail chains are in the process of implemeting such an exercise. The objective, clearly, is to increase sales of the given category and which will in turn benefit the company and the store. It is learnt that Hindustan Unilever (HUL), which is a market leader in various categories of the FMCG market, has been chosen as the category captain for skincare and laundry by a couple of retail store chains.
Similarly, Marico is prototyping category management for a certain retail store. It is believed that the company will take up category captaincy in either edible oils or hairoils, or both. Johnson & Johnson has been one of the first FMCG companies to start category management work with top retailers. Starting with baby care section, the company has designed and merchandised the entire section for some of the top retailers. The company is also now working with the retailers on the feminine hygiene category as the retailers do not have complete understanding of this highly intimate category. Ever since J&J started this initiative, the impact has been huge. Said J&J MD Narendra Ambwani: "The work done on category management has already started yielding dividends for the company as well as the retailers with the category sales growing by 20%-30% where the plans have been implemented. The consumers and shoppers are also happy because they have a better shopping ambience as well as ease of shopping.''
According to Marico CEO (consumer products division) Saugata Gupta: "These are early days, so we may not be looking at all steps of category management at the moment, but would certainly look at SKU rationalisation, layouting, etc.''
"The idea behind giving the entire responsibility of managing a category at a store to a market leader is to maximise the benefits because only a leader would have the consumer insights and understanding of a particular category,'' said an industry observer. However, all retailers are not biting the bait. Said Subhiksha MD R Subramanian: "We, as a policy, have not handed over complete control to a single FMCG company for category management. We believe that we will do category management on our own and get insights from FMCG companies.''
As compared to the developed world, modern trade in India is still in its nascent stages of growth. In India, modern trade is growing at the rate of 15% CAGR. It accounts for about 3-4% of total FMCG sales.
Category management, said an industry observer, will evolve only after modern trade achieves the critical mass. An official from an FMCG firm pointed out that category management is, in fact, more a need of the hour for mom-and-pop stores, where products are assembled without paying much attention to which of the SKUs are moving fast and which ones are laggards.
Top retailers are entering into exclusive tie-ups with FMCG majors, who are essentially market leaders in their respective categories, to design and merchandise an entire section at the retail store based on the company's expertise in the given category and consumer insights. The company which undertakes the task is termed as the category captain.
Since there is a confidentiality agreement in such tie-ups, it was difficult to ascertain which company was doing category management for which store. However, what is certain is that most of the top retail chains are in the process of implemeting such an exercise. The objective, clearly, is to increase sales of the given category and which will in turn benefit the company and the store. It is learnt that Hindustan Unilever (HUL), which is a market leader in various categories of the FMCG market, has been chosen as the category captain for skincare and laundry by a couple of retail store chains.
Similarly, Marico is prototyping category management for a certain retail store. It is believed that the company will take up category captaincy in either edible oils or hairoils, or both. Johnson & Johnson has been one of the first FMCG companies to start category management work with top retailers. Starting with baby care section, the company has designed and merchandised the entire section for some of the top retailers. The company is also now working with the retailers on the feminine hygiene category as the retailers do not have complete understanding of this highly intimate category. Ever since J&J started this initiative, the impact has been huge. Said J&J MD Narendra Ambwani: "The work done on category management has already started yielding dividends for the company as well as the retailers with the category sales growing by 20%-30% where the plans have been implemented. The consumers and shoppers are also happy because they have a better shopping ambience as well as ease of shopping.''
According to Marico CEO (consumer products division) Saugata Gupta: "These are early days, so we may not be looking at all steps of category management at the moment, but would certainly look at SKU rationalisation, layouting, etc.''
"The idea behind giving the entire responsibility of managing a category at a store to a market leader is to maximise the benefits because only a leader would have the consumer insights and understanding of a particular category,'' said an industry observer. However, all retailers are not biting the bait. Said Subhiksha MD R Subramanian: "We, as a policy, have not handed over complete control to a single FMCG company for category management. We believe that we will do category management on our own and get insights from FMCG companies.''
As compared to the developed world, modern trade in India is still in its nascent stages of growth. In India, modern trade is growing at the rate of 15% CAGR. It accounts for about 3-4% of total FMCG sales.
Category management, said an industry observer, will evolve only after modern trade achieves the critical mass. An official from an FMCG firm pointed out that category management is, in fact, more a need of the hour for mom-and-pop stores, where products are assembled without paying much attention to which of the SKUs are moving fast and which ones are laggards.
Wednesday, October 3, 2007
FMCG: Short-term pains, long-term pay-offs
UNTIL the slowdown began, it would have been difficult to imagine that household names in the Fast Moving Consumer Goods (FMCG) business, such as Tide, Pepsodent or Surf, would actually be using price cuts to lure consumers.
After all, until a couple of years ago, consumers of FMCG products were pretty much resigned to regular increases in the selling prices of these brands year after year.
But the slowdown in demand has changed all that. What began as a promotional binge (remember all the buy-two-get-one-free offers?) has now clearly snowballed into overt discounts on selling prices of some FMCG products. Surf Excel, Tide, Colgate and Pepsodent are just a few of the FMCG brands that recently hacked their selling prices to woo consumers.
A ball for consumers: This is no doubt good news for consumers. It is a sign that they are finally reaping the benefits of healthy competition in the FMCG business.
Traditionally, key FMCG categories, such as toothpastes, soaps and detergents, have been dominated by just one or two large players which have dictated the selling prices by virtue of theirstranglehold on the market. But a growing tribe of local and regional brands has seriously threatened the established giants. This has injected a healthy dose of competition into the business.
Near term dent: For the key FMCG players, the recent bout of price competition is likely to dent their near-term financial performance. The lower realisations resulting from price reductions could turn single digit sales growth figures into the negative territory over the next couple of quarters. Profit margins too can be dented, as they are not able to pass on input price increases.
Broadening the markets: But, over the long term, the recent price reductions may actually pan out in favour of the players. Some sacrifices on the price front may be just what the industry needs to broaden the market for some FMCG products and perk up usage for others.
For some time now, there has been an irreconcilable gap between the undoubted "potential" of the Indian market, as captured by the penetration (reach) and per capita usage (consumption) numbers, and the actual sales notched up by the FMCG industry.
Products such as shampoos and cosmetics even now reach less than half of all Indian households. For high-penetration categories such as soaps, detergents and toothpastes, the average Indian usage is far below that of even neighbouring Asian countries.
Improving affordability: So, what has been stopping consumers from splurging on FMCG products? Affordability appears to one major obstacle. There is enough indirect evidence of this. Whether it is Nirma soap, Anchor white toothpaste, Fairever fairness cream or Colgate Herbal toothpaste — some of the most successful new products of the past three years have had one common thread running through them.
When launched, each of these brands was priced at a discount to the comparable offerings already available in the market. This suggests that consumers are willing to try out even an entirely new name, if it comes at a low price.
Riding on low unit packs: Then, there is the success of the low-unit pack strategy. Over the past five years, the penetration of shampoos into Indian households has moved up sharply, as consumers have taken to scaled-down sachet packs of the big brands.
Today, around two-thirds of total shampoo volumes are sold in sachets. Nestle's Rs 2 Chocostik (a scaled-down version of chocolate), Britannia's Tiger biscuits priced at less than Rs 5... There are many more other instances where an affordably priced version of a big brand has delivered the goods — in terms of pepping up volume growth.
Right idea at last: All this suggests that companies such as Hindustan Lever, P&G Hygiene and Colgate-Palmolive India may have finally latched on to the right idea when they slashed selling prices on some of their major brands to woo consumers.
The price cuts may depress financial performance in the near term and lead to one more round of de-rating for FMCG stocks.
It is a strategy that may be necessary for survival at a time when several extraneous factors are forcing consumers to tighten their belts.
But if the price cuts really manage to bring new consumers into the FMCG market or change the way consumers use FMCG products for good, the players may be able to reap rich dividends when economic fundamentals do stage a revival.
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