Mother of all rural marketing schemes

Khurrampur, Uttar Pradesh: What worries Gita Devi most about her business is not the economic slowdown but the tea that her neighbours are drinking. “They’re drinking City Gold and Tata Tea,” she tells Dharmender Mishra, her supervisor. “And they sing their praises. Why don’t they like Brooke Bond then?”“Maybe we should plan a tea party for them,” Mishra says.

“Maybe,” Gita Devi replies, looking uncertain.

“We’ll do the tea party—we’ll do some sampling and a demonstration,” Mishra says, reassuring her.

It’s important for Gita Devi that her neighbours drink Brooke Bond. Gita Devi is Hindustan Unilever Ltd’s (HUL’s) chief salesperson for her village of Khurrampur and the nearby village of Shalimarbad, and one of at least 45,000 village entrepreneurs enrolled in Project Shakti, the rural marketing initiative of the country’s biggest home products maker.

If the neighbours of all those entrepreneurs—or Shakti ammas (literally, “mother”, a respectful way to address women), as they’re called—drink Brooke Bond, bathe with Lifebuoy and plump for HUL’s other consumer goods, it will bear out Project Shakti’s promise: to cultivate the vast markets of rural India, sourcing saleswomen from the very villages that it hopes to tap.

Project Shakti was launched in Andhra Pradesh’s Nalgonda district in 2001, and it has swept the country with such success that Anglo-Dutch multinational firm Unilever is now customizing it to rural markets in Sri Lanka, Bangladesh and Vietnam. In 15 states, it has worked with self-help groups and non-governmental organizations to identify underprivileged women and train them to be saleswomen. Its timing has been fortunate: Its operational run has coincided almost exactly with a decade-long rise in rural India’s purchasing power, the last two years yielding a particularly rapid rate of growth.

Nurturing rural markets

Analysts agree that rural markets will prove more resilient to the simmering global economic trouble. “Compared to last year, rural FMCG sales have grown at 6-8% over the last couple of months, while urban sales have grown at 4%,” says Debashish Mukherjee, a principal at AT Kearney in New Delhi. “For many of these FMCG companies, rural markets contribute 40-50% of revenues, which is very impressive.”

HUL is one of the few companies that could have pulled off Project Shakti, says Pradeep Lokhande, founder of Rural Relations, a consumer relations firm. “It was possible because they have a basket of products to sell,” he says. “Another issue is cost—HUL has small packs, and they can push that so that the rural consumer can afford it.” (HUL says it does not track Project Shakti’s contribution to its profits, although a spokesperson says that it has “played an important role in growing rural markets for HUL”).On average, a Shakti amma records monthly sales of Rs10,000, on which she earns Rs600-800; those earnings come out of a 3% discount that HUL gives her on its products, as well as a trade margin of approximately 10%. A really outstanding Shakti amma—a Diamond Shakti amma—can even book Rs30,000-40,000 of sales every month, often turning her house into an HUL store.

The ideal Shakti amma candidate is probably Rojamma, the woman from an Andhra Pradesh village who stars in her own 6-minute film on the HUL website. Abandoned by her husband, and with two young daughters to raise, Rojamma was rescued from that cinematically dire life by Project Shakti. “Everybody knows me, I am someone now,” a voice-over says on her behalf, “And I can have big dreams.”

Gita Devi’s situation wasn’t quite as precarious when she became an ammathree years ago; her husband drives a tractor, and she joined to supplement that income and to better care for her five daughters and one son.

“I was able to pay for my daughter’s sewing classes,” she says, indicating a girl who, ill with typhoid and hooked up to an intravenous line, smiles feebly from a bed. “I also bought that television,” she adds, pointing to a set perched high in one corner, above a poster for the Mimoh Chakraborty filmHome-to-home

In a room at the back, next to portraits of assorted deities and another, smaller poster of Jimmy, is Gita Devi’s stock of HUL products: soaps, shampoos, washing powder, lotions and creams. “I sell regularly to 70 houses in this village, and 50 houses in the next, so I visit those home-to-home once a week,” she says. “Otherwise, I go out for an hour every morning to new houses...to convince them not to buy from anywhere else.”This routine would ordinarily be inefficient and time-consuming, but in a village where the Shakti amma knows everybody—knows what they can afford to buy and when they buy—and where everybody knows her, the inefficiencies fall away. “I can just go up on my roof and call out to Gita Devi, and she’ll come over and give me what I want,” says Krishna Sharma, a housewife next door.

Earlier, Sharma made the trek to Muradnagar, at least 12km away, to shop. “There were small kirana stores in this village, but they had no range,” she says. “They didn’t have this, for instance”—she pulls a Pears soap bar out of Gita Devi’s bag—“or this”—iodized salt.

Every 15 days, on such visits, Gita Devi is accompanied by Mishra, who as a Shakti trainer helps his wards pitch HUL to prospective customers. Mishra supervises 25 Shakti ammas, helping them keep records, listening to their problems, and liaising with rural distributors; he and 40-odd other trainers are managed, in turn, by one of Uttar Pradesh’s 14 rural sales officers. Gita Devi is thus FMCG’s equivalent of last-mile connectivity.

Mishra’s rural sales officer, P.K. Aggarwal, lives in Ghaziabad but makes village runs nearly every day, monitoring the network of Shakti trainers andammas under him. Earlier, he worked with Project Shakti in eastern and central Uttar Pradesh, and he calls the state’s western segment “far better off”.“The average income of a family in this belt is around Rs3,000 per month, and I’ve seen that rise by 6% or 7% in the last year and a half,” Aggarwal says, adding that four out of every five of the villages’ households are engaged in some way in wheat cultivation. Ghaziabad is one of the state’s most prosperous districts, a sign of which is that the number of households in the district demanding employment under the National Rural Employment Guarantee Act is one of the three lowest in Uttar Pradesh.

Not cheap

To do business in rural India is not a cheap alternative. Apart from orienting an urban-centric supply chain to access smaller villages, companies have to accept that rural consumers often have illogical or impenetrable loyalties. “Rural consumers are a more sensitive to getting value for their money, especially with consumer goods,” Lokhande says. “Now a secondary school student is an opinion leader. He knows what he wants, and his parents will listen to him.”

Show and tell: Roshni, a Shakti amma from Dhindaar village in Uttar Pradesh, says sales of Fair and Lovely improved after she conducted a seminar to show her customers the right way to apply the cream. Ramesh Pathania / Mint

HUL learned very early that Shakti ammas should be encouraged to sell to retail shops as well as homes if they were to feel optimistic about their earning potential. “We also advise our Shakti ammas not to sell on credit,” says Prashant Jain, an area sales and customer manager for central Uttar Pradesh (rural) with HUL. “Recovery is sometimes difficult, because many of these customers are also relatives or known to her in the village, so they feel embarrassed to ask for money. So we advise them to sell (for) cash only.”

Another lesson rose out of Project Shakti’s logistics. Jain describes how HUL initially thought it viable to only target villages with a population of 2,000 or more, how market strategists sat down with census lists, and how ammaswere found in those selected villages and started off with a minimum of Rs10,000 worth of stock.

When HUL started delivering stock to these ammas twice a month, however, it realized that it was also in its best interests to cultivate Shakti ammas in the villages that lay along that route, however small they were. “Even if we are just dropping off stock worth Rs1,000 or Rs2,000 at these villages on the way, it makes economic sense,” Jain says.

Unorthodox solutions

Some of the ammas’ problems require unorthodox solutions. Last year, Roshni, a Shakti amma in a neighbouring village called Dhindaar, found that her customers were dissatisfied with the effects of the Fair & Lovely she sold them. So she organized a seminar devoted to showing the women the correct way to use Fair & Lovely—what her Shakti trainer, Jitendra Kumar, calls the “aath ka funda”, the method of daubing spots of the cream in a figure of eight on the face, and then massaging it in. “And now it sells much better,” Roshni says.

The Fair & Lovely seminar was similar to the tea party that Gita Devi and Mishra are planning for Khurrampur—a marketing event to help persuade their audience to buy Brooke Bond tea. It’s a sound idea, although Jain admits that to replicate such events across a state as large as Uttar Pradesh can prove costly, and the returns are not always commensurate with that expense.“But, more importantly, as a businesswoman, she needs marketing support. Having given her the business, it is my duty to give her the marketing support she needs as well,” Jain says. “The good thing is that she’s coming out and asking for it—she’s not passive, she wants to actively sell. That’s the most heartening part of it all."

Under pressure to structure supply chain and storage

There is stiff competition amongst FMCG companies putting pressure on their wafer thin margins but they are using IT as a business enabler to their manufacturing processes. With tight supply chain schedules and intense competition the pressure is always on to bring new products to the marketplace. These companies are now using enterprise solutions to gain visibility into their schedules, customer requirements and their inventories. All of them have invested on desktops and notebooks too to enable their top management and mobile workforce to stay connected.

As per the survey, many FMCG companies consider storage as an important IT asset and want to have DR policies along with regularly archiving their e-mail and databases that contains vital sales and marketing information and customer leads.

The top three

As per the survey, the top technology areas on which the FMCG/consumer durables companies had invested were EAS (enterprise application software), followed by desktops and then storage.

As far as enterprise application software is concerned of the ten FMCG firms surveyed that had invested in enterprise applications, all had invested in ERP. This was followed by the investments on databases and messaging with 70 percent having invested in each of these and then CRM with 50 percent. While investment in ERP will continue with 42 percent of 12 respondents planning to invest in ERP this year and around 50 percent in CRM and a third of them want to streamline their supply chain.

By investing in EAS, FMCG companies have already experienced better utilisation of resources, faster time to market and have been able to formulate effective marketing strategies. Through effective use of EAS they have been able to improve service levels with their dealers in getting up-to-date information of potential stock-out scenarios, which has been made possible due to better visibility in sales, inventories and production-in-progress data.

EAS has been the top IT investment area for FMCG companies because they want to enhance productivity. Take the case of Hindustan Lever Ltd (HLL) where consolidation of information has led to operational excellence at its manufacturing plants across the country. Since finance, planning and inventory are all integrated, the company can focus on its core business—production.

Parle Products Ltd is using a home-grown ERP system, which has modules such as material management, finance and accounting and payroll. The company has also developed a home-grown depot management system, which is required to keep control over its depots located across the country. Gaurav Sharma, EDP In charge, Parle Products Ltd says, “Through the depot management system we get weekly reports on how many trucks were booked and the number of boxes dispatched in each truck. This helps us keep tight control over the goods being dispatched from our depots.”

The consolidation of enterprise-wide information has also helped these companies conduct better market analysis. There has been a continuous increase in the level of competition in the market, and EAS has helped these companies understand customer preferences. EAS has helped them improve their intimacy with customers and they have been able to analyse consumer behaviour and understand brand performance in the market. This has helped FMCG companies innovate with products as per customer preferences. Many of these companies are using business intelligence (BI) tools for better market analysis. FMCG companies are also forecasting cash flows through their ERP systems and have been able to significantly speed up accounts closure by more than 50 percent. Many companies such as HLL have experienced a reduction in potential stock-out scenarios and there has been visibility of inventory across locations thereby reducing the load on the system.

According to K G Mohan, vice president-IT, Hindustan Lever Limited, HLL has been able to enhance its supply chain system, check stock inventory online, and gain a deeper understanding of customer requirements. It has also eased the process of capturing market data and there is more visibility throughout the organisation. It has also helped in formulating market strategies by providing better understanding of market conditions and has improved the decision-making process leading to better inventory management, and structured production planning. It is now easy for the company to analyse the performance of its sales staff, thereby leading to enhanced productivity.

EAS has also helped FMCG companies manage their unprecedented growth. Take the case of LG Electronics Ltd, which has deployed additional modules of its ERP system to manage its growth. The most important one being costing (CO) and evaluation, which the company has added to the Oracle E-Business Suite (ERP) that it uses. Both these modules have been developed in-house and customised as per the company’s requirement. Daya Prakash, program manager, LG CNS Global says, “The costing module helps us analyse the exact cost of the finished product looking at the materials procured to manufacture it. It also helps in fixing the margin and price of the product. The evaluation system helps us in performance evaluation of our sales team as to how they are performing—keeping track of operations, daily targets/monthly targets, leads generated and follow up on the same and the like.”

In a FMCG company, a smoothly functioning supply chain is crucial if businesses are to survive in competitive markets. Mumbai-based FMCG major Marico Industries Ltd. is no exception. Its biggest challenge was to create efficiencies in distribution, this being the area in which the greatest competitive advantage can be achieved in India. Marico has a big supply chain to cover the country. Its supply chain consists of five factories, around 15 plus contract manufacturers, two consolidation centres to manage logistics activities, 30 depots, with hundreds of super distributors, distributors, stockists, wholesalers and retailers.

Vinod Kamath, chief, Finance and IT, at Marico who had been associated with the supply chain initiatives says, “We had standalone systems at the headquarters and in each of our 30 depots, and they weren’t integrated with each other. All the planning was done in Excel, which meant that we lacked data visibility and the management reports were inconsistent.” The result was obvious—inaccurate forecasts, long planning cycles, no transparency of warehouse stock, and a delayed response to customer needs. “It would have been impossible to improve the efficiency of the distribution based on this method,” says Kamath. What the company needed was a state-of-the art IT system to streamline the supply chain and minimise time-to-market. Kamath adds that Marico works with low levels of stock and its responses must be lightning-fast.

With SAP APO, the company has managed to shorten its planning cycles and introduce online reporting. Before implementing SAP, distributors had a warehouse stock out of around 30 percent each. Within six months of the implementation, Marico had managed to reduce stock outs to 20 percent. Kamath says, “This 10 percent reduction in stock outs means a corresponding increase in revenue.” The monitoring functionality of mySAP SCM APO allows the effectiveness of each distributor to be measured, and helps pinpoint the reasons for any changes.

Desktops: the next priority

All the surveyed FMCG companies have invested in PCs and 92 percent on notebooks. One in four had deployed Thin Clients. As per the survey, 67 percent of FMCG companies are planning to invest on notebooks, 58 percent on PCs and one in four on Thin Clients.

Take the case of Electrolux, now part of the Videocon Group. The company had outsourced its desktop management to Wipro Infotech. Now it wants to invest in desktops and do away with the AMC with Wipro Infotech. Anil Bhatia, senior manager-Business Solution Group, Electrolux, says, “We would now like to manage the desktops ourselves as we have to incur heavy cost in the outsourcing model. We want our offices desktop PCs to be linked to the ERP system (presently J D Edwards but soon migrating to SAP because Videocon is using SAP ERP) and for this we require desktops and they are strategic to us.” Electrolux has also provided notebooks to about 90 of its employees and these notebooks are helpful in cases where the workforce is on the move.

Similarly LG Electronics has also invested in desktops and a majority of them are desktops with LCD monitors. According to Prakash, there are around 2,000 PCs in the organisation. These PCs are used across the country for LG Electronics India employees and the choice of LCD monitors was because it occupies less space and is power efficient vis-a-vis CRT monitors. The company has provided 500 plus notebooks to its managerial staff, which provides them flexibility in accessing corporate data using Wi-Fi at its corporate office in Noida.

Many FMCG companies are also opting for thin clients these days and they are displacing PCs in part. D Banerjee, assistant general manager—Systems, DCM Shriram Industries Ltd says, “We have both LCD PCs as well as thin clients. Notebook usage is still confined to senior executives and mainly used to provide connectivity to the corporate network while the executives are out of the office.”

Thin clients are proving to be formidable alternatives to branded PCs at some FMCG companies. Many companies are replacing PCs with thin clients. What’s interesting is the fact that the low cost of thin clients is not the primary reason for their deployment. Thin-clients bring with them ease of manageability. Many FMCG companies have offices spread across locations and hence it is easier to manage thin-clients from a central server, thus requiring minimal support staff. Thin clients also address security aspects well.

That said it is likely that when some FMCG companies are successful in getting the same PC functionality with better manageability and security they will go for thin clients in the future. Thin clients can be a competitive alternative to branded PCs, particularly if the Total cost of Ownership (TCO) is taken into account. If one compares the cost of managing thin-clients it is a direct saving for a large enterprise in the FMCG sector. Thin clients also consume less power; this can prove to be a big saving for an enterprise. A thin client consumes 10 watts, whereas a PC consumes at least 150 Watts. For large enterprises with hundreds or thousands of machines, this can result in huge savings.

Broadly speaking large FMCG companies who have multiple offices around the country with desktops running into thousands will find it easy to manage and use thin clients. Banerjee says, “As a thin client has no hard disk or floppy drives and can be managed from a central server, maintenance is simpler and requires fewer support staff. Many FMCG companies that I know are always concerned with the issue of security. They can look to these machines as an easy and low-cost alternative to PCs.” Barring cases where performance is critical, as in engineering workstations, thin clients can easily stand in for PCs. According to industry pundits the total cost of ownership (TCO) can be 30 to 60 percent lower in the case of thin-clients.

Storage gains ground

Many FMCG companies have offices spread across locations and hence it is easier to manage thin-clients from a central server, thus requiring minimal support staff. Thin clients also address security aspects well

Of the ten respondents from this vertical who had invested in storage, 70 percent had already invested on SAN technology, the highest in all verticals surveyed. A significant number, 60 percent, continue to use DAS—which we feel will change this year, as they will be investing in networked storage.

As far as the adoption of secondary storage by FMCG companies is concerned, 75 percent of 8 respondents had invested on tape drives. About 25 percent were using Virtual Tape Libraries (VTL). Tape continues to be a major investment area followed by VTL. Also as part of their storage strategy, 86 percent of 7 FMCG respondents had invested on database archiving software to back up the data on tape drives followed by 57 percent who had gone for e-mail archiving software. 42 percent of 12 respondents intend to invest in e-mail and database archiving software in the coming year as well.

The penetration of network storage was very high amongst large FMCG companies as per the survey. The logic behind going in for network storage is the requirement to go in for multiple Disaster Recovery sites and also for a BCP (Business Continuity Plan). Electrolux has adopted SAN for block storage purposes—mainly CAD/CAM/CAE data that are used for product design. Bhatia says, “Block-level storage is very important for our organisation as many of our users used to accidentally delete design files. Thanks to the SAN, all the files are safely stored.” The company is also following a comprehensive e-mail archiving policy. Most Electrolux employees use Lotus Notes for e-mail and all their messages are archived using a storage solution from EMC-Legato. As per policy, these messages are archived for a few months. DCM Shriram Industries Ltd uses DAS but it is also considering and evaluating networked storage so that it can plan a DR strategy.

FMCG companies have realised the importance of VTL, as it is an archival storage technology that makes it possible to save data as if it were being stored on tape although it may actually be stored on hard disk or on another storage medium. VTL is facilitating faster backup and recovery and lower operating costs. VTL can be used with a hierarchical storage management (HSM) system in which data is moved as it falls through various usage thresholds to slower but less costly forms of storage media. VTL is also used as part of a (SAN) where less-frequently used or archived data can be managed by a single virtual tape server for a number of networked computers.

LG Electronics India has a proper DR set-up across its two manufacturing plants located in Noida and Pune. On a normal day, Noida’s (manufacturing plant and corporate office) users are connected to the Noida server and the Pune (plant) users are connected to the Pune server. If the Noida server fails all the critical users–both plant and corporate–would be connected to the Pune server to execute critical activities such as sales and production. A similar connection to Noida is made if the Pune server fails. LG Electronics India has classified all the information into two categories–critical and sensitive. (Critical data refers to the ERP and business-related data while sensitive data includes all e-mail, Excel sheets and PowerPoint presentations).

The company also has an e-mail and database archiving solution from Hitachi Data Systems (HDS) which it is using for storing e-mail of all its employees who are on Lotus Notes. Prakash says, “E-mail archiving is part of our ILM strategy which we are following as we have to adhere to statutory compliance requirements. We have a policy whereby we store all our transactional data for more than eight years and all our e-mail messages are stored for more than one year.”

In a similar fashion database and e-mail archiving holds the utmost importance for Parle Products, which is using a storage solution from Intransa for this purpose. The company has kept its storage solution at a Reliance data centre in Bangalore with the aim of bringing about storage consolidation for the purpose of putting in place a Disaster Recovery set-up. The company strongly believes in having an effective DR policy for data protection and in turn having a robust storage policy.

Technology is a high priority for FMCG companies in order to stay ahead of competition and also in analysing the competition which is equally important for them. Enhancing information delivery capabilities using front-end reporting tools for better market and self analysis will continue to be a priority for Indian FMCG companies. Additionally Web enabling all their applications and consolidation of information through EAS will help FMCG companies in bringing efficiency to their processes as they will have real time online information about their manufacturing plants, distribution points, distributors and retailers. In order to provide access to different applications to their employees they will need to invest on desktops and in order to preserve all the information they will need to invest on having effective storage strategies and policies.

Wishes

IndiaFMCG Wishes all its readers that Every1 Has Lyfe As Colourful As Da Colours Of HOLI... 

God Bless All

Cheers!!

Expansion spree sans strong back-end did Subhiksha in

The collapse of Subhiksha presents a case study for existing and prospective retail companies in India. The Chennai retail major, which grew exponentially since its inception in 1999, is battling for survival, despite two investors in tow — ICICI Venture and Azim Premji’s private investment firm Zash Investment Company. The 1,300 store-strong chain has scripted the first rise-and-fall in the history of India’s fledgling retail industry. Viewed as a sunrise industry, the retail sector has suddenly caved in, with most players either putting expansion plans on hold or re-negotiating rentals. Though rentals are coming down in most parts of the country because of the economic slowdown, rapid expansion without a proper supply chain in place has added to the woes of retail companies. So, was the Subhiksha model flawed or was it just a management failure? The chain was envisaged as a low-cost, no-frills neighbourhood convenient store, which actually did work for some time. But soon enough, the promoters, who held around 60 per cent stake, went on an expansion spree without strengthening the back-end. As a result, customers often had to come back from the store without getting the products that they wanted. To top it, Subhiksha failed to establish an emotional connect with its customers, even though it had built a large consumer base. Hence, its fall can largely be attributed to mismanagement leading to irrational expansion without spreading out the equity base. Also, the retail chain tried to procure supplies against cash, which, many analysts say, was irrational. As if this wasn’t enough, the market meltdown forced the company to defer its proposed initial public offer (IPO) in 2008. The situation worsened in the second half of the year, when a liquidity crisis throttled Indian companies. Subhiksha, which was facing a severe cash crunch, had to face the ire of its suppliers and stockists as well as real estate owners, for delayed payments. By then, the neighbourhood retail chain had lost its credibility and image. Today, the company’s founder R Subramanian is under fire from stakeholders, who have alleged that they were kept in the dark. Following complaints from Subhiksha’s former directors, who stepped down from the board in January, the Registrar of Companies has appointed KPMG as auditor. Meanwhile, the blame game continues. ICICI Venture, which holds 23 per cent stake in Subhiksha, has held the management squarely responsible for the chain’s operational failure. Renuka Ramnath, managing director and CEO of ICICI Venture, claimed that Subhiksha’s board did not receive audited figures even after repeated attempts. The last available figures, according to Ramnath, were for the year-ended March 2007. Subhiksha, however, has refuted these charges. As the company lies in a shambles, what the investors and promoters need to do quickly is get on to the business of rebuilding it. A positive sign is that both ICICI Venture and Zash have said that they are working on a revival plan. Stakeholders, too, are awaiting the next move by lenders, who have an exposure of around Rs 750 crore, and are trying to sew up a revival package. However, the most daunting task for Subhiksha will be to re-establish the consumer connect, without which no retail company can survive.

SHOPPERS WARY - Inventories pile up at retail stores despite heavy discounts

Unsold merchandise is piling up at retail outlets and warehouses as consumers faced with an economic downturn hesitate to spend, squeezing the already wafer-thin margins of retailers further and limiting their capacity to repay debt.

Heavy discounts that ranged up to 70% in an extended sale season failed to convince shoppers to open their wallets, leaving retailers holding inventory that was supposed to supply stores they have either shut down or decided not to open.

"I don't think sales have picked up despite the discounts," said Hemant Patel, an analyst at Enam Securities Pvt.

Ltd. "Consumer footfalls were not coming despite the sales." The economy is forecast by the government to grow 7.1% in the fiscal year ending 31 March—the slowest pace in six years. The slowdown, after four years of growth that averaged 8.9%, has caused firms to stall expansion plans, put hiring on hold and reduce staff, denting consumer confidence.

The country's largest listed retailer, Pantaloon Retail (India) Ltd, said so-called samestore sales were down in December for the first time in years. Same-store sales typically denote sales by outlets that have been open for at least a year.

Pantaloon managing director Kishore Biyani attributed the December contraction to slack sales of furniture, electronics, mobile phones and some other merchandise.

Pantaloon's The Great Indian Shopping Festival was spread over almost a month in December and January. Pantaloon followed up with its annual discount season at the Big Bazaar hypermarket chain, but analysts say January sales were lacklustre because of subdued consumer response and competition from other retailers that marked down prices similarly.

Figures released by Pantaloon showed same-store sales in January were up for the socalled value and lifestyle segments, by 4% and 12%, respectively. Home segment sales were down 4%.

A New Delhi-based analyst, who asked not to be named, said Pantaloon has about Rs1,700 crore of inventory. "As per the past track record, it's marginally on the upper side," this analyst said.

"Our inventory is best in terms of industry standards and we have standard stocks," Biyani said.

Shoppers' Stop Ltd, Tata group's Trent Ltd and other retailers also offered hefty discounts on select merchandise.

Even Reliance Retail Ltd, for the first time since its inception about two years ago, organized the first concerted sale across different store formats.

"This year even discounts could not boost sales," said Ritesh Doshi, an analyst at First Global Securities Ltd.

"They are not able to clear their inventory," he said.

"Once they (merchandise) become obsolete, they have to write (it) off and (that) is affecting their margins." A person close to the situation said Reliance Retail fell well short of its target of opening 1,500 outlets by September and was able to open only about 850 stores until early this year. As a result, the chain was left holding unsold goods that had been ordered for hundreds of additional stores whose opening may have only caused more losses, this person said.

"We deny any such situation," a Reliance Retail spokesperson said in an email reply to Mint.

Girish Solanki, a research analyst at Mumbai-based Angel Broking, says Bombay Stock Exchange-listed Vishal Retail Ltd has a "pretty high level" of inventory that could last as long as seven months.

"There is a big problem there," said Solanki, who attributed the inventory pile-up to stalled expansion plans in the face of a funding squeeze.

Manmohan Agarwal, chief executive for corporate affairs at Vishal Retail, said the economic slowdown had caused the retailer to curtail its expansion. Agarwal said the company had Rs800 crore worth of inventory at the end of December. "Our sales for the Repub lic Day campaign were good," he said, but declined to give the current value of inventory.

According to analyst Ankur Periwal of Religare Securities Ltd, Vishal has about Rs480 crore in "stuck up" inventory.

Vishal may have to get rid of the inventory at below cost price, he said.

The mountain of unsold goods and extended discounts would further squeeze the already low margins of retail chains and restrict their ability to repay debt, analysts say.

Doshi of First Global expects margins at Pantaloon to narrow to 2.3 percentage points for the year ending June, from about 2.6 percentage points a year ago.

Meanwhile, Indian exporters hit by the global meltdown, which has led many international buyers to cancel orders, are dumping their products in the local market, according to Solanki at Angel Broking.

"That is also putting pressure on the existing inventory," he said.

CavinKare forays into distribution business

Chennai-based FMCG major CavinKare has forayed into distribution business. It has tied-up with Paris-based international fragrancemarketer Coty to market and distribute Adidas and Jovan range of personal care products in India. 

The Adidas men's range, which includes deodorants, shower gels, perfumes and after shave lotions, will be available across India by mid-February. The Jovan range of products would be available after three to four months. 

"The alliance will help in increasing the accessibility of adidas products in India, which is a fundamental pat of our Asian strategy. There is a huge potential in the personal care segment here," said Coty Beauty Far East Export regional managing director Venkatesh Babu at a press meet in Chennai on Thursday. 

The range would be sold through about 50,000 outlets in the first year, mainly at modern and large-format stores. CavinKare hopes to achieve a turnover of Rs 50 crore in the first year, thus cornering a 10% share of the deo-spray and fragrance market in India. The size of the Indian deo-spray category is estimated to be Rs 300 crore and s growing at a rate of 18% annually. 

"CavinKare mainly addressed the mass market. This strategic alliance will help us get into the premium segment where we do not have a presence," CavinKare chairman and managing director CK Ranganathan said. 

CavinKare will use a mix of above and below the line approach to market the products, mainly the out of home media, TV commercials and the internet. The ad spend on this range will stand at Rs 10 crore for first year to be shared by CavinKare and Coty. 

CavinKare hopes to close this fiscal with a turnover of Rs 700 crore, a 25% increase over the previous year.

FMCG cos go slow on launches despite growth

t a time when growth in consumer products sector is quite upbeat, there have been surprisingly very few brand launches in the personalcare category this year. 

According to a recent FMCG market survey by the UK-based DataMonitor, total new product launches in personal care in the FMCG market dropped to 360 in 2008 as compared to an all-time high of 483 in 2007. In categories like soap, shampoo, skincare and toothpaste, number of product launches have decreased from 144 (2007) to 120 (2008), 67 to 47, 244 to 182 and 28 to 11, respectively. 

Industry officials say the focus has been more on mass-market products in terms of new product launches or even relaunches. 

“Most companies have been unable to reinvent and margins too are thinner owing to competition. Also, new brand launches are much more expensive than launching variants,” said Hoshedar K Press, executive director and president of GCPL. Hindustan Unilever (HUL) too focused on relaunching mass brands like Sunsilk and Ponds, Procter and Gamble’s last big-ticket new product introduction was the launch of Olay in 2007. 

“The growth opportunity in the Indian market is across the value chain of induction, consumption and upgradation. Our portfolio which includes premium brands for the affluent, value-for-money brands for the middle-income consumers and affordable quality products for low-income consumers provide us a well entrenched capability to leverage the opportunity across the pyramid of consumer value chain,” said an HUL spokesperson. 

Comparatively, players like Dabur India and Marico launched a host of mass market products in personal care. 

“In the first six months alone, we have introduced at least 15 new products and variants ranging from a range of Vatika hair products, hard surface cleaners under the Dazzl brand, Gulabari skin care range and Dabur healthcare range. And, most of our new launches are targeted at the mainstream market,” said Dabur India vice-chairman Amit Burman. 

Industry analysts point out that this mirrors the general sentiment in the market. “With most industries reeling under recession and consumers tightening their purse-strings, it just makes better business sense to target the popular price points, a segment that has clearly not witnessed any drop in demand,” said an FMCG analyst.

Unilever copying HUL's project Shakti globally

nglo-Dutch consumer goods major Unilever is exporting Hindustan Unilever’s innovative rural distribution model led by women’s self-helpgroups to several developing world markets. 

Launched in 2001, the initiative, Project Shakti , helped HUL reach the so-called media-dark regions by turning rural women into direct-tohome distributors of its mass-market products. 

With emerging markets contributing roughly 44% to global revenues, Unilever—a Fortune 500 foods, home and personal care product giant with operations in about 100 countries—is betting on Project Shakti to reach to the bottom of the pyramid in Asian, African and Latin American markets. 

The project is being customised and adapted to Sri Lanka, Vietnam and Bangladesh. In Bangladesh and Sri Lanka, it is being promoted as Joyeeta and Saubaghya, respectively. 

The effort is expected to help Unilever tap fresh growth avenues in emerging markets in the face of recessionary trends in the US and Europe. 

The rural micro-enterprise has helped the Rs 13,717-crore Hindustan Unilever to push growth rates in several categories such as personal wash, fabric wash, shampoos, oral care and skin care. Brands like Annapurna, Lux, Lifebuoy, Breeze, Wheel, Fair & Lovely, Lakme, Ponds, Clinic Plus and Pepsodent have sold good numbers in smaller markets, company sources said, Overall, around 50% of HUL’s revenues came from the rural markets in India. 

The project was started in 2001 to empower underprivileged rural women by providingincome-generating opportunities, health and hygiene education. Shakti’s ambit already covers about 15 million rural population. Several rural pockets are populated by less than 2000 individuals but are seen as unreachable and remain untapped by consumer goods makers. 
Rural women are appointed as Vanis (communicators ) and trained to communicate in social forum such as schools and village get-togethers . 

Shakti operates in fifteen states: Andhra Pradesh, Karnataka, Tamil Nadu, Gujarat, Madhya Pradesh, Chattisgarh, Maharashtra, Uttar Pradesh, Punjab, Haryana, Rajasthan, West Bengal , Bihar, Jharkhand and Orissa. 

There are over 45,000 Shakti entrepreneurs covering over 135,000 villages across 15 states. 

Industry officials say the awareness of rural consumers about products and brands is lesser than the urban markets. Also, urban business models are not really successful in tapping the full potential of several small clusters of consumers across remote markets. 

REACHING TO THE BOTTOM 

Project Shakti is a low-cost distribution network HUL launched in 2001 in tie-up with rural women’s self-help groups A typical Shakti entrepreneur gets an income in excess of Rs 1,000 per month Project Shakti serves over 1,35,000 villages across 15 states through more than 45,000 entrepreneurs.

Giving depth to Pond’s

Do consumers really downtrade in times of a slowdown? The makers of Pond’s, Hindustan Unliver’s premium skincare brand, think otherwise. This winter, it has devised a new concept show based on romance with TV channel StarOne to ensure th e brand remains top of mind for its ‘affluent’ set of consumers. Branded as Pond’s Age Miracle Salaam–e-Ishq on Star One, the new show features couples reliving the romance of their relationships. With its new reality show this season, Pond’s is out to capture its association with the essence of romance based on these real life couples.

With continuous investments in the brand, Pond’s is the ‘growth driver’ for Hindustan Unilever Ltd’s (HUL’s) skincare portfolio. While making money at the premium end of the market may take a while, the media spends will continue. As Govind Rajan, General Manager (Skincare), HUL says, “The challenge for us is to figure out what the next growth opportunity is, which is why we have decided to invest ahead of time and be in investment mode.”

For the past two years HUL has made a conscious effort to focus on the premium end of the skincare market, positioning its heritage brand Pond’s as a ‘masstige’ brand. With its two ranges under skin lightening and anti-aging, Pond’s is now geared to aggressively build the category and capture consumers who are willing to upgrade to this segment. “We have decided to amplify on romance with Pond’s. The focus is on the quality of how to reach people rather than the frequency and quantity of reach,” claims Rajan. Considering the slowdown has not affected the top end of the market, Pond’s would continue to lure more consumers into its franchise. Helping it grow the premium category further is its nearest competitor P&G with Olay which is targeting a similar consumer group.

Convinced that the slowdown is least likely to affect the relatively small and nascent premium skincare category, Pond’s is going all out to woo its consumers.

“The slowdown will not immediately impact volumes, in what is anyway a small segment. People who use these products are not facing the heat. In an economic downturn it’s discretionary spending of big ticket items such as holidays which usually get impacted. The premium skincare segment is not even 10 per cent of the face care market today and is the least affected by the slowdown,” elaborates Rajan.

At the same time attractive pricing is being introduced to lure more consumers into sampling the brand. For instance, last year, Pond’s had offered a trial price of Rs 295 (from Rs 595) for its 50 ml Pond’s Age Miracle Cream. It even followed the practice of its nearest competitor Olay by giving out a new jar of cream in exchange for an old one. “In the last two quarters we have not cut prices for Pond’s but we did have a programme for a trial price as the purpose was to get in as many consumers as possible,” says Rajan. In fact, currently that is the main challenge for the brand compared to the rest of the brands in its skincare portfolio. “The challenges faced by Pond’s will be different from the challenges it faced in the past. Getting in as many consumers to try the revolutionary new products under Pond’s is the challenge today. Also, educating consumers on the right regime is another challenge,” says Rajan.

Meanwhile, the rest of HUL’s skincare brands such as Fair & Lovely and Vaseline have been extending their franchise. Vaseline has graduated from being a petroleum jelly to entering the men’s care segment with a range of products. With a 65 per cent share in the body lotion category, Vaseline too has entered the premium segment with a slew of intensive body care moisturisers. “We have kept up the brand salience for Vaseline and the objective is to increase its penetration as the category is growing at 30 per cent,” claims Rajan. Shedding the image it had of being a winter care brand, Vaseline has also launched an aloe vera variant for the summer.

As for HUL’s mass brand of Fair & Lovely, its extension into the premium segment (under the brand of Perfect Radiance) did not work in the past and since then it has gone back to its original positioning. With a 78 per cent share in the fairness cream category, it has held on to its dominant position for the past 25 years with four variants under its fold. Last year HUL re-launched the core Fair & Lovely brand with multivitamins and enhancement will be an ongoing exercise. “The challenge for Fair & Lovely is to be better than today’s product and keep improving it so that consumers continue to bond with the brand,” says Rajan. A possibility is extending its franchise to a cleansing range. “We have to have a portfolio approach with Fair & Lovely and it could go beyond being a single product. After all, Fair & Lovely cannot be expected to do everything,” says Rajan.

Besides, HUL’s acquired brand of Lakme today complements its skincare portfolio with its sun care, cleansing and moisturising range and its ‘cosmetic’ positioning. “Lakme has a heritage as a cosmetic brand and fits into the skincare range with its sun care and moisturising range,” says Rajan

Meanwhile, controlling prices will be an ongoing effort for HUL. “We have the ability to control costs with our scale. At the same time since we have strong brands we have better pricing power,” states Rajan. In fact, HUL believes that as it has these heritage brands in its kitty, consumers would be more acceptable to it commanding a premium compared to the lesser established skincare brands.

At the same time making money at the premium end of the market will take time. “While HUL has taken the onus to grow the premium market, getting returns from the business is going to be a long haul. Profitability will be an issue with its premium skincare range,” say analysts. But the FMCG behemoth believes that making profits will be linked to the rate at which it is able to grow the premium end of the market. “It all depends on the intensity of competition and if you grow the market fast enough, you will start getting returns early,” observes Rajan. Knowing that competition will only increase in the future, HUL is thinking ahead. “We believe the competitive intensity of the market will only increase and that we have to be ready for the next-generation market,” says Rajan. Stepping up media spends and celebrating romance through its new show for Pond’s are attempts to stay ahead of the competition.

Appologies for Break

Dear Readers.

I am Saurabh Doshi. Owner of this blog. I would like to appologise to all the readers as i could not edit new matters on IndiaFMCG as was really busy with some tasks since long. I would definitly try and make it a point that i keep it updated.

Inconvenience regretted.

Regards

Saurabh Doshi