TABLE OF CONTENTS
Sr.no.
Particulars
Page No
1
FMCG in India – Overview
7
2
About ITC Ltd.
14
3
ITC’s Foray into various product categories – Strategy
21
4
Competition ( Domestic & Foreign Players)
44
5
FMCG – Future Propositions
49
6
Key Success Factors of ITC Ltd.
59
7
Primary Research
68
8
Future Positioning of ITC Ltd.
72
9
Conclusion
73
10
Bibliography
2
TABLE OF CONTENTS
Sr.no.
Particulars
Page No
1
FMCG in India – Overview
7
2
About ITC Ltd.
14
3
ITC’s Foray into various product categories – Strategy
21
4
Competition ( Domestic & Foreign Players)
44
5
FMCG – Future Propositions
49
6
Key Success Factors of ITC Ltd.
59
7
Primary Research
68
8
Future Positioning of ITC Ltd.
72
9
Conclusion
73
10
Bibliography
2
FMCG IN INDIA Overview
The consumer product sector mainly consists of personal care, cosmetics and home products segments. The sector can be further sub-divided into dental care products, soaps, detergents, surface cleaning products, skin care, and hair care products. The sector is divided into two distinct segments - the premium segment catering mostly to urban higher/upper middle class and the popular segment with prices as low as 25%-30% of the premium segment, catering to mass segments in urban and rura rurall mark market ets. s. The The prem premiu ium m segm segmen entt is less less pric price e sens sensititiv ive e and and more more bran brand d conscious. Indi India' a'ss rura rurall mark market etss have have seen seen a lot lot of acti activi vity ty in the the last last few few year years. s. Sinc Since e penetration levels are pretty high in most categories, future growth can come only from deeper rural penetration. FMCG majors are aggressively looking at rural India since it accounts for 70% of the total Indian households. The industry is volume by low margins. The products are branded and backed by marketing, heavy advertising, slick packaging and strong distribution networks. Also, raw material prices play an important role in determining the pricing of the final product. Desp Despitite e the the stro strong ng pres presen ence ce of MNC MNC play player ers, s, the the unor unorga gani nize zed d secto sectorr has has a significant significant presence in this industry. In most categories, unorganized unorganized sector is almost as big as the organized sector, if not bigger. Brand building and extensive distribution network is a key factor. A successful brand is a precious asset, which could fetch a price many times the cost of assets required to make the product. A study conducted by A&M-ORG-MARG reflects that the share of branded goods is high for a number of daily used products, and the share of unbranded products is shrinking, albeit slowly. The industry is very clearly sold on Dr. C. K. Parkland’s concept of 'value at the bottom of the pyramid'. They recognize that India is a value led market. There are numerous examples examples of buoyant growth if the price proposition is right (telecom, home loans, and consumer durables). Therefore, the focus was on improving efficiencies, reduci reducing ng costs, costs, impro improvin ving g supply supply chain chain effic efficien iencie ciess to look look at givin giving g value value to consumers, in a bid to bring about internal factors led growth. The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. The Indian FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Around 70 per cent of the total households households in India (188 million) reside in the rural areas. The total number of rural households is expected to rise from 135 million in 2001-02 to 153 million in 2009-10. This presents the largest potential market in the world. The annual size of the rural rural FMCG market was estimated estimated at around US$ 10.5 billion in 2001-02. With growing incomes at both the rural and the urban level, the market potential is expected to expand further.
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ITC PROFILE
ITC is one of India's foremost private sector companies with a market capitalisation of over US $ 13 billion and a turnover of US $ 3.5 billion. Rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by Business World and among India's Most Valuable Companies by Business Today, ITC ranks third in pre-tax profit among India's private sector corporations. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Greeting Cards, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards. As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part." ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 2.4 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. ITC's wholly owned Information Technology subsidiary, ITC Infotech India Limited, is aggressively pursuing emerging opportunities in providing end-to-end IT solutions, including e-enabled services and business process outsourcing.
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ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek corporate governance rating. ITC employs over 20,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalising environment to consistently reward more than 4,58,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. This overarching vision of the company is expressively captured in its corporate positioning statement: "Enduring Value. For the nation. For the Shareholder."
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MISSION:
VISION:
CORPORATE GOVERANCE: Preamble
Over the years, ITC has evolved from a single product company to a multibusiness corporation. Its businesses are spread over a wide spectrum, ranging from cigarettes and tobacco to hotels, packaging, paper and paperboards and international commodities trading. Each of these businesses is vastly different from the others in its type, the state of its evolution and the basic nature of its activity, all of which influence the choice of the form of governance. The challenge of governance for ITC therefore lies in fashioning a model that addresses the uniqueness of each of its businesses and yet strengthens the unity of purpose of the Company as a whole. Since the commencement of the liberalisation process, India's economic scenario has begun to alter radically. Globalisation will not only significantly heighten business risks, but will also compel Indian companies to adopt international norms of transparency and good governance. Equally, in the resultant competitive context, freedom of executive management and its ability to respond to the dynamics of a fast changing business environment will be the new success factors. ITC's governance policy recognises the challenge of this new business reality in India.
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ITC defines Corporate Governance as a systemic process by which companies are directed and controlled to enhance their wealth generating capacity. Since large corporations employ vast quantum of societal resources, we believe that the governance process should ensure that these companies are managed in a manner that meets stakeholder’s aspirations and societal expectations. Core Principles
ITC's Corporate Governance initiative is based on two core principles. These are: (i) Management must have the executive freedom to drive the enterprise forward without undue restraints; and (ii) This freedom of management should be exercised within a framework of effective accountability. ITC believes that any meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company, and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only not misused, but is used with care and responsibility to meet stakeholder aspirations and societal expectations. Cornerstones:
From the above definition and core principles of Corporate Governance emerge the cornerstones of ITC's governance philosophy, namely trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. ITC believes that the practice of each of these leads to the creation of the right corporate culture in which the company is managed in a manner that fulfils the purpose of Corporate Governance. Trusteeship:
ITC believes that large corporations like itself have both a social and economic purpose. They represent a coalition of interests, namely those of the shareholders, other providers of capital, business associates and employees. This belief therefore casts a responsibility of trusteeship on the Company's Board of Directors.
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About the Company
ITC was incorporated on the 24th of August, 1910 under the name of 'Imperial Tobacco Company of India Limited’. A leased office on Radha Bazar Lane, Kolkata, was the center of Companies existence. In 1974, the Companies ownership Indianised and the name of the company were changed to I.T.C Limited. With the recognition of the company in its multi-business portfolio encompassing a wide range of businesses, the company became ITC Limited (without full stops) on September 18th, 2001. The Company now stands rechristened “ITC Limited”. It is one of India's foremost private sector companies with a market capitalization of over US $ 13 billion and a turnover of US $ 3.5 billion. The companies diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, AgriBusiness, Packaged Foods & Confectionery, Branded Apparel, Greeting Cards and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports is also rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards and Stationery. It is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership position in every segment of the market. It is highly popular portfolio of brands includes India Kings, Gold Flake, Navy Cut, Scissors, Capstan, Berkeley and Bristol. In pursuit of international competitiveness, it has launched four brands - Checkers, Hi-Val, Royale Classic and Gold Crest, Royale Classic, Gold Cut and Scissors Filter Kings cigarettes. ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the Kitchens of India brand. A more broad-based entry was made in June 2002 with brand launches in Confectionery with Mint-O and Candyman, Staples with Aashirvaad and Snack Foods with Sunfeast.
8
ITC FOOD PRODUCTS
Confectionery
Biscuits Sunfeast
Salt
Staples
Ready To Eat
Aashirvaad Aashirvaad Atta
Mint o fresh Candyman
Kitchens of India Pasta
Samples of ITC Food Products
9
Aashirvaad
ITC Distribution Channel
ITC’s strength is its Distribution channel spread all over Mumbai in the form of three circles, namely: - City I, City II and City III where Wholesale Dealers (WD) are located. City I Comprises of WD located at:
Borabazar Masjid
Fort
City II comprises of WD located at:
Andheri
Goregoan
Borivali
Vasia
Boisar
City III comprises of WD located at:
Parel
Chembur
Vashi
Ghatkopar
Mulund
Thane
10
GROWTH PATTERN – FORAY INTO VARIOUS SECTORS ITC in Cigarettes
ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership position in every segment of the market. It's highly popular portfolio of brands includes Insignia, India Kings, Classic, Gold Flake, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake. The Company has been able to build on its leadership position because of its single minded focus on value creation for the consumer through significant investments in product design, innovation, manufacturing technology, quality, marketing and distribution. All initiatives are therefore worked upon with the intent to fortify market standing in the long term. This in turns aids in designing products, which are contemporary and relevant to the changing attitudes and evolving socio economic profile of the country. This strategic focus on the consumer has paid ITC handsome dividends. ITC's pursuit of international competitiveness is reflected in its initiatives in the overseas markets. In the extremely competitive US market, ITC offers high-quality, value-priced cigarettes and Roll-your-own solutions. In West Asia, ITC has become a key player in the GCC markets through growing volumes of its brands. ITC's cigarettes are produced in its state-of-the-art factories at Bangalore, Munger, Saharanpur and Kolkata. These factories are known for their high levels of quality, contemporary technology and work environment.
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ITC Foods ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the Kitchens of India brand. A more broad-based entry has been made since June 2002 with brand launches in the Confectionery, Staples and Snack Foods segments. The packaged foods business is an ideal avenue to leverage ITC's proven strengths in the areas of hospitality and branded cuisine, contemporary packaging and sourcing of agricultural commodities. ITC's world famous restaurants like the Bukhara and the Dum Pukht, nurtured by the Company's Hotels business, demonstrate that ITC has a deep understanding of the Indian palate and the expertise required to translate this knowledge into delightful dining experiences for the consumer. ITC has stood for quality products for over 90 years to the Indian consumer and several of its brands are today internationally benchmarked for quality. The Foods business carries forward this proud tradition to deliver quality food products to the consumer. All products of ITC's Foods business available in the market today have been crafted based on consumer insights developed through extensive market research. Apart from the current portfolio of products, several new and innovative products are under development in ITC's state-of-the-art Product Development facility located at Bangalore. Leadership in the Foods business requires a keen understanding of the supply chain for agricultural produce. ITC has over the last 90 years established a very close business relationship with the farming community in India and is currently in the process of enhancing the Indian farmer's ability to link to global markets, through the e-Choupal initiative, and produce the quality demanded by its customers. This longstanding relationship is being leveraged in sourcing best quality agricultural produce for ITC's Foods business. The Foods business is today represented in 4 categories in the market. These are: • • • •
Ready To Eat Foods Staples Confectionery Snack Foods
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In order to assure consumers of the highest standards of food safety and hygiene, ITC is engaged in assisting outsourced manufacturers in implementing world-class hygiene standards through HACCP certification. The unwavering commitment to internationally benchmarked quality standards enabled ITC to rapidly gain market standing in all its 5 brands: • • • • •
Kitchens of India Aashirvaad Sunfeast Mint-O Candyman
Aashirvaad ReadyMeals ITC Foods launched a range of ReadyTo-Eat dishes under the 'Aashirvaad ReadyMeals' label, in Hyderabad, on 25th June 2003. The range now comprises nine dishes and two Combo packs. The dishes on offer currently are Rajma Masala, Nav Ratan Kurma, Dal Makhani, Aloo Mutter, Palak Paneer, Pindi Chana, Pav Bhaji, Mutter Paneer and Yellow Dal Tadka. Rajma Masala & Basmati Rice and Yellow Dal Tadka & Basmati Rice are available in Combo packs. Recently, 4 new dishes have been added to the range-Pongal, Kadi Pakodi, Kadi Pakodi & Basmati Rice, and Gajar Ka Halwa. The unique packaging form, using a retort process, ensures that the original freshness and taste of the recipes is protected without the use of preservatives. The Retort Process
The pioneering introduction of retorting technology is what has made the sale of ‘Ready-to-Eat’ food products commercially viable. The need of frontline military soldiers for light but nutritious food, with an assured long shelf life was the impulse and the inspiration for the development and fine-tuning of the retorting process. Retorting technology was used by the US in its Apollo Space missions. Today it is the mainstay of US military rations. Retorting is also widely used in packaged foods in Japan and Europe. The efficacy and effectiveness of the retorting process depends on the sterilisation process and the retorting pouch. Sterilisation Process
The sterilisation process ensures the stability of the Ready-to-Eat foods in retort
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pouches, on the shelf and at room temperature. The application of sterilisation technology completely destroys all potentially harmful micro-organisms, thereby making sure that the food product has a very long shelf life. However, in the current commercial context, the shelf life is limited to one year. Retort Pouches
Retort pouches are flexible packages made from multi-layered plastic films, with or without aluminium foil as one of the layers. Their most important feature is that they are made of heat-resistant plastics, unlike the usual flexible pouches. This makes t he retort pouches uniquely suitable for the processing of their food contents at temperatures around 120 degrees Celsius. That is the kind of ambient temperature prevalent in the thermal sterilisation of foods. The 3-ply laminate consisting of PET/ Al oil / PP is the most common material used in retort pouches and is the only one used in India. ITC uses 4-layered pouches. The use of PET or polyester as the outer layer gives the required strength to the pouch. The aluminium foil serves as a barrier layer ensuring a shelf life of more than one year. The Nylon layer provides strength to the pouch, reassuring additional shelf life. The innermost layer of Polypropylene provides the critical seal integrity, flexibility, strength and taste and odour compatibility with a variety of food products. ‘Aashirvaad ReadyMeals' is currently available across all major cities like Delhi, Mumbai, Kolkata, Bangalore, Hyderabad, Chennai, Pune, Ahmedabad, Nagpur, Patna, Guwahati, and Vishakhapatnam. All grocery stores selling ready-to-eat products stock ‘Aashirvaad ReadyMeals’. Aashirvaad Multi-purpose Cooking Paste
The Multi-Purpose Cooking paste is the latest offering from the ‘Aashirvaad’ brand. The ‘Aashirvaad’ MultiPurpose cooking paste is positioned as a kitchen aide. The product, ‘Bhuna hua taiyaar masala’, is a fried paste of onions, tomatoes, ginger and garlic mixed in refined sunflower oil. It is a basic paste used for most north Indian dishes. It is suitable for all tomato-based dishes. The ‘Aashirvaad’ Multi-Purpose Cooking paste is available in Delhi, Chennai, Hyderabad, Bangalore, Kolkata, Ahmedabad, Mumbai and Pune at leading grocery outlets. Staples
ITC entered the branded Atta market with the launch of Aashirvaad Atta in Jaipur and Chandigarh on 26th May 2002. The product is now available all over India. ‘Aashirvaad’ promises the Indian housewife the joy of providing her family with the most delightful home-made rotis, made from the finest quality atta. ITC uses the sourcing strength of its e-Choupals to buy wheat directly from the farmers to deliver happiness to the Indian
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consumer – Khushiyaan Chun Chun ke (Happiness handpicked). ‘Aashirvaad’ is made from finest quality wheat that ITC has the unique capability to source through its e-Choupal network. Premium quality atta, made from the best wheat in India, is also available as Aashirvaad Select Atta. ITC Foods also aims to delight the consumer through superior and innovative packaging. The Aashirvaad package is PET Poly, with the design showcasing the farming process undertaken in the rural heartland of India in the form of a Madhubani painting. ‘Aashirvaad Select’ Atta (2 kg pack) was awarded the World Star Award for Excellence in Packaging in the Consumer Pack Category. This is one of the most prestigious awards in the world for Packaging. Aashirvaad Salt
ITC launched branded packaged salt under the brand name ‘Aashirvaad Salt’ on 26th March, 2003. The product is available in grocery stores around the country.
Spices
ITC forayed into the branded spices market with the launch of Aashirvaad Spices in Northern India in May 2005. The offering currently consists of Chilli, Turmeric and Coriander powder in SKUs of 50g, 100g and 200g each. In addition to Northern India, the product is also available in Mumbai, Pune, Ahmedabad, Baroda and Surat presently. :: Instant Mixes
This range, launched in March '06, includes Gulab Jamun, Rava Idli, Rice Idli, Rice Dosa and Khaman Dhokla mix. Aashirvaad Instant Mixes promise the discerning Indian homemaker perfect tasting dishes, consistently. The Rava idli Mix is available in 500g pack and rest of the products are available in 200g packs.
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Ready To Eat’ Products from ‘Kitchens of India’
Keeping alive long forgotten culinary traditions, ‘Kitchens of India’ presents its range of exotic ready-to-eat cuisines. Each one of these legendary delicacies has been created by the Master Chefs of ITC Hotels, following rare, closely guarded recipes, handed down through the ages, from one generation to the next. These delicacies are now available in imported 4-layer retort pouches that keep them fresh for as long as 12 months from the date of packaging. Bukhara
Bukhara, a village in Uzbekistan, was a meeting place for the traders from Asia and Europe . It was also a spot on the fabled Silk Route , a passage commonly used by traders, scholars and nomads. It was on this route that the unique Bukhara style of cooking was born. The Master Chefs of ITC Hotels have whipped up the delectable bite into history with this cuisine from the North-West Frontier Province with a masterpiece like Dal Bukhara. Dal Bukhara
Dal Bukhara is an exquisite culinary treat made from Whole Black Lentils simmered with prized Indian Spices over a coal fire, for long hours on end. Dum Pukht
The art of ‘Dum’ cooking (cooked in its own juices) traces its origin to the times of the ‘Nawabs of Awadh’ who ruled the Northern Provinces of India during the 18th century. ‘Kitchens of India’ has currently introduced ‘Mirch Ka Salan’ in this range. Mirch Ka Salan
An extravagant delicacy made from succulent green chillies, delicately cooked in a thick gravy of roasted peanuts, almonds and sesame seeds.
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Dakshin
This cuisine reflects the tradition and culture of the southern Indian peninsula. ‘Kitchens of India’ offers you Chicken Chettinad and Chicken Stew: Chicken Chettinad
Succulent chunks of tender chicken in a dark, spicy paste of curry leaves and freshly ground pepper. Showcasing the distinctive tastes and fragrances of the South.
Chicken Stew
Tender nuggets of chicken in a mild, coconut gravy. Gharana
A pan-Indian cuisine specially created by ITC’s Hotels Master Chefs. Paneer Darbari
Soft, fresh and juicy cubes of cottage cheese simmered in an aromatic tomato gravy to create an unforgettable delicacy. Chicken Darbari
A superb blend of juicy and tender chicken chunks in an aromatic tomato gravy, laced with butter. Murgh Methi
Discover the delights of Nawabi cuisine in every serving of Murgh Methi. Tender chunks of chicken, spiced mildly, and simmered for long hours in a gravy of green coriander and fenugreek.
:: ‘Kitchens of India’ Curry Pastes A special blend of handpicked spices, created by the Master Chefs of ‘Kitchens of India’, in accordance with original, traditional recipes. Just add fresh ingredients, and cook. These are ready made pastes and there is no need to add oil, salt or spices. It’s truly the most deliciously authentic way to recreate your favorite dishes (These pastes by themselves are fully vegetarian).
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Butter Chicken Curry Paste
A rich, mildly spiced gravy, that follows the original, traditional Butter Chicken Curry recipe. Just add succulent nuggets of chicken and cook.
Hyderabadi Biryani Paste
A rich coconut yogurt gravy, in accordance with the original, traditional Hyderabadi Biryani recipe. Just add long grained basmati rice, tender pieces of chicken or lamb and cook.
Fish Curry Paste
A rich, mildly spiced gravy, according to the original Fish Curry recipe. Just add fresh slices of fish and cook.
Vegetable Biryani Paste
A rich, mildly spiced gravy, faithful to the original, traditional Vegetable Biryani recipe. Just add long grained basmati rice, garden-fresh vegetables and cook.
Chicken Curry Paste
A thick, tomato-onion gravy, that follows the original, traditional Chicken Curry recipe. Just add succulent nuggets of chicken and cook.
Mutton Curry Paste
A rich, mildly spiced, aromatic gravy, in keeping with the original, traditional Mutton Curry recipe. Just add tender pieces of lamb and cook.
:: ‘Kitchens of India’ Conserves
‘Kitchens of India’ Fruit & Spice Conserves have been skillfully blended by ITC’s 18
Master Chefs to create unique, delectable flavours by combining the succulent chunks of fresh fruit with an expert selection of exotic spices. A truly irresistible treat. Strawberry & Mint Conserve
This exotic Fruit & Spice Conserve merges the tangy flavours of fresh strawberries with a pure, refreshing touch of mint. An ineffably enjoyable experience. Pineapple & Green Pepper Conserve
This exotic Fruit & Spice Conserve adds the pleasant and moderate pungency of Kerala green pepper to the sweetness of fresh, juicy pineapples. An incredible combination. Apple & Cinnamon
This exotic Fruit & Spice Conserve skillfully combines the flavours of fresh Himachal apples with the compelling piquancy of cinnamon. A treat for the adventurous. Plum & Star Anise
This exotic Fruit & Spice Conserve is a rare blend of the sweet-sour flavours of fresh and juicy plums and the warm, sweet and aromatic dash of star anise.
:: ‘Kitchens of India’ Chutneys
‘Kitchens of India’ Chutneys have been created by ITC’s Master Chefs. Made from the finest ingredients and spices, this collection of popular mealtime accompaniments, is truly a feast for the senses.
Shredded Mango Chutney
Finely shredded raw mango, in a tangy, spiced, delicious thick syrup. An authentic rich accompaniment with any meal. Tamarind & Date Chutney
Delicious Dates in a delightful tangy tamarind base. A piquant dip for fried snacks. 19
Mango & Jeera Chutney
Cubes of raw mango in a thick, aromatic syrup flavoured with cumin seeds. Mango & Garlic Chutney
Chunks of raw mango mixed with slivers of fresh garlic. A delicious accompaniment with any meal.
:: ‘Kitchens of India’ Biryanis
By far, one of the most popular delights from the Kitchens of India spectrum, these have been masterfully blended by the Master Chefs following ancient and authentic recipes. These absolutely irresistible dishes have been skillfully cooked under precision and a knack of adding just the right amount of fragrant spices in just the right proportions, so that you can savour the Biryanis exactly as they were meant to be.
Noor Mahal Biryani Minced tender chicken koftas slow-cooked with saffron flavoured Basmati Rice. From the Royal kitchens of India.
Bohri Biryani Delicately spiced chicken layered in Basmati Rice, enhanced with exotic dry fruits. A feast fit for the kings.
Yakhni Pulao Succulent chicken chunks marinated in creamy yogurt and cooked in saffron flavoured Basmati rice.
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Hyderabadi Mutton Biryani Delicious mutton pieces cooked to perfection with cinnamon flavoured Basmati rice form this Nawabi extravaganza.
:: ‘Kitchens of India’ Desserts Kitchens of India royal, authentic Indian Desserts is the perfect way to make any occasion a celebration. A grand finale to a perfect meal. The Master Chefs of Kitchens of India bring to you a uniquely packaged range of royal desserts prepared from the finest of ingredients. Go ahead, re-live the royal experiences. Jodhpuri Moong Dal Halwa This Rajasthani delicacy made from split Moong dal and a generous mix of dry fruits, is served only during the choicest of occasions. Each ingredient is blended with the other in the right proportions by our Master Chefs, to give your taste buds a royal treat after a gourmet meal. Hazoori Petha Halwa This dessert, perfected in the royal kitchens of Agra is prepared with fresh, grated petha cooked in ghee. Simmered to perfection with milk and khoya, and garnished with raisins, the distinctive flavours of this halwa make it the perfect dessert for any occasion. Awadhi Badam Halwa This dessert lets you enjoy the goodness of select almonds, grated and simmered in milk, and cooked in ghee and khoya until golden brown. Native to Lucknow, this halwa tastes of all the richness and finess that the Nawabs stood for.
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ITC Foods plans chocolate foray
FMCG major ITC Foods is gearing up to enter the Rs 2,200-crore branded chocolate segment in the country. With the move, the company will directly take on lead players like Cadbury India and Nestle in the highly competitive sector. Currently, Cadbury India leads the pack with a market share of 70%. Incidentally, Godrej Beverages & Foods Ltd is also getting ready to enter the chocolate segment this year. "It's going to be a bitter war for the market and mind share in the sweet chocolate segment this year," predict analysts. According to key industry sources, prior to the launch, ITC Foods is currently extending its distribution network. After launching 'Sunfeast Sachin Kit Fit' in March, the company is expected to launch its chocolate brand in India. "The company is expected to introduce its own home-grown brand of chocolates within a few months. With its strong distribution, the company may also opt for tie-ups with global brands such as Hershey's (American chocolate brand) which is looking for alliances in India," informed industry sources said. To sustain its leadership in the chocolate segment, Cadbury India is sharpening its focus on growing the category by increasing consumption levels. Meanwhile, Amul is trying to woo new consumers with highvoltage mass media ad campaigns. According to Jagdeep Kapoor, managing director of Samsika Marketing Consultancy, "To pump up volumes, all players are now trying to grow the category by increasing the location and occasion of consumption. The Rs 2,200 crore sector has registered a 12% growth in 2006. With increasing competition, this sector will further grow in 2007." ITC Foods is adding 50,000 more retail outlets to its existing 2 million to enter new categories. To lure new consumers, the company has also increased its ad spend by 70%. With the entry of new players ITC Foods and Godrej Beverages & Foods, the branded chocolate sector is expected to witness a pitched battle for market share in 2007.
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Snack foods Sunfeast
Riding on the success of offerings in the Glucose, Marie and Cream categories, ITC has recently enriched its 'Sunfeast' range of biscuits. The Company has launched three new cream flavours Coconut, Strawberry and Pineapple. Strawberry & Pineapple creams have flavour enhancers. ITC has pioneered the launch of coconut cream biscuits in India. The Company has also introduced 'Sunfeast Dark Fantasy', a dark chocolate and vanilla cream offering for the premium segment in select markets. 'Sunfeast' has also entered the milk biscuit category with its 'Sunfeast Milky Magic' biscuits. These biscuits are made of cow's milk. Sunfeast has tied up with 'Aavin', the biggest milk brand in Tamil Nadu, for sourcing cow's milk. Both the new cream biscuits and milk biscuits have received an enthusiastic response from consumers. The Sunfeast range has been further expanded with the launch of 'Sunfeast Snacky' salted crackers in 2 unique variants viz., Chilli Flakes and Classic Salted. The recently launched 'Sunfeast Special' biscuits are also available in select markets. Sunfeast's latest offering, Golden Bakes blends the sheer richness of pure butter with that of crisp cashews. This range is available in 3 exciting variants viz. Butter, Cashew and Honey & Cashew. 'Sunfeast Pasta Treat', a whole wheat based non-fried product in 4 exciting flavours, has been introduced as a healthy snacking option for children. The pasta segment
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was further further expanded expanded with the launch launch of 'Sunfeas 'Sunfeastt Benne Vita' in 4 innovative innovative variants. The snack food team is geared and ready to further enrich its product portfolio in the near future.
As part of ITC's business strategy of creating multiple drivers of growth in the FMCG sector, the Company has commenced marketing agarbattis (incense sticks) sourced from small-scale and cottage units. This business leverages leverages the core strengths of ITC IT C in nation-wide distribution and marketing, brand building, supply chain management, manufacture of high quality paperboards and the creation of innovative packaging solutions to offer Indian consumers high quality agarbattis. ITC has launched Mangaldeep Agarbattis across a wide range of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Durbar, Tarangini, Anushri, Ananth and Mogra. Recently, a new fragrance Yantra has been launched which evokes the ambience of a temple. t emple. Mangaldeep Mangaldeep is also available in 3-in-1 and 5-in-1 packs giving the consumer a choice of fragrances in a single pack. Mangaldeep is appropriately priced to appeal to a cross-section of consumers at various price segments. These agarbatti agarbattiss are availab available le in innovativ innovative e 'Fragrance 'Fragrance-Loc -Locked' ked' packagin packaging. g. 'Fragranc 'Fragrance e locking' is a unique concept of packaging which retains the fragrance for a longer period and helps in "Completing the Purity of Prayer". The 'Mangaldeep' brand is fast emerging as the only national brand in an industry dominated by multiple local brands. Mangaldeep is also being exported to United States States of America, America, United United Arab Emirates, Emirates, Bahrain, Bahrain, Nepal, Nepal, Singapo Singapore, re, Malaysi Malaysia, a, Oman and South Africa. With its participation in the business, ITC aims to enhance the competitiveness competitiveness of the small and medium scale sectors through its complementary R&D based product development development and strengths in trade marketing and distribution. Six of ITC's small scale manufacturers are the first in the country to receive the ISO 9000-2001certification 9000-2001certification for agarbatti making. ITC has also entered into an MOU with the Khadi & Village Industries Commission (KVIC) to source agarbattis from KVIC approved units, and to distribute agarbattis thro throug ugh h the the Khad Khadii Bhav Bhavan an / Khad Khadii Bhan Bhanda darr outl outlet etss acro across ss the the coun country try.. This This collaborative venture is expected to result in employment generation, particularly in the semi-urban and rural areas.
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ITC is also supporting an 'Agarbatti Community Participation Programme' run by the Vyakti Vikas Kendra, a non-profit organisation founded by the renowned spiritual guru Sri Sri Ravishankar and located near Bangalore. Over 100 village women are gaining from the training that this organisation imparts in rolling agarbattis. ITC is also beginning to extend similar support to other NGOs in states like Bihar, Tripura and Andhra Pradesh, who are also setting up agarbatti units, training village women in rolling agarbattis and employing these women in these units.
:: Confectionery
ITC currently has two brands in the confectionery segment - 'mint-o' and 'Candyman'. 'mint-o' was acquired by ITC from Candico in March 2002. ITC re-launched the compressed mint offering, across all major markets in India, with new and improved product and packaging. Available in the regular mint flavour with added blue specks to enhance consumer experience, mint-o is also offered in innovative 'Orange mint' and 'Lemon mint' flavours. 'mint-o' is available in two sizes – rolls of 20 and 6, capturing the international essence of ‘youthful cool’ ITC launched 'mint-o Fresh' in October 2004. An ‘active’ mint deposited candy, minto Fresh is available in two refreshing mint flavours across all markets. Its launch exten extended ded the footpr footprin intt of the 'mint'mint-o' o' brand brand in line line with with the strate strategy gy of addin adding g excitemen excitementt and contributing contributing to the growth growth of the confectionery confectionery category. category. 'mint-o 'mint-o Fresh' is especially targeted at the adult consumer seeking a basket of mint-based products across price points. ITC launched the 'Candyman' range of confectioneries in August 2002. Led by the 'Candyman Fruitee Fun' range of assorted fruit flavours ('Wild Banana', 'Pineapple Punch', 'Orange Josh' and 'Mango Delite'), the 'Candyman' portfolio now includes depos deposite ited d candy candy produc products ts like like 'Candy 'Candyman man Butter Buttersco scotch tch Licks Licks'' and 'Candy 'Candyman man Éclairs' (Choco flavoured as well as Vanilla Cream centre inside a Butterscotch outer shell). The coffee toffee segment also saw the successful launch of 'Candyman Cofitino' in November 2005. Two new products – 'Candyman Natkhat Mango' and 'Candy 'Candyman man Maha Maha Mango Mango'' were were launch launched ed recen recently tly.. The 'Candy 'Candyman man'' range range of confectionery is targeted at ‘fun-filled, naughty kids’ who seek a delightful candy experience experience through a range of candy types and flavours.
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SAFETY MATCHES
As part of its strategic initiative to create multiple drivers of growth in the FMCG sector, ITC has commenced marketing safety matches sourced from the small-scale sect sector or.. This This busi busine ness ss leve levera rage gess the the core core stre streng ngth thss of ITC in mark market etin ing g and and distribution, brand building, supply chain management and paperboard & packaging to offer Indian consumers high quality safety matches. These matches are available in unique designs and with innovative value added features. ITC's brands like iKno, Mangal Deep, VaxLit, Delite and Aim have already become popular. The Aim brand is already the largest selling brand of Safety Matches in India. Export of premium brands has also commenced to markets such as Europe, Africa and the USA. The successful acquisition of Wimco Ltd. by Russell Credit Ltd., a wholly owned subsidiary of ITC is expected to further consolidate the market standing of the Company's Matches business through synergy benefits of combined portfolio of offerings, improved servicing of proximal markets and freight optimization. Through its participation, ITC aims to enhance the competitiveness of the small and medium scale sectors through its complementary R&D based product devel develop opmen mentt and and marke marketin ting g stren strength gths, s, espec especia ially lly the breadt breadth h and and depth depth of the Company's trade marketing and distribution.
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ITC in Gifts, Greetings & Stationary
ITC is blending its core capabilities to market a growing range of greeting, gifting & stationery consumer products. These capabilities include: i. ii. iii.
Manufacture of India's only environment friendly Elemental Chlorine Free (ECF) pulp, paper & paperboard Knowledge of image processing, printing & conversion garnered from its Packaging & Printing Business Brand Building & Trade marketing & distribution strengths resident in its FMCG Business ITC's stationery brands Paper Kraft & Classmate are the most widely distributed brands across India. The Paperkraft range consists of notepads & multi subject notebooks in hard, soft covers & multiple binding formats including spirals, wiros etc. Paperkraft is targeted at working executives and college goers.
The Classmate range consists of notebooks, long books, drawing, practical and graph books in multiple sizes, rulings & page variants. Classmate addresses the needs of school children across the country. The range builds in regional preferences and caters to the requirements of All India & State Education Boards. Every Classmate notebook carries ITC's Corporate Social Responsibility message on the back cover. For every Classmate notebook purchased by a consumer, ITC contributes Re. 1 to its rural development initiative that supports among other projects, primary education in villages. ITC's Greeting & Gifting products include Expressions range of greeting cards and gifting products. The gifting portfolio includes autograph books, slam books, party invitations, letter pads, gift-wraps, pop up books & mini books. The business also markets Expressions Regalia, a connoisseur's collection of greeting cards. ITC has a tie-up with the NGO SOS Children's Villages of India. This range comprises social cause cards and desk calendars. To view the ITC SOS range of products,. ITC has invested in building a digital library of world class images at its business
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headquarters at Chennai. The creative team of visualisers, designers, copywriters and layout artists generate over 5000 greeting, gifting & stationery designs every year. The business also exports greeting cards to the U.S., Europe, UAE & SAARC countries. In recognition of its quality products & processes, the business has been awarded with ISO 9001:2000 by Messrs Det Norske Veritas. ITC’s Foray into Lifestyle Retailing
ITC’s Lifestyle Retailing Business Division has established a nationwide retailing presence through its Wills Lifestyle chain of exclusive specialty stores. Wills Lifestyle, the fashion destination, offers a tempting choice of Wills Classic work wear, Wills Sport relaxed wear, Wills Clublife evening wear, fashion accessories and Essenza Di Wills – an exclusive range of fine fragrances and bath & body care products for men and women. Wills Lifestyle has recently introduced exquisite Designer wear, designed by the leading designers of the country. With a distinctive presence across segments at the premium end, ITC has also established John Players as a brand that offers a complete fashion wardrobe to the youth of today. With its brands, ITC is committed to build a dominant presence in the apparel market through a robust portfolio of offerings. Wills Lifestyle has been established as a chain of exclusive specialty stores providing the Indian consumer a truly 'International Shopping Experience' through world-class ambience, customer facilitation and clearly differentiated product presentation. Our stores have established themselves as preferred shopping destinations in the prime shopping districts across the country.
At Wills Lifestyle, customers can browse at leisure, and shop in a relaxed and pleasing atmosphere. The use of space is refreshing, which is reflected even in the spacious changing rooms. Every store offers an international retailing ambience with the extensive use of glass, steel and granite, reflecting the most contemporary trends in store design, thereby creating a splendid backdrop for the premium offerings. The Superbrands Council of India recently awarded super brand 2006 to Wills Lifestyle. At the Images Fashion Awards 2001 & 2003, Wills Lifestyle was declared ' The Most Admired Exclusive Brand Retail Chain of the Year'.
Wills Lifestyle is now title partner of the country’s most premier fashion event - Wills Lifestyle India Fashion Week. Taking the celebration of the event to its stores, Wills Lifestyle has partnered with leading designers Rohit Gandhi - Rahul Khanna, Monisha Jaising and Manish Malhotra to create a special Designerwear line, which is now being retailed at Wills Lifestyle
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Wills Sport, fashionable relaxed wear for men and women has, over thirteen seasons, become the vibrant face of contemporary fashion. At the Images Fashion Awards 2001, Wills Sport was declared ‘The Most Admired Brand Launch of the Year'. Following this, Wills Sport was declared 'The Most Admired Women's wear Brand of the Year', at Images Fashion Awards 2002. This season, Wills Sport presents a collection designed to complement your exuberant lifestyle. Vibrant designs create magic on soft corduroys and breezy linens. Superfine knits and leather jackets add layers of style. Wills Classic work wear was launched in November 2002, providing the premium consumer a distinct product offering and a unique brand positioning. Featuring luxurious fabrics crafted to perfection with the most contemporary styling, Wills Classic work wear is positioned as the brand for new age leaders, who are changing the rules of business and encouraging a dynamic culture of enterprise, innovation and teamwork. Showcasing the epitome of new age luxury. Featuring the finest shirts, crafted in Italy. Complemented by exquisite suits and jackets, made by European master craftsmen. The World's finest cashmere from Zegna Baruffa adds warm sophistication this season.
Having established a distinctive presence in the premium apparel segment in a short span of time with Wills Sport premium relaxed wear and Wills Classic new age work wear, Wills Lifestyle launched Wills Clublife in May 2003 in the growing evening wear segment, thereby strengthening its portfolio in the premium segment. The brand is uniquely positioned to complement the glittering evening life of premium consumers perfectly. Evening wear inspired by the allure and intrigue of the dark. Sensuous fabrics and seductive patterns add to the magical enchantment.
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Continuing with its philosophy of bringing to Indian consumers world class products that enrich the quality of their lives, ITC launched Essenza Di Wills - an exclusive range of fine fragrances and bath & body care products for men and women in July 2005. Inizio, the signature range under Essenza Di Wills provides a comprehensive grooming regimen with distinct lines for men (Inizio Homme) and women (Inizio Femme). The rich and sensual fine fragrances are all day offerings designed by the leading international fragrance houses in France. The personal care range includes a host of bath and body care products that share the same olfactory signature of the men’s and women’s fine fragrances to offer you a harmonized fragrance experience. Inizio by Essenza Di Wills promises you a timeless experience. An invitation to discover your true essence, your soul. At select Wills Lifestyle stores. Enjoy the Change. Wills Lifestyle complements the range of premium apparel with a tempting choice of fashion accessories. This season a wider choice of accessories will be offered across ties, cuff links, socks, caps, hand bags, wallets, belts, eyewear and shoes. With the introduction of premium formal and relaxed jackets in the range, Wills Lifestyle will continue to offer the definitive look of the season. ITC forayed into the youth fashion segment with the launch of John Players in December 2002 and John Players is committed to be the No. 1 fashion brand for the youth. This foray leverages ITC’s proven competencies in understanding consumer insights, brand building and design capabilities. Hrithik Roshan, Superstar and Youth Icon, with his innate style, vibrancy and playfulness best personifies the core attributes of the brand as its ambassador. John Players offers a complete and vibrant wardrobe of Casual wear, Party wear, Work wear, Denims, Outer wear and Suits & Jackets, incorporating the most contemporary trends, an exciting mix of colors, playful styling, trendy textures and comfortable fits. The brand is available across the country through a nation-wide network of over 125 exclusive stores and over 1500 multi-brand outlets. At the Images Fashion Awards 2005, John Players was declared 'The Most Admired Shirt Brand of the Year'. Having built a powerful brand portfolio that is making waves across the country, ITC's Lifestyle Retailing is poised to grow and build a dominant presence in the country's fashion industry.
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ITC’s Foray in E-Choupal
ITC’s International Business Division, one of India’s largest exporters of agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others. The Value Chain - Farm to Factory Gate:
‘e-Choupal’ also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability > low investment > low productivity > weak market orientation > low value addition > low margin > low risk taking ability. This made him and Indian agribusiness sector globally uncompetitive, despite rich & abundant natural resources. Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk management, larger investments and higher quality and productivity. Further, a growth in rural incomes will also unleash the latent demand for industrial goods so necessary for the continued growth of the Indian economy. This will create another virtuous cycle propelling the economy into a higher growth trajectory.
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The Model in Action:
Appreciating the imperative of intermediaries in the Indian context, ‘e-Choupal’ leverages Information Technology to virtually cluster all the value chain participants, delivering the same benefits as vertical integration does in mature agricultural economies like the USA. ‘e-Choupal’ makes use of the physical transmission capabilities of current intermediaries – aggregation, logistics, counter-party risk and bridge financing –while disintermediating them from the chain of information flow and market signals. With a judicious blend of click & mortar capabilities, village internet kiosks managed by farmers – called sanchalaks – themselves, enable the agricultural community access ready information in their local language on the weather & market prices, disseminate knowledge on scientific farm practices & risk management, facilitate the sale of farm inputs (now with embedded knowledge) and purchase farm produce from the farmers’ doorsteps (decision making is now information-based). Real-time information and customised knowledge provided by ‘e-Choupal’ enhance the ability of farmers to take decisions and align their farm output with market demand and secure quality & productivity. The aggregation of the demand for farm inputs from individual farmers gives them access to high quality inputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the ‘mandi’ system for price discovery, ‘e-Choupal’ eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs. ‘e-Choupal’ ensures world-class quality in delivering all these goods & services through several product / service specific partnerships with the leaders in the respective fields, in addition to ITC’s own expertise. While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer) having eliminated costs in the supply chain that do not add value.
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The Status of Execution:
Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based interventions in rural India.'e-Choupal' services today reach out to more than 3.5 million farmers growing a range of crops - soyabean, coffee, wheat, rice, pulses, shrimp - in over 38,000 villages through nearly 6500 kiosks across nine states (Madhya Pradesh, Haryana, Uttaranchal, Karnataka, Andhra Pradesh, Uttar Pradesh, Maharashtra, Rajasthan and Kerela). The problems encountered while setting up and managing these ‘e-Choupals’ are primarily of infrastructural inadequacies, including power supply, telecom connectivity and bandwidth, apart from the challenge of imparting skills to the first time internet users in remote and inaccessible areas of rural India.
Several alternative and innovative solutions – some of them expensive – are being deployed to overcome these challenges e.g. Power back-up through batteries charged by Solar panels, upgrading BSNL exchanges with RNS kits, installation of VSAT equipment, Mobile Choupals, local caching of static content on website to stream in the dynamic content more efficiently, 24x7 helpdesk etc. Going forward, the roadmap includes plans to integrate bulk storage, handling & transportation facilities to improve logistics efficiencies. As India’s ‘kissan’ Company, ITC has taken care to involve farmers in the designing and management of the entire ‘e-Choupal’ initiative. The active participation of farmers in this rural initiative has created a sense of ownership in the project among the farmers. . They see the ‘e-Choupal’ as the new age cooperative for all practical purposes. This enthusiastic response from farmers has encouraged ITC to plan for the extension of the ‘e-Choupal’ initiative to altogether 15 states across India over the next few years. On the anvil are plans to channelise other services related to microcredit, health and education through the same 'e-Choupal' infrastructure. 33
DOMESTIC PLAYERS - Competition
There are various investors including names like Britannia India Limited (BIL), Dabur India Limited, Indian Tobacco Corporation Limited (ITCL), Marico, Nirma Limited etc. Britannia India Ltd (BIL)
Britannia India Ltd was incorporated in 1918 as Britannia Biscuit Co Ltd and currently the Groupe Danone (GD) of France (a global major in the food processing business) and the Nusli Wadia Group hold a 45.3 per cent equity stake in BIL through AIBH Ltd (a 50:50 joint venture). BIL is a dominant player in the Indian biscuit industry, with major brands such as Tiger glucose, Mariegold, Fifty-Fifty, Good Day, Pure Magic, Bourbon etc. The company holds a 40 per cent market share in the overall organized biscuit market and has a capacity of 300,000 tonne per annum. Currently, the bakery product business accounts for 99.1 per cent of BIL’s turnover. The company reported net sales of US$ 280 million in 2002-03. Britannia Industries Ltd (BIL) plans to increase its manufacturing capacity through outsourced contract manufacturing and a greenfield plant in Uttaranchal to expand its share in the domestic biscuit and confectionery market. Dabur India Ltd
Established in 1884, Dabur India Ltd is the largest Indian FMCG and ayurvedic products company. The group comprises Dabur Finance, Dabur Nepal Pvt Ltd, Dabur Egypt Ltd, Dabur Overseas Ltd and Dabur International Ltd. The product portfolio of the company includes health care, food products, natural gums & allied chemicals, pharma, and veterinary products. Some of its leading brands are Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola, Lal Dant Manjan, Pudin Hara and the Real range of fruit juices. The company reported net sales of US$ 218 million in 2003-04. Dabur has firmed up plans to restructure its sales and distribution structure and focus on its core businesses of fast-moving consumer good products and overthe-counter drugs. Under the restructured set-up, the company plans to increase direct coverage to gap outlets and gap towns where Dabur is not present. A roadmap is also being prepared to rationalise the stockists’ network in different regions between various products and divisions. Indian Tobacco Corporation Ltd (ITCL)
Indian Tobacco Corporation Ltd is an associate of British American Tobacco with a 37 per cent stake. In 1910 the company’s operations were restricted to trading in imported cigarettes. The company changed its name to ITC Limited in the mid seventies when it diversified into other businesses. ITC is one of India’s foremost private sector companies with a turnover of US$ 2.6 billion. While ITC is an outstanding market leader in its traditional businesses of cigarettes, hotels, paperboards, packaging and agriexports, it is rapidly gaining market share even in its nascent businesses of branded apparel, greeting cards and packaged foods and confectionary. After the merger of ITC Hotels with ITC Ltd, the company will ramp up its growth plans by strengthening its alliance with Sheraton and through focus on international projects in Dubai and the Far East. ITC’s subsidiary, International Travel House (ITH) also aims to launch new products and services by way of boutiques that will provide complete travel services. 34
Marico
Marico is a leading Indian Group incorporated in 1990 and operating in consumer products, aesthetics services and global ayurvedic businesses. The company also markets food products and distributes third party products. Marico owns well-known brands such as Parachute, Saffola, Sweekar, Shanti Amla, Hair & Care, Revive, Mediker, Oil of Malabar and the Sil range of processed foods. It has six factories, and sub-contract facilities for production. In 2003-04, the company reported a turnover of US$ 200 million. The overseas sales franchise of Marico’s branded FMCG products is one of the largest amongst Indian companies. It is also the largest Indian FMCG company in Bangladesh. The company plans to capture growth through constant realignment of portfolio along higher margin lines and focus on volume growth, consolidation of market shares, strengthening flagship brands and new product offerings (2-3 new product launches are expected in 200405). It also plans to expand its international business to Pakistan. Nirma Limited
Nirma Ltd, promoted by Karsanbhai Patel, is a homegrown FMCG major with a presence in the detergent and soap markets. It was incorporated in 1980 as a private company and was listed in fiscal 1994. Associate companies’ Nirma Detergents, Shiva Soaps and Detergents, Nirma Soaps and Detergents and Nilnita Chemicals were merged with Nirma in 1996-1997. The company has also set up a wholly owned subsidiary Nirma Consumer Care Ltd, which is the sole marketing licensee of the Nirma brand in India. Nirma also makes alfa olefin, fatty acid and glycerin. Nirma is one of the most successful brands in the rural markets with extremely low priced offerings. Nirma has plants located in Gujarat, Madhya Pradesh and Uttar Pradesh. Its new LAB plant is located in Baroda and the soda ash complex is located in Gujarat. Nirma has strong distributor strength of 400 and a retail reach of over 1 million outlets. The company reported gross sales of US$ 561 million in 2003-04. It plans to continue to target the mid and mass segments for future growth.
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FOREIGN PLAYERS - Competition
Foreign firms include names like Cadbury India Limited (CIL), Cargill, ColgatePalmolive India Limited, Coca Cola, Hindustan Lever Limited (HLL), Nestle India Limited (NIL), PepsiCo, Procter & Gamble and Health Care Limited etc. Cadbury India Ltd (CIL)
Cadbury Indian Ltd is a 93.5 per cent subsidiary of Cadbury Schweppes Plc, UK, and a global major in the chocolate and sugar confectionery industry. CIL was set up as a trading concern in 1947 and subsequently began its operations with the small scale processing of imported chocolates and food drinks. CIL is currently the largest player in the chocolate industry in India with a 70 per cent market share. The company is also a key player in the malted foods, cocoa powder, drinking chocolate, malt extract food and sugar confectionery segment. The company had also entered the soft drinks market with brands like ‘Canada Dry’ and ‘Crush’, which were subsequently sold to Coca Cola in 1999. Established brands include Dairy Milk, Perk, Crackle, 5 Star, Éclairs, Gems, Fructus, Bournvita etc. The company reported net sales of US$ 160 million in 2003. The company plans to increase the number of retail outlets for future growth and market expansion. Cargill
Cargill Inc is one of the world’s leading agri-business companies with a strong presence in processing and merchandising, industrial production and financial services. Its products and geographic diversity (over 40 product lines with a direct presence in over 65 countries and business activities in about 130 countries) as well as its vast communication and transportation network help optimize commodity movements and provide competitive advantage. Cargill India was incorporated in April 1996 as a 100 per cent subsidiary of Cargill Inc of the US. It is engaged in trading in soybean meals, wheat, edible oils, fertilizers and other agricultural commodities besides marketing branded packaged foods. It has also set up its own anchorage facilities at Rosy near Jamnagar in Gujarat for efficient handling of its import and export consignments. Coca Cola
Coca-Cola started its India operations in 1993. The Coca-Cola system in India comprises 27 wholly company-owned bottling operations and another 17 franchiseeowned bottling operations. A network of 29 contract-packers also manufactures a range of products for the company. Leading Indian brands Thums Up, Limca, Maaza, Citra and Gold Spot exist in the Company’s international family of brands along with Coca-Cola, Diet Coke, Kinley, Sprite and Fanta, plus the Schweppes product range. During the past decade, the Coca-Cola system has invested more than US$ 1 billion in India. In 2003, Coca-Cola India pledged to invest a further US$ 100 million in its operations.
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Colgate-Palmolive India
Colgate Palmolive India is a 51 per cent subsidiary of Colgate Palmolive Company, USA. It is the market leader in the Indian oral care market, with a 51 per cent market share in the toothpaste segment, 48 per cent market share in the toothpowder market and a 30 per cent share in the toothbrush market. The company also has a presence in the premium toilet soap segment and in shaving products, which are sold under the Palmolive brand. Other well-known consumer brands include Charmis skin cream and Axion dish wash. The company reported sales of US$ 226 million in 200304. The company’s strategy is to focus on growing volumes by improving penetration through aggressive campaigning and consumer promotions. The company plans to launch new products in oral and personal care segments and is prepared to continue spending on advertising and marketing to gain market share. Margin gains are being targeted through efficient supply chain management and bringing down cost of operations. H J Heinz Co
US$ 8.4 billion American foods major, H J Heinz Co comprises 4,000 strong brand buffet in infant food, sauces and condiments. The company was the first to commence manufacturing and bottling of tomato ketchup in 1876. In India, Heinz has a presence through its 100 per cent subsidiary Heinz India Pvt Ltd. Heinz acquired the consumer products division of pharmaceutical major Glaxo in 1994. Heinz’s product range in India consists of Complan milk beverage, health drink Glucon-D, infant food Farex and Nycil prickly heat powder, besides the Heinz ketchup range. Hindustan Lever Ltd (HLL)
Hindustan Lever Ltd is a 51 per cent owned subsidiary of the Anglo-Dutch giant Unilever, which has been expanding the scope of its operations in India since 1888. It is the country’s biggest consumer goods company with net sales of US$ 2.4 billion in 2003. HLL is amongst the top five exporters of the country and also the biggest exporter of tea and castor oil. The product portfolio of the company includes household and personal care products like soaps, detergents, shampoos, skin care products, colour cosmetics, deodorants and fragrances. It is also the market leader in tea, processed coffee, branded wheat flour, tomato products, ice cream, jams and squashes. HLL enjoys a formidable distribution network covering over 3,400 distributors and 16 million outlets. In the future, the company plans to concentrate on its herbal health care portfolio (Ayush) and confectionary business (Max). Its strategy to grow includes focusing on the power brands’ growth through consumer relevant information, cross category extensions, leveraging channel opportunities and increased focus on rural growth.
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Nestle India Ltd (NIL)
Nestle India Ltd a 59.8 per cent subsidiary of Nestle SA, Switzerland, is a leading manufacturer of food products in India. Its products include soluble coffee, coffee blends and teas, condensed milk, noodles (81 per cent market share), infant milk powders (75 per cent market share) and cereals (80 per cent market share). Nestle has also established its presence in chocolates, confectioneries and other processed foods. Soluble beverages and milk products are the major contributors to Nestlé’s total sales. Some of Nestlé’s popular brands are Nescafe, Milkmaid, Maggi and Cerelac. The company has entered the chilled dairy segment with the launch of Nestle Dahi and Nestle Butter. Nestle has also made a foray in non-carbonated cold beverages segment through placement of Nestea iced tea and Nescafe Frappe vending machines. Exports contribute to 23 per cent of its turnover and the company reported net sales of US$ 440 million in 2003. PepsiCo
PepsiCo is a world leader in convenient foods and beverages, with revenues of about US$ 27 billion. PepsiCo brands are available in nearly 200 markets across the world. The company has an extremely positive outlook for India. “Outside North America two of our largest and fastest growing businesses are in India and China, which include more than a third of the world’s population” (PepsiCo’s annual report). PepsiCo entered India in 1989 and is concentrating on three focus areas - soft drink concentrate, snack foods and vegetable and food processing. PepsiCo’s success is the result of superior products, high standards of performance and distinctive competitive strategies. Procter & Gamble Hygiene and Health Care Limited
Richardson Hindustan Limited (RHL), manufacturer of the Vicks range of products, was rechristened ‘Procter & Gamble India’ in October 1985, following its affiliation to the ‘Procter & Gamble Company’, USA. Procter & Gamble Hygiene and Health Care Limited (PGHHCL) acquired its current name in 1998, reflecting the two key segments of its business. P&G, USA has a 65 per cent stake in PGHHCL. The parent also has a 100 per cent subsidiary, Procter & Gamble Home Products (PGHP). The overall portfolio of the company includes healthcare; feminine-care; hair care and fabric care businesses. PGHH operates in just two business segments Vicks range of cough & cold remedies and Whisper range of feminine hygiene. The detergent and shampoo business has been relocated globally to Vietnam. The company imports and markets most of the products from South East Asian countries and China, while manufacturing, marketing and export of Vicks and sanitary napkins has been retained in India. The company reported sales of US$ 91 million in 200203. The parent company has announced its plan to explore further external collaborations in India to meet its global innovation and knowledge needs.
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FMCG: Where to from here? – The Future Prospects
The Indian stockmarket has exhibited weakness in the past two weeks and the negative sentiments across global markets have also played a significant role in contributing to this weakness. Having said that, even in the three-month period between December 2006 and March 2007, the Sensex declined by 8%. In this article, we shall take a look at the stocks in the FMCG sector that have managed to perform better than the BSE FMCG index during the above mentioned period. FMCG: The top gainers from Dec 2006 to March 2007 Company
Price on Price on % Mar 06, 2007 (Rs) Dec 01, 2006 (Rs) Change BSE Sensex 12730 13845 -8.1% BSE FMCG 1699 2051 -17.2% Britannia 1275 1135 12.3% Marico 55 53 3.8% Dabur 90 98 -8.2% ITC 162 188 -13.8% Colgate 306 390 -21.5% HLL 172 240 -28.3% Britannia: Britannia has been the top gainer during the period with gains of 14%.
This can be attributed to the strong revenue growth of 31% YoY during the 3QFY07. This was the highest in the past five quarters, which has been aided by the company's strong volume growth. The company's market share had come under pressure in recent times. However, it is clawing its way back by making new launches, focusing on better distribution and newer formats, which has been visible from its strong topline performance over the last few quarters. Though its margins, in recent quarters, have been severely dented by a huge rise in input prices, we believe the reaction to this has been unreasonably pessimistic and that once the input cost pressures ease, margins would improve. This would translate the buoyant topline growth into equally strong bottomline numbers. Marico: Marico rose by 9% during this period, being the second gainer on the list.
The company continued with its strong topline performance, with all business segments namely, domestic FMCG, international FMCG, Kaya Skin Solutions and Sundari recording high growth. It's strategy of focusing on growth, sustainability and profitability has paid off well and has been reflected in its 3QFY07 numbers. It has invested in brand building and advertising to strengthen its established brands and to support new ones, which will help the company strengthen its growth prospects going forward. Dabur: Though Dabur lost ground from December 2006 to February 2007 declining
by 8%, the fall was much lesser than the FMCG index and that of most of its peers. The stock continued to ride on the back of strong growth across all its core categories. The company is focusing on increasing its presence across newer regions. Also, it is expanding its presence in the food segment, which is growing at a very health pace.
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ITC’s Cigarettes Business • • • • • • • •
Market leadership Powerful brands across segments Leadership in all segments - geographic & price Extensive distribution network Over 900 wholesale dealers serving more than 1 million retail outlets World-class state-of-the-art technology and products Investment - Rs.10 billion in six years Exciting long-term growth potential
Cigarettes: Growth potential •
•
•
• •
•
Cigarettes account for only 14% of tobacco consumed in India unlike world pattern of 85% due to prolonged punitive taxation Cigarettes (14% of tobacco consumption) contribute nearly 85% of Revenue to the Exchequer from tobacco sector Of the 58% of adult Indian males who consume tobacco, barely 15% can afford cigarettes Biri: Cigarettes ratio = 10: 1 Annual per capita adult cigarette consumption in India is appx. One-tenthworld average: 141 Future growth depends on relative rates of growth of per capita income and moderation in taxes
Paperboards, Paper & Packaging • • • • •
Annual paperboard demand – appx. 1 million tones Fragmented capacity & obsolete technology Low per capita usage at 0.75 kg - 1/7th global average Indian paperboard market growing at 7% p.a. Value Added Coated board - the fastest growing segment (20% p.a.) in India driven by the growing sophistication of the consumer
Paperboard Demand Projections – Asia •
• • •
Asian region demand (excluding Japan) growing by 0.5 million tonnes per annum This region expected to be a net importer by 2006 Significant export opportunities for high quality Indian manufacturers ITC paperboards exports - Rs. 2 billion appx.
ITC’s Paperboards Business • •
Market leader in growth segment - value added coated boards World-class contemporary technology
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•
• •
•
•
•
• • • •
• •
Elemental Chlorine Free (ECF) Pulp Mill fully operational – only one of its kind in India meeting world-class environmental standards Internationally competitive quality and cost Social farm forestry in mill command area to improve access to cost effective fibre & to attain self-sufficiency Biotech research based high yielding Clones – effectiveness tested in about 41,000 hectares Fully integrated operations with in-house pulping capacity at appx. 1.10 lac MT Expansion programme underway; source of sustainable competitive advantage Capacity expansion in recycled segment Acquisition of Kovai Unit in March 2004: +65000 TPA Another 75000 TPA commissioned in Jan. ‘05 ITC’s packaging SBU -India’s largest converter of paperboard into high quality printed packaging Leading supplier to Indian FMCG segment Provides superior packaging solutions to the cigarettes and new FMCG businesses
Agri Businesses • • •
• •
India - the second largest producer of tobacco But, India’s share is only 7% in world tobacco trade Upgradation of tobacco consumption from other formats to cigarettes will enable: growing domestic base larger opportunities for value added exports
ITC - India’s largest buyer, processor, consumer & exporter of cigarette tobaccos ITC’s Agri Commodity Exports •
• • • •
•
Farm linkages in 14 states covering Soya, Wheat, Rice, Marine products, Edible nuts, Coffee Unique CRM programme in commodity exports Leveraging IT for the transformational ‘e-Choupal’ initiative Rural India’s largest Internet-based intervention Over 36000 villages linked through 6000 e-Choupals servicing over 3.5 million farmers –10 ‘Choupal Sagars’ operational; 9 more to be launched shortly Distinctive sourcing capability for ITC’s Foods business
ITC’s strategic thrust •
•
Cost-effective extension services to enhance farm productivity and quality, and better align farm produce with requirements of the market, both domestic and international Enhances competitiveness of ITC agri-sourcing 41
• •
•
Create e-infrastructure to serve as transaction backbone Provides ITC two-way fulfilment capability in and out of rural markets for a range of goods and services Rural marketing initiatives being scaled up progressively
Strategic Rationale •
• •
•
•
Blend multiple competencies residing within the ITC Group to create new avenues of growth Best fit between internal capabilities and emerging market opportunities Each segment enhances the depth and width of ITC’s FMCG distribution capability Business model retains critical elements of value chains within ITC with other elements outsourced Contributing to the competitiveness of SMEs
FMCG Business Initiatives Branded Packaged Foods Leverages: • • • •
Unique Agri sourcing skills ITC Welcomgroup’s specialist cuisine & bakery knowledge FMCG distribution synergies ITC R&D Centre, Bangalore
4 chosen categories: • • • •
Staples Aashirvaad Atta, Salt, Spices Snack Foods Sunfeast Biscuits
Confectionery Candyman, mint-o Ready to Eat Kitchens of India, Aashirvaad ReadyMeals, Sunfeast Pasta • • •
Aashirvaad Atta: •
Current market leader amongst national branded players; leverages the echoupal network for cost-quality optimisation and region specific offerings
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Sunfeast Biscuits: •
•
Differentiated & innovative products; continues to build consumer franchise; distributed & outsourced supply chain being ramped up Number of innovative products in the pipeline leveraging the capabilities of the ITC R&D center
Lifestyle Retailing: • • •
• • • • •
Leverages trade mark and services expertise of hotels Relaxed wear market growth > 25% p.a Upmarket product range available in exclusive Wills Lifestyle stores and multibranded outlets/ large format retail stores across the country State-of-the-art Master Facility aids speed of execution Outsourced JIT plant for ‘quick response’ manufacturing Product and brand range being expanded ‘Wills’ range expanded to Formals and Social evening wear segments Strong distribution network in place for the mid-market brand ‘John Players’
Greetings, Gifting & Stationery: • •
•
•
•
Leverages print and paper know-how An emerging market in India - growth driven by increasing cross-cultural exposure ITC’s ‘Expressions’ range commenced with greeting cards; now widened to include stationery & gift wraps Distribution network being strengthened to scale up the Stationery business significantly Serves to expand the width of ITC’s FMCG distribution capability with negligible incremental investment
Safety Matches: •
•
• •
Current industry consumer spend estimated at Rs.1250 crores p.a. for 24 billion match boxes Fragmented supply base arising from policy of reservation for small scale industry ITC markets its brands with value added products across each price point Support SMEs with complementary marketing strength
‘AIM’ – India’s largest selling Safety Matches brand
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Successful acquisition of WIMCO Ltd. by Russell Credit (shareholding as at 26th May 2006: 93.66%) Key brands: Homelites, Ship, Cheetah Fight etc •
To sum up...
The outlook of the sector from a long-term perspective looks good. With increasing income, changing lifestyles, shift towards higher end products, the topline performance of most of these companies is expected to be strong going forward. Also, the companies are entering into newer regions and categories they were not earlier present, which will play a strong role in boosting their performance. However, concerns remain with regards the increased competition, inflation and margin pressure. In such a scenario, those companies focusing on faster innovations, introducing new higher end products, increased distribution and cost efficiency will have the upper edge. Taking into account all these factors, though the stocks have corrected in recent times, investors need to give due consideration to valuations and adopt a stock-specific strategy while investing in the sector. Contrarian bets in FMCG
There are lots of companies on the shelves in the FMCG supermarket but a majority of them are gathering dust as they are not very investor-friendly. Of late the sector has almost become synonymous with bad news. In the June quarter, profits of sector biggies like Hindustan Lever and Nestle India declined 45 per cent and 36 per cent respectively. However, this is a marked contrast to the robust profit growth recorded by Britannia, Godrej Consumer and Colgate Palmolive India. If one sifts through the gamut of companies, quite a few of them would make for a good investment option. However, none of the picks could be generalised as belonging to a specific category or segment. Analysts are of the opinion that each company should be evaluated on its own merit. The divergence in performances of various categories in the FMCG space is telling. Personal products and processed foods have witnessed decent topline growth.
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However, in personal products, even though sales surged, the growth, especially in shampoo and toothpaste, was not as much as the price cuts would have warranted. Vanity seems to be in vogue with the skincare and hair colour segments growing by 15 per cent and 12 per cent respectively. Volume growth in staples like soaps, detergents and tea has been minimal. In biscuits, volume growth has stepped up to 8-10 per cent from 6-8 per cent last year. Marico has done rather well in the hair oil front, thanks largely to new product launches. Cigarettes are another success story where ITC has been the main beneficiary. Analysts feel ITC stands to gain from the Budget, which has largely spared the tobacco industry. This means that the company would be free to adopt a pricing strategy that would enable further volume growth. Although the skincare segment is doing well, there is no clear beneficiary as the segment lacks a pure play. The hair colour market grew 12 per cent and Godrej Consumers is expected to be a major beneficiary of this. Ditto for GSK Consumer in the malted food segment, which grew 9 per cent. Here are five best picks from the FMCG universe. Marico
Marico's success in hair oil is believed to have contributed significantly to its 17 per cent growth in consolidated revenues in the June quarter. Marico enjoys a 55 per cent marketshare in the branded Indian coconut hair oil market, pegged at a little over Rs 500 crore (Rs 5 billion). Its share in the edible oil segment, pegged at Rs 1400 crore (Rs 14 billion), is also considerable at 13 per cent with its main brands Sweekar and Saffola enjoying prime positions. The company has also taken initiatives in the skincare-related businesses by acquiring stakes in a range of ayurvedic skincare products in the US. It has also rolled out 15 skincare clinics under the brand name Kaya. These steps reaped rich dividends for the company as they doubled its combined turnover to nearly Rs 4 crore (Rs 40 million). Analysts view the company's record of maintaining a double-digit turnover growth as a positive. Pegging an EPS target of Rs 11.70 for FY05, they vouch for the investor friendliness of Marico, given the bonuses and dividends that it has been churning out. Godrej Consumer
Godrej Consumer has been a good performer, reporting a strong 15.8 per cent growth in its June-quarter revenues, thanks to its soaps and hair colour businesses. The bottomline grew over 25 per cent along with a 160 basis-point improvement in operating margins.
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The company's soaps business grew 24 per cent y-o-y while its hair colour business grew 19 per cent. Soaps and hair colours form over 85 per cent of the company's revenues and the good show was marked by improving margins in both the businesses. The company shares the 'shareholder-friendly' tag with Marico, thanks to its buyback programme and continuous dividend payouts. Analysts say though valuations look a bit stretched, the stock is a good long-term bet. They peg an EPS target of Rs 12.5 for FY05.
Dabur
Dabur India is another stock that comes recommended. The company's top five brands - Vatika, Chyawanprash, Hajmola, Amla oil and Lal Dant Manjan - contribute around 55 per cent to its revenues. Dabur demerged its FMCG and pharma businesses into two separate listed entities in FY04 to bring in more focus to both the businesses and unlock value for shareholders. Analysts say the move has helped it improve its financial ratios. The company has about Rs 270 crore (Rs 2.7 billion) worth of cash in its books. This is expected to help it develop new products. It will also prove handy if the company plans to go for acquisitions. "Dabur's 'ayurvedic' tag works out to its advantage when it comes to pricing, helping it charge a premium on its products," says an analyst. Analysts say the company is another long-term bet and peg an EPS target of Rs 5.3 for FY05. GSK Consumer
Though its recent financial performance has not been as encouraging as its peers, a section of analysts believes that GSK Consumer would be seeing good times ahead. The company's topline growth has been slightly over 6 per cent during the June quarter. However, pressure on operating margins saw it report a 17 per cent fall in bottomline during the quarter (as advertising and staff costs mounted). The company is a dominant player in the Rs 1,300-crore (Rs 13 billion) Indian malted beverage market with a 65 per cent marketshare. Its major brand, Horlicks contributes nearly 80 per cent to its revenues. Other prominent brands include Boost, Viva and Maltova. Prices of milk, one of the company's main raw materials, have seen a y-o-y decline after being buoyant for a long time. The company has also made changes to its main brands - Horlics and Boost - to cater to the rural market. 46
"The company continues to generate significant amount of free cash flow and works on almost negative working capital," says an analyst. Its zero debt status and no significant capex requirement in the near future also augur well. Analysts peg an EPS target of Rs 17.13 for the company.
ITC Ltd.
The company is the analysts' favourite. For the June quarter, it clocked an impressive 24 per cent topline growth led by its key businesses of cigarettes, foods, hotels, paperboards and exports. ITC is a dominant player in India's Rs 12,000-crore (Rs 120 billion) cigarette market, owning six of the top 10 brands. Its business interests include paperboards, hospitality, retailing, packaged foods, greeting cards, safety matches and incense sticks. The ITC group has the secondbiggest luxury hotel chain in India after Indian Hotels. Analysts point to the growth in its non-tobacco business as a positive factor. Accounting for a free cash generation of Rs 1,600 crore (Rs 16 billion) during the year, the company has net cash of around Rs 2,280 crore (Rs 22.8 billion) in its books. It is set to be refunded Rs 350 crore (Rs 3.5 billion) it has deposited with Central Excise and Gold Appellate Tribunal. Analysts say the company can invest the amount - whenever it gets it - in growing businesses such as paper and paperboards, agri-business and hotels. They peg an EPS estimate of Rs 74 for FY05. Fresh capacities
Of late, the FMCG sector has been talked about in a positive light, thanks largely to the slew of capacity expansions that many leading companies are embarking upon. Capacity expansions on their own do not mean much, but the phenomena of FMCG biggies looking to set up manufacturing units in designated areas that grant a multitude of benefits surely merits a closer look. Though the meteorological department may not vouch for it, the industry does have the cloud of inadequate monsoons hanging over it, with the usual side effect of a dip in rural income - the manna that beleaguered FMCG biggies desperately need in the arid environs of slipping margins, falling sales and mounting expenses. The reports of capacity expansions have provided some respite, but is capex an oasis that beckons or is it just a mirage? Regarding the question of a rebound in the sector, analysts do concede that the first-quarter of FY05 has been good for
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companies like Britannia, Colgate and ITC in terms of volume growth while those like Godrej Consumer and Dabur have witnessed improvements in margins. However, they say the growth has been very category-specific and even in categories, it varies from company to company. Most analysts concur that the rationale for expansion seems to be pointing towards availing themselves of the benefits associated with it rather than an anticipated pick-up in sales.
Club HP
Himachal Pradesh seems to be where the action is. Colgate is known to be planning a capex of Rs 70 crore (Rs 700 million) over two years to augment its toothpaste manufacturing capacity in Baddi in the state, which is set to go on stream in financial year 2006. The benefits: third-party (outsourcing) contracts, which are around 50 per cent presently, will drop to less than 25 per cent (after t he expansion of the capacity). Other carrots include fiscal benefits like 100 per cent exemption of excise for 10 years and tax for five years. Other companies in the Himachal club includes Dabur and Godrej Consumer which would be investing close to Rs 53 crore (Rs 530 million) and Rs 22 crore (Rs 220 million) respectively in areas of haircare, oralcare and health supplements (including digestives) at Jammu, Baddi and Uttaranchal. Dabur's third-party contracts will fall to sub 25 per cent in two years from the present levels of 40 per cent. Dabur and Godrej Consumer would also avail themselves of similar fiscal benefits as Colgate from the expansions. The shrinkage in third-party contracts is expected to augur well in terms of operating margins for these companies besides bringing in tax benefits. However, not all the expansions involved are going to rake in tax benefits for companies. Nestle India has earmarked a Rs 100 crore (Rs 1 billion) investment for capacity expansions and other capital expenditure - its largest capex in the last nine years. However, the objective behind the expansions is mainly to reduce the high utilisation levels prevailing at its production facilities
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Key Success factors of ITC Ltd. ITC
Distribution System: spread through the entire length and the breadth of
the country ITC's distribution philosophy is that of channel-tailored support. ITC and its distributors use different sales forces to cater to the separate channels of convenience outlets, grocers, and supermarkets . ITC services trade channels and not specifically one kind of outlet alone. ITC directly services more than a million outlets all over India. It has depots in key states. For high-bulk, low-weight items , specific retail stocking and display solutions use floor and air space for ease of placement and high visibility. The company has a strategically located hub in each state - function as centres where ITC and the firms it partners can market FMCG goods. ITC's frequency of retail servicing is one of the highest in the consumer-goods business. It does not need to resort to dumping of stocks at an outlet. This also makes the group manage its working capital better Timing and data-gathering regarding stocks is crucial. ITC has a fully online ERP-based logistics system linking the distributors, godowns, and marketing branches to head office and factories, continuously feeding in data of sales and stock positions across the entire supply chain. This enables to track pipelines and sales in real time and keep control over all elements of the supply chain, be it raw material, packaging material, work-in49
process inventory, or finished goods. To leverage its network and distribution reach, and to centralise the data flow between various divisions, ITC has installed Project Infobahn, a companywide hybrid network using a virtual private network (VPN) through an Internet service provider. ITC is gearing up to take on Hindustan Lever, Nestle, and others in the foods business through the Competitive advantage which will come from distribution strength, servicing of outlets, product quality, relevance, and differentiation. ITC has also got abilities in building consumer brands, in distribution, in unmatched servicing of retail in India to even villages of 2,000 population as well as its ability to deal with agricultural products. The distribution point which was observed was Capital-2 which is a branch of Capital Distributors at Govindpuri. Capital-2 is located at 151, Mangolpur Kalan. The point is handled by Mr. Yogesh Sakhuja There are different types of costs according to ITC: K-1: Costs involved when the products are moved from factory godown to W.D.(e.g. Atta) 2. K-2: Costs involved when the products are moved from factory godown to warehouse service provider 3. K-3: Costs involved when the products are moved from Warehouse service provider to W.D. godown 4. K-4: Costs involved when the products are moved from W.D. to Wholesaler or Retailer 1.
The items, which are sold through this point, are: In Food products, the items are: 1. 2. 3. 4. 5. 6.
Packaged Atta Salt/Spices Biscuits/Pasta Confectionery Processed Foods/Instant Mixes Incense Sticks/Matches/Dhoop
Wholesale Dealer’s Branch Infrastructure
He has rented 2 TATA 407s at the cost of Rs. 20,000 per month per vehicle, which includes the driver’s salary. Generally on a TATA 407, 2 labourers, 1 delivery man and a driver move to supply the goods to various markets.The cost on each labour comes to around Rs. 100/day. 1.
The Supply Man charges Rs. 3500/month.the cost of diesel comes to around Rs.2000/month.
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Then he has also rented 3 Three wheelers for the supply.The cost involved in each 3 wheeler comes to around Rs. 14,000/ month which includes diesel charges and the driver’s salary.In each 3 wheeler, the driver is accompanied by a supply man and a helper. 2.
The point in-charge owns a Mahindra pick-up 4 wheeler for the supply which was bought in 2006 itself at a price of Rs. 4,00,000, out of which Rs. 1,00,000 was done as a down payment.The driver is paid Rs. 5000/month by the distributor.He spends Rs. 12,000 on repairs annually.Then payment for Interest and principal for the loan amount comes to Rs. 10,000/month.Other charges come to around Rs. 20,000/year 3.
Freight Particulars
Van (Tata 407) Van Labour cost Auto Rickshaw Auto Rickshaw Supply Man Tata 407 supply man Mahindra Pickup Supply Man Labour cost
Numbers
@
Total Amount
2 4
20,000 100
40,000 10,400
3 3
14,000 134.6
42,000 10,500
2
134.6
7,000
1
17,666.66
17,666.66
1 1
134.6 100
3,500 2,600
Carrying Capacity 1.
The maximum capacity which a TATA-407 has is 80-100 sacks. of
Atta. 2. 3.
The maximum capacity which a 3-Wheeler has is 20 sacks of Atta. The maximum capacity which a Mahindra Pik-Up has is 40 sacks
of Atta Subsidy Particulars Salesmen Absentee Cover Supervisor
Numbers 13 1 4
Total Amount Rs. 71,500 Rs. 5,500 Rs.22,500
Major Markets covered: The major markets covered by the salesmen and the supply men are PashchimVihar, Rohini, Mangolpuri, Sultanpuri, Nangloi, NihalVihar, Hirankundana(village)
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Competitor’s Distribution System Parle’s
One of the market leaders in biscuits category is Parle. Parle Glucose and Parle Monaco were the first brands of biscuits to be introduced, which later went on to become leading names for great taste and quality. Today, Parle enjoys a 40% share of the total organised biscuit market and a 15% share of the total confectionary market, in India. The Parle Biscuit brands, such as, Parle-G, Monaco and Krackjack and confectionery brands, such as, Melody, Poppins, Mangobite and Kismi, enjoy a strong imagery and appeal amongst consumers. Parle Products has one factory at Mumbai that manufactures biscuits & confectioneries while another factory at Bahadurgarh, in Haryana manufactures biscuits. Apart from this, Parle has manufacturing facilities at Neemrana, in Rajasthan and at Bangalore in Karnataka. •
•
•
•
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The factories at Bahadurgarh and Neemrana are the largest such manufacturing facilites in India. Parle Products also has 14 manufacturing units for biscuits & 5 manufacturing units for confectioneries, on contract. All these factories are located at strategic locations, so as to ensure a constant output & easy distribution. Each factory has state-of-the-art machinery with automatic printing & packaging facilities. •
•
The extensive distribution network, built over the years, is a major strength for Parle Products. Parle biscuits & sweets are available to consumers, even in the most remote places and in the smallest of villages with a population of just 500. Parle has nearly 1,500 wholesalers, catering to 4,25,000 retail outlets directly or indirectly. A two hundred strong dedicated field force services these wholesalers & retailers. Additionally, there are 31 depots and C&F agents supplying goods to the wide distribution network. The Parle marketing philosophy emphasizes catering to the masses. We constantly endeavour at designing products that provide nutrition & fun to the common man. Most Parle offerings are in the low & mid-range price segments. This is based on our cultivated understanding of the Indian consumer psyche. The value-for-money positioning helps generate large sales volumes for the products. However, Parle Products also manufactures a variety of premium products for the up-market, urban consumers. And in this way, caters a range of products to a variety of consumers. The Distribution Point which was studied to understand Parle’s Distribution system was S.R.Enterprises at Pratap nagar,Gurgaon.Its Owner is Mr.Krishan Kumar.
There are 2 types of distributors in the distribution system. One is for the A category products like Parle 100gm,300 gm,400gm,Krack jack 150 gm, Monaco 150 gm, Orange 200 gm, Pineapple 200 gm, Milk Shakti 200 gm, Magix 75 gm etc. Their sales are higher than the B category products. The second one is for the B category products like Parle 19 gm,50 gm, 250 gm, Krackjack 300 gm, Monaco 300 gm,75 gm, Bourbon 100 gm, Milk Shakti 100 gm etc. They deal in biscuits and confectionery items. The Biscuits sold through the distribution point are: 1.Glucose 2. Cream 3. Chocolate Chip 53
4. Marie Choice 5. Krack Jack 6. Monaco 7.Bourbon 8. Milk Shakti 9. Fun Centre 10. Hide & Seek 11. Crunch Munch Under Confectionery segment, the items are: 1. 2. 3. 4. 5. 6. 7.
Mango Bite Poppins Rola-Cola Kismi Toffee Bar Melody Kachche Aam Orangee
Beat
There are around 40 outlets in a beat. There are 7 salesmen.1 Salesman does 6 beats in a week. In one day, 5 beats are covered. The most striking feature about Parle’s distribution system is the Ready Stock system which they do so effectively. The ready stock salesman generally start at 9:30 a.m. in the morning for their respective routes. Per beat around 80% of the outlets are productive. There are two kinds of outlets: High Potential- Where the sales are around 150 cartons in a beat Low Potential- Where the sales are around 50 cartons in a beat
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There are 2 order booking salesmen. They cover 25 outlets in a beat. They cover the wholesalers also. They cover their beats in 3 hours and that is why their supply goes in the second half itself. Particulars
Total
Auto Rickshaw
6
Cycle Rickshaw
2
Salesmen
7
Capacity (per vehicle) 65 Cartons
60 Cartons
-
Total Capacity 390 Cartons
Expense 100 (Driver)
120 Cartons
100 (Diesel) 100 (Driver)
-
100 (Helper) 4000
Total Expense 31,200
10,400
28,000
The bills are cut manually by the distributor himself once the salesmen come back by 3 p.m. to the distribution point. Ready Stock Process • •
•
• •
•
•
• • • •
The ready stock salesman carries the challan and the bill book also. He goes to the outlets and asks the retailers what all products do they want and and which all products are short in quantity. Then as per the the requirements of the retailer, he supplies the products to the immediately from his vehicle and gets the payment . If there is an item to be replaced, he replaces them immediately. He also carries a catalogue of the products in which the product’s photograph is there along with other details. In this way, it becomes easier for the salesmen to convince a retailer about a product. After covering all his outlets, he comes back to the distribution point and delivers all his cash to the distributor and also shows his bill book and the challan to him so that he can know about the quantity of the items sold as well as about the replacements. It is calculated on the basis of last week’s sales and 5% extra is added to . Most of the outlets are close to the distribution point. The ready stock is supplied twice every week to each shop. The salesman also supplies to the canteens of private nursing homes.
Order Booking Salesman When the order booking salesmen go to the outlets, then the maximum credit given to the retailers is of 6 days. The A Grade outlets get a credit of around Rs.1500 and the B & C Grade outlets get a credit of Rs. 600 and that too with a good track record of payment of dues. If the D.S. comes back by 2 p.m. then the supplies are done on the same day otherwise on the next day. •
•
•
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The D.S. does the important markets whose sales are high and the self service outlets. They generally leave for the market from their home and reach the market between 9 & 9:30 a.m. and generally come back by 2 p.m. The D.S. goes to Wholesale market everyday as the sales are high there. One day, he gets the order and also collects his dues and the other day, he collects the payments from the outlets. For the 20-25 outlets in the Sabzi mandi,Sadar bazaar area which are close to the distribution point,the manual rickshaw supplies the products,comes back to the distribution points and again loads and goes to the market. He continues with this process throughout the day as per the requirements. •
•
• •
•
•
Stocks •
15 days of stocks of biscuits and 30 days stock of confectionery are kept.
Britannia’s Distribution system:
It is the largest manufacturer of biscuits in India. Product range includes bakes and cakes. It is the largest company in Indian food processing industry. Four production facilities with over 4367 employees. Extensive distribution system with over 600,000 outlets, making it among the wide spread in the industry. They are exporter of various types of biscuits. This Nusli Wadia controlled company is the market leader in the organized segment of Indian biscuit industry with close to 60% market share. Biscuits are the main revenue earners for BIL (about 85 % of total sales) • • •
•
• •
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The Distribution point which was observed to study Britannia’s distribution system was Universal Agencies in Civil lines, Gurgaon. The Distributor’s name is Mr.Pankaj. It opens at 8:30 in the morning and closes at 7:00 p.m. in the evening. Products: The products which are supplied from the distribution point are: In Biscuits- Milk Bikis, Jim Jam, Time Pass, Pure Magic,Bourbon,50-50, Marie etc. Cakes 2. 3. Cheese-Spread, Slice Dairy Whitener 4. 5. Ghee- Cow, Buffalo 6. Butter-100 gm,50 gm 1.
Salesman There are 2 salesmen. 40 shops are covered in a beat. So, 1 order booking Salesman covers 240 outlets in a week. It takes 6-7 hours for a salesman to cover his beat.70% of the outlets are supplied the very next day. The rest of the outlets are supplied the 2nd day. If the route is small, then the salesman begin at 12:00 p.m., if the route is big, then they begin at 10:15 a.m. The salesman has to come back by 7:00 p.m. whether he finishes his beat or not. Particulars
Total
Auto Rickshaw
3
Capacity (per vehicle) 65 Cartons
Total Capacity 390 Cartons
Expense 150 (Driver)
Total Expense 29,250
125 Supplyman Labour Salesmen
3 2
-
-
100 (Diesel) 2500 5000
Ready stock:- Ready stock goes to the small outlets which want 10-12 varieties. One 3-wheeler carries 40 cartons.10 to 15 shops are covered per trip. In a day, a 3 wheeler makes two trips. Replacement- Unless and until there is a manufacturing defect or a consumer complaint, the products are not replaced. Credit- Credit is given for 6 days. When the retailer pays for the last bill, then only he gets the next supply. The outlets in the Malls are an exception. The outlets which are far of f from the distribution point are not given any credit. Most of the outlets are around 20n kms from the point. In the malls, 2-3 autos carry the supply. There are 12 Key accounts.
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7500 10,000
Stocks For biscuits: - 40-50 days of stocks are kept. For cakes: -30 days of stocks are kept. For ghee: - 2 months of stocks are kept For cheese: - 75 days of stocks are kept For Butter: - 1 month of stocks are kept Supply After the billing is done of the orders, the store-in-charge, gets the products of an outlet packed in a carton and the name of that outlet is written on that carton. This reduces the supply time. This is the striking feature of Britannia’s distribution system. The 1st supply goes at 12:00 p.m. For small shops in areas like Chakarpur, where sales are less, ready stock goes there every 15 days. Wholesalers are supplied twice a week on a phone call also. They maintain a separate replacement copy so that when the next delivery comes in the next time, the product is replaced along with the new supplies. There are 2 copies of it. One stays with the retailer and the other one stays with the delivery man .The delivery man signs on it and takes back t he product to be replaced. When the delivery man reaches an outlet, he simply sees the name of that outlet and picks that carton on which the name of that carton is written. He, then brings the carton to the outlet and takes all the products out of the carton. Then he shows the bill to the retailer. The retailer matches all the items in the bill with the actual products delivered and then signs on it.
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PRIMARY RESEARCH Objective of the Research
To benchmark the services provided by the competition, through a retail research, vis-à-vis those provided by ITC Limited. Research Methodology: • • • •
The survey data was collected through the means of questionnaires. Simple random sampling technique was used .The questionnaire consisted of 15 questions. They were both, close as well as open ended. 58
The questions were pertaining to the experiences of the retailers regarding services provided by ITC and its various competitors. A total of 90 samples were collected over the area of West Delhi and Gurgaon. The samples collected by moving with the D.S. on their beats. The D.S. were from ITC, Britannia, Parle The markets were heterogeneous as samples were taken from areas like Pashchim Vihar as well as from Mangolpuri The samples were later analyzed based on the percentage of responses in the favor of each company (ITC and its competitors). •
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Based on the findings of the survey, a few changes were recommended, few of them later being implemented and analyzed.
Findings Best Merchandisers
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Merchandise
Others 22%
Parle
Britannia
0%
22% Parle
Perfetti
Britannia
0%
ITC Perfetti Others ITC 56%
Best Salesman
Salesman
Perfetti 1%
Others
Parle
11%
22% Parle Britannia ITC
ITC
Perfetti
32% Britannia 34%
Best Delivery Mechanism
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Others
Delivery Mechanism
Others Perfetti 0%
Parle
7%
24% Parle Britannia ITC
ITC
Perfetti
41% Britannia
Others
28%
Best Distributor
Best Distributor
Perfetti 0%
Others
Parle
8%
23% Parle Britannia ITC
ITC
Perfetti
34%
Others Britannia 35%
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Maximum Time Devoted by the salesman in each outlet
Max Time devoted by the salesman
Others Perfetti
Parle
18%
Parle
26%
0%
Britannia ITC
ITC
Perfetti
21%
Others
Britannia 35%
Fastest delivery by a company
Fastest delivery
Others Perfetti 13% 0% ITC
Parle Parle
16%
47%
Britannia ITC Perfetti Others
Britannia 24%
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FUTURE POSITIONING OF ITC
VPN providing SCM, ERP & CRM capability
F A R M E R S
Cigarette Trade Marketing capability
E-choupal rural two-way fulfillment capability
M A R K E T S
Expanded FMCG distribution capability
Brande d Foods
Greeting cards/ stationery
Lifestyle retailing
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Matches & Agarbatti s
CONCLUSION Indian industry needs to transit from relative protection to tomorrow’s global market. That calls for a major change in mindset and skills. A consistent growth rate of 9 to 10 per cent per annum needs to be sustained over many years before millions of our disadvantaged countrymen can hope to gain access to a minimum standard of living and dignified existence. It is impossible to realise such a challenging vision of growth with social equity without fashioning an effective development and growth strategy for rural India. Growth in rural incomes is both a means and an end of India’s economic development. The slowdown of industrial growth has highlighted even more starkly the vital need to sustain rural demand. One of the key objectives of second-generation reforms should be to create a climate that enables the corporate sector to pursue its objective of creating shareholder value more readily by contributing to the prosperity of the Indian farmer. In this context, the criticality of accelerating the reform process cannot be overstated. The fundamental purpose of reform is to create a climate in which investments in India can become productive and internationally competitive. It must create robust market institutions that foster investor confidence, upgrade social and physical infrastructure and mobilize even higher rates of private, public and international savings. Purposeful channelisation of savings would entail a fundamental re-ordering and rationalisation of the terms of tax assignment between the Center and the states to align the structure of responsibility in a manner that promotes fiscal discipline, expands the tax base, and unlocks the potential of a larger Indian common market. The reform process must extend to financial markets, labour markets, environment, public health and education systems, the legal framework and much more. Acceleration of reforms can sustainably come about only through a growing political consensus on the fundamentals of a long-term growth strategy that cuts across ideologies and short-term sectarian interests. The Indian corporate sector bears a critical responsibility, particularly in the context of the internal and external challenges confronting the Indian industry. The priority for Indian industry should be the rapid attainment of international competitiveness by successfully transiting from an era of relative protection to the fully globalised markets of tomorrow. Global competitiveness demands a major change in mindset. It also calls for organisational vitality, backed by substantial investments in modernisation, scaling up and skills upgradation. Such strategic investments would naturally entail gestation drags that would severely test managements for their staying power and commitment to their businesses. Business portfolios would need to be rationalised and restructured for focussed attention, so that the deployment of scarce resources is confined to those areas that best match organisational capability with market
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opportunity. It is, therefore, imperative for business to shed preoccupation with the mere maximisation of tactical financial results, and instead focus on building strategic capabilities. A wholesome balance will have to be struck between the short, medium and long terms.
Frustrations arising from a slow pace of reforms, together with competitive pressures generated by the fast pace of trade liberalisation arising from the WTO time-table are severely testing the resourcefulness of Indian companies and their commitment to the Indian economy. In this context, I would like to draw a distinction between an "Indian’ company and a company operating in India. The difference lies in the depth of commitment to the Indian economy. An ‘Indian’ enterprise would, given its fundamental orientation, favour value chains within India by supporting their competitiveness wherever feasible. On the other hand, any other enterprise would not necessarily demonstrate such a commitment in pursuit of shareholder value. An "Indian’ company, while recognising the need to create a fair reward for shareholders, would go the extra mile in partnership with other participants in the economy to create conductive conditions in which Indian value chains can become internationally competitive. Thus an ‘Indian’ enterprise is borne out by its commitment to the Indian economy rather than by the source of its capital. Anecdotal evidence appears to suggest that hitherto well established manufacturing companies are now increasingly looking for sources of supply from outside India to service the Indian market. This downgrading of focus from "leadership to dealership" does not augur well for the ambitious growth agenda of the Indian economy. "Dealership" will only serve to exploit the Indian market to create economic surpluses for value chains residing outside India. This phenomenon underscores the need for an even closer and deeper spirit of partnership within the Indian economy in shaping and effectively executing the reform agenda, so as to create and capture the lion’s share of value creation within the Indian economy. ITC is inspired by the vision of enlarging its contribution to the Indian economy. It is ITC’s belief that creation of shareholder value provides the only basis for sustainable contribution to the superordinate goal of creating national value. ITC practices this philosophy by not only driving each of the businesses towards international competitiveness, but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part. `e-Choupal’, ITC’s high-potential internet-based intervention in rural India, is a powerful example of the practice of this precept. It has already begun to make a significant contribution towards enhancing farm productivity and rural incomes. ITC’s mission is to enhance the wealth-generating capability of our company. Fundamental to creating such capability is organisational vitality, market-standing and profitability. ITC’s corporate strategy aims at exploiting market opportunities thrown up by the emerging nature of the Indian economy to create multiple centres of growth by harnessing and blending its unique and diverse core competencies residing in its various businesses. Over time, these blended competencies will, in turn, spawn newer capabilities thereby imparting a multiplier effect to its growth strategies.
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