Reach us here - A JST Investments Publication · 2020. 9. 18. · A JST Investments Publication Src – Marketing Weekly Rural and Urban – The 2 sides of a coin called FMCG! Rural

A JST Investments Publication

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Hi Readers,

First of all, a very good morning to you all, it’s been a few months since I wrote.

Without further delay, let’s proceed.

4G, ParleG and FMCG, life is incomplete without these things!

What is FMCG exactly?

FMCG stands for Fast-moving consumer goods also called consumer packaged goods sometimes. It means the goods/products that

are sold quickly and are mostly priced (but not always) at a relatively low cost. Examples include non-durable household goods such

as packaged foods, beverages, toiletries, candies, cosmetics, over-the-counter drugs, dry goods, and other consumables.

From the P.O.V of the consumer, an FCMG product has these characteristics – Frequent purchases, low effort to choose the item

(pre-decided), low prices, short shelf life (means it gets bought quickly), rapid consumption.

From the P.O.V of the company, an FCMG product has these characteristics – High Volumes, Low Margins, Extensive Distribution,

and a High Inventory Turnover.


Src – IBEF


FMCG Sector – History

Between 1950 and 1980, there was a limited investment in the FMCG sector. Local people had lower purchasing power, which meant

that people opted for necessity products rather than premium products. The Indian government was inclined towards favoring the

local shops and retailers.

The period from the 1950’s to the 1980’s did not see much of a growth in this sector owing to the low purchasing power of Indians

and the government pushing for small scale sectors. HUL and Amul were one of the only companies that stuck around and evolved as

market players.


Between 1980 and 1990, people wanted more variety of products which encouraged FMCG companies to increase the availability of

products. FMCG Industry started getting traction and other companies started entering the industry. The media industry in India also

boomed during the same time which gave new companies even more incentive to make their business profitable.

Prior to 1991, when globalization and liberalization occurred in India, western apparel and foreign food products were not available

to local customers. Common people weren’t very aware of brand recognition. After 1991, the FMCG industry was inspired by

international companies which also allowed government intervention to incentivize foreign FMCG companies to operate in India.


The economic reforms of 1991 not only brought a higher number of domestic choices but also imported products. The lowering of

trade barriers encouraged MNC’s to come and invest in India. Rising standards of living coupled with the growing purchasing power

of rural India saw companies introduce products targeting both rural and urban markets. Companies started investing in distribution

networks, products upgrade, as well as new product ranges. As an outcome of increased choices to the consumers and positive

euphoria after liberalization, many of the affluent consumers who always had money but limited choices started splurging.

FMCG Sector – Present

Being the second most populated country in the world, there is no doubt that India should be one of the countries with a pioneering

and growing FMCG market. Apparently, that is indeed what is happening right now and what is more interesting are the products that

have a greater market share.

In the past few years, there are increasing number of initiatives like farm loan waivers, Direct Benefit Transfer (DBT) and

development of infrastructure in rural areas. Under the Union budget 2019-2020, the focus has been shifting towards education,

agriculture, healthcare, infrastructure, tax rebate and micro, small and medium enterprises (Ministry of Micro, Small and Medium

Enterprises).These initiatives are projected to have an impact by increasing the minimum wages of common people, especially in

rural areas. Thus, any increment in income will be directly proportional to demand in FMCG products.

Change in lifestyle and traditional culture is also having a positive impact on the FMCG industry. The population in urban areas is

diverging towards premium products as opposed to essential goods because of the rise in income of the middle-class people. This has

also lead to FMCG companies to rethink strategies as people are willing to pay high prices for premium products.

India’s demographic profile plays a major role in the growth of this sector. Not only is India’s demographic young, but this segment

is also characterized by increased urbanization and higher expenditure. Urban development initiatives by the government, as well as

the increasing middle class of India, has led to an increase in the number of attractive markets in the country. Ernst & Young’s

research on the cities of India highlights the emergence of 30 ‘new wave’ cities such as Jaipur and Surat. Consumption in these cities

is growing at a faster rate than that of many of India’s metros. India’s young population is also characterized by a high degree of

technological awareness. Growing penetration of smartphones and better internet connectivity in India has led to a burgeoning E-

Commerce sector, which has, in turn, helped formalize large sections of the unorganized retail sector.


FMCG – who are the big boys?

In the Indian FMCG landscape, the biggest FMCG players are HUL, Nestle, ITC, Britannia Industries, Marico, Godrej Consumer,

Tata Consumer.

Some terms used in FMCG and what they mean (Click on Hyperlink)

Brand Value Advertising Volume Growth Consumption SSSG

Jugaad Pricing Types Supply Chain Logistics Warehouse

Product Placement Discretionary spending Non-Discretionary

Spending

Vendors/Suppliers Consumer

Producer Shelf Planning Contract

Manufacturing

Wholesalers Equilibrium price

Elasticity of demand Inelastic demand Elastic demand Category management Retailers

Key Performance

Indicators

Stockists & Super

Stockists

Product Flanking Market Share Market leadership

Mass production Law of Demand &

Supply

Complementary and

Substitute Goods

Niche Market Demand Forecasting

RoCE Organic Inorganic FIFO Push Marketing

Pull Marketing Surrogate Marketing LIFO Promotions 7 P‘s of Marketing

BCG Matrix Rural Marketing Co-Branding

How does the FMCG Sector work? Everything you need to know!

You know how they say that everything begins with an Idea? Well, for a FMCG company everything starts with a product!

https://jstinvestments.com/brand-equity-or-brand-value/https://jstinvestments.com/advertising/https://jstinvestments.com/volume-growth/https://jstinvestments.com/consumption/https://jstinvestments.com/sssg-same-store-sales-growth/https://jstinvestments.com/jugaad-indian-innovation/https://jstinvestments.com/pricing-types/https://jstinvestments.com/supply-chain/https://jstinvestments.com/logistics/https://jstinvestments.com/warehouse/https://jstinvestments.com/product-placement/https://jstinvestments.com/discretionary-spending/https://jstinvestments.com/non-discretionary-spending/https://jstinvestments.com/non-discretionary-spending/https://jstinvestments.com/vendors-suppliers/https://jstinvestments.com/consumer/https://jstinvestments.com/producer/https://jstinvestments.com/shelf-planning/https://jstinvestments.com/contract-manufacturing/https://jstinvestments.com/contract-manufacturing/https://jstinvestments.com/wholesalers/https://jstinvestments.com/equilibrium-price/https://jstinvestments.com/elasticity-of-demand/https://jstinvestments.com/inelastic-demand/https://jstinvestments.com/elastic-demand/https://jstinvestments.com/category-management/https://jstinvestments.com/retailers/https://jstinvestments.com/key-performance-indicators/https://jstinvestments.com/key-performance-indicators/https://jstinvestments.com/stockists-super-stockists/https://jstinvestments.com/stockists-super-stockists/https://jstinvestments.com/product-flanking/https://jstinvestments.com/market-share/https://jstinvestments.com/market-leadership/https://jstinvestments.com/mass-production/https://jstinvestments.com/law-of-demand-supply/https://jstinvestments.com/law-of-demand-supply/https://jstinvestments.com/complementary-and-substitute-goods/https://jstinvestments.com/complementary-and-substitute-goods/https://jstinvestments.com/niche-market/https://jstinvestments.com/demand-forecasting/https://jstinvestments.com/roce/https://jstinvestments.com/organic/https://jstinvestments.com/inorganic/https://jstinvestments.com/fifo/https://jstinvestments.com/push-marketing/https://jstinvestments.com/pull-marketing/https://jstinvestments.com/surrogate-marketing/https://jstinvestments.com/lifo/https://jstinvestments.com/promotions/https://jstinvestments.com/7-ps-of-marketing/https://jstinvestments.com/7-ps-of-marketing/https://jstinvestments.com/7-ps-of-marketing/https://jstinvestments.com/bcg-matrix/https://jstinvestments.com/rural-marketing/https://jstinvestments.com/cobranding/


Src – Marketing Weekly

Rural and Urban – The 2 sides of a coin called FMCG!

Rural consumption has increased, led by a combination of increasing income and higher aspiration levels. There is an

increased demand for branded products in rural India.

The rural FMCG market reached US$ 23.63 billion in FY18. The rural FMCG market is expected to grow to US$ 220 billion

by 2025.

Accounting for a revenue share of around 55 percent, the urban segment is the largest contributor to the overall revenue

generated by the FMCG sector in India.

The rural segment is growing at a rapid pace and accounted for a revenue share of 45 percent in the overall revenues recorded

by the FMCG sector in India. FMCG products account for 50 percent of total rural spending.

Rural India is witnessing increased demand for quality goods and services driven by upgraded distribution channels of FMCG

companies. Low penetration levels in the rural market offer room for growth


Update – September 18, 2020, ITC has updated that it has acquired more stake in Delectable Technologies. The second tranche of

shares in start-up Delectable Technologies, amounting to a 20.06 percent stake.

One can clearly see the flurry of deals here in the spices segment – one of the reasons can be that spices are largely localized and

unorganized and now we are seeing the shift!

Why do FMCG companies have very low margins on their products?

Fast-moving consumer goods have generally very low profit margins. Products and therefore sold in large quantities.

Suppose you have an IT company that executes Rs 10000 Cr of contacts each year and earns a 35% operating profit margin. In

FMCG, what happens is the company produces and sells Rs 500 Cr of products with a 5-10% operating profit margin but it does so

40 times. FMCG is all about the churn!

Intermediaries and their earnings in the FMCG Value Chain (Subject to change on the company and the type of products)


Src – Marketing Weekly

What are some ways in FMCG companies influence you to buy their products? Strategies?

Hotel? Trivago

Influencing consumers to buy their products? FMCG Companies

That did look like a bad joke, but it is true, FMCG companies influence your spending habits in a lot of ways. Here are some genius

tricks!


4 soap cases are offered at the price of 3

Freebies are offered – Some plastic utensil-free with a big pack of an FMCG product

Continous advertising – Product is advertised everywhere – TV, Print, Social Media, so the constant bombardment of ads

automatically places the product in your mind and when you see it in real, you would tend to buy it. The best example of this is

Amazon and other online sellers – When you search for a product, and when you close the tab and go to other sites, the same

product advertisement will be shown on all the webpages for you.

Cheaper pricing for bigger products – which influences consumers to buy bigger quantities and spending more. Picture this,

Quaker Oats 1.5 Kg packet on Amazon is for Rs 200 while the 1 Kg packet is for Rs 170.

What are the stages of a FMCG product?

The four stages of a typical fast moving consumer good are:

Introduction into the market: When the product enters the market for the first time. The demand for the product needs to be increased;

this is usually done, by giving the customer some samples so that they can try before they purchase the product. This stage helps the

company to identify potential issues the product might have, from the consumer’s point of view.

Growth Stage: After the product is introduced into the marker the sales increase, people start to buy the product when required, the

public is aware of the features and benefits of the product at this stage.

Maturation stage: Production costs usually reduce at this point as the product would have sold several times during the growth stage.

The price of the product usually drops down and the sales peek at this time. During this stage, competitors introduce their own

products, which have, are of similar characteristics.

Decline Stage: Sales would have dropped down significantly, the price of the product increases, and consumers tend to buy other

products. Getting profits becomes very hard at this stage. The product is then stopped when it reaches this stage.


Various Segments in which Indian FMCG companies operate – Thoughts and much more!

So after reading all the FMCG Annual reports of 2020, their investor presentations and concalls, we have created and bifurcated the

FMCG market into the below segments – (Click on a particular segment to read the commentary, thoughts, etc from the company that

operates in that)

Soaps

Foods

Salt, Pulses and Spices – Khaana Khazaana

Ready to Eat

Cigarettes

Biscuits

Cake, Rusk and Bread

Dairy

Coffee (Link 1 and Link 2)

Mosquito repellants

Hygiene & Personal Care

Noodles

Tea

https://jstinvestments.com/soaps/https://jstinvestments.com/foods/https://jstinvestments.com/salt-pulses-and-spices-khaana-khazaana/https://jstinvestments.com/ready-to-eat/https://jstinvestments.com/cigarettes/https://jstinvestments.com/biscuits/https://jstinvestments.com/cake-rusk-and-bread/https://jstinvestments.com/dairy-business/https://jstinvestments.com/coffee-kaafi-hain/https://saketmehrotra.com/coffee-farm-to-cup/https://jstinvestments.com/mosquito-repellants/https://jstinvestments.com/hygiene-personal-care/https://jstinvestments.com/noodles/https://jstinvestments.com/tea/


Water

Chocolates / Whites & Wafers

Salted Snacks / Snacks / Namkeen

Note – Galaxy Surfactants which supplies performance surfactants and specialty ingredients to major FMCG players said on its

concall also that while some segments such as Personal Hygiene have seen great jumps in volume growths, it goes on to be seen

whether the demand is structural and sustainable!

Free Entertainment from FMCG Companies – AD Wars!

Example of Ad wars here.

Premiumization

This is the best example of Premiumization –

Rs 10 for A Roti

Rs 100 for a flat bread made from the best grains hand tossed and roasted in earthen clay oven!

With the rise in disposable income, mid- and high-income consumers in urban areas have shifted their purchase trend from

essential to premium products.

Premium brands are manufacturing smaller packs of premium products. Example: Dove soap is available in 50g packaging.

Nestle is looking to expand its portfolio in premium durables cereals, pet care, coffee, and skin health accessing the potential

in India.

ITC Sunfeast Dark Fantasy Choco fills are priced at a big premium but they have made a serious dent in the Premium cream

biscuit segment.

Some Great case studies in the FMCG and consumption Sector (Click on hyperlinks to read more)

https://jstinvestments.com/water/https://jstinvestments.com/chocolates-whites-wafers/https://jstinvestments.com/salted-snacks/https://jstinvestments.com/free-entertainment-from-fmcg-companies-ad-and-brand-wars/https://www.forbesindia.com/article/special/meet-the-batman-of-biscuits/62461/1https://www.forbesindia.com/article/special/meet-the-batman-of-biscuits/62461/1


Nestle – Turnaround from Maggi crisis

Tasty Bite Eatables – Turnaround story

Asian Paints- The Brand With Brilliant Audience Connect Through Ads

Asian Paints – Using tech to the fullest

Marico – Product Innovation and Market Leadership (Link 1 and Link 2)

ITC – From cigarettes to FMCG Major

Apple – How it built its brand?

ITC – Making inroads with a great market share in cream-filled premium biscuits

Dabur – How Dabur red became a 1000 Cr+ Brand!

HUL (Leadership, Cost Control, Marketing, Values, Product creation – Covered at the end of the article in detail)

Godrej Consumer (From Soaps to a personal care and Hygiene company)

The Cornitos story: How this man built India’s biggest nachos brand and captured over 60pc of market share

Pidilite Industries – Master of Advertising

Durex – Master of Advertising (Link 1 and Link 2 )

Intel (Intel Inside: Creating A Brand For An Invisible Product)

Rebel Foods – Cloud Kitchen champions and creating a line of 100 Cr + Brands

4 Consumption companies and how they scaled up – Chings, Baggrys, Veeba Foods, and Kent Purifier

Wow! Momo – From a single stall (Thela) to Pan India presence

Rebel Foods – How to build 100 restaurants in 24 months!

Informative videos on the consumer sector (HUL, Pidilite, Barbeque Nation, VIP Industries, Jyothy Labs, and Reliance Retail)

Parle G – How a mass-produced biscuit got the nation together in the pandemic!

Maggi noodles to chyawanprash: What India has been spending on in pandemic!

Healthy Snacks – Too Yumm – How it found its place in a crowded market?

How a raw mango candy (Pulse) made 100 Cr in just 8 months!

Nestle India – Taking a swipe at the Ready to eat (RTE) market

HUL v/s Nirma

Patanjali – How did it grow so fast?

Bira 91 – Story Of Local Crafted Beer Going International

Story Of Prataap Snacks – From A Small Room In Indore To Across India

Pizza Hut Turns 62- Story Of Cheese, Delicious Food & Memories

https://jstinvestments.com/turnaround-from-maggi-crisis/https://www.academia.edu/3252613/Tasty_Bite_Eatables_Ltd_TBEL_https://www.nextbigbrand.in/asian-paints-the-brand-with-brilliant-audience-connect-through-ads/https://cio.economictimes.indiatimes.com/news/strategy-and-management/revealed-how-asian-paints-leveraged-digital-innovations-to-become-customer-centric/60053105https://knowledge.insead.edu/blog/insead-blog/oiling-the-wheels-of-change-in-traditional-business-the-marico-story-11791#:~:text=The%20story%20of%20Marico%20can,addition%20to%20the%20family%20business.&text=It%20took%20three%20years%20before,of%20Bombay%20Oil%20into%20Marico.https://www.valueresearchonline.com/stories/200401/the-story-of-harsh-mariwala-and-marico/https://www.bseindia.com/bseplus/AnnualReport/500875/5008750320.pdfhttps://businessyield.com/brand-stories/how-apple-built-their-brand/#:~:text=Apple%20has%20understood%20exactly%20what's,through%20a%20great%20product%20launching.https://www.forbesindia.com/article/special/meet-the-batman-of-biscuits/62461/1https://www.forbesindia.com/article/work-in-progress/red-alert-how-dabur-red-became-a-%EF%BF%BD1000cr-toothpaste-brand/62061/1https://www.bseindia.com/bseplus/AnnualReport/532424/5324240320.pdfhttps://yourstory.com/smbstory/cornitos-nachos-brand-snacks-food-businesshttps://brandequity.economictimes.indiatimes.com/news/marketing/fevicol-the-gluing-journey/69327544https://www.businessinsider.in/were-sorry-our-products-are-so-good-why-durex-emerges-as-the-king-of-advertising/articleshow/48452640.cmshttps://www.socialsamosa.com/2017/04/content-lessons-durex/https://www.marketingweekly.in/post/intel-inside-creating-a-brand-for-an-invisible-product?utm_campaign=979216ae-fbfa-40f9-95cb-1bb301838be6&utm_source=so&utm_medium=mail&cid=221425f7-e94f-4b36-9798-500c92c2a835https://www.forbesindia.com/article/onlinefirst-brands/rebel-foods-on-cloud-nine/61327/1https://twitter.com/adi2five/status/1264549873438855171https://www.fortuneindia.com/venture/why-less-is-more-for-wow-momo/104344https://twitter.com/adi2five/status/1194889223981035523https://twitter.com/adi2five/status/1274648480896577536https://www.theatlantic.com/international/archive/2020/06/india-biscuits-coronavirus-pandemic-migrant-workers/612619/https://www.business-standard.com/article/economy-policy/here-s-what-indians-have-been-spending-their-cash-on-during-covid-pandemic-120080700115_1.htmlhttps://twitter.com/adi2five/status/1262377568814215173https://twitter.com/adi2five/status/1302814282048917505https://www.forbesindia.com/article/special/can-the-4minute-upma-do-a-2minute-maggi/60389/1http://www.businessworld.in/article/Indian-FMCG-Sector-The-Lull-Won-t-Last-For-Long/24-08-2017-124666/https://walnutfolks.com/patanjali-case-study/https://www.nextbigbrand.in/story-of-local-crafted-beer-going-international-bira-91/https://www.nextbigbrand.in/from-a-small-room-in-indore-to-across-india-story-of-prataap-snacks/https://www.nextbigbrand.in/pizza-hut-turns-62-story-of-cheese-delicious-food-memories/


Kumbh Mela – Not just Spirituality, but also about Brands and Marketing! Link 1, Link 2, and Link 3!

Origins of the 2 Rs shampoo Sachet

Brand – Why does it matter?

A brand is everything, it can make or break everything for a company! Now, when we speak about brands, the conversation is never

complete without Apple and Steve Jobs. Steve Jobs created the world’s most valuable and discussed brand (more important given

how Apple became a Trillion-Dollar Worth company)

Example here

A good brand doesn’t sell products, it sells feelings, experiences and much more than a product!

Sounds BS right? Let me give examples – Disney Sells experience, Paper Boat sells nostalgia and Apple sells aspirations!

Kirana Stores – What are they and why is it the final piece to the FMCG Puzzle?

It can be safe to say that the Kiranas (Local neighborhood stores that are much smaller in size) are the backbone of the FMCG

economy. Kirana stores supply items of daily use such as grocery, tobacco, cleaning items, etc. In other words, these play the role of

modern convenience stores. However, like the big departmental stores or supermarkets, these Kirana shops don’t offer any discounts

on your purchase. These are also easily accessible because the stores are situated in every locality.

Example here

The grocery shops or Kirana stores form the main part of the country’s retail industry. Therefore, its growth and development are

directly proportional to the Indian economy’s growth.

India’s largest share of consumer’s spending budget undoubtedly goes to the chain of Kirana stores because of the versatility of items

that is available at reasonable market prices. Another important point that needs to be mentioned is that Kirana stores pave the way

for small businesses. Here is how the government gets revenue that contributes greatly to the economy.

https://brandequity.economictimes.indiatimes.com/news/marketing/kumbh-holiest-marketing-carnivals-for-big-and-small-brands/67848858https://economictimes.indiatimes.com/news/economy/indicators/kumbh-to-generate-rs-1-2-lakh-crore-revenue-cii/articleshow/67609608.cms?from=mdrhttps://mediasamosa.com/2019/02/14/kumbh-mela-2019-marketing/http://www.businessworld.in/article/Indian-FMCG-Sector-The-Lull-Won-t-Last-For-Long/24-08-2017-124666/https://twitter.com/adi2five/status/1255344484143042561?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1255344863974961153%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2Fhttps://twitter.com/adi2five/status/1211831359137705984?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1211831359137705984%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2F


The Kirana Sector has been long been neglected and touted as a boring business, but then suddenly a few years back everyone from

startups to fintech wanted to tap Kirana shops. This interest became even bigger after India’s most valuable company Reliance

Industries and its iconic Chairman Mukesh Ambani started partnering with Kiranaas for JioMart! Here’s why everyone is taking

Kirana seriously now –

If you aggregate all the Kirana stores across India, they account for over 80% of the overall retail industry in India.

Integration of the Kirana stores into the digital ecosystem of Indian retail? Apart from selling their own wares, Kirana stores

can also double up as the fulfillment and pick-up outlets for Jio Mart as an additional source of revenue. That is where Kirana

stores fit into the scheme of things.

According to Reliance, the big challenge for most of the Kirana outlets is the management of inventory. They either end up

investing too much or too little in inventories and this makes their performance sub-optimal. Reliance proposes to use its M-

Pos to centrally manage inventory for the millions of Kirana stores across India. This would be a great help in a grocery retail

business which is still 90% unorganized.

Facebook estimates that irrespective of the state of the economy, the interface between a customer and the grocery story is

inevitable. Facebook wants to use the ubiquitous WhatsApp network owned by them to connect customers and shop owners

and then ride the Reliance Network for the fulfillment and the execution of the order.

The Reliance digital network will be used to onboard 30 million Kirana Stores across India and integrate and optimize them

through centralized inventory management. Facebook will then leverage the viral power of FB and WhatsApp to help

monetize the experience. How this arrangement actually fructifies is something we will know in the months to come.

You know what they say old is Gold!

Amul – the Big Daddy of the FMCG Sector!

Click here

E-Commerce – The prodigal son of the FMCG Sector?

E-commerce is not something that is taken lightly by any of the FMCG companies. Just read any annual report and the word is

featured a lot of times. But why is that so?

https://twitter.com/adi2five/status/1299613278314790912?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1299613278314790912%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2F


India’s increasing internet penetration and rising digital maturity along with developing infrastructure has helped boost online

transactions

The online FMCG market is forecast to reach US$ 45 billion in 2020 from US$ 20 billion in 2017, backed by growth in online

users from 90 million in 2017 to 200 million in 2020E.

Around 72 percent of Indian consumers are most likely to shop online locally for premium products.

The Indian online grocery market is estimated to exceed sales of about Rs 22,500 crore (US$ 3.19 billion) in 2020, a

significant jump of 76 percent over the previous year.

It is estimated that 40 percent of all FMCG purchases in India will be online by 2020, thereby making it a US$ 5-6 billion

business opportunity.

Packaging – Joh Dikhta hain who bikta hain!

Be it a big image or a big text, or color, people should know exactly what it is that you are selling, in a glance and that’s where

Packaging comes in!

People trust a brand when they see more of its products on the shelf. If you have a range of products, ensure that there is enough

similarity between them, so that one can recollect and find familiarity. It can be a constant color or a big brand name or even a

mascot!

When you are just launching a new product, it might be wise to spend a little more time on being different – different in shape,

format, form or design. Once you have grabbed eyeballs in the initial stage and garnered a sizeable following, you may switch to a

more traditional format that will also help bring your costs down

FMCG – Growth Driver

Favorable demographics. According to CRISIL, as many as 90% of the Indian population will be below the age of 60 by the

calendar year 2020 and 64% of them form a part of the working population (in the age bracket of 15 and 59 years). In

comparison, the U.S., China, and Brazil are expected to only have 77%, 83%, and 86% of their population below the age of

60.


Urbanization. Urbanization is one of India’s most important economic growth drivers as this leads to substantial investments

in infrastructure development, which, in turn, lead to job creation, development of modern consumer services, and increased

ability to mobilize savings. The share of the urban population in the total population has been consistently rising over the years

and stood at about 30.9% in 2010 and is expected to reach 37.4% by 2025 thereby increasing demand.

Creativity by FMCG Companies!

Example 1

Example 2

Seeing the creativity by FMCG companies, i got inspired too 😛

Example 3

Innovation by FMCG Companies

Example 1

Example 2

FMCG companies are increasingly looking to startups to pivot and increase market share in categories!

Example

More such examples include Pidilite and Pepperfry, Marico and Beardo and so on!

Private Labels – Threat to FMCG Companies?

https://twitter.com/adi2five/status/1300407357101322240?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1300407357101322240%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2Fhttps://twitter.com/adi2five/status/1301044114201260034?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1301044114201260034%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2Fhttps://twitter.com/adi2five/status/1270572223020109824?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1270572223020109824%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2Fhttps://twitter.com/adi2five/status/1284334126590341125?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1284334126590341125%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2Fhttps://twitter.com/adi2five/status/1257850262594748423?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1257850262594748423%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2Fhttps://twitter.com/adi2five/status/1291584511340249090?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1291584511340249090%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2F


Private labels have had a strong presence in developed countries for many years. Now the developing economies are catching up and

India is no exception.

Why Private Labels?

For retailers, it is difficult to gain much competitive advantage through merchandise because competitors can also purchase and sell

the same popular brands. Hence, many organized retailers have taken to developing private labels – which help eliminate small and

local competitors. It offers an opportunity for retailers to compete on price against other branded products and makes a significant

contribution to profitability when measured in terms of sales. Thus, through private labels or in-house brands retailers are able to

offer customers variety, quality, and affordable prices – all of which can lead to an increase in profit margins.

In India, major retailers who have adopted the private label model include – Dmart, Amazon, Grofers, Flipkart, Westside, Globus,

Shopper’s Stop, Pantaloons India, and many more!

Purpose of Private Labels?

Exclusivity and differentiation to retailers.

Retailers are spurred to launch private labels due to the low penetration of most product categories in India.

To leverage the supply chain efficiencies.

Private labels can cut down on intermediaries.

Curtailing cost.

Huge margins to retailers.

More discounts to customers

Advantages of private labels

A poor private label can chase a customer away as much as a strong label can build loyalty.

Private-label products can reduce a retailer’s expenses because they are often cheaper for stores to buy or manufacture than

national brands.


Private labels and Manufacturers – Yeh Bandhan to Pyar ka Bandhan hai! (This bond is of love)

Retailers need to control private labels profitably without damaging their own business. The way forward is a cooperation between

brands and retailers. Private Label encourages both brand owners and retailers to reinvent themselves continually. By making use of

mega trends, shopper insight, and value innovation, all parties can add value to their businesses. Sometimes it is not surprising to see

private Labels outperforming Manufacturer Brands also!

Threat to Retailers

Retailers always want their private label brands should get more prominence than other brands. So, they typically give more

prominent display to their own brands and make sure that it is well-stocked.

Retailers are promoting their private label brands very aggressively. They are building better quality into their store brands and

are emphasizing attractive packaging. Some retailers are even advertising aggressively.

The gradual importance of private label brands is not the only factor weakening the national brands. Most of the consumers in

the age of recession are price-sensitive. In general, private label brands have a lower price than established brands. So, price-

sensitive consumers prefer to go for private label brands.

Competing manufacturers and national retailers copy and duplicate the qualities of the best brands. Availability of coupons,

discounts, and price specials has also made consumers highly price-sensitive

Example

FY20 Roundup of the whole FMCG Sector!

Annual report takeaways of all FMCG Companies – Here

The FMCG sector at a snapshot!

https://twitter.com/adi2five/status/1271318722641137664?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1271319746969890823%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2Fhttps://jstinvestments.com/fy20/


Advertising


What does a good FMCG company look like?

If you had read the previous articles on Banking, NBFC, and Gold Financing, we chose the best companies or the market leader. We

chose Kotak and HDFC Bank in Banking, Bajaj Finance in NBFC, and Manappuram in Gold Finance, we will do the same here.

Hindustan Unilever is by far the best FMCG company in terms of business and management.

Example

Few Indians have heard of Hindustan Unilever Limited (HUL). But they are intimate with the brands it sells. To name a few:

Lifebuoy, Dove, Clinic Plus, Ponds, Lakme, Closeup, Surf Excel, Vim, Brooke Bond, Bru, Kwality Wall’s, Kissan, and, as of 2020,

Horlicks. Nine out of ten Indian households use an HUL product every month. Forget Google and Facebook, more Indians use HUL

products than those who own a television, those who vote, or even those who have running water or electricity.

In 1958, HUL was already one of the biggest companies in India. It made a net profit of Rs 1 Cr and in 2019 it made a net profit of Rs

6080 Cr, a CAGR of 15%.

In this period, the Indian Economy grew 1400 times but HUL grew 6000 times!

Fun Facts on HUL!

Fun Fact 1 | Fun Fact 2

Thoughts –

In a chairman’s speech, Harish Manwani had listed six principles of the HUL way of people management – get them early, train them

well, build careers, encourage diversity, reward performance, and instill values.

Stay at Home Economy (Thoughts of the HUL Chairman Mr Sanjiv Mehta in an interview with CNBC TV 18)

https://twitter.com/adi2five/status/1209312269915566081?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1209312269915566081%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2Fhttps://twitter.com/adi2five/status/1209312269915566081?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1209312269915566081%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2Fhttps://twitter.com/adi2five/status/1231796326167277568?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1231796326167277568%7Ctwgr%5Eshare_3&ref_url=https%3A%2F%2Fjstinvestments.com%2Ffmcg-everything-you-need-to-know-about-this-sector-and-the-fy20-roundup-for-the-listed-companies%2F


Home Economy has grown. It means home cooking, home entertainment, home exercise, and work from home. This may not

continue once the vaccine comes. Let’s not write the obituary yet for work from the office yet. A hybrid model seems.

During Y2K crisis gave massive filip to Indian IT industry, During SARS, massive filip was to Alibaba.And this time also it is a

opportunity to digitize whole nation.

The Nestle India MD Suresh Narayanan also spoke to CNBC TV 18 on 4 consumer trends that have emerged post-COVID here.

Value Seeking Products

In crises like these, customers gravitate towards value-based volume shopping. Seeing that lower-priced unit growing at a much faster

pace.

Clean Living

Clean has become a cult during the crisis. For cleaning, cleansing, clean living. So products and services in this segment are growing

faster. As a FMCG company, HUL was spending crores each year to inculcate such cleanliness habits but the crisis has brought about

all these habits to be adopted widely.

Sanitizer

Very very small market. Very few players like HUL were there before. 150x size has increased compared to before. It is not going to

be at this level, things become more normal, 15-20% of this size will remain. It takes 60 days to inculcate a habit.

On the contrary, CNBC TV 18 also did a video here which was quite interesting.

Ready to Eat – Ready to cook category

https://www.cnbctv18.com/business/nestle-india-md-narayanan-on-4-consumer-trends-that-have-emerged-post-covid-6233721.htmhttps://www.cnbctv18.com/business/from-rs-100-crore-to-rs-30000-crore-the-rise-of-the-sanitiser-market-in-india-6687851.htm


Social eating and drinking not going to go out of flavor. I don’t think again it will continue at this level, but fairly people have

developed new habits and tastes and got new skills. So ppl will experiment at home, which they didn’t earlier, some moderation will

be there.

Health & Wellness space

HUL GSK merger, a marriage made in heaven. India’s biggest FMCG company joins hand to lift Indian Nutrition needs! Build

categories, distribution, and nourishing a billion lives!

Initial plan is to integrate the business first, largest deal in M&A.

Beauty & Personal Care

There’s no one who doesn’t want to look and feel good, category will bounce back.

How do you tackle losses and come out stronger? Some old Fashioned Indian Jugaad

Both Vanaspati and soaps were subject to price control in the 1960s and 1970s, and in the early 1970s HUL stated making cash losses

in India. What followed was the adoption of a very Indian entrepreneurial mentality of flexibility-cum-resourcefulness that persists in

the HUL DNA even today. HUL realized that the imported oil it was using for soap –making was a drain on India’s foreign

exchange reserves, which the government of the day considered a precious commodity. So HUL scientists devised soap that

substituted locally grown castor oil and rice bran oil for imported oil. HUL chairman T. Thomas then went to meet the chemicals

minister D.K. Baruah to request removal of price control in exchange for HUL saving precious foreign currency. The Congress

patrician told him that nobody used soap, and as evidence claimed that he himself got massaged with olive oil and a hot towel every

day!

System of Meritocracy

In 2009 when Nitin Paranjpe, currently COO of Unilever, was CEO of HUL, the company recorded one of its worst-ever years.

Unilever declared a small bonus for the South Asia region overall, but Nitin felt that since the other countries in the region —


Pakistan, Bangladesh and Sri Lanka — had done well it was only fair that India forgo its bonus entirely so that the others got a

substantial amount.

He gingerly raised the idea of a zero bonus with the management committee. He recalls how one director later told him he was

offended that Nitin had even thought he had to ask such a question. Poor performance, the director said, merits no bonus and it would

be a shame if the company accepted any bonus in a year like this. Nitin himself, unlike the rest of HUL, was part of a larger Unilever

bonus pool.

Since Unilever had done well that year he was entitled to a bonus. But his conscience didn’t allow him to take a bonus when his team

got none. He wrote to his bosses in Unilever saying that he would like to forgo the bonus. After a few days of radio silence, his boss

got back to him saying that while he appreciated the gesture, Nitin would have to accept the bonus since the principle of bonus works

both ways. There could be years in which his team would earn a big bonus and he may not.

How far would a FMCG company go to improve its value chain? HUL – “As Far as possible”

In 1979, when HUL faced a problem of poor milk yields in the catchment of its ghee and milk powder factory in Etah, Uttar Pradesh

(UP), the then chairman T. Thomas started sending management trainees to stay for eight weeks in a village in Etah district. They

were to instil confidence among villagers to adopt artificial insemination of cows to improve the milk yield.

In January 2000, just after I (Sudhir Sitapati Sir) joined HUL, my batch mate Shobhit and I were sent for our Etah stint. Our hosts

were a poor farming family in Bakrai village close to the tehsil headquarter Patiyali, the birthplace of the thirteenth-century poet

Arnie Khusrau.

My target was to build a road in the village and to inseminate seventy-eight cows. We slept on a charpai inside a mud hut, performed

our morning ablutions in the field outside, had a quick meal of potatoes and roti at 8 a.m. and then got on to a hike containing

cryogenic cans with sperms.

Cows and milk are central to the agrarian economy of UP. To improve the milk yield of cows, the government was subsidizing the

artificial insemination of cows with sperm from higher yielding varieties. HUL was supporting the cause. We roamed around villages


trying to identify cows in heat. When we saw cows emitting a characteristic white discharge, we would meet the farmer and convince

him of the merits of paying us Rs 10 to artificially inseminate his cow.

Milk yield, we would argue, would go up from 4 litres to 10 litres if we crossed the Indian Cow with a Jersey bull. After observing

my boss Gautam do this a couple of times, I had a go at artificial insemination: Once I got over the squeamishness, it wasn’t a very

tough task. I can honestly say when asked in truth-or-dare sessions that I lost my virginity to a cow.

After a hard day’s work, we would go back to our village. The Ganga was only a few kilometres away and occasionally we would

saunter along its bank, take a quick dip in the icy-cold water and then smoke a chillum with the sadhus on the bank to warm

ourselves. On most days we would simply get back to our adopted home, have yet another meal of roti and potato, warm ourselves by

a fire and shut our eyes shortly after dusk. While the first few days felt alien, we adjusted quickly and started enjoying our rural life.

Maybe it is nostalgia, but I don’t remember being healthier and happier than I was during our time there.

Praan Jaaye par Sales na Jaaye! (Life can go but not sales)

#1 – Swarnim Bharadwaj, global brand director on Lux, recalls how a graduate from the Faculty of Management Studies, Delhi,

famously said in his recruitment interview that the smallest city he had been to in India was .. . Noida! He was selected but promptly

dispatched to train in Bihar. The Delhi boy reported in at the East branch office in Calcutta and the first thing he asked was where the

nearest jewellery store was. When they asked why, the Delhi boy’s answer had the whole office in splits. He had been told by friends

and family that eligible bachelors like him were often kidnapped in Bihar and forcibly married, so he wanted to wear a ring and asked

Swarnim to spread the word that he was well and truly married. While his stint had many memorable experiences, the joy of a rural

wedding wasn’t going to be one of them.

Are the best executives minted in High rise buildings and AC cabins? No, they are minted on the field!

Dinesh Biddappa, a former HR director at HUL, recalls how when he was the HR manager in the Orai factory in UP, freshly minted

management trainees had to go through the grind. The factory had just been set up. The temperature was 45 degrees-plus, the guest

house was a ramshackle shed and food was insipid. But so used to hardships were the trainees that when he asked his HR trainee

Piyush Mehta for suggestions to improve living conditions, Piyush merely said that everything was excellent, just that at night rats

would come and nibble his ear. Was there any solution to this minor inconvenience?


The never give up spirit and giving it one more push!

#1 – S. Ravindranath, a former director of Foods and Refreshments, talks about the time that Unilever decided to exit coffee globally

and the India division was given a closure notice. The decision was based on an unarguable business rationale — the business was too

small and intensive and Nestle was too formidable a competitor. However, the Bru team in India was unwilling to give up. They

asked for a year to prove that they could create a profitable model. They created manufacturing capacity with minimal capital

expenditure by challenging the output of the existing plant. They changed the advertising agency and relaunched the brand. As a

result, the business was able to grow much faster at a much lower cost. Today Bru is one of HUL’s most successful brands

#2 – Examples of entrepreneurial professionalism do not extend only to big projects like excise duty reduction or shutting businesses.

Nikhil Jacob, currently the general manager for coffee, recalls how HUL had planned to run a promotion on its products with the

chips brand Lays in Bihar. The promotion was part of a shopping festival that many modern retailers call ‘Big Day’ and were

extremely time-sensitive. A delay would mean a loss in market share during these high peak days. Despite assurances, there was a

slip in logistics and the team had almost given up on the offer. The sales manager of Bihar then messaged the team that she was going

to buy Lays packets from the market to ensure that the promotion ran on time. The only problem was that in the middle of the night

the only shops open were canteens in railway stations. No matter. The entire Bihar team was mobilized to wake up, go to the railway

station closest to them, pick up as many packets of Lays as possible and come to Patna by 9 a.m. Some traveled as many as eight

hours to get there on time. The promotion went off smoothly until the actual stocks of Lays arrived!

Talk about extra mile for customer satisfaction!

Not Just HUL Alumni, their Kids are also rockstars!

What makes a company great? Culture, Culture, Culture

Not just HUL alumni, HUL kids too become CEOs very often. Rohit Ohri, CEO of the advertising agency FCBUIka, shares a story

about his father, Gotam Ohri, a chemical engineer who worked in the Calcutta HUL factory as a department head, which illustrates

the sense of ownership that company employees have. Once there was a surprise visit to the factory by the chairman T.Thomas. Ohri

Sr., who was obsessed with factory floor cleanliness, asked a newly minted management trainee from a premier MBA institute to join


the operations to clean the floor. Sensing his hesitation, Ohri Sr picked up a mop and started cleaning the floor himself. The message

was clear to all: the factory was their karmabhoomi and all jobs were equally important here.

Creation of Rin, one of the most successful Brands of HUL

B.A. Vatsal had joined HUL as a management trainee in 1964 when he returned to India, cutting short his studies on scholarship at

Stanford, to take care of his parents. An outstanding product of Elphinstone College, Vatsal was regarded as one of the finest minds

in HUL history and seen as someone with a very bright future. It was he who conceived the idea of providing the housewife with the

benefits of NSD in a direct application product. The technical process was convoluted and had not been attempted anywhere else. The

English marketing director (David Webb) was convinced that it was a great step backwards, after the many years of hard work to get

housewives to switch over to solution washing.

Vatsal persisted, and pestered Webb, until Webb finally agreed to allow him to market test Rin NSD bar to prove that it would fail.

And so it was that in the late 1960s, a market test was actioned in Bangalore. It proved an outstanding success and the product was

launched nationally in 1971. Vatsal passed away prematurely in 1974, but his creation Rin Bar is one of the most famous brands in

India today.)

Unchanging Value System

The most important ingredient is old-fashioned goodness. Rohit Kale, CEO of the storied headhunting firm Spencer Stuart, told me

that they only use HUL products in his house. His father had passed away while still a young manager at HUL. The company gave

his mother a job and paid every rupee of his education until the day he got his first job.

Designations are not for show

In 1997, Nitin Paranjpe was promoted to branch manager of the Madras branch, HUL’s largest region. He had been a highly

successful brand manager on Vim, launching the famous Vim Bar, and was given a job usually reserved for much more senior

managers.


Shortly after he took over, retailers in Kerala started agitating for higher margins from consumer goods companies. Thinking that if

the largest company caved in, the rest would follow, the retailers announced a boycott of HUL products.

Nitin recalls how Keki Dadiseth, then chairman, called him and said, “Nitin, I’m not calling to put you under any pressure but to let

you know that you are the man on the ground. No one will double-guess you and you will call the shots. You take any decision and

we will back you to the hilt.” Despite having almost no sales for several months, Nitin and HUL stuck to their guns. Nitin says, ‘It’s

easy to talk values when there is nothing at stake, but sticking to it when the business is under deep decline due to a state not

functioning is unique to HUL.’

Austerity in the company’s DNA – the Two wallet Rule!

Hemant Bakshi, a former director at HUL, recalls the `two-wallet’ rule his boss, a sales officer called Kalsi, gave him when he was a

management trainee. The rule was that anything spent for the company had to be separate from personal spending. In those days,

employees were given cash advances, which they would then settle with the company by submitting an expense statement. Two

wallets were required, one for personal spending and one for company spending. Not only that, the second wallet had at all times to

contain the exact amount of the advance less the amount submitted in the expense statements. The company wallet would be

randomly checked and if the amount was less than what it should be the person would be summarily dismissed.

Fixing the Price – A twist

Fix the price and the profit you want to make; the cost is the target you have to achieve.

It is a disruptive thought. Most companies assume the costs and then fix one of the other two — price or profits. Multinationals tend

to fix the profit they want and price accordingly, and local competitors fix a price and take a reduction on profits. HUL alone, in my

knowledge, fixes profit and price and treats cost as a variable.

Price and Volumes

Price is the biggest driver of volumes and volumes are the biggest driver of cost reduction. By fixing Prices low, you drive volumes

up and cost down. Why do volumes drive costs down? All costs are either variable, like raw materials and power, or fixed, like rent,


advertising, salaries of office staff, etc. If the fixed costs are 20 per cent of revenue and revenue doubles, the fixed costs come down

to 10 per cent of revenue. This is called leverage, where costs come down not because you cut it, but because the business becomes

bigger. More interestingly, even those that are considered variable costs are not fully variable and have large fixed components to

them. Take raw material costs, clearly a variable cost. But the more volume you produce, the less the wastage in factories and the

better your negotiation power. The more the volumes, the less the chances of trucks going half full or energy being wasted in factory

shutdowns. So in reality you get leverage not just on fixed costs but even on what are considered variable costs.

Supply Thoughts

Samir Jain, currently CEO of Bunge, was the chief packaging buyer at HUL when he realized two things. Every factory was buying

cardboard boxes (CLD, in HUL jargon) from three or four suppliers. Supply security was the reason. Samir realized that having

several suppliers makes you less important to each supplier thereby affecting supply security. It is the chicken-and-egg story. The

more you push for supply security by fragmenting the less likely you are to achieve it. Instead, if you become crucial to the business

of a single supplier, you not only reduce costs but also ensure that it will do its best to ensure supplier security. Each region was given

one supplier to work with, with a supplier from another region as the backup. Costs went down and supply security did indeed go up.

Products

Most consumers want benefits from products at the cheapest cost. A vocal few, usually higher income, demand specific ingredients.

There is no value judgement here and companies should service the needs of their consumers in the best way. HUL being a

predominantly mass marketing company, it usually designs for output and not input.

The Great Indian summer Internship

Companies body shop candidates for menial work and Candidates do Summer Internships for getting an internship experience letter –

But not HUL!

Many companies treat summer training as a PR exercise, where trainees are given a good time but are not exposed to the inner

workings of the company. HUL takes its summer internship programme very seriously. Perhaps it is the middle-class way of

extracting the most from every employee even if they are around only for eight weeks. Each trainee is given a one-page project with a


sharp problem to solve. Solving the problem must involve meeting consumers and customers and accessing some of HUL’s key

business databases. Along with doing the project, trainees help their bosses with day-to-day operational work. The trainees are mainly

based in Mumbai and live in a fully furnished HUI, guest house and usually form lifelong bonds of friendship

India – Several countries within one!

It is without a doubt we can say that India is a combination of many tastes, habits, values and preferences.

This story tell the same –

Consider the debate on ice cream versus frozen foods. Ice cream in most countries is defined in a way that is neutral to the type of fat

used, milk or vegetable. In India regulation states that ice cream can only be called so if it is made from milk fat; if it is made from

vegetable fat, it is called frozen dessert. HUL makes both, because it understands each gives a different benefit. Milk fat has a

distinctive milky note which people in the northern and western parts of the country prefer. Vegetables is cheaper, carries flavour

better, is on balance healthier (less cholesterol and saturated fat) and is preferred in the eastern and southern parts of the country The

important thing is that HUL designs for benefits that consumers seek and not ingredients that consumers do not really care about.

Innovative ways to keep RM costs at bay

The oil buying process is another example of output-focused design. Soap, which is primarily made from oil, must lather but it also

needs certain hardness in structure. Coconut oil gives great lather but is very soft. PFAD, a fractionate of palm oil, is hard but doesn’t

lather as well. Palm kernel oil (PKO) does both moderately. A soap formulation could be 20 per cent coconut oil, 30 per cent palm

kernel and 50 per cent PFAD. But what does one do when coconut prices shoot through the roof? Can you replace it with some PKO

and compensate for the reduced softness by also reducing PFAD? The HUL way is to specify certain lather and hardness value for the

soap and continuously change formulations so that the cheapest formulation at any given time that meets both criteria is in the

market.

Finding value where others don’t!


There is a lot of raw material that gets wasted that consumers often find value in. Certain parts of plucked tea (the stems and large

leaves) contain very little ‘teaness’ (a combination of caffeine, polyphenols, and volatile flavors) and look very different from the rest

of the tea leaf. Most tea manufacturers throw this away as fodder. But they do contain some ‘tea’. So HUL devised a way to make

them into small pellets and mix these with very good quality tea to get an average quality tea that had some consumer value.

This reminds me of a story my dad told me. A Kirana Shop owner in their village used to even sell the gunny bags back to the

wholesalers for 2-3 Rs! No Doubt one should see value in everything and do zero wastage!

Supply Chain

A Lean supply chain is needed that does three things – it extracts more from fixed capital, creatively reduces operating costs, and

sells close to the factory.

HUL is a master of extracting more from fixed capital. Every manufacturing process is thoroughly studied and de-bottlenecked to

increase the rated capacity. Pradeep Banerjee, executive director supply chain and a company veteran of forty years, has a 50:25:25

rule when it comes to capital expenses: 50 percent of new capacity must come from de-bottlenecking, 25 percent from efficiencies

like factory worker productivity, and only 25 percent from new capital.

Obsessions with low costs! The results are ROCEs of 93%+!

This obsession with low capital spends is why HUL’s ROCE at 93% is the highest in the industry. Arun Adhikari, a former managing

director at HUL, believes that ‘respect for money’ is a key-value system in HUL and it is best evinced by its attitude to capital

expenditure. He recalls a story of when his friend Durgesh Mehta was the branch accountant at the Calcutta branch. Durgesh wanted

a Godrej Store well cupboard in his room and made a capital expenditure proposal citing the security of crucial financial documents

as the reason. The reply from the CAPEX approval authority was that the proposal had been partly approved. The request for the

cupboard was disallowed but an upgrade of the existing lock to the door to his room was approved. A more secure lock to the room

would surely solve the problem of theft of important documents!

Cost Controls while keeping the end product same!


Categories can often get locked into high-priced raw materials if their formulations are input- and not output-focused. Imagine a

master chef who has a recipe for his secret masala: it contains turmeric from Meghalaya, chilies fresh from Mexico, coarse sea salt,

and saffron from Spain. Tastes wonderful but costs the earth, especially when the rupee depreciates versus the euro.

There is another approach to deconstructing this masala:a certain shade of yellow that is measurable, aromas that can be measured on

an olfactometer, a certain combination of the five basic tastes of salt, sweet, sour, umami, and bitter, a certain average particle size

and a certain nutrition profile. Once you know these parameters you can formulate for these output variables. Turmeric from Greece

can be replaced by Salem turmeric and you could add deflavoured mango powder to get the same shade of yellow. The possibilities

are endless, creative, and cheap. To hell with the food snobs.

Price per gram debate

Logically the price per kilo of a small pack should be more than the price per kilo of a large pack. But the truth is that the consumers

of small packs are generally much poorer than those of medium-size or large packs. So from a consumer point of view, it is better to

discount the small packs, but ideally not by more than 15 to 20% from the core pack.

Sales is not the true Key performance Indicator! Surprising but true!

DMart, India’s most valuable retailer has several HUL alumni, including its CEO, Neville Noronha, running it. DMart store managers

don’t have a sales target for their store; instead they have a target for on-shelf availability and pilferage. These are the only input

variables they control.

Working Capital Obsession

HUL’s obsession with working capital is legendary. Working capital includes credit and stocks in hands and it is famously (though

not accurately) said in corporate circles that HUL operates with negative working capital. When Rohit Jawa was training in

Shahjahanpur, near Bareilly, he recalls, he got information that a distributor’s cheque had bounced meant unpaid company working

capital was lying with the distributor. Jawa finished his dinner and rode his bike through dacoit-infested areas to the distributor’s

house. Knocking on the door at 10 p.m., he demanded and got the cashback.


Thinking out of the Box

P. Govind Rajan, who was a brand manager on Wheel detergent, recalls that while competing with Nirma prices were fixed and

product quality was also fixed. To make margins HUL had to really think out of the box. They realized that the cost component in

Wheel was in transporting salt (yes, cheaper detergents use salt as filler) across the country. So they set up a large Wheel factory right

next to the salt mines in Gujarat with a pipe directly going from the mines to the factory.

Why Paying More Saves Cost: The War on Overheads

In March 2018 an Economic Times article said that among Indian companies HUL had the largest number of people earning more

than Rs 1 Cr a year. In its most recent annual report, HUL declared 143 people earning over Rs 1 crore. This is about 10 percent of

the management force, which almost certainly is at the top end of the industry.

How does this statistic of highly paid executives reconcile with the fact that at 4 percent, HUL’s employee costs are the lowest in the

industry?

Sanjeev Mehta’s mantra for people costs is ‘pay six people the salary of eight people and get them to do the job of ten people’

There are several ways HUL does this. It recruits the best people from campuses, gives them big responsibilities, and most

importantly rates them as far as possible on output rather than input metrics.

Giving Portfolios to great performing managers

Nitin Paranjpe, currently COO of Unilever and is one of HUL’s most successful products. After a spell as an ASM in UP, Nitin was

made brand manager of the Vim scouring powder. During his long and successful stint, he was identified as a high-potential talent.

He was sent back as the branch manager for the South branch, where he handled a major retailer strike in Kerala. He was then made a

member of Project Millennium, a high-profile project to reimagine HUL for the twenty-first century. From here he moved for a short

London assignment as executive assistant to the Unilever chairman and then came back to head the homecare (detergents and dish-

wash) business in India for several years.


He then got promoted to Home and Personal Care director before being promoted to CEO HUL. This is a classic case of adding

portfolio to high performing managers, ensuring at the same time continuity, fresh challenges, and career progression.

After an extremely impactful tenure as CEO, Nitin was promoted to the Unilever Executive as president for Home Care globally

followed by a short stint as president Foods and Refreshments and now COO.

All of HUL’s career planning principles are at work here — early field stint, high potential identification at an early but not infant

stage of one’s career, depth in a business (homecare) with periodic additional responsibilities, followed by senior management

breadth.

Kindness First

Anandi Shankar, currently general manager HR for GSK’s proposed merger with HUL, was till recently heading sales HR. In 2018 a

company sales officer was found guilty of financial embezzlement on a Friday and asked to leave that very day. He requested for

permission to continue for one more day so that he could come in and hand over his belongings and make a full and final settlement

with the company. Unfortunately, on the weekend, he met with a serious accident and was hospitalized. Unsure what to do, Anandi

called her boss, the HR director Dinesh Biddappa, who said that an `employee is our employee till he is our employee’. HUL moved

him to a better hospital, flew down his family, and stationed someone in the hospital throughout the period. Sadly, he didn’t make it

and HUL managed his funeral expenses and expedited the entire benefits he would have been entitled to!

An Institution (A great one) is built brick by brick, with ‘values’ being the cement that binds it together.

Why Marketing Is Business

‘We are essentially a marketing company. Marketing to us is a total operation, more than mere selling. It has a wide band of activity,

from product development to consumer satisfaction – ‘P.L.Tandon, HUL’s first Indian chairman, 1960

Dr. Ganguly was a legend not just in HUL but in corporate India. He was a Padma Vibhushan, a Rajya Sabha member, and the

winner of multiple lifetime achievement awards. He spoke from the heart, with a sprinkling of wit. He recounted how once in the

1980s, a cabinet secretary asked him patronizingly, “Well, Mr. Ganguly, still selling soap?” Without missing a beat Mr. Ganguly


replied, “Well Mr. Cabinet Secretary, still having a bath?” Dr. Ganguly’s class had a simple message for marketers. The essential

ingredient to succeed in marketing in particular and life, in general, is to move out of one’s comfort zone, from problems using

Microsoft Excel in air-conditioned office rooms into the heat, grime, and dust of rural India. Depth of experience, not problem-

solving ability alone, was the heart of marketing

Branding

Branding is very important. But branding is not whether consumers recognize the brand logo. Quite the opposite. Good branding is

being able to recognize the brand in the absence of the logo.

Some Legendary Stories from HUL that will give you goosebumps!

The man credited with building the immensely profitable personal products business which now contributes to half of HUL’s

profits was V. Kasturirangan. Built like a rugby player, which he was, Kas inspired fear and adoration in his team. Legend has

it that in the early days of building the shampoo sachet business, Kas would carry shampoo sachets in the bonnet of his car

whenever he visited a market. If sachets were not seen in the outlet Kas would first place these for free in the shop before

giving the area sales manager (ASM) a public dressing-down.

Another HUL alumnus who has become CEO, Anand Kripalu, of United Spirits and Diageo in India, recalls the tremendous

impact his sales stint had on him. Posted first in Tamil Nadu and then UP, he had to take a train on Sunday nights to a market

and work the week with his front-line salesperson in the deep hinterland. Six days in a row — first sales call to last sales call.

The empathy and insight that this foundational experience gave him were key to him as he rose in his career first as CEO for

Cadbury India and now at Diageo.

Keki Dadiseth says that in the early 1980s, as financial controller, he opposed a consignment of exports of 20,000 tonnes

(massive) of detergent to Russia, since he felt that there was no market for this product and that it constituted a financial risk.

The Vice chairman of the company, Gerry Alcock, who was keen to hit his year-end targets, asked Keki to withdraw his

objections. Keki refused, saying that Alcock had no business putting pressure on the financial controller. Alcock dragged him

to the chairman, who asked Keki to apologize for his intemperate language, Keki refused and stormed out for a midday drink

to the Bombay Gymkhana, where he got a call to go back to the chairman’s room. Expecting a serious reprimand, Keki went

back, only to find himself getting praised by the chairman for doing the right thing and sticking by it.


HUL was severely tested when the managers of its Doom Dooma factory in Assam were threatened by a militant organization

in 1991. HUL decided not to bow down to the irrational demands of the militant group and airlifted all its managers and their

families from the area. The factory was shut down at a significant cost to the company. HUL restarted operations only after

law and order had been restored, and, importantly, the right to manage its operations was re-established. A decade later when

there was another threat by ULFA militants, then chairman, Vindi Banga, organized army protection and suggested that the

families of employees leave the factory. He recalls how all family members refused the offer saying if it was safe for their

husbands, it was safe for them.

April 26, 1993 – It was a day when my life changed completely. I had been waiting for my husband, Prem, who had gone to

Aurangabad for a conference, to return home. Around 1 o’clock I was wondering if the children and I should have lunch. So I

called up Indian Airlines to find out if the flight had landed. And I was told,’Uska toh crash ho gaya, madam.’ I found it

difficult to believe, so I thought that it might have been a forced landing, or it didn’t take off. I called up Meera Singh,

Gurdeep Singh’s [Gurdeep was a former director at HUL] wife. Because I knew Gurdeep was on the flight. And she came to

the phone, and I could tell that she must have been crying. But she had spoken to Gurdeep, and he sounded like he was all

right. But he had also told her that there was a lot of smoke, and they were still looking for one another, but for me it was very

reassuring that if Gurdeep was OK then everyone should be fine. Then I called up the office. I spoke to Naren Nanda and John

Pinto. And I thought I was the person telling them about the accident, but they were already aware, and they said that they

were with Mr Dutta [then chairman] and somebody will come to you just now. Very soon after that, people started coming to

our home, Aloo Dadiseth, Bala Sharma, a lot of our friends, ladies, managers from the office. And for a while I was wondering

what the fuss was, because I was still so sure that they would he able to find Prem. That night I remember we had everyone

sitting there. I remember Keki [Dadiseth] holding my hand and reassuring me. I think everyone knew that he had not survived,

but nobody was able to tell me. I continued to stay in Bombay with the children, although I had absolutely no family here.

Mainly because of the company and the huge support that I had. In the beginning there had been a lot of hand-holding, they

took care as things fell into place and I was able to grasp a little more about finance, and managing things on my own, and

managing a career as well. With their help we planned and thought out the future. And were able to start moving forward and

letting go of the umbilical cord. A lot of our friends have moved away, but the support that I was given, and the confidence

building in myself that happened because of all the help has made me much more independent. And in moments like these,

besides the efficiency and necessities, we talk about the HUL family. And that’s been the experience. We are part of the HUL

family. And family is all about having care, and dignity and love and compassion and time for each other, and that’s how it has

been.


Sudhanshu Vats recalls how when one of his salespeople in Calcutta had a heart attack, the company broke all policies to

ensure he was treated in the best hospital in the city. Unfortunately, he passed away. The head of sales, Raju Aneja, came

down from Mumbai and visited the bereaved family. On noticing that the family was not fully settled, he requested Sudhanshu

to interview the man’s son for a job but said to take him only if he is ’90 per cent as good as someone you will normally take’

M.K. Sharma talked about the case of Damodar Rathi, who drowned while at a beach in Mumbai. When he went to the house

of the bereaved, he perceived a risk in terms of financial security and children’s education if they were obliged to move back

to their native village in remote Rajasthan. When he reported this to then chairman Ashok Ganguly, Dr Ganguly immediately

said that the company must provide a flat to Mrs Rathi, alongside ring-fencing her children’s education. There were

reservations in the board, who protested that this would set a bad precedent, but Dr Ganguly overrode those objections and

ensued that the family got a flat.

During the Emergency a prominent Delhi politician demanded that companies give a 5 per cent discount to consumers based in

the capital city. He justified it saying that the cost of living in Delhi was high. This was not strictly graft-, it was not unknown

for products to have different prices in different parts of the country and many multinationals acquiesced. HUL flatly refused,

since it followed a policy of uniform all-India pricing of its products, and was darkly told that it would have to bear the

consequences. The next week HUL’s Delhi branch was raided by the tax authorities for seven full days. On the seventh day a

minor discrepancy to the tune of Rs 70 of excess recovery of sales tax (which too had been paid to the government) was found

in the books of accounts. The branch manager and the finance manager were arrested. HUL’s lawyers told the police that this

was an offence for which the punishment was a fine and police would have to bear the consequences of a wrongful arrest. The

police asked for a bail amount of Rs 75,000, a large amount in 1975, and an impossible amount to get in the middle of the

night. The distributor network was mobilized and HUL stockists arrived cash in hand to help release the two brave managers.

Action, courage, caring and above all truth in one story!

Media Planning: Whispering to Many Is Better Than Shouting to a Few

At our village in Etah during my rural training stint, school was in a large harvested sugar cane field. Each class from JKG to second

standard sat at a short distance from each other.

The sole teacher, Manoharlal Yadavji, would walk cane in hand from one class to the other shouting a lesson for each class to repeat

till he came back. Caning was a random activity intended more as an exciting break from the monotony of repetition than as a


deterrent. The back rows of the class, the main recipients of the carvings, could scarcely hear him but would quickly catch up by

copying the students in front.

When explaining media reach to students and younger marketers, I use a made-up story from this unforgettable experience. What if

Yadavji had to announce that there would be no school tomorrow but his voice was so hoarse that he could say it only four times.

Would he say it four times to the same class? If so, 100 percent of one class would hear the announcement, but the other three classes

wouldn’t hear him at all. Of the total, 25 percent of the students would have got the message. On the other hand, if he said it once to

each class, the back row students wouldn’t have heard it, but 80 percent of each class and hence 80 percent of the whole school would

have got the message.

25% vs 80% reach based on different strategies!

There is not much else to understand in media planning apart from this. There is not much else to understand in media planning apart

from this. Reach more people a fewer number of times than reach fewer people more times or more impactfully.

Marketing – Saving costs and reaching more people!

There is no better or worse medium for a message. Just a cheaper and more expensive one depending on your objectives. Swarnim

Bharadwaj, a former brand manager on Lux, recalls ‘constantly being on the hunt for incremental reach, we sometimes had fortuitous

results in other areas. The average TV cost per person reached used to be about Re 1. Print, outdoor media, and radio, all had higher

costs but became useful only after TV stopped delivering incremental reach. At this point, I was approached by a vendor selling

cinema advertising [the ads that play before your movie starts]. At first, what seemed to be a small-medium turned out to be quite

substantial with over 6000 single screens and 2000 multiplexes available.

Moreover, they could be split neatly by state, language, and city tier to deliver targeted ads. While it wasn’t incremental reach over

the TV medium, the cherry on the cake turned out to be the low cost at only 30 paise per person reached (on a giant screen with

undivided attention). So even if 50 percent of the people had already seen the ad on TV, for the balance 50 percent who owned a TV

but hadn’t seen the ad the cost was only 60 paise. Much cheaper than other media. We realized how brands like Vicco Turmeric had

been milking this medium successfully for years and we quickly followed suit. If you frequent cinema halls, you will now notice the

slew of Unilever ads there today.


Birla Group sold the “More” retail chain to Amazon-samara in 2018. In 2020 Biyani sold “Future retail” to Ambani. Is the

retail tough business to do? What are the lessons to be learned?

First let’s talk about the Future Group –

Here’s why it failed, click here.

Mr. Kishore Biyani has been called the father of Indian Retail and rightly so. I still remember going to Big Bazaar in my city which

was a big building – From Soaps to cooker, everything was available inside!

The poster boy of Indian Retail now has been recently dethroned and has been widely quoted for his “fall from glory”

Everyone knows what happened. But why did it happen? A Finshots article says “The short answer is simple. With the success of Big

Bazaar and the offline retail business, Biyani diversified into multiple verticals too quickly by taking on insurmountable amounts of

debt. He dabbled in financial services, insurance business, online retail and a whole host of other things, while still struggling to steer

the offline retail business. And with competition from the likes of Flipkart, Amazon and D-Mart increasing, Kishore Biyani had no

choice but to sell the business.”

Well we know what happened in the end – Reliance Retail acquired Future in a deal as below –

https://twitter.com/JstInvestments/status/1299975149031104513


Src – Finshots Markets


Sarthak Singh of Marketing Weekly also highlighted some great points about Future Group and the things that they did wrong –

Diversifying quickly led to the entire #FutureGroup stretching thin – Biyani dabbled in everything from financial services to

Bollywood & burnt his fingers in these ambitious projects

Not focusing on strengths – In 2012, due to a heavy debt problem, he sold off his most valuable asset #Pantaloons Retail to

Aditya Birla group for Rs 1,600 Cr. This was called an unwise move as apparel #retail was Biyani’s stronghold

Acquiring companies without fully analyzing synergies – FabFurnish & Sangam Direct are a few examples of ill-thought

acquisitions.

Underestimating the potential of e-commerce & competitors – With 4 failed #ecommerce ventures, Biyani missed out on

riding the boom despite launching FutureBazaar even before Flipkart

Overdependence on private labels in #FMCG – Though close to 40% of merchandise available in Big Bazaar or EasyDay

stores are Future Consumer brands like Tasty Treat, overdependence on its private #brands pushed consumers away. There

were issues around the quality of the #PrivateLabels & they didn’t stock enough of the national brands

Investments/ Developments & Government Initiatives

The Government has allowed 100 percent Foreign Direct Investment (FDI) in food processing and single-brand retail and 51 percent

in multi-brand retail. This would bolster employment, supply chain, and high visibility for FMCG brands across organized retail

markets thereby bolstering consumer spending and encouraging more product launches. The sector witnessed a healthy FDI inflow of

US$ 16.28 billion during April 2000-March 2020.

Some of the major initiatives taken by the Government to promote the FMCG sector in India are as follows:

The Government of India has approved 100 percent FDI in the cash and carry segment and in single-brand retail along with 51

percent FDI in multi-brand retail.

The Government has drafted a new Consumer Protection Bill with special emphasis on setting up an extensive mechanism to

ensure simple, speedy, accessible, affordable, and timely delivery of justice to consumers.

The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of the FMCG products such as soap,

toothpaste, and hair oil now come under the 18 percent tax bracket against the previous rate of 23-24 percent. Also, GST on

food products and hygiene products has been reduced to 0-5 percent and 12-18 percent respectively.

Documents

Reach us here - A JST Investments Publication · 2020. 9. 18. · A JST Investments Publication Src – Marketing Weekly Rural and Urban – The 2 sides of a coin called FMCG! Rural