Strategy Formulation (SF) Analysis

Analysis of Marico’s strategies to drive growthCompiled by:

Group 1

Ayush Bagla (B004)Mitali Bhende (B007)

Aditya Choudhry (B012)Gagan Gulati (B018)

Shraddha Kalantri (B027)Nipun Mehta (B038)

Overview of Marico

• Marico is one of India's leading Consumer Products & Services companies in the global beauty and wellness space.• Marico is present in more than 25 countries across Asia and the African continent. Turnover of INR 4596 crore in 2012-2013.

Marico’s sustainable competitive advantage

• Backward integration: Supply chain activities

• Distribution

network

• Innovation in

packaging

• Branding

Valuable Rare Costly to imitate

Non substitutable

Overall business growth

• Marico achieved revenue from operations of INR 4596 crore(USD 851 million) during FY13, a growth of 15% over FY12. The volume growth was at 12%. .

Overview of Marico

• Marico is a market leader in hair oil, coconut oil and refined edible oil categories. Being a market leader, it has a strong competitive position in these categories and has achieved penetration in the market. Parachute and Saffola recorded a volume growth of 10% and 7% during FY13. Whereas value added hair oils (Parachute Advansed, Nihar and Hair & Care) recorded volume growth rate of 24%.

• To reduce its over dependence on its 2 major brands (Parachute and Saffola) which together account for more than 60% of total revenues and to tackle the sluggishness in its core business of hair oil and cooking oil, Marico needs to take a strategic call to tap different categories. Therefore, Marico’s primary task is to fuel growth through other avenues and to change its revenue mix with the help of a more balanced portfolio mix.

Segmental business growth

Business revenue mix

Corporate Strategy Problem Statement

Marico’s core business of hair oil and edible oil is experiencing slow growths. The oil business, especially coconut oil segment, is faced with tepid demand, fierce competition and commodity price inflation. Also, more than 50% of the revenues come from the oil business and hence there is over dependence on two major brands. The key problem is how should Marico strategize to drive growth in face of these problems?

Strategies Adopted

Prompted by sluggishness in its core business of edible oil and hair oil, Marico chose to search new business drivers and spurt growth through following strategies adopted.

Analysis of strategies adopted

Product DevelopmentMarico pursued product development strategy through brand extensions of Parachute and Saffola brands. Marico has been attempting to get a foothold in different consumer categories by expanding its portfolio.

Parachute Brand Extension

Parachute also entered men’s grooming and body lotion category. Personal care brands have been benefitting from the surge in personal grooming in India. Personal grooming though dominated by major MNCs, boasts growth rates of 20-25 percent, far higher than 7 percent seen in Marico’s core categories. Men’s grooming brands also are in line with future trends and have a lot of headroom for growth.

Saffola Brand Extension

Some of the products were neglected as far marketing efforts are concerned. To enter into new categories the company would also require to have the patience and provide monetary backing to have a long term plan for a successful brand..

Analysis of strategies adopted

Market DevelopmentMarket development involves introducing present products and services into new geographic areas. Marico has expanded its operations into emerging economies of Middle East- North Africa (MENA), South Asia, Bangladesh and Vietnam. These economies provide enough headroom for growth due to rising incomes and low penetration. The company has a presence in over 25 countries.

PARAS PHARMA ACQUISITION

• Personal Care brands of Paras Pharma from Reckitt Benkiser

• Including products like Zatak, Set Wet and Livon

• Acquistion Cost: Rs 760 Crore

WHAT DID MARICO ACQUIRE?

• Setting up a similar business from the scratch

• Advertising Campaign Cost

• Also require to strengthen distribution system

BUY v/s BUILD DECISION

3-5 YearsRs 25-30 Crore

PRE ACQUISITION ANALYSIS

CHALLENGES

• Competitive Intensity

• Demands Constant Advertisement Support

• Demanding Consumer Base

• Shift from traditional Marico Advertising Approach

• Distribution extended to Cosmetics Outlets, Chemists

INVESTMENT RATIONALE

• Higher Growth Rates Compared to Categories Marico then operated in

• Youth Oriented Portfolio

• Leveraging on the synergies of the Male Grooming Category

• Demographic Dividend

INVESTMENT RATIONALE

SPACE MATRIXSPACE MATRIX

EVALUATION

FY 2014 Performance (Half Year)Youth brands reported revenues of Rs 42 Cr with a 30% Y-o-Y growth in H1FY14 and the segment is expected to main a 25% growth rate in the

medium term

ACQUISITION OF KAYA

Analysis of strategies adopted

Unrelated diversification

Slow Growth for Marico before the acquisition

1999 2000 2001 2002 20030

1000

2000

3000

4000

5000

6000

7000

8000 CAGR = 9%

1999 2000 2001 20020.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00% 41.50%

32.70% 33.50% 32.30%

Slow Growth in Sales Declining/Stagnant RoCE

2001 2002 2003

Cash 46.74 128.08 182.90

D/E 0.02 0.03 0.05

• High cash balance• Low debt

Slow Growth for Marico before the acquisition

The Grand Strategy Matrix

1. Market Development2. Market Penetration

3. Product Development4. Horizontol Integration

5. Divestiture6. Liquidation

1. Market Development2. Market Penetration

3. Product Development4. Forward Integration

5. Backward Integration6. Horizontal Integration7. Related Diversification

1. Retrenchment2. Related Diversification

3. Unrelated Diversification4. Divestiture5. Liquidation

1. Related Diversification2. Unrelated

Diversification3. Joint Ventures

Strong Competitive Position

Weak Competitive Position

Rapid Market Growth

Slow Market Growth

The Grand Strategy Matrix

Advantages Concerns

Growth of branded salons

Problems with present

oil business

Aspirational image

Unsaturated market

No first-mover advantage

No previous experience

May not be

sustainable in long run

Advantages outweigh the concerns Advantages outweigh the concerns

Rationale behind acquisition of Kaya

High cash balance and low debt

2001 2002 2003

Cash 46.74 128.08 182.90

D/E 0.02 0.03 0.05

Rationale behind the acquisition

• Problems with present oil business

• Growth of branded salons

• Unsaturated market

• Aspirational Image

• Strong management confidence

Concerns for merger with Kaya

No first mover advantage

No previous experience

May not be sustainable in the long run

Rationale behind acquisition of Kaya

Porter’s Five Forces Theory for Retail Skin-Care Market

Porter’s Five Forces Theory for Retail Skin-Care Market

Intensity of

Rivalry

Threat of new entran

ts

Bargaining power of buyers

Threat of

substitutes

Bargaining power of suppliers

Threat of New Entrants: Moderate

• Economies of scale are not very important

• Visibility ,number of outlets, brand name & recall

• Exit & entry barriers

Competitive Rivalry: High

• Product differentiation

• Organized and unorganized sector

• Market positioning, promotional campaigns

Bargaining Power of Suppliers: Low

• Products produced in-house

• Large supply of the dermatologists and staff

Bargaining Power of Buyers: High

• Female urban consumers with a high disposable income

• Can switch to local salon and independent dermatologists

Threat of Substitutes: Moderate• Service is customized and has a

high aspirational value• Cheaper substitutes/better brand

name• Customer loyalty programs

SWOT Analysis of Marico and Kaya as a combined entity

StrengthsUnrelated Diversification Of PortfolioUnsaturated Retail Skin-Care Market

WeaknessesWeak Financial Performance

Lack Of Entrepreneurship Lack Of Consolidation

OpportunitiesGrowth Opportunities Of Retail Skin-Care

ThreatsUnder Utilization Of Talent

Cultural Differences

SWOT Analysis of

Marico and Kaya as a combined entity

SWOT Analysis of Marico and Kaya as a combined entity

Conclusion

Having analyzed strategies pursued by Marico to spur growth, we conclude that some of the strategies were aimed in the right direction while others are critically analyzed to suggest alternatives. The strategies pursued by Marico result in diversification of portfolio to introduce a host of brands from breakfast foods, men’s grooming, hair care and personal care. These categories hold promise of high growth rates and leverage on large young demographic across emerging economies. Introduction of new brands has decreased the over dependence on Marico’s business strongholds and introduced newer capabilities. The business is poised to grow faster as the newly acquired/built brands bring resources in form of India’s young demographic.

CONCLUSION