White paper prepared by YFactor for CII Conference on 8th August 2012

1. CONCEPT & DESIGN BY NOSHE OCEANIC

2. Foreword Contents
The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of
US$ 24 Bn. It has a strong MNC presence and is characterized by well established distribution networks, intense
competition between the organized and unorganized segments and low operational cost.
All businesses face the twin issues of how to survive and grow in spite of the challenging external environment
and intensifying competition. In view of this, successful companies continuously look for new operational
FMCG Market – Historical Trends and Growth Drivers;
paradigms. Coupled with this are rapidly evolving consumer tastes and preferences and regulatory, trade and
North Zone Developments 01
logistics development. Given the changing scenario, FMCG companies need to look beyond their normal
strategic frameworks and evaluate opportunities in areas where they may not have ventured earlier using
Modern Trade 04
innovation and new technologies as part of their arsenal for surmounting emerging challenges.
CII has undertaken various initiatives in the FMCG sector. Amongst them, some of the key activities have focused FMCG Market – Urban vs Rural 08
on GST, Environment Protection Act notification on use of plastics; Sugar Representation; Cross Border Taxation
and the Competition Act. Today's conference will discuss New Opportunities, Wider Markets and Sustainable Information Technology and FMCG Companies 12
Business in the FMCG Sector.
Innovation: A Framework for FMCG Companies 16
The sub topics of this Conference would weave in the interrelated aspects of the Modern Trade; Market trends
Urban Vs Rural; Integrated Role of Information Technology; Innovation and its critical impact on the FMCG
Sustainability Branding 19
business and the emerging role of Branding with Sustainability.
The Conference Programme and the White Paper prepared by our Knowledge Partner, YFactor would discuss
how FMCG Companies can grow and prosper in times to come.
Wishing you all success for the event.
Mr. Vikram Bakshi Mr. Divyaroop Bhatnagar
Conference Chairman Managing Director
Joint Venture Partner and YFactor Marketing Private Ltd
Managing Director
McDonald's India (North & East)

3. FMCG NEW OPPORTUNITIES
The FMCG landscape in North India is also very o Mrs Bector's has given a run for their
FMCG Market – Historical Trends and Growth Drivers vibrant due to the following reasons: money to the large MNCs with innovative
and well-presented food products.
• Tax concessions provided by the hill states of
FMCG Market Size and Growth J&K, HP and Uttarakhand have resulted in most o Bagrrys has come up with a range of
FMCG companies moving their manufacturing healthy breakfast cereals, oats and muesli
The FMCG Market in India is estimated at FMCG Market Growth is correlated with GDP growth
to these locations. This has resulted in significant for the health c o n s c i o u s m o d e r n I n d i a n
around Rs 130,000 Crores (US$ 24Bn)1 in 2010. and we have seen acceleration from close to 6% to
employment generation and growth in GDP. consumer.
India's robust consumption patterns ensure relatively over 15% in FMCG Market Growth from the middle of
Locations like Samba and Kathua (near Jammu),
steady growth even in times of economic slowdown. the decade when India's GDP started growing faster.2 o Ghari Detergents based in Kanpur have
Baddi, Nalagarh and Parwanoo (in Himachal
Future projections indicate a projected growth rate of become a major force in the Detergents
Per Capita Consumption for key FMCG Categories is Pradesh) and Haridwar, Pantnagar and
12 – 15% over the next few years leading to a market by initially keeping a strong focus
very much lower than for other developing countries Dehradun in Uttarakhand have become m a j o r
projected market size of Rs 230,000 – Rs 260,000 on their home market of UP before
indicating substantial headroom for growth3 centres for FMCG manufacturers. This has also
Crores (US$ 42Bn – US 47 Bn) by 2015. Historically, expanding to other parts of the country.
resulted in many packaging and raw material
suppliers setting up their factories nearby. From FMCG Sectors and Categories
US$ Per Capita China Indonesia India the supply chain point of view, the region has
Packaged Foods including Beverages account for
Skin Care 7.9 4.3 0.8 seen steady growth. Many FMCG companies
close to 45% of the total FMCG Market. Personal
Shampoo 2.3 2.1 0.6 have established Mother Godowns in locations
Care contributes 26% and Home Care 15%.
like Zirakpur, Punjab to cater to all India logistics.
Ice Cream 3.3 1.7 0.4 The balance comprises of Tobacco products.
• Per capita income and GDP growth has been Underpenetrated categories such as Fruit Juices,
North Zone – FMCG Development extremely high in the states of Punjab, Skin Care and Hair Care exhibit faster growth rates
Chandigarh, Haryana, Delhi and West UP. This than categories such as Cooking Oil, Toothpaste,
2011 Population4 2011 GDP (RsCrores)5 Per capita GDP has resulted in the development of sophisticated Laundry and Toilet Soaps where usership is nearing
Chandigarh 10,54,686 20,704 1,96,305 FMCG categories like Personal Care faster than saturation.6
Haryana 2,53,53,081 2,57,793 1,01,681 the rest of the country.
FMCG Players
Himachal Pradesh 68,56,509 52,426 76,462 • Innovative companies from the North Zone have
The FMCG Sector comprises of five types of
driven growth in a variety of categories, Some
Jammu & Kashmir 1,25,48,926 47,709 38,018 players:
examples are given below:
Delhi 1,67,53,235 2,58,808 1,54,482
o Dabur needs no introduction. They have
Punjab 2,77,04,236 2,21,332 79,891
leveraged the power of traditional Indian
Rajasthan 6,86,21,012 3,03,358 44,208 Ayurveda to create a w h o l e r a n g e o f • Entrenched, well established MNCs such as
Uttar Pradesh 19,95,81,477 5,88,467 29,485 products that touch the hearts of Indian HUL, Reckitt Benckiser, ITC or Nestle who have
consumers. developed a deep understanding of the Indian
Uttarakhand 1,01,16,752 77,580 76,685
o Kashmir Apiaries based in Punjab are the Consumer over the years. They are good
North Zone 36,85,89,914 18,28,177 49,599
largest exporters of honey in India. They examples of 'think global and act local' Pepsi
All India 1,21,01,93,422 73,06,990 60,379 have also pioneered a large range of and Coke also fall into this category though they
North Zone % 30.5% 25.0% honey varieties and blended products for are later entrants.
the Indian market including Organic Honey • Relatively new MNC entrants. Examples such as
Per Capita GDP is co-related with FMCG Market Size. States like UP, Rajasthan and J&K are below the that has become very popular in the LÓreal, Amway, Kellogg or P&G. In general these
As GDP increases, consumers tend to use more national average while Chandigarh, Haryana and Modern Trade. companies tend to be more global in outlook
sophisticated products especially in categories like Delhi are well above. This variation means that North
o Bharat Box headquartered in Ludhiana, and treat the Indian market as an integral part of
Personal Care. The North Zone has 31% of India's Zone has a varied landscape for FMCG products and
have leveraged their product their Regional/Global Strategy.
population but contributes only 25% of National GDP. all segments of the market have a presence here.
development, supply chain and • Large Indian companies such as Dabur, Godrej,
1
manufacturing capabilities to enter the Marico, Emami and CavinKare. Over the years
US$ to INR assumed at 55
2
Source Technopak and Booz Analysis
market with a range of FMCG products.
3
Source Euromonitor 2010 and HUL Presentation 2011
4
Census of India
6
01
5
VMW Analytics Services Source AC Nielsen and Technopak 02

4. FMCG NEW OPPORTUNITIES
these companies have grown rapidly in scale Herbals, Crax, Forest Essentials and others who
and sophistication and the quality of their are currently regional or limited players but are k e e n
management is rapidly levelling the playing field. to scale up rapidly.7
• Single category large Indian companies such as It would be fair to say that the MNCs are facing keen
Nirma, Ghari, Power Detergents and Ruchi competition from local players in India. Access to
Soya. technology, sophisticated design and packaging and
high quality advertising has narrowed the capability
• Emerging Indian companies, better known for
gap between local players and the MNCs.
their brands such as Vasmol, Himgange, Lotus
FMCG Growth Drivers
The factors influencing growth of the FMCG Sector may be classified as Extrinsic or Intrinsic to the sector. Modern Trade
Extrinsic Factors Intrinsic Factors
Growth in GDP and Disposable Income Competition leading to: “Modern/Organised retailing is growing at an base and expanding their business with newer
Increasing Urbanisation • Cost effectiveness and keeping pricing in check aggressive pace in urban India, fuelled by organized retail formats and intense competition
Media Explosion • Intense market activity (new launches, relaunches, bourgeoning economic activity. Organized retail driving innovation in formats.”8
Rural Prosperity advertising and sales promotion) revenues are expected to increase from an estimated
Between 2005 and 2009, Organised Retail in India
Innovation in product development, marketing and US$ 12.9 billion per annum in 2005-06 to more than
Government Policy (NREGA, Tax Reform) has grown at 24% CAGR.9
distribution strategies US$ 43 billion by 2009-10. A large number of
Growth of Modern Trade
Increasing usage of IT in FMCG companies domestic and international players are setting up
Mega Trends in Health/Wellness and Environment
Protection Integration of the product and service experience (Lakme,
Streak, Kaya)
85%
Encouraging Up Trading – HUL in Skin Care 81%
55%
40%
30%
20%
4.80%
It has often been said that India offers a bewildering affecting growth. The following issues that are of
diversity in terms of languages, religions, castes, paramount importance will be taken up for discussion
a
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ia
a
an
S
nd
di
si
es
U
income stratification and education. This vibrant in this paper and in the conference today:
iw
hi
ay
In
la
n
C
Ta
ai
al
do
marketplace has found a fitting resonance with
Th
M
In
• Impact of the Modern Trade
FMCG Marketers. As the consumer market deepens
and matures marketers have hastened to widen their • Urban vs Rural Market Figure : Organized Retail Penetration in Select Economies10
offerings to cater to all shades of this diversity. There is • Role of IT and Innovation inFMCG companies
a place for every kind of consumer product – at all Retail is an extremely significant part of the Indian Economy estimated at 39% of GDP.11 Yet organised retail
price points, with every consumer benefit possible • Sustainability Branding
contribution is only at 4.8% of the total market (2009) especially when compared to other developing
catering to myriad geographies. countries. (Figure 1)
Conference Themes
Several important themes emerge from the foregoing
8
IBEF India, Retail Markets & Opportunities, A report by Ernst & Young for IBEF, 2007, Page 5 (www.ibef.in)
analysis of the FMCG Sector and the key drivers 9
IBEF, Centrum Research Report 2009, Technopak, Booz & Company analysis
10
IBEF, Centrum Research Report 2009, Technopak, Booz & Company analysis
11
7 Confederation of Indian Industry & AT Kearney Report (2006)
03 Source YFactor Presentation 04

5. FMCG NEW OPPORTUNITIES
Retail spending habits in India 2. Current Shopping Habits of Urban Indians: The b. Larger product range for an increasingly
urban Indian is very used to convenience demanding urban consumer of the
catered to by traditional retailing with primary “many Indias”. 16
Home, 3% Pharma, 2% Entertainment, 1%
presence of neighbourhood 'kirana' stores,
Health & Beauty, 1% But replacing current shopping habits is not easy. And
Books, Music & push-cart vendors, 'melas' and mandis' 15 .They
with high costs there is an increasing need to make
Gifts, 3% offer home delivery, easy access and a personal
modern trade profitable faster. For FMCG products,
touch. Indians also tend to buy frequently,
opportunities could be in:
Durables, 10% especially food and in the case of the lower
income strata small volume, low unit price
packs. The weekly or fortnightly shopping habit
Clothing &
does not work in India, where 'fresh' food items
Textile, 36%
are bought virtually on a daily basis.
Footwear, 13% FMCG and Modern Trade
Can Modern Trade compete with current traditional
sales distribution networks?
Watch & 1. De-intermediation: By directly supplying
Jewellery, 17% products to stores, companies are effectively
cutting out the wholesaler margins and can offer a. Home Delivery: The highest level of
Food & better rates to Modern Trade which could result convenience – no traffic, no parking. You
Grocery, 14% in increased profitability. could guarantee ticket sizes by having
minimum orders and reduce costs by
2. Economies of Scale: Directly supplying stores servicing orders directly from warehouses.
Figure : Retail Categories12
results in lower transportation costs, savings on
time and increased efficiency. b. Smaller convenience stores that have easy
There is clearly a huge opportunity for growth in all these categories in the Organised Retail Sector. access to consumers. Prime locations are
3. Intensity of Interaction and Measurement: unlikely to be in malls which attract footfalls
Factors contributing to low penetration of store this could have an impact on yield per Modern Trade offers an opportunity for bent more on entertainment than grocery
organised retail in India square foot o r p ro f i t a b i l i t y. T h i s f a c t o r companies to directly i n t e r a c t w i t h t h e shopping, but more in residential a r e a s
effectively rules out setting up mega stores consumer. Observe trends, run promotions,
1. Modern Trade is an Urban Business: which can then cater to an everyday need.
30-40 Km from the city centre as in m o s t assess the effectiveness of promotional
Urbanization is an integral part of the process of The target would be for repeat consumers,
developed markets. Also such stores would activities and promote general awareness of
economic growth. As in most countries, India's constant footfalls and high conversion rates.
exclude the bulk of Indian consumers who do their brands. Companies should also view their
towns and cities make a major contribution to Such stores would need to differentiate
not have the means of transport to travel shelf space as a platform for this kind of
the country's economy. With less than 1/3 of themselves from traditional m o m a n d p o p
and shop at such distances. interaction and take advantage of it.
India's people, its urban areas generate over 2/3 shops by offering better hygiene, consistent
of the country's GDP and account for 90% of b. Increasing Property prices in Urban India: Challenges to Modern Trade in current Market products availability, longer working hours
government revenues.13 Based on the above, city centric stores seem situation and attractive pricing based on a
to be the way forward. However, such city consolidated supply chain.
a. Congestion in Urban India: Lack of good 1. Convenience of Access: Challenges of Urban
centric locations hugely increase the cost of
public transportation, traffic and parking Living in India are those of space and time. 2. Supply Chain: Organized retailers are going to
real estate. Property prices in U r b a n I n d i a
woes makes store access a factor. If stores Congestion, traffic and parking woes are a be increasingly interested in reducing time-to-
have doubled in the last few years
are 'destinations' then convenience of reality. Kirana stores and other traditional 'mom market. To achieve this, it will be important to
encouraging retailers to rent not buy. Rental
access is an issue and they could be limited and pop' outfits are more convenient with their invest in inventory management and related
clauses come with a 15% every three years
to their catchment area only. For a very large easy access (walking distance) and home technology for capturing sales data, forecasting
escalation.14
delivery systems. Modern Trade could have demand and generating automatic
some distinct advantages: replenishment. Decreasing inventory levels will
12
ZENITH International Journal of Multidisciplinary Research Vol.2 Issue 1, January 2012, ISSN 2231 5780 also require strong backward integration with
13
http://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,contentMDK:21207992~pagePK:141137~piPK:
a. Hygienic, clean shopping environment distributors or manufacturers. Retailers will also
14
1127~theSitePK:295584,00.html
14
International Research Journal of Finance and Economics, ISSN 1450-2887 Issue 24 (2009)© EuroJournals Publishing, Inc. 2009
15
05 IBEF India, Retail Markets & Opportunities, A report by Ernst & Young for IBEF, 2007, Page 75-76 (www.ibef.in) 16FMCG Roadmap to 2020, Booz & Co. for CII 2010 Page 31 06

6. FMCG NEW OPPORTUNITIES
need to optimize logistics further in terms of penetration in India is quite low as compared to other
warehousing and transportation etc. For this it countries indicating a potential for future growth. (See
17
will be imperative to increase supplier collaborations. Figure 3) This could pose a major challenge to FMCG
companies in the future.
3. In Store Brands: They give a retailer the highest
profitability as margins on these brands are 30-
35%. They also help distinguish between
retailers as they are unique to the store. Current
Retail spending habits in India
46%
FMCG Market – Urban Vs Rural
40%
35% Overview
29% Here's a simple statistic. Over 300 million Urban capital income is 4X that of rural income, you start
27% Indians live in 5,000 metros, cities and towns with an understanding the concentration of purchasing
21% average population density of 5,000 people per sq. power in urban areas – why marketing to urban
20% 20% km. But 800 million Rural Indians live in 627,000 consumers has been the 'low hanging' fruit, while
villages with an average population density of only rural marketing has faced huge economic challenges.
11% 150 people per sq. km. When you factor in Urban per
Number of Villages and UAS / Towns by size class and their population
Ranges No. of Villages Population Ranges No. of UAs/Towns Population
Switzerland UK Germany Spain France Australia USA India World Less than 100 45,276 2,274,375 Less than 5000 192 667,772
Average
18
Figure : Private Label Share in overall Organised Retail Sales 100-199 46,276 6,912,023 5,000-9,999 879 6,658,356
200-499 127,511 43,960,187 10,000-19,999 1,346 19,458,295
To face this challenge, FMCG players will need to estate in India and customers' shopping habits.
500-999 145,402 105,274,341 20,000-49,999 1,163 35,154,857
exploit their brand power, develop relationships with FMCG companies have faced challenges too due to
their retail partners, provide better rates and invest the increasing power of the modern retailer. As the 1,000-1,999 129,977 183,294,133 50,000-99,999 404 27,832,412
more in developing and expanding their categories. presence of Modern Trade deepens and intensifies, 2,000-9,999 80,413 239,184,866 1,00,000-4,99,999 320 60,554,358
FMCG companies need to understand how to
Summary and Key Takeaways 5,000-9,999 14,799 98,112,136 5,00,000-9,99,999 39 27,503,626
partner with them to maximise mutual benefits.
Modern Trade has been growing rapidly in India. It has 10,000 & above 3,961 63,478,578 10,00,000-& above 35 108,290,013
faced challenges too based on the high costs of real Total 593,615 742,490,639 Total 4,378 286,119,689
Source: Primary Census Abstract, India, Census of India 2001.
The Urban and Rural segments of the Indian FMCG • explosion in cable TV, newspapers, mobiles and
Market have always had different growth paths. internet => higher media penetration
Urban 'India', although much smaller, in absolute • easier distribution access =>lower distribution
household numbers, had much higher per capita costs and better controls
incomes and so traditionally accounted for the largest
segment (if not majority) by value for most FMCG FMCG consumers were rapidly getting penetrated
companies. Key drivers of urban markets were and simultaneously trading up to better (and higher
margin) products. This was a ready market with
• increasing urbanization => more absolute visible drivers, and everyone wanted their share.
households Classical marketing strategies were 'trickle down' –
• industry & services grew faster than agriculture focused on penetrating Metros, then working down
17FMCG Roadmap to 2020, Booz & Co. for CII 2010 Page 37
18
FMCG Roadmap to 2020, Booz & Co. for CII 2010 Page 38,Technopak, Booz & Company analysis => faster growth of urban incomes Tier I and II towns to smaller markets over time.
07 08

7. FMCG NEW OPPORTUNITIES
Unfortunately, the entry of new MNC companies, and and larger P&Ls, they could invest in small distributor FMCG Distribution System
Large and Emerging Indian companies, turned or rural wholesaler coverage programs, coupled with
marketing in Urban “India” into an expensive slugging rural consumer activation programs such as
match with your competitors. sampling. In many cases they were the 'first and only' Factory
By contrast, the lure of tapping large numbers of rural brands. Subsequently, strategic thinking like
under penetrated consumers in Rural “Bharat” has “Goldmine at the Bottom of the Pyramid” has
always fascinated marketers. Traditionally, the become mainstream. Considering that only 38% of
C&FA
Entrenched MNC's were active in rural markets, keen India's population will be Urban by 2020, rural
to fuel growth by seeding their brands amongst new marketing is an essential part of every FMCG
consumers and building competitive advantage company's plans.
Key Accounts Super
through consumer loyalty. With their higher volumes Stockist
Stockist
Penetration and per capita consumption (Rural - urban penetration 2002)
Category Market Size Urban Rural Total Urban Urban Van Modern Project Sub
(US$ million) Penetration (%) Penetration (%) Penetration (%) Wholesaler Retailer Sales Trade Shakti Stockist
High Penetration categories >50% Drive upgradation and consumption
Fabric Wash 1210 89.6 82.9 84.9 Urban Rural Rural Rural Rural
Retailer Wholesaler Retailer Consumer Retailer
Personal Wash 938 97.9 90.7 92.8
Packet Tea 635 91.2 82.2 84.9
Rural
Low Penetration categories: Drive Penetration Retailer
Toothpaste 409 69.8 32.3 43.5 Bulk of Rural
Skin 312 36.6 19.8 24.7 Sales
Hair Wash 230 40.1 16.3 23.3
Over the years FMCG companies have tried various • Van operations that are partially or fully
Talcum Powder 148 66 36.8 45.1
methods to directly reach the rural areas. On the subsidised by the company
Branded Atta 107 44 30.2 34.3 Marketing side since the reach of traditional media
• HUL has started Operation Shakti that is aimed
Dish Wash 102 54.6 11.5 24.4 used to be poor they went in for:
at directly reaching rural consumers
Instant Coffee 55 - - - • Wall and shop paintings
• Rural oriented supermarkets like Hariyali and
R&G Coffee 30 - - - • Cinema and demonstration vans Khushali
Ketchups 25 12.5 0.7 4.2
• Participation in rural fairs and festivals • E Choupal
Deodorants 19 - - -
With increasing penetration of TV and other It is fair to say that direct reach to the rural areas is still
Jams 13 - - - conventional media, reliance on these activities has limited. The key challenge is that any one company's
Source: HLL, Indian Readership Survey. come down to some extent but has not been turnover is not sufficient to pay for the higher costs
eliminated altogether. that rural distribution entails. As explained above,
Exploiting the under penetrated potential of 'Bharat' run rural distribution systems have a natural
verses 'India' represents an obvious opportunity for 'economic reach', beyond which the stockist loses direct 'economic reach' to the rural areas is limited to
On the distribution side, FMCG companies have
brands; however the marketing and distribution methods money. Any distribution activity beyond this natural the largest villages while the large extent of rural India
experimented with several techniques:
to reach those remote customers are not so clear. 'economic reach' has to be supported by the is still fed through wholesale markets.
Challenges of Rural Markets - Reach company, otherwise it won't happen. As an example,
only 3% of India's villages, with a population above ‘Wholesale on Wheels' – The United Villages retailers had to visit the nearest town to procure 81%
The biggest single challenge of 'Bharat' is the ability of 5,000, were found to be viable for rural distribution by Experience19 of the goods that they were selling. These visits were
marketers to profitably reach and sell to these leading FMCG companies. Thus, most of the FMCG typically made twice a month leading to a large
consumers and retailers. Typically, revenue per day As discussed above only 3% of India's villages are
products reaching rural retailers and consumers amount of cost and disruption in their operations.
per rural sales route may be only 25% that of urban accessible through conventional single company run
move still move through the wholesale markets. This
routes – and van distribution costs like fuel and direct distribution systems. UV found that rural United Villages has set up a pilot project in Jaipur
leads to a lack of control and focus that is of concern
salaries may be 50% higher. The combination of to FMCG companies.
09 lower revenue and higher costs means that, company 19
YFactor Client 10

8. FMCG NEW OPPORTUNITIES
(Rajasthan) catering to 5000 rural retailers near also carried by the UV system.
Jaipur. The pilot has now been extended to Kota and
• Orders are taken on a mobile phone application
will extend other parts of the state by the year end.
specially developed for UV. These orders are
The salient features are:
sent to the central computer and serviced within
• UV Sales Executives operating on motorcycles 2 days. The mobile based application provides
procure orders from rural retailers operating on a rich information for the company's operations.
weekly or fortnightly contact cycle.
• Since goods are aggregated across companies
• Goods are procured from Cash & Carry stores the combined sales volume is sufficient to pay
(Carrefour, Metro and Walmart) on a daily basis. for distribution costs.
No inventory is maintained by UV. The product
• UV is leveraging its rural reach to extend other
range is carefully selected and includes FMCG
products from major companies as well as
services for its rural customers as well as Information Technology and FMCG Companies
extending marketing support for its distribution
smaller ones. Durables and store brands are
partners.
IT has become an essential part of operations in IT • How to choose the right one for my business?
companies. Broadly, the role of IT encompasses the
Summary and Key Takeaways • Implementation is difficult
following aspects:
As competition in the urban areas intensifies, the rural various systems for reaching the rural areas with • Failure rates are high
• Financial accounting, MIS, planning and control
market represents a major opportunity for FMCG varying degrees of success. With an underpenetrated
Experience21 suggests that an FMCG company in
companies. However, the high cost of distribution has rural population and growing rural incomes this • Sales force automation and analytics
India with a turnover of over Rs 200 Crores may be
been a barrier for direct distribution. Most of rural segment will continue to be of high interest to FMCG
• Communication – Since this aspect pervades ready for an ERP installation. Such a company will in
demand is still being met through the wholesale marketers in future.
through all companies, not only FMCG, it will not all probability have:
trade. FMCG companies have experimented with
be discussed here.
• Multiple manufacturing plants
Not so long ago, financial accounting and MIS were
• Distribution in more than one region. There will
handled manually in most FMCG companies.
be a HO and Regional Offices
Thereafter accounting packages like Tally started
making their appearance. Many companies went in • Distributed purchasing – there may be a HO
for computerization of their accounting systems but purchase function but there is likely to be local
failed to integrate the supply chain and sales. Later purchasing at the plant level
on, this led to a plethora of software 'fixes' most of • 200+ employees
them developed in house. As companies grew, it has
led to a number of spread sheet based systems that In our view, one of the most critical issues facing
have become very cumbersome and complex to FMCG companies is that over the years they have
handle.
20
developed 'work around' solutions for many
accounting and other matters. Similarly, they may
The earliest ERP systems started out as MRP have a multiplicity of distribution systems. As an
(Manufacturing Resource Planning) systems. They example Company X22 has the following distribution
have now evolved into fully integrated ERPs systems in place:
encompassing all aspects of a company's working.
All the larger FMCG companies have adopted ERP • Delhi/NCR – C&FA
systems already. Smaller companies have been • Rest of North India – CSA
slower to move in this direction. There are many
apprehensions about ERP systems that have been • Mumbai – 3rd party outsourced system
expressed by smaller FMCG companies: • South India – Super Stockists
• ERP systems are very expensive The field force is a blend of in house Territory Sales
20
YFactor Analysis
21
YFactor experience spread over several FMCG companies
22
11 YFactor Client 12

9. FMCG NEW OPPORTUNITIES
Incharges and outsourced Sales Personnel. Objective decision process Benefits of ERP Implementation • Facilitate day to day management
Purchase has a multiplicity of vendors with varying
The criteria and the scoring system must be agreed in There are 3 key areas in which ERP implementation o Real time information access
trading terms for the same material at different
advance prior to viewing any potential systems. The will help the company25
locations. Materials are not coded and there is no o Reporting
criteria must be wide-ranging and decided upon by
standardization. In such an environment, it becomes • Help reduce operating cost
as many objective people as possible within and o Data integrity and commonality across all
difficult to proceed with implementation of an ERP o Reduce inventory parts of the company
external to the enterprise.
system immediately. Our experience suggests that it
is better to undertake a comprehensive Business Full involvement by all personnel o Lower production costs o Activity based costing
Process Review (BPR) before embarking on an ERP The decision on the system must be made by all o Manpower savings in finance and planning • Support strategic planning
implementation. In general, the less the stakeholders within the enterprise. "It requires top areas
customization required for an ERP the better would o Mid-term forecasting
management leadership and participation… it involves
be the implementation. virtually every department within the company".
Sales Force Automation retailer and are hence not the sales that are recorded
If an 'in principle' decision to evaluate the benefits of Implementation24 in the company's books.
an ERP implementation has been taken in the FMCG companies are strongly driven by Secondary
company, the following steps may be required for There are several pitfalls to avoid during Sales. These refer to sales made by the stockist to the
taking it forward: implementation. While there is no 'one size fits all'
solution, the following issues are very important:
• Discussion on whether to go with a BPR. In Factory
many cases, the companies who undertake • Reference to the Business Case – keep what Primary
BPRs are also ERP implementers and the you had agreed earlier with respect to the cost Sales
discussion will help to clarify the way forward. benefits always in mind while implementing.
C&FA
• Preliminary discussions with a few ERP vendors. • Choose your implementation partner with great
This will help to obtain a ball park idea of cost and care.
a first cut feel of the various ERP solutions. Site • Have a core in-house team dedicated full time to
visits to reference clients will also be helpful. Stockist Secondary
the implementation. This must be a cross
Sales
• Formation of a core in-house team headed by functional team drawn from all departments
the CEO/CFO/CIO to evaluate ERP solutions. involved with the ERP. There must be an internal
The same team should be enhanced later for champion – preferably the CIO. Retailer
implementation. • Have frequent reviews with top management.
• Structured evaluation of ERP options. Many • Don't be wedded to your own processes even if Sales force targets, retail schemes and product The advent of hand held devices and improved
methodologies are available for this purpose and you have gone through a BPR. There is a high promotions are usually based on Secondary Sales. communication technology has changed the
it is outside the scope of this article to present risk and cost attached to customization. This is done in order to prevent dumping at the scenario in the last few years. The front line sales
them. However, some of key principles to be
• Avoid the 'big bang' approach. Most smaller stockist level. Primary Sales which actually generate person now carries a hand held device on which he
followed are:23
companies don't have the resources to handle revenue for the company are on a replenishment books retail orders (Secondary Sales). These are
Structured approach all the implementation in one go. basis for the stockist. Hitherto most companies used downloaded into the Stockist's computer at the end
to follow a manual system of recording and of the day and serviced the next day. Compilation is
A detailed document outlining all the steps that will be
monitoring secondary sales. The company Territory done automatically and a wealth of information is
followed for the evaluation should be prepared by the
Sales in Charge would fill up a daily sales report which available for analysis including details of sales
core team prior to starting the evaluation process.
would record all sales made to retailers on that day. personnel working, productivity, schemes and target
Focused demonstrations Subsequently a 'Stockist Sales and Stock Control achievement. One example of a hand held system
There is no point in demonstrations by vendors that Statement' would be prepared every month. Figures implemented by Hemas, Sri Lanka26 is shown below.
do not pertain to the FMCG Business. Similarly, site would be manually compiled upto the national level. Many modifications are possible to suit a particular
visits to reference FMCG clients is a good idea. These systems have remained virtually unchanged for company's requirements.
the last 40 – 50 years.
23 25
Adapted from Wikipedia R.A. Anthony
24 26
13 Adapted from Michael Burns – 180 Systems YFactor Client 14

10. FMCG NEW OPPORTUNITIES
Hand Held
System Operation
Innovation: A Framework for FMCG Companies
“Innovation is the specific act of entrepreneurship. It is • Amul who introduced the concept of milk co-
the act that endows resources with a new capacity to operatives and helped reduce milk shortages.
create wealth” Peter F. Drucker
• HUL who innovated the world's first fairness
All of us are aware of the tremendous power of cream (Fair & Lovely) that tapped into a deep
innovation. It is a well-known fact that a powerful new seated need of Asian and African consumers.
concept gains high market shares while followers Now all FMCG companies have fairness
have to make do with much smaller figures. One of products as a major part of their portfolio.
the most striking examples of innovation in the recent
• Reckitt Benckiser who successfully extended
past has been the success of Apple. Products such
the germ-kill property of Dettol into toilet soap.
as I Phone and I Pad were world firsts and have
resulted in the company achieving a valuation of $600 • Hygienic Research Institute who introduced hair
Bn27. Companies like Reckitt Benckiser and J&J have dye in a hair oil form liked by Indians. Their
a strong focus on innovation. One of the key metrics28 product, Super Vasmol is a block buster.
Advantages • Data is transferred at the end of the day to the
company from all parts of the country. It can also used is the percentage of turnover coming from new • Low cost manufacturing:
• Order booking at the retail level is fast and products launched in the last 36 months. For most
be real time if the hand held device 'talks' directly
accurate. The sales person is well aware of successful companies this should be at least 15%29. o The Nano
to the central computer.
product availability, schemes and his daily Some of the most successful examples of FMCG o Pharmaceuticals
target. Pricing is also controlled as it is built in Summary and Key Takeaways innovation in India have been:
into the system. o Product development of low cost FMCG
Information technology is rapidly changing the way • Nirma who pioneered the concept of an products by an Indian company for a US MNC
• The hand held device records all control that FMCG companies operate. ERP systems are economical and effective detergent powder as
information like time of first and last call, time becoming more affordable and even mid-size an alternative to laundry soap and built a How do we identify an innovative company or what
spent in the market and productivity of the companies can take advantage of the increased revolutionary demand pull model based on are the factors required for fostering an innovation
sales person. efficiency that they provide. Similarly, Sales Force intensive advertising. culture within an organization? This paper examines
Automation using hand held devices can two aspects:
• Replenishment for the Stockist is automatic and • HUL who realized that Indian housewives prefer
revolutionize the way that companies manage their
works on a re-order level mechanism. The washing their clothes without soaking them in a • How do we evaluate where our company stands
secondary sales systems.
stockist's c o m p u t e r t h r o w s a n o r d e r bucket while still wanting better performance on innovation? Are we good at it or not and in
automatically to the C&FA and goods are than laundry soap. This resulted in the launch of what directions to we need to improve.
dispatched accordingly. The hand held Rin detergent bar. Later, similar thinking led to • How to create an innovation oriented culture and
system links seamlessly with the company's the introduction of Vim as a dish wash bar. process within the company?
ERP.
27
CNN Money 10.04.12
28
YFactor Analysis
29
YFactor Analysis
30
15 YFactor Client 16