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FMCG INDUSTRY

Products which have a quick turnover, and relatively low cost areknown as Fast Moving Consumer Goods (FMCG). FMCG products are thosethat get replaced within a year. Examples of FMCG generally include a widerange of frequently purchased consumer products such as toiletries, soap,cosmetics, tooth cleaning products, shaving products and detergents, as wellas other non-durables such as glassware, bulbs, batteries, paper products, andplastic goods. FMCG may also include pharmaceuticals, consumer electronics,packaged food products, soft drinks, tissue paper, and chocolate bars.Indias FMCG sector is the fourth largest sector in the economy andcreates employment for more than three million people in downstreamactivities. Its principal constituents are Household Care, Personal Care andFood & Beverages. The total FMCG market is in excess of Rs. 85,000 Cores. Itis currently growing at double digit growth rate and is expected to maintain ahigh growth rate. FMCG Industry is characterized by a well establisheddistribution network, low penetration levels, low operating cost, lower percapita consumption and intense competition between the organized andunorganized segments.The Rs 85,000-crore Indian FMCG industry is expected to register ahealthy growth in the third quarter of 2008-09 despite the economic downturn.The industry is expected to register a 15% growth in Q3 2008-09 as comparedto the corresponding period last year. Unlike other sectors, the FMCG Industry did not slow down since Q2 2008. The industry is doing pretty well,bucking the trend. As it is meeting the every-day demands of consumers, itwill continue to grow. In the last two months, input costs have come downand this will reflect in Q3 and Q4 results.Market share movements indicate that companies such as Marico Ltdand Nestle India Ltd, with domination in their key categories, have improvedtheir market shares and outperformed peers in the FMCG sector. This hasbeen also aided by the lack of competition in the respective categories. Single productleaders such as Colgate Palmolive India Ltd and Britannia IndustriesLtd have also witnessed strength in their respective categories, aided byinnovations and strong distribution. Strong players in the economy segmentlike Godrej Consumer Products Ltd in soaps and Dabur in toothpastes havealso posted market share improvement, with revived growth in semi-urban And rural markets. Swot Analysis Strengths: Low operational costs Presence of established distribution networks in both urban and ruralareas Presence of well-known brands in FMCG sector Weaknesses: Lower scope of investing in technology and achieving ecomies ofscale, especially in small sectors Low exports levels "Me-too products, which illegally mimic the labels of the establishedbrands. These products narrow the scope of FMCG products in ruraland semi-urban market.

Opportunities: Untapped rural market Rising income levels, i.e. increase in purchasing power of consumers Large domestic market- a population of over one billion. Export potential High consumer goods spending Threats: Removal of import restrictions resulting in replacing of domesticbrands Slowdown in rural demand Tax and regulatory structure Industry Category and Products Household Care Personal Wash:The market size of personal wash is estimated to be around Rs. 8,300 Cr. Thepersonal wash can be segregated into three segments: Premium, Economyand Popular. The penetration level of soaps is ~92 per cent. It is available in 5million retail stores, out of which, 75 per cent are in the rural areas. HUL is theleader with market share of ~53 per cent; Godrej occupies second positionwith market share of ~10 per cent. With increase in disposable incomes,growth in rural demand is expected to increase because consumers aremoving up towards premium products. However, in the recent past there hasnot been much change in the volume of premium soaps in proportion toeconomy soaps, because increase in prices has led some consumers to look forcheaper substitutes. Detergents:The size of the detergent market is estimated to be Rs. 12,000 Cr. Householdcare segment is characterized by high degree of competition and high level ofpenetration. With rapid urbanization, emergence of small pack size andsachets, the demand for the household care products is flourishing. Thedemand for detergents has been growing but the regional and small Unorganized players account for a major share of the total volume of thedetergent market. In washing powder HUL is the leader with ~38 per cent ofmarket share. Other major players are Nirma, Henkel and Proctor & Gamble.

Personal Care Skin Care:The total skin care market is estimated to be around Rs. 3,400 Cr. The skin caremarket is at a primary stage in India. The penetration level of this segment inIndia is around 20 per cent. With changing life styles, increase in disposableincomes, greater product choice and availability, people are becoming awareabout personal grooming. The major players in this segment are HindustanUnilever with a market share of ~54 per cent, followed by CavinKare with amarket share of ~12 per cent and Godrej with a market share of ~3 per cent. Hair Care:The hair care market in India is estimated at around Rs. 3,800 Cr. The hair caremarket can be segmented into hair oils, shampoos, hair colorants &conditioners, and hair gels. Marico is the leader in Hair Oil segment withmarket share of ~ 33 per cent; Daburoccu-pies second position at 17 per cent.

Shampoos:The Indian shampoo market is estimated to be around Rs. 2,700 Cr. It has thepenetration level of only 13 per cent in India. Sachet makes up to 40 per cent ofthe total shampoo sale. It has low penetration level even in metros. Again themarket is dominated by HUL with around ~47 per cent market share; P&Goccupies second position with market share of around ~23 per cent. Antidandruffsegment constitutes around 15 per cent of the total shampoo market.The market is further expected to increase due to increased marketing byplayers and availability of shampoos in affordable sachets. Oral Care:The oral care market can be segmented into toothpaste - 60 per cent;toothpowder - 23 per cent; toothbrushes - 17 per cent. The total toothpastemarket is estimated to be around Rs. 3,500 Cr. The penetration level oftoothpowder/toothpaste in urban areas is three times that of rural areas. Thissegment is dominated by Colgate-Palmolive with market share of ~49 per cent,while HUL occupies second position with market share of ~30 per cent. Intoothpowders market, Colgate and Dabur are the major players. The oral caremarket, especially toothpastes, remains under penetrated in India withpenetration level ~50 per cent.

Food & Beverages Food Segment:The foods category in FMCG is gaining popularity with a swing of launchesby HUL, ITC, Godrej, and others. This category has 18 major brandsaggregating Rs. 4,600 Cr. Nestle and Amul slug it out in the powders segment.The food category has also seen innovations like softies in ice creams, ready toeat rice by HUL and pizzas by both GCMMF and Godrej Pillsbury. Tea:The major share of tea market is dominated by unorganized players. Morethan 50 per cent of the market share is capture by unorganized players.Leading branded tea players are HUL and Tata Tea. Coffee:The Indian beverage industry faces over supply in segments like coffee andtea. However, more than 50 per cent of the market share is in unpacked orloose form. The major players in this segment are Nestl, HUL and Tata Tea.

Growth Prospect Large Market India has a population of more than 1.150 Billions which is just behind China.According to the estimates, by 2030 India population will be around 1.450Billion and will surpass China to become the World largest in terms ofpopulation. FMCG Industry which is directly related to the population isexpected to maintain a robust growth rate. Central & State Initiatives Recently Government has announced a cut of 4 per cent in excise duty to fightwith the slowdown of the Economy. This announcement has a positive impacton the industry.But the benefit from the 4 per cent reduction in excise duty is not likely to beuniform across FMCG categories or players. The changes in excise duty do notimpact cigarettes (ITC, Godfrey Phillips), biscuits (Britannia Industries, ITC) orready-to-eat foods, as these products are either subject to specific duty or areexempt from excise. Even players with manufacturing facilities locatedmainly in taxfree zones will also not see material excise duty savings. Onlylarge FMCG-makers may be the key ones to bet and gain on excise cut. Foreign Direct Investment (FDI) Automatic investment approval (including foreign technology agreementswithin specified norms), up to 100 per cent foreign equity or 100 per cent forNRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most ofthe food processing sector except malted food, alcoholic beverages and thosereserved for small scale industries (SSI).There is a continuous

growth in net FDI Inflow. There is an increase of about150 per cent in Net Inflow for Vegetable Oils &Vanaspati for the year 2008.

Company Prospects Hindustan Unilever Limited Unilever is lowering its expenditure on packaging across its portfolioof food brands as part of a wider cost-cutting drive. HUL has pareddown the colour palette used for print-in across many products. Thesystem has been used to reduce printed packaging costs for Unileversproducts. It is also eco-friendly because it reduces waste in the printingprocess. HUL is taking different steps to reduce the cost and increasethe margin. Hindustan Unilevers product - Pure it (a water purifier) has receivedthe UNESCO Water Digest Water Award 2008-2009 in the category ofbest domestic non-electric water purifier. Pure it received the awardfor outstanding contribution in the field of water in India. The product is available across 21 Indian states and has reached more than 1 millionhomes in India giving them access to microbiologically safe drinkingwater. Pureits performance has been tested by leading international &national medical, scientific & public health institutions and meets the germkill criteria of the Environmental Protection Agency, thedrinking water regulatory agency in the USA. Godrej Consumer Products Limited (Godrej) The Board of Directors of Godrej Consumer Products Limited (GCPL)has approved the acquisition of 50 per cent stake of its joint venturepartner SCA Hygiene Products stake in Godrej SCA Hygiene Limited.After the transaction, the Joint Venture which owns the Snuggy brandof baby diapers will become a 100 per cent subsidiary of GCPL.

 Godrej Consumer Products Limited has acquired 100 per cent stake inthe Kinky Group Limited, South Africa. Kinky is among one of thelargest brand into hair segment with product portfolio. Dabur India Limited (Dabur) Dabur has entered into the malted food drink market with the launchof a new health drink DaburChyawan Junior. According to thecompany, they expect to capture a market share of 10 per cent of theRs. 1,900 Crores malted food drink market over the next two years. Dabur has acquired 72.15 per cent of Fem Care Pharma Ltd (FCPL), aleading player in the womens skin care products market, for Rs 203.7Crores in an all-cash deal. The Company is expected to create synergyby this deal. Dabur got approval from Government of Himachal Pradesh to set upanother medicine manufacturing unit. The project has an expectedinvestment of Rs. 130 Crores. Colgate-Palmolive (India) Limited Colgate Palmolive (India) Ltd, which is currently holding 75 per cent ofthe share capital of SS Oral Hygiene Products Private Ltd, Hyderabad,has acquired the remaining 25 per cent share capital from the localshareholders at an aggregate price of Rs 77.70 lakh. Consequently, SSOral Hygiene Products has become a wholly owned subsidiary of thecompany. Nestle India Limited Nestle is planning to invest Rs 6 billion in India in 2009 for expansionof its business in the country. The company which has allotted aninvestment of Rs 3 billion in the Indian market in 2008 would bedoubling the investment in 2009 as part of its business strategy. NestleInternational is reinvesting and expanding in India and Nestle Indiawill have all the financial resources to expand and grow from theparent company. Nestle India reported a good increase in its standalone net profit for thesecond quarter.During the quarter, the profit of the company rose26.54% to Rs 1,210.90 million from Rs 956.90 million in the samequarter, last year. The company posted earnings of Rs 12.56 a shareduring the quarter, registering 26.61% growth over prior year period.Net sales for the quarter rose 23.45% to Rs 10,356.30 million, while totalincome for the quarter rose 23.78% to Rs 10,423.40 million, whencompared with the prior year period.

Customer Relationship Management: P&G

The debate about old and new economies cannot be an either/or debate success will come from combining both old and new. P&Gs feels its assets global scale, strong brands, indepth consumer understanding and superior technology combined with the unique proprieties of the Web can put it among leading consumer-driven, Web enabled enterprise: What it calls a dot combined company. A brief look at the companys Net initiatives. P&G is using an integrated strategy to commercialize the Net that focuses on four key pillars: Creating new consumer relationships Developing new ways to create, market and sell its brands Reinventing the supply chain Developing new partnerships Mainly it concentrating on length, breadth and depth, i.e. the size of the customers involvement(e.g. amount of mortgage), the number of products held and the tenure of the relationship. It also uses its data to identify clusters of 10 segments, covering its main customer demographics. This level of information allows Britannia to understand its customers intimately, and interact with them more intelligently P&G estimates e-commerce to represent as much as 10 per cent of the retail Internet/home delivery channel , and sees an opportunity for as much as 5 per cent of total cost savings through B2B activity, and much productivity savings through business-to employee projects. P&G has 72 branded Web sites, and it expects its brands to drive connections through the Internet, helping to answer questions and provide solutions. One example of this is its new Mr. Clean Web site (www.mrclean.com). The Net, says the company, gives it unparalleled reach to consumers and incredible speed for iteration of ideas. Conducting several thousand separate consumer research tests each year, P&G believes the Net can save that much time, as well as about 40 per cent of the expense. The company says: The Internet will help us identify consumer problems and provide effective solutions in ways that are difficult to do in a paper based or telephone world. Good examples of this include: www.mrclean.com, the Pampers Parenting Institute at www.pampers.com, and the Tide Neighbors-to-Neighbors programme at www.tide.com. P&G is exploiting the Internet to explore low-cost/no-cost/highly effective brand introductions. The Net allows companies to take advantage of the diffusion theory, to attract early adopters by targeting through the Net. This allows a brand to be seeded prior to its broad launch. One example of this is www.thermacare.com, which will be used to allow purchase of the brand among early adopters prior to a substantial geographic roll-out. Also, digital brands have been created to leverage the companys R&D technology and consumer understanding.

Procter & Gamble Selects i2 Customer Relationship Management Solutions to Optimize Its Order Management i2 Technologies, Inc., the leading provider of supply chain and marketplace solutions, today announced that Procter & Gamble, has purchased components of the industry-leading i2 Customer Relationship Management Solutions(TM), including software designed to automate and integrate P&G's global order management process to improve customer service and order management efficiencies. i2 CRM is structured to help P&G leverage its existing infrastructure as it leads the industry in its ability to provide e-commerce capabilities for itself and its customers. Specifically, the order management capabilities of i2 CRM are designed to enable companies such as P&G to fulfill their vision of an automated, touchless, quality order processing system that connects to multiple private and public marketplaces, and provides multiple levels of automation to match all customers' capabilities. "The versatility of i2's solution provides us the ability to add value to our trading relationship with all of our customers and provides them a variety of flexible options in which to transact business with P&G. Using the solution, we plan to provide improved customer service while keeping our costs down by leveraging our existing infrastructure," said Steve David, Chief Information Officer, P&G. "i2 is extremely happy to partner with P&G in our mission to drive value through second generation e-business solutions. The i2 CRM Solutions, utilizing the order management capabilities, should allow P&G to improve service to its customers while reducing order management costs and minimizing disruption to their existing infrastructure. P&G is clearly leading the way in the development of future order management capabilities in the Consumer Goods industry," said Steve Robinson, executive vice president, i2 CRM. i2 Cautionary Language This may contain forward-looking statements that involve risks and uncertainties, including the customer's ability to implement i2 solutions successfully or to achieve benefits attributable to i2 products. i2 assumes no obligation to update the forward-looking information contained in this news release. Customer Relationship Management: P&G Relies on Teens for Viral Marketing Those are two examples of viral marketing done by Tremor, a marketing unit of Procter & Gamble that builds word-of-mouth advocacy among teens for P&G products and outside clients.Not just any teens, though, said Erika Brown, Tremor's brand manager.The packaged goods firm draws a distinction between trendsetters (the first to embrace new fashions, products or ideas) and trend spreaders, or connectors, said Brown, speaking in June at the Ad:Tech conference. Connectors are the 10% of the teen population who have social networks like you

would not believe. Brown didn't go into much detail about how Tremor recruits its charges, except to say that it doesn't accept just any teen wanting to become a connector. Having an influential network is only part of the battle. An item has to lend itself to viral marketing. A user of the best adult incontinence product in the world may be loyal to it, but the chance of his walking into a cocktail party and touting it is unlikely. And for any product to be buzz-worthy, it has to have a message like Get it first! wrapped around it. Pringles allowed connectors to vote on the music that would be used in the snack's commercials. This gave them ownership of the campaign, and participants pointed out the commercial to their circle whenever it aired.