How can one let go off the “must-have” of the FMCG industry – advertising? As compared to 2007, the FMCG sector increased its advertising 
and marketing spends significantly. For instance, HUL increased its spending by almost 30%, and Britannia Industries Ltd. went up by 26.82%. N. V. Sivakumar, ED, Consumer & Industrial Products & Services, PricewaterhouseCoopers (PwC) India says, “FMCG majors have been embarking upon increased print and TV campaigns in an effort to differentiate products, create brand awareness and increase brand recall.” Companies like Godrej are in fact doing it to the point of compromising on bottom lines in the near term. The most interesting case recently is that of GCPL, which increased its advertising spends by 44.65% on a y-o-y basis (it roped in Hrithik Roshan as brand ambassador for Cinthol), even as it recorded a y-o-y fall of 4.21% in net PAT for quarter-ended June 2008.
So they tackled the inflation devil well. Hats off to that! But that is only the most current one to face them. Actually, there are quite a few larger, more daunting challenges facing the FMCG industry today. One of the main issues faced by them currently is manpower – finding and retaining the right talent. A spate of restructuring initiatives in this sector are worrying analysts. A recent case in point was the massive restructuring exercise at HUL in February 2008, where the company combined its food and personal care divisions. Speculation is the that workforce could be rationalised, which the company has denied. Vivek Patil, FMCG Analyst, Khandwala Securities affirms that the FMCG sector faces a serious talent crunch problem and avers, “Sectors, which have better margins like IT and infrastructure have less restructuring as compared to the FMCG sector.” He goes on to add that in a regular economy, the growth in various sectors is equal, but that is not the case in India. Due to this, FMCG companies are also finding it difficult to attract top managerial talent. They are no longer the recruiters of choice when it comes to the top B-schools of the country.
Players are also facing the critical decision of whether to take the plunge into integrative growth – both backward as well as forward. At this stage, backward integration for FMCG players is vital because manufacturers of oil and food ingredients, besides competing with other manufacturers, have also been dealing with commoditised products & have hitherto lived on thin margins. States C. Ravishankar, Manager, Strategic & Commercial Intelligence, Transaction Services, KPMG, “Existing intermediaries add significant cost and are not able to maintain high quality standards.” Therefore, there arises an incentive for FMCG companies to integrate backwards. That’s difficult, however, due to the extremely fragmented and disorganised nature of the food supply chain in India.
As for forward integration, margins are traditionally dictated by marketers, again due to high degrees of fragmentation and low bargaining power of the retailers. But this trend seems to be changing now. In June 2008, it was clearly visible when Kishore Biyani-owned Big Bazaar, refused to stock Cadbury’s chocolates simply because Cadbury’s was giving a better deal to other international retailers. They did the same with PepsiCo’s Lays chips as it was not satisfied with the terms of the contract. However, retail is a different ball game, and competencies needed aren’t easy for an FMCG firm to build. Ravishankar adds, “Past evidence would have us believe that forward integration by FMCG majors is unlikely, or at least unlikely to succeed on a meaningful scale.”
The rise of organised retail is a double edged sword, actually. Adi Godrej, CMD, GCPL told B&E, “Organised retail is a very big thing in India and in the coming years we are going to focus on it. I think FMCG is driving the growth of organised retail...” Given the speed with which retail is growing in India, FMCG players are benefiting as they get a platform to push their products and reach out to consumers in semi-urban and rural areas as well.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
and marketing spends significantly. For instance, HUL increased its spending by almost 30%, and Britannia Industries Ltd. went up by 26.82%. N. V. Sivakumar, ED, Consumer & Industrial Products & Services, PricewaterhouseCoopers (PwC) India says, “FMCG majors have been embarking upon increased print and TV campaigns in an effort to differentiate products, create brand awareness and increase brand recall.” Companies like Godrej are in fact doing it to the point of compromising on bottom lines in the near term. The most interesting case recently is that of GCPL, which increased its advertising spends by 44.65% on a y-o-y basis (it roped in Hrithik Roshan as brand ambassador for Cinthol), even as it recorded a y-o-y fall of 4.21% in net PAT for quarter-ended June 2008.So they tackled the inflation devil well. Hats off to that! But that is only the most current one to face them. Actually, there are quite a few larger, more daunting challenges facing the FMCG industry today. One of the main issues faced by them currently is manpower – finding and retaining the right talent. A spate of restructuring initiatives in this sector are worrying analysts. A recent case in point was the massive restructuring exercise at HUL in February 2008, where the company combined its food and personal care divisions. Speculation is the that workforce could be rationalised, which the company has denied. Vivek Patil, FMCG Analyst, Khandwala Securities affirms that the FMCG sector faces a serious talent crunch problem and avers, “Sectors, which have better margins like IT and infrastructure have less restructuring as compared to the FMCG sector.” He goes on to add that in a regular economy, the growth in various sectors is equal, but that is not the case in India. Due to this, FMCG companies are also finding it difficult to attract top managerial talent. They are no longer the recruiters of choice when it comes to the top B-schools of the country.
Players are also facing the critical decision of whether to take the plunge into integrative growth – both backward as well as forward. At this stage, backward integration for FMCG players is vital because manufacturers of oil and food ingredients, besides competing with other manufacturers, have also been dealing with commoditised products & have hitherto lived on thin margins. States C. Ravishankar, Manager, Strategic & Commercial Intelligence, Transaction Services, KPMG, “Existing intermediaries add significant cost and are not able to maintain high quality standards.” Therefore, there arises an incentive for FMCG companies to integrate backwards. That’s difficult, however, due to the extremely fragmented and disorganised nature of the food supply chain in India.
As for forward integration, margins are traditionally dictated by marketers, again due to high degrees of fragmentation and low bargaining power of the retailers. But this trend seems to be changing now. In June 2008, it was clearly visible when Kishore Biyani-owned Big Bazaar, refused to stock Cadbury’s chocolates simply because Cadbury’s was giving a better deal to other international retailers. They did the same with PepsiCo’s Lays chips as it was not satisfied with the terms of the contract. However, retail is a different ball game, and competencies needed aren’t easy for an FMCG firm to build. Ravishankar adds, “Past evidence would have us believe that forward integration by FMCG majors is unlikely, or at least unlikely to succeed on a meaningful scale.”
The rise of organised retail is a double edged sword, actually. Adi Godrej, CMD, GCPL told B&E, “Organised retail is a very big thing in India and in the coming years we are going to focus on it. I think FMCG is driving the growth of organised retail...” Given the speed with which retail is growing in India, FMCG players are benefiting as they get a platform to push their products and reach out to consumers in semi-urban and rural areas as well.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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