The company under study is the FMCG behemoth Hindustan Lever Limited (HLL). A partially owned subsidiary of Unilever, HLL was set up in India in 1931. Today it has gained the status of the biggest FMCG player in the country. With a wide product base and a mass market focus, HLL touches the lives of people all over India.

In the 70-odd years that HLL has been in India, it has adopted several different strategies to leverage its strengths and gain the success it currently enjoys. Backed by a very able management team and the support of its parent company, it has achieved enormous success that few other companies its size and age have managed in India.

However, the recent years have seen many challengers to HLL’s previously undisputed status. The market is saturated and sales have stagnated. HLL has responded to this challenge by studying its shortcomings, identifying failing strategies, and adopting new and innovative methods to re-gain market share. Some of the strategies it has adopted are moving to the low margin mass market, pruning it’s brand portfolio, and strengthening it’s distribution network. One of the key strategies is shift in target segment to the relatively unexplored rural markets. While most MNCs wrote off this segment as difficult to reach and unprofitable, HLL learned from success stories such as that of Nirma and Cavin Care and used it scale up on core competencies to enter and succeed in the market.

HLL’s growth has been both organic and inorganic. Acquisitions like that of TOMCO (Tata Oil Mills Company) and mergers like Lakme Lever limited were well thought out with clear targets in mind. Strategies such as these have been responsible for the extensive distribution network that HLL has today. It has strong and well differentiated brands with leading share positions, and its brand portfolio includes both global Unilever brands and local brands. Consumer understanding and systems for building consumer insight backed by strong R&D capability have made HLL the powerhouse that it is today.

The future outlook for HLL is bright, despite its lackluster performance in the last few years. The new strategies it has adopted are giving good dividends. And most importantly, HLL has proved that it despite of its size, it has the agility to respond to changing market scenarios and bounce back from difficult situations.

1 Industry Overview

1.1 Introduction

India's economy is on a growth path. With positive indicators like 8.1% growth in the year 2006 due to rising foreign exchange reserves of close to US$140 billion, a booming capital market with the BSE SENSEX crossing the 15,000 mark, foreign direct investment (FDI) close to US$8 billion, industrial growth too is getting the much needed push to exhibit the economy's robust performance.
 The Fast Moving Consumer Goods (FMCG) sector in India is the fourth largest in the economy.
 It has a total market size in excess of Rs. 6,000 million.
 This industry comprises of consumer non durable (CND) products.
 FMCG has a strong MNC presence and is characterized by a well established distribution network, intense competition between the organized and unorganized segments and low operational cost.
 Availability of key raw materials, cheap labour costs gives India a competitive advantage.
 The industry has achieved an aggregate growth of 25% in sales between Apr to Jun 2007 compared to the same period of the previous year.
 Sector's growth momentum will continue in the coming quarters from the rural markets which are growing at a much higher rate than the urban sector.
 FMCG exports are around Rs. 100 million and are focused more on overseas markets like Bangladesh, Pakistan, Nepal, Middle East, and the CIS countries. This is due to similarities in lifestyle and consumption habits between these countries and India.

Rural Growth – A Driving Force
Rural and semi-urban markets will drive the FMCG business in the country to a compounded annual growth of 50% for the next six years. A number of malls will come up in the next four to five years in semi-urban areas and Tier II cities. The FMCG segment is estimated to become Rs. 10,630 million by 2012. Though the companies could face major challenges due to poorly built infrastructure. The affordability of a product or service to a rural consumer with low disposable income poses a problem. On the other hand this will compel the manufacturers to make the products more cost efficiently so that they can be competitively priced.

1.2 Industry outlook

FMCG Segments
The industry is categorized into three segments:
 Personal care
 Homecare
 Food and beverages
All the segments of the industry are growing rapidly in the market, which has made it the fourth largest sector in the economy.

Personal Care segment
Overall the industry is on a growth that is due to the growth in personal wash market which is growing at a rate of one percent, the premium and the middle-end soaps are growing at a rate of 10%. The oral care market, especially toothpastes remain under-penetrated with its level below 45%, but still growth in the personal care segment has increased the growth of the whole FMCG sector.

Urban Homecare Segment
The demand for detergents has been growing at an annual growth rate of 10-11%, during the past five years. This segment is booming due to the launching of small sachets by different companies that has made it easier for the people to buy and use them. With this the market share for the sector has increased.

Food and Beverages
The size of the Indian food processing industry is US$65.6 billion. The food and beverages industry is dependent on the season and the region where the demand and consumption for its products is more.

Consumer trends
People are buying more of packed and semi-cooked food which is instrumental in making the sector grow at a fast pace. All FMCG products have different characteristics due to their different brands, packaging, quality which helped in bringing a strong network for the industry.

Merger and Acquisitions
The Indian FMCG is growing at a faster pace after the mergers and acquisitions of P&G with Gillette, Dabur with Balsara, Nirma with Core Healthcare, and HLL’s takeover of Kissan and Kwality icecream. Dabur India has planned to acquire a vitamin and food supplement company in the US, and ITC Ltd has set up a Rs700m biscuit manufacturing unit at Haridwar that makes Sunfeast brand of biscuits. VLCC Group of Companies is poised to acquire a large FMCG company (name undisclosed) and is also looking at expansion plans in the next three years. The growth in the sector is due to the growth of disposal income of the population, and also as the brand name that helps in attracting people to purchase the product.

Exports Performance

There is significant potential for increasing exports but there are certain factors inhibiting this. Small-scale sector reservations limit the ability to invest in technology and quality upgradation to achieve economies of scale. Moreover, lower volume of higher value added products reduce the scope for export to developing countries.

The Indian FMCG industry has witnessed a strong growth in volume across the categories of shampoo, biscuits, and skincare during the first quarter ended June 2006-07. The rising disposable income of the masses has encouraged them to spend more on personal care products. It is further expected that the FMCG sector would continue with this growth momentum in coming financial quarters as well, thanks to growth in retail segment with malls and hypermalls that is stimulating the consumption of branded goods. A majority of the companies have hiked prices of products across categories.

The FMCG companies are growing fast. This could be due to the government spending for higher offtake, companies' expansion in new segments with new products. The sector will grow further with more investment in food items like packed food and ready to eat food, because in the coming years people will be more dependent on ready-made food items.

Local brands will continue to gain prominence as the national players focus on consolidation. A couple of these companies have improved distribution tie-ups nationwide. The increase in the number of retail outlets too will result in increased partnerships between FMCG companies and retailers. This could range from marketing tie-ups to exclusive stocking agreements. The growth in organized retail is likely to spur overall growth of the sector with a large number of these outlets coming up in semi-urban areas.
1.3 Key Players

The FMCG market is swamped with domestic and multinational players vying for the same pie and in some cases trying to increase the size of the pie itself. The domestic players include,
• Britannia
• Dabur
• Marico
• Nirma
• ITC
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MLA Citation:
"Strategic Managment of Indian Company." 123HelpMe.com. 22 Jan 2016 .