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Economic Growth
will drive FMCG Industry

Bharat Puri ||_________________________________________
Managing Director, Cadbury India Limited

Q. In a typical FMCG industry, what are the principal drivers that influence its underlying profitability?
The principal drivers that influence the underlying profitability of an FMCG business are
- those that drive growth, and
- those that drive efficiency thus releasing resources for growth.

Growth drivers for any FMCG business would include:
- their existing advantaged brands
- new products
- new business
- as well as improved/enhanced presence and availability
Initiatives/activities in each of the above area would form the basic plan for any FMCG business.
For Driving Efficiency, any FMCG would need to look at are:
- manufacturing costs, working capital, costs across the supply chain as well as people and indirect costs.
Looking at ways to maintain efficiency while minimising costs would obviously be the objective of any FMCG business.

Q. Which forces (macro as well as firm level initiatives) are likely play a major role in shaping the future evolution of the FMCG industry, say, with regard to growth in demand or introduction of new value propositions ?
At the macro level, the evolution of the FMCG industry would continue to be driven by a number of factors. These include economic growth, which would impact large proportions of the population thus leading to more money in the hands of the consumer. Changes in demographic composition of the population and thus the market would also continue to impact the FMCG industry.
For example: In a recent survey conducted by a leading business weekly, approximately 47 per cent of India's one billion people were under the age of 20, and teenagers among them numbered about 160 million. Together, they wielded INR 14000 Cr worth of discretionary income, and their families spent an additional INR 18500 Cr on them every year. By 2015, Indians under 20 are estimated to make up 55% of the population - and wield proportionately higher spending power. Obviously, companies that are able to influence and excite such consumers would be those that win in the market place.
At the firm level, companies that are able to spot trends early and those that are committed to continuous innovation and those that endeavour to delight the consumer by meeting her changing needs will lead and prosper in the future. Product superiority married with a favourable price-value equation will form the basis of winning initiatives in the coming years.
As the retail environment changes and organised retail takes shape, the second potential opportunity for value creation is in the area of distribution & availability. Exemplar companies that have used distribution and availability differentially will achieve sustainable business growths. With an eye on the future, firms would need to take a leadership stance and invest in upgraded in-store infrastructure; in-shop and market level presence and thereby improve presence and availability.

"Companies with strong advantaged brands would continue to be more profitable"

                                                          - Bharat Puri

Q. In what way might competitive dynamics of a FMCG industry alter over time leading to boosting of profitability of some players at the expense of others?
The Indian FMCG market has been divided for a long time between the organised sector and the unorganised sector. While the latter has been crowded by a large number of local players, competing on margins, the former has varied between a two-player-scenario to a multi-player one.
Over the last few years, competition amongst the branded players has been intense due to the emergence of new players as well as free imports. While this has afforded the consumer much greater choice, it has also led to a struggle for survival for some of the existing players. This trend is likely to continue and result in consolidation happening within the industry.
Profitability would continue to be boosed by players being able to offer and use new technology resulting in a competitive advantage and thus price premium to the customer. However, this is not likely to be a long term proposition, given the fact that access to technology has substantially eased and the time required to catch up new technology has decreased.
Companies with strong advantaged brands would continue to be more profitable.

Q. Against the backdrop of slackening of demand in many FMCG categories in recent times, how are companies in the industry redeploying their resources, be it with regard to ad spend, sales promotion, distribution channel or sales organisation - especially with a view to maintaining a threshold level of growth in both top and bottom line?
To maintain a threshold level of growth in both top and bottom line, companies will have to adopt the following strategies:

Advertising spend
* Power brand strategy - Concentrating spends on a smaller number of brands that are critical to the business and which enjoy considerable consumer advantage.
* Consistently supporting those brands facing highest competitive pressure with above the line spends while sustaining momentum on stable brands with tactical activities in key markets to get incremental sales.

Sales promotions
* Stimulating repeat purchase/pseudo brand loyalty through collectibles and multi-layering of promotions - in scenarios where consumers perceive little or no difference between brands.

* Reducing supply chain costs by reducing intermediaries. Organised retail chains have set up systems for inventory management and quick servicing, thereby offering the opportunity for a company/supplier to reduce distribution cost by reducing intermediaries such as wholesalers/distributors and supplying directly to the warehouse of retail chain.
* Increasing sales by driving channel width- The relative share of grocers to FMCG sales has dropped from over 50% in the early 90's to 35% in the late 90's. On the other hand the contribution of chemist outlets and paan outlets has been increasing. This has been a result of both sku's (sachets) and hardware (mini dispensers) being specifically designed to facilitate entry to these outlets and increase consumer interface.

Sales Organisation
Companies would need to improve the productivity of the sales force as well as look at consolidation via out-sourcing.

Q. In what way the brand management function of an FMCG company will need to alter and reinvent its custodian role when faced with difficult market conditions such as the one faced in recent times?
Tough market situations and a more aware and savvier demanding consumer have necessitated that yesterday's Brand Managers be transformed into Business Managers who understand consumers and can innovate and be flexible to move with the consumer.
Gone are the days when brands could be made to gallop with a big budget media plan, a generous dose of below-the-line and above-the-line activities and constant promotions and schemes in the market. Consumers who have become demanding yet inscrutable in terms of attitudes, outlook, moods and behaviour have rendered conventional Brand Management tools obsolete.
This makes it all the more important for Brand Managers to develop strong consumer insights and constantly innovate. This requires immersing oneself in the consumer's life space and understanding her to open up new opportunities. These opportunities are hidden in seemingly insignificant behavioural patterns, which open up wide new opportunities for the brand.
Developing strong consumer insight basically requires one to
a) Align oneself to the challenge, in terms of correctly identifying the key issues and objectives
b) Leverage all that one knows and understands from available sources
c) Immerse oneself in the consumers life space
d) Connect this insight to a usable platform/ idea
e) Executing it in a format that solves the challenge he started with.
A spate of brand launches, brand extensions, and brand-related activities across successful companies indicate that only the fittest ideas survive in these troubled times and these ideas are driven by strong consumer insight and activities.

Q. What broad changes (in major thrust areas) were effected by Cadbury world wide as well as in India in order to exploit any opportunity that the current market situation provides and also hedge against any underlying risk?
Cadbury's world-wide vision is "Working together to create brands that people love." Cadbury has successfully done this for over 200 years. This success has been built upon understanding the needs of our consumers, customers and colleagues and by operating to a clearly defined set of values.
But around us, the world changes. We want to recognise this as well as ensure the continuation of our own heritage.

Our strategy is to:
- Create robust and sustainable regional positions in our core categories of confectionery and beverages through organic growth, acquisition and disposal.
We will achieve this by Managing for Value. Our Managing for Value process incorporates:
- setting stretching financial objectives
- adopting value-based management for major strategic and operational decisions and business systems
- creating an outstanding leadership capability within our management
- sharpening our company culture to reflect accountability, aggressiveness and adaptability
- aligning our management rewards structure with the interests of our shareowners.
In India, Cadbury India has defined its vision as "Life full of Cadbury, Cadbury full of life"

This means:
- Broadening our consumer appeal and extending our reach to newer markets
- Sustained growth of our market share through aggressive product development
- Striving for international quality in our products and processes
- Focussing on cost competitiveness, productivity and innovative utilization of assets
- Energising and developing our people.

Bharat Puri spoke to Dr. Ranjan Das, Consulting Editor, Strategic Marketing

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