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Case
Study
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| The
Option of an Economy Brand |
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| Foodcorp
is in a predicament due to the stagnating market. Should
it go on milking the brand or be more aggressive and
strive to increase market share? |
Building
a strong brand is seen as the only way to attain high
profits. The perception of quality that gets built into
the brand allows the company to charge a premium on
the product. The presence of only a few players further
brightens the situation as the companies can now indirectly
collaborate and control the prices. However, such a
situation is also ripe for small brands to enter and
eat the cake, eroding the market shares of the bigger
brands. These small brands can take advantage of the
market built by the leaders and provide products of
more or less similar quality at much cheaper rates.
The situation is further aggravated when the trade also
perceives the two as being of the same quality. This
case highlights the predicament of a firm whose market
share is being eroded due to the growing influence of
these brands. In a stagnating market, the effect on
the firm is more pronounced, as it is a market follower
and not the market leader.
There is a growing perception in the company that the
days of high profit margins in the industry are over.
The high gross profits of the industry are giving an
opportunity to the mushroom brands to eat away into
the market share of the bigger brands. So it is essential
for the company to counter this threat now for its survival
in the market place.
Company Background
Foodcorp is among the largest U.S. food companies, with
operations in more than 40 countries of North America,
Europe, Latin America, Asia, the Middle East, and Africa,
and is one of the most international of the United States
food companies in terms of percentage of sales and earnings
coming from outside the US. In 1999, about 60 per cent
of its sales came from international operations. Foodcorp’s
Indian operations started over 60 years around and at
present it has a turnover of around Rs. 140 crore.
The Product
What we commonly know as glucose is essentially dextrose
monohydrate and is used for mainly two purposes: therapeutic
and for casual rehydration. Convalescing patients, growing
children and sportspersons are the primary users of
the product. The product is mainly sold through chemists,
general stores and groceries, with chemists accounting
for more than 50 per cent of the sales. Dextrose is
obtained as a by-product during hydrolysis of starch.
It is purchased by glucose manufactures in large lots
and repacked into smaller packs, branded and then sold
in the market. There is not much product differentiation,
with most of the manufacturers sourcing from the same
handful of suppliers. It is important to note that only
4 to 5 firms account for about 80 per cent of the dextrose
production in India.
The Market
The total size of the glucose powder market in India
was 15,000 tons according to the ORG Retail Audit 1999
with a growth rate of about 3.5 per cent. The growth
is primarily fuelled by the rural sector where the market
is growing at about 9 per cent. There are 3 major players:
Foodworld (Glucoenergy) with a market share of around
65 per cent, Foodcorp (Energee) with a market share
of 8.5 per cent, and Real (Glucose D) with a market
share of 6.5 per cent. The rest of the market (around
20 per cent) is represented by a number of small players
operating locally and selling cheaper products which
are commonly known as mushroom brands. The growth rate
of various brands (year 1999 over year 1998) in urban
and rural areas in value terms are: |
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