Description
Marico: Organization Analysis
Organizational Analysis
A case study of Marico
Table of Contents
An introduction to organization .................................................................................................................. 1 Structure ................................................................................................................................................... 4 Culture....................................................................................................................................................... 5 Products .................................................................................................................................................... 8
Conducive factors identified ........................................................................................................................ 8 Environment.............................................................................................................................................. 8 Culture and structure ................................................................................................................................ 9 The growth of the organization ................................................................................................................... 9 Identified factors that have led to its growth ........................................................................................... 11 Strengths ................................................................................................................................................. 11 The further expansion of the organization ........................................................................................ 25 Globalization ........................................................................................................................................... 25 Kaya clinic ................................................................................................................................................ 26 The factors that led to its further expansion .................................................................................... 30 Diversification ......................................................................................................................................... 30 Changing customer needs ....................................................................................................................... 30 Conclusion ....................................................................................................................................... 31 Learnings from the project .............................................................................................................. 31 Reference sources ........................................................................................................................... 32
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An introduction to the organization
Marico is a leading Indian business group operating in the beauty and wellness segments of the FMCG industry offering products and services in hair care, health care and skin care to consumers in India and abroad. Marico segregates its business on the basis of: Hair care products, Health care products, and Skincare products. Marico’s various products are Parachute, Saffola, Sweekar, Hair & Care, Nihar, Shanti, Mediker, Revive, Aromatic, Fiancee, HairCode, Caivil and Black Chic(Hair care), Saffola, Kaya life, Sweekar (Health care) , Manjal, Kaya skin clinic, sundari (Skin care) . Marico is present in the Skin Care Solutions segment through Kaya Skin Clinics (85 in India and The Middle East) and its soap franchise (in India and Bangladesh). Marico's branded products are present in Bangladesh, other SAARC countries, the Middle East, Egypt and South Africa. Marico group’s history can be traced back to 1862 when Kanji Morarji, started a small trading business in Mumbai. The family set up an entrepreneurial venture the Bombay Oil Industries Ltd (BOIL) in 1948 with manufacturing facilities in Mumbai for coconut oil extraction plant, vegetable oil refinery and a chemical plant. BOIL soon became one of the leading players in industrial chemicals. Over the years, BOIL expanded and diversified through subsidiaries.
In 1990, the marketing division was hived off into a separate company in Marico Industries Ltd (MIL). This division was engaged in marketing of coconut oil, edible oil, instant starch, fruit jams etc including the brands Saffola and Parachute. BOIL licensed these brands to Marico Industries Limited.
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Structure
Marico has a flat organizational structure, with just five levels between the Managing Director and the shop floor operator. The top management is As shown .
Harish Mariwala CMD
Suagata Gupta CEO - consumer products
Vijay Subramanian CEO - IB
Rakesh Pandey CEO - Kaya
Anju Madeka Chief - Finance
Vilas Shirhatti, Chief-Tech
Milind Sarwate Chief – HR & Strategy
Marico is structure in conglomerate model. It has three Strategic Business Units (SBU). 1. Consumer Products business in India 2. International Business 3. Kaya Structure is mainly decentralized and mix of geographical and market divisions.
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Marico’s structure is dynamic & constantly evolving which defines clear roles and supporting relationships. At the same time it is also flexible, keeping in mind the fast and ever changing business environ. Culture
At Marico, everyone is a member and not an employee. As a member, each individual is empowered. Marico believes that when you empower people to take decisions independently, to think and act as entrepreneurs, they push their own boundaries.
It has guidelines based policies but not rule based policies.
Marico has put code of conduct for Board and senior members. The salient features are
1. Code of conduct is to promote ethical conduct. Guidance to members to deal
with ethical issues. Members shall act in accordance with personal and professional integrity, honesty and ethical conduct in every dealing. 2. Members shall use and control all assets and resources, with a sense of responsibility. 3. Marico is an Equal Opportunity Employer. Marico will ensure that in all matters, equal opportunity is provided to those eligible, and decisions are merit-based.
4. Members should provide to all stakeholders and other Marico members
information that is correct and complete. This is in line with Marico’s value of openness and transparency. Members will not use any confidential information to accrue personal gains.
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5. A conflict of interest exists where the personal interest of the Member conflicts with the interest of the Marico. Some examples of conflict of interest include: Outside employment: Members are expected to devote their full attention to the business interests of the company. Members are prohibited from engaging in any activity that interferes with their performance or responsibilities to the company or is otherwise in conflict with or prejudicial to the interests of the company. Marico’s policies prohibit Members from accepting employment with suppliers, customers, competitors or engaging in any activity that enhances or supports a competitor’s position. 6. Corporate opportunities: Members should not exploit, for their own personal gain, any opportunities that are discovered through the use of corporate property, information or position, unless the opportunity is disclosed fully in writing to the Board of Directors and the Board declines to pursue such opportunities for Marico. 7. Members must remain alert to possible violations of the Code by other members and report such matters to the HR Function.
At Marico people use uncommon ways to transform the lives of consumers. At Kaya life weight management programme, rather than concentrating on weight reduction, employees concentrate on causes of weight problem. They interact with customers to get their confidence back. With Kaya skin clinic and saffola health movement Marico created a large consumer base.
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To get best out of formers, Marico engaged some of their best brains to improve farmer’s life on the field and off through initiative like sms price updates, web-managed transactions, Farm care centres, Training in mechanized tree climbing etc. Marico believes by maximizing their associates’ potential across the supply chain – from farmers to suppliers, packaging developers, distributors and retailers we create win win partnerships that increase the growth and sustainability of business, yielding higher profits.
At Marico, every individual is empowered to think and act as entrepreneur. There are no patented brand manuals to follow: you create your own brand, nurture them and grow them. Marico environment is open, transparent and invites fresh thinking. Employees are rotated across disciplines to spur cross functional thinking.
At Marico, innovation is the driving force behind its development. Marico innovation foundation provides platform to nurture innovation in corporate and social sectors. Through initiatives like promoting education on innovation in India, showcasing great innovations at award fora, and undertaking cutting edge research in ?innovation?, the Marico Innovation Foundation prepares future leaders to take on new challenges facing India and enables a nation to maximize its true potential.
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Products
Conducive factors identified
Environment India has 16% of world population. Average length of hair is twice the length of world average. India share in world hair is 28%. These are conducive factors for haircare products. Lifestyle modification is riding trend these days. Due to this, the health care products growth happened.
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Skin care market is at the disposal of people who are of high income. Presently there is a large percentage of low income families. Culture, structure Previously Indian culture was restricting people to go for using products of hair care and skin care. Due to globalization, Indian culture was affected by western culture. The mind set of people changed and started using more of hair care and skin care products.
The growth of the organization
Bombay Oil Industries Ltd. (BOIL) began as a small family owned unit engaged in producing and selling branded vegetable oil. In 1980, BOIL realized the need for a complete restructuring of the organizational setup – from a family-run business to a more professional entity. The immediate challenge it faced was to attract key talent, which it met by recruiting people from diverse backgrounds and creating a value based culture within the organization. At the same time, Then emerged the Parachute and Saffola brands. Understanding the changing scenario, company decided that a different approach was required than the traditional commodity-driven approach. With severe constraints in terms of both capital and human resources the company brought Parachute and Saffola into prominence. In 1990, company separated from the family business and became Marico and went public in 1996.
Mr. Mariwala stresses on how a value based culture was essential for a successful enterprise. Values are easy to create, but transforming those values into cultures is difficulties. He involved the entire management team in creating a value document for
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the organization and how doing this made them all ambassadors of those values. Openness allows people to critique and add to the values become participants in the process. According to Mr. Mariwala the openness in Marico today is symbolized by how over the years, questions in open house sessions have shifted from pay/benefits related queries to key strategies & policies of the organization.
Mr. Mariwala feels emphatic about the need for innovation across all levels. Talking about innovations at Marico, he described how an marketing strategy and creative packaging helped the brand Parachute grow and ward off competition from bigger players. He also feels emphatic about how the various business divisions of Marico came into existence as opportunities constantly emerged, and how Marico continues to develop new products for the ever changing markets.
200 150 100 50 0 2000 2002 2004 2006 2008 PAT Economic value added
1000 500 0 2000 2002 2004 2006 2008 Net worth Total capital employed
Chart 1: Growth of Marico – shareholder value
Chart 3: Growth of capital base
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Chart 2: Recent financial data Identified factors that have led to its growth
Strengths Marico has a leadership position in key market segments in the FMCG sector in India. It has identified the following competitive advantages for itself: ? Strong brand identity – brands such as Parachute and Saffola, command a pricing premium in their respective market segments. The organization has been able to maintain the brand image of its existing products and effectively build up the brand image for new products and brand extensions.
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?
Wide distribution reach – Marico has over the years established a strong distribution network in India with 30 C&F agents servicing approximately 3,600 distributors and stockists. These distributors either directly or through wholesalers reach about 2.5 million retail outlets in India as studied by A.C. Nielsen in 2006). In addition in Bangladesh, Marico has built a strong distribution network extending to around 300,000 outlets as at September 30,2006. Simultaneously with the expansion of its distribution network, it has also focused on improving the productivity of its sales and distribution system. It has made investments in information technology to improve connectivity, ensure speedier processing of information and provide for data-based decision-making. It has linked its major distributors through a web-enabled architecture. This helps implementing a Vendor Managed Inventory (VMI) system that benefits both Marico as well as its distributor. The system enables Marico to structure its production and procurement better because of the visibility of the stock in the distributor system and the ability to analyze past data, whereas the distributor can effectively operate with lower levels of stock, which translates into a lower investment and better returns for the distributor.
?
Innovation and product development – The constant innovation process at Marico has led to the new product developments and led to the innovation of products like Parachute and Saffola etc. The way with which Marico promotes entrepreneurship and empower people also affected its performance. The various innovations of Marico include: • Parachute wide mouth jar with a flip top to enable all-season usage;
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•
The Parachute blister pack, which has encouraged loose oil consumers to shift to branded oils;
• •
The use of LoSorb in Saffola; Refined edible oil blends such as corn and safflower oil and rice bran and safflower oil, leading to franchise expansion; The all-natural formulation of Mediker anti-lice oil, which resulted in the expansion of our market for the product.
?
Cost management – Marico seeks to continuously improve efficiencies and costs across the value chain from sourcing of the raw materials to the supply of products to consumers. A structured process is followed for identifying project ideas, testing hypotheses, establishing prospects, implementing improvements and sustaining benefits. Cross functional collaborations occur across the value chain to ensure that all aspects of changes proposed are considered.
?
Highly qualified employee base and provent management team: Marico believes in having a competent employee base is a source of competitive advantage especially for an organization such as Marico which has to rely heavily on its sales force to manage its business initiatives in difficult markets. Marico also has a policy of hiring a well-educated workforce. Approximately, 80% of its managers and senior managers have post graduation qualifications.
Much of Marico’s growth over the years has come from its successful business strategy which in a nutshell is to build upon its position as a leading FMCG player in the product categories it operates. This is enables by following these strategies:
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?
Expand the size of the market for dominant brands: It intends to expand the size of the market in which our dominant brands Parachute, Saffola and Mediker operate. Initiatives for different brands include: o For Parachute, it has implemented a strategy to shift consumer preference from use of non-branded coconut oil to branded coconut oil by introducing the brand at low price points such as Re 1, Rs. 5 and Rs. 10. A similar strategy of low unit price packs intended to encourage uses of unbranded coconut oil to shift to branded coconut oil has been introduced in Bangladesh as well. o For Saffola, it is attempting to expand the overall Saffola franchise through campaigns aimed at educating the consumer about health and heart care. Saffola’s strategy involves creation of several touch points with the consumer to reinforce the message of health care through television and press advertising, outdoor hoardings, on ground activities such as blood check up camps and a diet advice service. o For Mediker, it has introduced an all natural formulation of the product which has encouraged consumers who would otherwise be reluctant to use a chemical formulation for their lice treatment. This enabled the brand to be sold from stores that do not require a license to sell drugs, thereby increasing Marico’s reach and accessibility.
Marico, thus expects its dominant brands to continue showing growth and generate resources to nurture new growth engines.
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?
Increase market share: In categories where it faces significant competition such as hair oils and hair creams in India and in the Middle East, its focus is on increasing market share. Marico intends to achieve this by differentiating its products from those of competitors, adopting more effective communication strategies and leveraging its distribution reach. Marico believes improved consumer insight through frequent consumer interactions and innovation in delivering products and solutions will help in improving the market share. For instance, for Parachute hair cream, the use of celebrity endorsement has resulted in achieving the largest market share in the UAE. It intends to replicate these efforts in other markets in the Middle East. In addition to increasing its market share in the hair oil category it has positioned Hair & Care as less sticky product addressing a need for a light yet nourishing hair oil.
?
Roll out new products and services in existing and new business segments: In the past Marico has been able to successfully introduce and establish new products in new or existing segments. Parachute Jasmine perfumed hair oil and Saffola Gold, a refined rice bran oil and refined safflower oil blend are examples in the domestic consumer products business. Kaya has established strong brand equity in the skin care solutions business. Further, Marico intends to continuously evaluate changing tastes and preferences of consumers and prototype new propositions with the goal of creating a pipeline of new products and services in India and overseas. Marico also plans to leverage its current leadership in certain product categories, our brand equity and our wide distribution reach to help us successfully launch and support new brands, products and services.
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?
Expand geographical reach: Since the early nineties Marico has pursued a strategy of introducing our products in the international markets. It currently has a significant presence in Bangladesh and the Middle East where it has progressively grown its product offerings and strengthened the distribution network which has led to an increase in its international business. Marico plans to expand into new geographical markets where we see opportunities in the business segments in which we operate.
?
Pursue inorganic growth: Marico has identified inorganic growth as one of the avenues for its future growth and has undertaken five acquisitions since May 2005. It intends to continue to make acquisitions and enter into strategic relationships in the future as part of its strategy in India and overseas. Marico continuously evaluates acquisition opportunities that arise in business segments in which it operates, both in India and overseas.
Marico being a business organization is influenced by the general environment and the specific environment. Whilst, its strengths and strategy explained above can help it to manage the specific environment, it is more vulnerable to the general environment. Thus, we need to first understand the industry in which Marico is, the structure of the industry as well as factors affecting the industry and thereby Marico. ? Industry structure – The specific environment of Marico: The Fast Moving Consumer Goods (FMCG) sector in India is the fourth largest sector in the Indian economy with a present market size in excess of USD 13.1 billion. (Source: www. ibef.org). It is a key component of India’s GDP and is a significant direct and indirect employer accounting for 5% of the total factory employment in the
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country. (Source: www.ciionline.org). The sector also creates employment for three million people in downstream activities, much of which is disbursed in small towns and rural India. Low-priced products contribute the majority of the sales volume and lower and middle income groups account for over 60% of the sector’s sales. Moreover, rural markets account for approximately 56% of the total domestic FMCG demand. The sector has strong links with agriculture and around 71% of the sales come from agro-based products. It is a significant value creator with a market capitalization second only to the IT sector and is a key contributor to the exchequer. The Indian FMCG industry is characterized by a well-established distribution network, intense competition between the organized and unorganized sector and low operation costs. The FMCG market is set to increase from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. (Source: www.ibef.org). Penetration level as well as per capita consumption in most product categories like skin care and shampoo in India is low indicating a large untapped market potential. The burgeoning Indian population particularly the middle class and the rural segments, present an opportunity to the manufacturers of branded products. ? Chief Characteristics of the Industry o Importance of Brand Building: Creation of a strong brand is essential for FMCG companies and considerable money and effort is expended in the development of brands. A thorough understanding of the needs of the consumer is key to creating and offering differentiated products. FMCG players must develop insights into the needs of their customers. This
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forms the basis of FMCG strategy, including design of the product, its delivery format, pricing and communication. Some brands enjoy a first mover advantage, having built strong consumer loyalty with consistent quality over long periods of time. Others have created brand value through innovative product offerings with superior functional attributes supported by strong advertising and sales promotion campaigns. The price the consumer is willing to pay is a function of the perceived value of physical attributes such as the product, its packaging and its availability as well as the image built around the brand. The initial period in the life of a brand is likely to require higher expenditures on advertising and sales promotion as the brand owner attempts to create a positioning for the brand in the mind of the consumer. In the first year of launch, advertising and sales promotion costs can be as high as 50% to 100% of revenue. As brands get stronger, they are able to command a better price and reduce the proportion of advertising support to maintenance levels, thereby enhancing margins and profitability. A portfolio with some strong brands enables a FMCG company to invest in new brands and thus create a pipeline of new brands and products for the future. In the face of intensifying competition, continuous efforts at brand building through advertising and sales promotion and other surround activities are important for FMCG players. This helps in maintaining and gaining market share. Brand building, positioning and brand extensions typically play a key role in the success of a product in the FMCG sector. Occasionally,
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products are re-launched by repositioning the brands to re-start the life cycle of a product and extract better value from it. o Cost Factors: Materials costs and marketing and advertising are the primary costs incurred by a company in the FMCG sector. In certain segments, companies that have a large scale of operations are able to negotiate lower input costs of raw materials. In packing material, the industry has seen several innovations to provide superior and more convenient packaging at lower packing material costs. Given the importance of branding in the industry, advertising and sale promotion expenses comprise a significant element of cost. Sustained investment over a period of time is required to create an association in the mind of the consumer. Companies with a focus on building strong consumer franchises and creating a demand for their brands would usually spend a larger proportion of the advertising and sales promotion costs on abovethe- line advertising. A more short-term measure would be to spend a larger proportion on sales promotion and channel discounts to create a sales push. By and large, the industry is characterized by relatively low manufacturing costs. Manufacturing processes are typically simple. Investments in manufacturing assets are also relatively low, yielding a high turnover to investment ratio. Moreover, as the highest value addition comes in the process of branding, companies can avail themselves of third party manufacturing facilities, thus reducing their investments in fixed assets
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further. In the recent past however, FMCG companies have availed themselves of certain excise and income tax concessions by setting up their own manufacturing facilities in designated tax free zones. o Extensive Distribution Networks: Delivering products to the point of consumer demand is a key determinant of success in the FMCG industry. The strength of the distribution network helps a brand to grow volumes through increased penetration levels. Given the size of the Indian subcontinent, any national player must establish a wide distribution network. The key constituents within the distribution chain are the company’s C&F agents, distributors, wholesalers and retailers. These market
intermediaries ensure widespread presence for the brand so that the products are available to consumers where they want them. o Large Un-organized Sector: Factors like low entry barriers in terms of low capital investment, fiscal incentives from government and low brand awareness in small towns and in rural India have led to the mushrooming of a strong unorganized sector in India offering localized brands as well as products in a loose unbranded form. Typically products from unorganized players are priced lower to entice consumers and also offer higher margins to stockists and intermediaries in order to provide a sales push. Additionally, organized sector players face revenue losses due to fake and counterfeit products produced by the unorganized sector players. Some estimates suggest that the FMCG sector may be losing between 10% to 30% of its business to fake and counterfeit goods.
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o New Retail Formats: Of late the Indian FMCG industry has witnessed the emergence of newer forms of distribution through the advent of modes such as hypermarkets / supermarkets / large-scale retail malls which offer a wide range of products at discounted rates; and through direct selling and multi-level marketing which typically involves sales through agents instead of the usual bulk / small-scale retailer. While such newer distributions channels have an impact on the conventional retail margins, they would have the advantage of allowing greater penetration of products and could lead to an overall increase in revenues for the sector. ? Key Drivers and Trends in the FMCG Industry o Large Untapped Rural Market: Despite the Indian rural market constituting more than half the demand in the Indian FMCG market, the sheer size of the Indian rural markets still offers a large untapped growth potential for FMCG companies. In terms of brand choices, rural India has access to only about half the branded products that are available to the urban consumer. However, despite the alluring prospect of a large untapped market, a variety of factors have posed difficulties in harnessing this market such as inadequate infrastructure facilities including roads and power, a strong un-organized sector, heavy dependence on external factors such as monsoons, a low per capita disposable income and seasonal consumption linked to harvests, festivals and similar events. However with the Government’s push to improve the rural infrastructure,
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the potential of these markets that can be tapped by the FMCG sector may improve in the future. o Economic Growth: In recent times, the Indian economy has shown robust growth. The broad thrust of the reforms process continues and growth in several sectors has been high. At 6% to 8% of GDP, the Indian economy is expected to be one of the fastest amongst emerging economies. This has clearly begun to benefit the FMCG sector in which many companies had experienced a rather sluggish growth in the few years prior to 2005. During the financial year 2004-2005, the sector experienced a growth of about 6%. The overall economic growth has been accompanied by increased disposable incomes both in the urban and rural markets. o Burgeoning Middle Class: India has begun to see a rise in the disposable income in the hands of the middle class. By virtue of the sheer numbers of this consuming segment, demand for FMCG products has seen a significant upturn. Attitudes towards money have also been undergoing a change. Indians are becoming more willing to take on debt. The use of credit cards is growing exponentially, leading to ?consumerism?. Consumers however seek value for money and the challenge for companies is to ensure affordability in order to gain critical mass. Also, competition from regional players and the unorganized sector is ever increasing. FMCG companies must therefore find innovative ways to differentiate their product offerings and at the same time to reduce cost. All this has opened up several opportunities and challenges for FMCG
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companies. At the upper end of the spectrum are aspirational categories with very low penetration as compared to other emerging markets indicating the possibility of high paced growth. Colour cosmetics, premium skin care and male grooming products are a few examples. Discerning consumers are willing to pay a higher price for superior products. These categories may continue to see a plethora of launches including the introduction of imported brands. Companies will have to invest in establishing their brands and in some cases even educate consumers on product features. o Retail Expansion: Retailing has experienced a revolution over the last few years. On the one hand there are chains, which are focused on greater affordability delivered through squeezing efficiencies from the supply chain. The value that consumers are being offered through a discount as compared to a neighborhood store is significant and the future will see the expansion of this concept. On the other hand, we are observing the emergence of the large modern retail format. Whilst this is not significant as a percentage of FMCG sales today, this share will increase manifold, as has happened elsewhere in the world. Gradually, foreign direct investment in retail is expected to be permitted, which would attract overseas retailers, to participate in one of the fastest growing consumer markets today. FMCG players would have to upgrade their skills in merchandizing and shelf management as the open formats allow more interaction between the consumer and the products. This provides an
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opportunity for new brands / products to be picked up by the experimental consumer. Companies can also leverage information technology to create supply chain synergies. o Working Women: There are an increasing number of women managing their homes as well as their work. They are willing to pay a premium for products that provide convenience. Packaged foods should continue to witness increased demand in the coming years. FMCG players would however have to develop innovative products that suit the Indian palate. The branded snacks category has seen fast paced growth in the recent past. The trend towards living healthy lifestyles, taking to various forms of exercise, be it mere walking or going to a gym, has also led to less guilt associated with occasional indulgence. The branded snacks category will leverage this together with the possibility of introducing healthy snack products without compromising taste. o Emergence of Young Working Class: India’s leadership in the ITES sector and the BPO boom has given rise to large numbers of young consumers, who typically live with their families and have large disposable incomes that can be spent at their discretion. These young consumers are experimental and willing to try new products. Capturing insights into their needs and synthesizing these into actionable strategies and final product formats is important for FMCG players. This may lead to the launch of many youth products over the next few years.
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o Branded Solutions Sector: The rising disposable income level in India has also seen the emergence of lifestyle solutions offerings. Brands of gymnasia, spas and health clinics are becoming established in large cities as well as resort locations. Consumers are willing to pay significant premiums for efficacious solutions and better services levels. Apart from using personal grooming products, consumers are also using services for their hair care and skin care needs. Advances in the area of cosmetology, have made it possible to leverage technology and medical science to offer solutions to address health based grooming needs. The industry is still in its nascent stage in India and is poised for rapid growth.
The further expansion of the organization
Globalization Think IBG = Think BIG
Marico's International Business Group reaches out to more than 20 countries in the Middle East, Asian sub-continent, Australia. The International Business Group was formed in early 90's to cater mainly to the demand of Indians settled abroad. The Business was then small and it has over the years assumed increasing proportions with a phenomenal topline growth rate of more than 30%. Initially Marico exported only Parachute Coconut Oil. Now it caters to varying needs of customers in different countries with a host of varied offerings.
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Customising for local needs
The International Business Group has been customizing its products to cater to customers who belong to diverse cultures and consumer habits. For example, it offers perfumed oils to consumers in Bangladesh and Hair Creams and Hair Oils (with lower coconut oil content) to Arabs in the Gulf.
Market shares of Marico's brands overseas have been rising. Parachute Coconut Oil is the market leader in Bangladesh with almost half the market share while other hair oils and hair care products have been consolidating their share of the market. Hair Cream in Gulf is increasingly growing into a big brand.
IBG over the years - IBG Turnover in INR Million
IBG contribution up from 10% to 16% of total turnover. Kaya clinic Kaya Ltd (erstwhile Kaya Skin Care Ltd.) was an entrepreneurial leap of faith marking Marico's entry into skin care solutions business. Kaya Ltd. has been focused on meeting the emerging needs of the modern day consumers by providing useful and effective
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services in the beauty and wellness space. The pioneering effort has been in the area of skin care with Kaya Skin Clinic. For over 5 years Kaya Skin Clinic has refined the standards and professionalisms of the skin care industry through innovative, world class treatments and services that have been tailor made to suit Indian skin. Kaya Limited is now recognized as a pioneer in skin care and has become a benchmark for efficacy and client care. In just over 4 years, Kaya now spans 57 Skin Clinics in 20 Indian cities, in addition to the 9 in Middle East. Over 350,000 delighted customers now pledge their trust in Kaya.
In 2001, Marico Chairman & Managing Director Harsh Mariwala was approached by a New York-based company to sell laser hair-removal machines in India. It was perhaps looking at distribution synergies with Marico’s personal care business. Mariwala, on his
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part, turned down the proposal. Instead, the very next year, he ventured into skin care services and thus was born the Kaya range of clinics.
Last month, Kaya opened its 100th outlet. That might not seem a very big number over seven years. And the business still doesn’t make money. It clocked a loss of Rs 50 lakh on a turnover of Rs 164 crore last year. Not all is mired in a loss. Last year, domestic operations made a profit of Rs 2.5 crore — it was the international business (West Asia) which lost Rs 3 crore. So far, not a single clinic has downed shutters. From the beginning, Kaya was averse to the franchisee route because it wanted to control quality and ensure the delivery was consistent across the chain — the principal rule of service. ?We are not just another beauty parlour, we provide customers a dermatologist’s expertise in a comforting ambience,? says Pandey. Positioned somewhere between a beauty parlour and a dermatologist, the service called for technology, superior hygiene and consistency. Which is why Kaya was unwilling to let others handle the job. Over a fourth of Kaya’s 600,000 customers have signed on in the last one year. And the share of men has grown from 18 per cent in 2004 to 25 per cent now. The company’s strategy is to increase penetration within cities rather than spread to more towns. Today, Kaya has a presence in 24 cities in the country either through standalone outlets or a shop-in-shop in department stores such as Lifestyle or Shopper’s Stop. That’s not to say Kaya won’t venture into some Tier II cities; for example, after Lucknow, it could explore places like Kanpur.
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Kaya has also tied up with Jet Airways and HSBC to offer their customers special benefits. And since the average ticket size of such customers is fairly hefty at Rs 6,000, Kaya has tied up with ICICI Bank and HDFC bank to offer customers zero-interest loans. A key focus area will be to reduce lapses; in other words, prevent customers from dropping out midway through the treatment.
To attract new customers, Kaya has roped in Riddhima Kapoor as brand ambassador. Although not a star, she is considered approachable with some star quality because of her parentage — she is the daughter of yesteryears’ film stars Rishi Kapoor and Nitu Singh. And, of course, she has good skin. Riddhima’s like the girl next door but with some aspirational quality and adds credibility to the brand. A couple of months back, Kaya unveiled a new television campaign. ?Our brand was perceived as being too distant, one that was talking down to people and with a low warmth quotient,? concedes Das. So the tone was softened to allow the brand to relate to more people, within the same target group of 25 to 45 years. That was also the time when Kaya launched a huge digital initiative: Routine display advertisements apart, key words like acne could be linked from Google and there’s a clinic group on Facebook. Ad spends are 10 to 12 per cent of sales with television accounting for the bulk of the expenditure. Print advertising has become more focused. For instance, when Femina did a swimsuit special recently, Kaya advertised its hair-free service. Such focused work, it hopes, will do the trick.
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The factors that led to its further expansion
Diversification Big retailers have to first create economies of scale before looking at private labels and make these robust enough to compete with branded players. The real challenge will be in staple foods, cleaners and disinfectants and we are not in that space at all. Only 4 per cent of our business is with modern trade. Indian FMCG companies have traditionally worked through distributors, I do not see that changing for a while. But eventually some part of our distribution will become direct with the likes of Wal-Mart coming in. Changing customer needs Today's consumer is awakening to the benefits of health and wellness. Changing lifestyles and the fast pace leading to deterioration in overall health and the growing obesity in the country led us to launch our new initiative Kaya Life. 'Kaya' was an entrepreneurial venture of Marico's entry into skin care solutions business. It was a true reflection of uncommon sense for a company in hair care products to move, instead of merely logical product extensions, straight into skin care services. It attempted to leverage Marico's strengths in the Personal Care business and in-depth understanding of the needs of the Indian consumer and her/his desire to enhance her/his natural beauty with the best cosmetic dermatology procedures available internationally.
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Conclusion
CEO & MD Harsh Mariwala recognized opportunity for FMCG products and separated a division of BOIL. Values those which are ingrained in the organization now are due to the choices that Harsh Mariwala made in the initial stages. The flat structure also helped the company to nurture the values of innovation, entrepreneurship and empowerment. Marico keeps a tap on environment by involving with suppliers, changing according to customer needs and maintains a leading position in the market segments in which it is present. Marico strategized to use its core competency of knowledge in health care and hair care to gain competitive advantage in skincare through Kaya skin clinic.The organic structure of organization worked well with the values of the organization to make an approach to social activities. Thus, it is an example of a successful organization that has grown and evolved in a competitive market, also a market where the customer is very demanding needing the organization to make changes that keep growing on a sustainable basis.
Learnings from the project
Organization growth will happen only when leaders recognize opportunities and organizations change according to the needs of environment. If the organization is in a market which is unstable and dynamic then innovation plays a big role. Marico sensed this and implemented well.
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In order to grow and stretch its wings, Marico is trying to open its own retail chain which infers that to make an organization grow is to venture into different segments by diversifying
Reference sources
www.marico.com www.livemint.com www.business-standard.com www.ciionline.org
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doc_786592897.docx
Marico: Organization Analysis
Organizational Analysis
A case study of Marico
Table of Contents
An introduction to organization .................................................................................................................. 1 Structure ................................................................................................................................................... 4 Culture....................................................................................................................................................... 5 Products .................................................................................................................................................... 8
Conducive factors identified ........................................................................................................................ 8 Environment.............................................................................................................................................. 8 Culture and structure ................................................................................................................................ 9 The growth of the organization ................................................................................................................... 9 Identified factors that have led to its growth ........................................................................................... 11 Strengths ................................................................................................................................................. 11 The further expansion of the organization ........................................................................................ 25 Globalization ........................................................................................................................................... 25 Kaya clinic ................................................................................................................................................ 26 The factors that led to its further expansion .................................................................................... 30 Diversification ......................................................................................................................................... 30 Changing customer needs ....................................................................................................................... 30 Conclusion ....................................................................................................................................... 31 Learnings from the project .............................................................................................................. 31 Reference sources ........................................................................................................................... 32
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An introduction to the organization
Marico is a leading Indian business group operating in the beauty and wellness segments of the FMCG industry offering products and services in hair care, health care and skin care to consumers in India and abroad. Marico segregates its business on the basis of: Hair care products, Health care products, and Skincare products. Marico’s various products are Parachute, Saffola, Sweekar, Hair & Care, Nihar, Shanti, Mediker, Revive, Aromatic, Fiancee, HairCode, Caivil and Black Chic(Hair care), Saffola, Kaya life, Sweekar (Health care) , Manjal, Kaya skin clinic, sundari (Skin care) . Marico is present in the Skin Care Solutions segment through Kaya Skin Clinics (85 in India and The Middle East) and its soap franchise (in India and Bangladesh). Marico's branded products are present in Bangladesh, other SAARC countries, the Middle East, Egypt and South Africa. Marico group’s history can be traced back to 1862 when Kanji Morarji, started a small trading business in Mumbai. The family set up an entrepreneurial venture the Bombay Oil Industries Ltd (BOIL) in 1948 with manufacturing facilities in Mumbai for coconut oil extraction plant, vegetable oil refinery and a chemical plant. BOIL soon became one of the leading players in industrial chemicals. Over the years, BOIL expanded and diversified through subsidiaries.
In 1990, the marketing division was hived off into a separate company in Marico Industries Ltd (MIL). This division was engaged in marketing of coconut oil, edible oil, instant starch, fruit jams etc including the brands Saffola and Parachute. BOIL licensed these brands to Marico Industries Limited.
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Structure
Marico has a flat organizational structure, with just five levels between the Managing Director and the shop floor operator. The top management is As shown .
Harish Mariwala CMD
Suagata Gupta CEO - consumer products
Vijay Subramanian CEO - IB
Rakesh Pandey CEO - Kaya
Anju Madeka Chief - Finance
Vilas Shirhatti, Chief-Tech
Milind Sarwate Chief – HR & Strategy
Marico is structure in conglomerate model. It has three Strategic Business Units (SBU). 1. Consumer Products business in India 2. International Business 3. Kaya Structure is mainly decentralized and mix of geographical and market divisions.
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Marico’s structure is dynamic & constantly evolving which defines clear roles and supporting relationships. At the same time it is also flexible, keeping in mind the fast and ever changing business environ. Culture
At Marico, everyone is a member and not an employee. As a member, each individual is empowered. Marico believes that when you empower people to take decisions independently, to think and act as entrepreneurs, they push their own boundaries.
It has guidelines based policies but not rule based policies.
Marico has put code of conduct for Board and senior members. The salient features are
1. Code of conduct is to promote ethical conduct. Guidance to members to deal
with ethical issues. Members shall act in accordance with personal and professional integrity, honesty and ethical conduct in every dealing. 2. Members shall use and control all assets and resources, with a sense of responsibility. 3. Marico is an Equal Opportunity Employer. Marico will ensure that in all matters, equal opportunity is provided to those eligible, and decisions are merit-based.
4. Members should provide to all stakeholders and other Marico members
information that is correct and complete. This is in line with Marico’s value of openness and transparency. Members will not use any confidential information to accrue personal gains.
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5. A conflict of interest exists where the personal interest of the Member conflicts with the interest of the Marico. Some examples of conflict of interest include: Outside employment: Members are expected to devote their full attention to the business interests of the company. Members are prohibited from engaging in any activity that interferes with their performance or responsibilities to the company or is otherwise in conflict with or prejudicial to the interests of the company. Marico’s policies prohibit Members from accepting employment with suppliers, customers, competitors or engaging in any activity that enhances or supports a competitor’s position. 6. Corporate opportunities: Members should not exploit, for their own personal gain, any opportunities that are discovered through the use of corporate property, information or position, unless the opportunity is disclosed fully in writing to the Board of Directors and the Board declines to pursue such opportunities for Marico. 7. Members must remain alert to possible violations of the Code by other members and report such matters to the HR Function.
At Marico people use uncommon ways to transform the lives of consumers. At Kaya life weight management programme, rather than concentrating on weight reduction, employees concentrate on causes of weight problem. They interact with customers to get their confidence back. With Kaya skin clinic and saffola health movement Marico created a large consumer base.
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To get best out of formers, Marico engaged some of their best brains to improve farmer’s life on the field and off through initiative like sms price updates, web-managed transactions, Farm care centres, Training in mechanized tree climbing etc. Marico believes by maximizing their associates’ potential across the supply chain – from farmers to suppliers, packaging developers, distributors and retailers we create win win partnerships that increase the growth and sustainability of business, yielding higher profits.
At Marico, every individual is empowered to think and act as entrepreneur. There are no patented brand manuals to follow: you create your own brand, nurture them and grow them. Marico environment is open, transparent and invites fresh thinking. Employees are rotated across disciplines to spur cross functional thinking.
At Marico, innovation is the driving force behind its development. Marico innovation foundation provides platform to nurture innovation in corporate and social sectors. Through initiatives like promoting education on innovation in India, showcasing great innovations at award fora, and undertaking cutting edge research in ?innovation?, the Marico Innovation Foundation prepares future leaders to take on new challenges facing India and enables a nation to maximize its true potential.
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Products
Conducive factors identified
Environment India has 16% of world population. Average length of hair is twice the length of world average. India share in world hair is 28%. These are conducive factors for haircare products. Lifestyle modification is riding trend these days. Due to this, the health care products growth happened.
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Skin care market is at the disposal of people who are of high income. Presently there is a large percentage of low income families. Culture, structure Previously Indian culture was restricting people to go for using products of hair care and skin care. Due to globalization, Indian culture was affected by western culture. The mind set of people changed and started using more of hair care and skin care products.
The growth of the organization
Bombay Oil Industries Ltd. (BOIL) began as a small family owned unit engaged in producing and selling branded vegetable oil. In 1980, BOIL realized the need for a complete restructuring of the organizational setup – from a family-run business to a more professional entity. The immediate challenge it faced was to attract key talent, which it met by recruiting people from diverse backgrounds and creating a value based culture within the organization. At the same time, Then emerged the Parachute and Saffola brands. Understanding the changing scenario, company decided that a different approach was required than the traditional commodity-driven approach. With severe constraints in terms of both capital and human resources the company brought Parachute and Saffola into prominence. In 1990, company separated from the family business and became Marico and went public in 1996.
Mr. Mariwala stresses on how a value based culture was essential for a successful enterprise. Values are easy to create, but transforming those values into cultures is difficulties. He involved the entire management team in creating a value document for
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the organization and how doing this made them all ambassadors of those values. Openness allows people to critique and add to the values become participants in the process. According to Mr. Mariwala the openness in Marico today is symbolized by how over the years, questions in open house sessions have shifted from pay/benefits related queries to key strategies & policies of the organization.
Mr. Mariwala feels emphatic about the need for innovation across all levels. Talking about innovations at Marico, he described how an marketing strategy and creative packaging helped the brand Parachute grow and ward off competition from bigger players. He also feels emphatic about how the various business divisions of Marico came into existence as opportunities constantly emerged, and how Marico continues to develop new products for the ever changing markets.
200 150 100 50 0 2000 2002 2004 2006 2008 PAT Economic value added
1000 500 0 2000 2002 2004 2006 2008 Net worth Total capital employed
Chart 1: Growth of Marico – shareholder value
Chart 3: Growth of capital base
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Chart 2: Recent financial data Identified factors that have led to its growth
Strengths Marico has a leadership position in key market segments in the FMCG sector in India. It has identified the following competitive advantages for itself: ? Strong brand identity – brands such as Parachute and Saffola, command a pricing premium in their respective market segments. The organization has been able to maintain the brand image of its existing products and effectively build up the brand image for new products and brand extensions.
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?
Wide distribution reach – Marico has over the years established a strong distribution network in India with 30 C&F agents servicing approximately 3,600 distributors and stockists. These distributors either directly or through wholesalers reach about 2.5 million retail outlets in India as studied by A.C. Nielsen in 2006). In addition in Bangladesh, Marico has built a strong distribution network extending to around 300,000 outlets as at September 30,2006. Simultaneously with the expansion of its distribution network, it has also focused on improving the productivity of its sales and distribution system. It has made investments in information technology to improve connectivity, ensure speedier processing of information and provide for data-based decision-making. It has linked its major distributors through a web-enabled architecture. This helps implementing a Vendor Managed Inventory (VMI) system that benefits both Marico as well as its distributor. The system enables Marico to structure its production and procurement better because of the visibility of the stock in the distributor system and the ability to analyze past data, whereas the distributor can effectively operate with lower levels of stock, which translates into a lower investment and better returns for the distributor.
?
Innovation and product development – The constant innovation process at Marico has led to the new product developments and led to the innovation of products like Parachute and Saffola etc. The way with which Marico promotes entrepreneurship and empower people also affected its performance. The various innovations of Marico include: • Parachute wide mouth jar with a flip top to enable all-season usage;
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•
The Parachute blister pack, which has encouraged loose oil consumers to shift to branded oils;
• •
The use of LoSorb in Saffola; Refined edible oil blends such as corn and safflower oil and rice bran and safflower oil, leading to franchise expansion; The all-natural formulation of Mediker anti-lice oil, which resulted in the expansion of our market for the product.
?
Cost management – Marico seeks to continuously improve efficiencies and costs across the value chain from sourcing of the raw materials to the supply of products to consumers. A structured process is followed for identifying project ideas, testing hypotheses, establishing prospects, implementing improvements and sustaining benefits. Cross functional collaborations occur across the value chain to ensure that all aspects of changes proposed are considered.
?
Highly qualified employee base and provent management team: Marico believes in having a competent employee base is a source of competitive advantage especially for an organization such as Marico which has to rely heavily on its sales force to manage its business initiatives in difficult markets. Marico also has a policy of hiring a well-educated workforce. Approximately, 80% of its managers and senior managers have post graduation qualifications.
Much of Marico’s growth over the years has come from its successful business strategy which in a nutshell is to build upon its position as a leading FMCG player in the product categories it operates. This is enables by following these strategies:
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?
Expand the size of the market for dominant brands: It intends to expand the size of the market in which our dominant brands Parachute, Saffola and Mediker operate. Initiatives for different brands include: o For Parachute, it has implemented a strategy to shift consumer preference from use of non-branded coconut oil to branded coconut oil by introducing the brand at low price points such as Re 1, Rs. 5 and Rs. 10. A similar strategy of low unit price packs intended to encourage uses of unbranded coconut oil to shift to branded coconut oil has been introduced in Bangladesh as well. o For Saffola, it is attempting to expand the overall Saffola franchise through campaigns aimed at educating the consumer about health and heart care. Saffola’s strategy involves creation of several touch points with the consumer to reinforce the message of health care through television and press advertising, outdoor hoardings, on ground activities such as blood check up camps and a diet advice service. o For Mediker, it has introduced an all natural formulation of the product which has encouraged consumers who would otherwise be reluctant to use a chemical formulation for their lice treatment. This enabled the brand to be sold from stores that do not require a license to sell drugs, thereby increasing Marico’s reach and accessibility.
Marico, thus expects its dominant brands to continue showing growth and generate resources to nurture new growth engines.
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?
Increase market share: In categories where it faces significant competition such as hair oils and hair creams in India and in the Middle East, its focus is on increasing market share. Marico intends to achieve this by differentiating its products from those of competitors, adopting more effective communication strategies and leveraging its distribution reach. Marico believes improved consumer insight through frequent consumer interactions and innovation in delivering products and solutions will help in improving the market share. For instance, for Parachute hair cream, the use of celebrity endorsement has resulted in achieving the largest market share in the UAE. It intends to replicate these efforts in other markets in the Middle East. In addition to increasing its market share in the hair oil category it has positioned Hair & Care as less sticky product addressing a need for a light yet nourishing hair oil.
?
Roll out new products and services in existing and new business segments: In the past Marico has been able to successfully introduce and establish new products in new or existing segments. Parachute Jasmine perfumed hair oil and Saffola Gold, a refined rice bran oil and refined safflower oil blend are examples in the domestic consumer products business. Kaya has established strong brand equity in the skin care solutions business. Further, Marico intends to continuously evaluate changing tastes and preferences of consumers and prototype new propositions with the goal of creating a pipeline of new products and services in India and overseas. Marico also plans to leverage its current leadership in certain product categories, our brand equity and our wide distribution reach to help us successfully launch and support new brands, products and services.
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?
Expand geographical reach: Since the early nineties Marico has pursued a strategy of introducing our products in the international markets. It currently has a significant presence in Bangladesh and the Middle East where it has progressively grown its product offerings and strengthened the distribution network which has led to an increase in its international business. Marico plans to expand into new geographical markets where we see opportunities in the business segments in which we operate.
?
Pursue inorganic growth: Marico has identified inorganic growth as one of the avenues for its future growth and has undertaken five acquisitions since May 2005. It intends to continue to make acquisitions and enter into strategic relationships in the future as part of its strategy in India and overseas. Marico continuously evaluates acquisition opportunities that arise in business segments in which it operates, both in India and overseas.
Marico being a business organization is influenced by the general environment and the specific environment. Whilst, its strengths and strategy explained above can help it to manage the specific environment, it is more vulnerable to the general environment. Thus, we need to first understand the industry in which Marico is, the structure of the industry as well as factors affecting the industry and thereby Marico. ? Industry structure – The specific environment of Marico: The Fast Moving Consumer Goods (FMCG) sector in India is the fourth largest sector in the Indian economy with a present market size in excess of USD 13.1 billion. (Source: www. ibef.org). It is a key component of India’s GDP and is a significant direct and indirect employer accounting for 5% of the total factory employment in the
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country. (Source: www.ciionline.org). The sector also creates employment for three million people in downstream activities, much of which is disbursed in small towns and rural India. Low-priced products contribute the majority of the sales volume and lower and middle income groups account for over 60% of the sector’s sales. Moreover, rural markets account for approximately 56% of the total domestic FMCG demand. The sector has strong links with agriculture and around 71% of the sales come from agro-based products. It is a significant value creator with a market capitalization second only to the IT sector and is a key contributor to the exchequer. The Indian FMCG industry is characterized by a well-established distribution network, intense competition between the organized and unorganized sector and low operation costs. The FMCG market is set to increase from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. (Source: www.ibef.org). Penetration level as well as per capita consumption in most product categories like skin care and shampoo in India is low indicating a large untapped market potential. The burgeoning Indian population particularly the middle class and the rural segments, present an opportunity to the manufacturers of branded products. ? Chief Characteristics of the Industry o Importance of Brand Building: Creation of a strong brand is essential for FMCG companies and considerable money and effort is expended in the development of brands. A thorough understanding of the needs of the consumer is key to creating and offering differentiated products. FMCG players must develop insights into the needs of their customers. This
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forms the basis of FMCG strategy, including design of the product, its delivery format, pricing and communication. Some brands enjoy a first mover advantage, having built strong consumer loyalty with consistent quality over long periods of time. Others have created brand value through innovative product offerings with superior functional attributes supported by strong advertising and sales promotion campaigns. The price the consumer is willing to pay is a function of the perceived value of physical attributes such as the product, its packaging and its availability as well as the image built around the brand. The initial period in the life of a brand is likely to require higher expenditures on advertising and sales promotion as the brand owner attempts to create a positioning for the brand in the mind of the consumer. In the first year of launch, advertising and sales promotion costs can be as high as 50% to 100% of revenue. As brands get stronger, they are able to command a better price and reduce the proportion of advertising support to maintenance levels, thereby enhancing margins and profitability. A portfolio with some strong brands enables a FMCG company to invest in new brands and thus create a pipeline of new brands and products for the future. In the face of intensifying competition, continuous efforts at brand building through advertising and sales promotion and other surround activities are important for FMCG players. This helps in maintaining and gaining market share. Brand building, positioning and brand extensions typically play a key role in the success of a product in the FMCG sector. Occasionally,
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products are re-launched by repositioning the brands to re-start the life cycle of a product and extract better value from it. o Cost Factors: Materials costs and marketing and advertising are the primary costs incurred by a company in the FMCG sector. In certain segments, companies that have a large scale of operations are able to negotiate lower input costs of raw materials. In packing material, the industry has seen several innovations to provide superior and more convenient packaging at lower packing material costs. Given the importance of branding in the industry, advertising and sale promotion expenses comprise a significant element of cost. Sustained investment over a period of time is required to create an association in the mind of the consumer. Companies with a focus on building strong consumer franchises and creating a demand for their brands would usually spend a larger proportion of the advertising and sales promotion costs on abovethe- line advertising. A more short-term measure would be to spend a larger proportion on sales promotion and channel discounts to create a sales push. By and large, the industry is characterized by relatively low manufacturing costs. Manufacturing processes are typically simple. Investments in manufacturing assets are also relatively low, yielding a high turnover to investment ratio. Moreover, as the highest value addition comes in the process of branding, companies can avail themselves of third party manufacturing facilities, thus reducing their investments in fixed assets
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further. In the recent past however, FMCG companies have availed themselves of certain excise and income tax concessions by setting up their own manufacturing facilities in designated tax free zones. o Extensive Distribution Networks: Delivering products to the point of consumer demand is a key determinant of success in the FMCG industry. The strength of the distribution network helps a brand to grow volumes through increased penetration levels. Given the size of the Indian subcontinent, any national player must establish a wide distribution network. The key constituents within the distribution chain are the company’s C&F agents, distributors, wholesalers and retailers. These market
intermediaries ensure widespread presence for the brand so that the products are available to consumers where they want them. o Large Un-organized Sector: Factors like low entry barriers in terms of low capital investment, fiscal incentives from government and low brand awareness in small towns and in rural India have led to the mushrooming of a strong unorganized sector in India offering localized brands as well as products in a loose unbranded form. Typically products from unorganized players are priced lower to entice consumers and also offer higher margins to stockists and intermediaries in order to provide a sales push. Additionally, organized sector players face revenue losses due to fake and counterfeit products produced by the unorganized sector players. Some estimates suggest that the FMCG sector may be losing between 10% to 30% of its business to fake and counterfeit goods.
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o New Retail Formats: Of late the Indian FMCG industry has witnessed the emergence of newer forms of distribution through the advent of modes such as hypermarkets / supermarkets / large-scale retail malls which offer a wide range of products at discounted rates; and through direct selling and multi-level marketing which typically involves sales through agents instead of the usual bulk / small-scale retailer. While such newer distributions channels have an impact on the conventional retail margins, they would have the advantage of allowing greater penetration of products and could lead to an overall increase in revenues for the sector. ? Key Drivers and Trends in the FMCG Industry o Large Untapped Rural Market: Despite the Indian rural market constituting more than half the demand in the Indian FMCG market, the sheer size of the Indian rural markets still offers a large untapped growth potential for FMCG companies. In terms of brand choices, rural India has access to only about half the branded products that are available to the urban consumer. However, despite the alluring prospect of a large untapped market, a variety of factors have posed difficulties in harnessing this market such as inadequate infrastructure facilities including roads and power, a strong un-organized sector, heavy dependence on external factors such as monsoons, a low per capita disposable income and seasonal consumption linked to harvests, festivals and similar events. However with the Government’s push to improve the rural infrastructure,
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the potential of these markets that can be tapped by the FMCG sector may improve in the future. o Economic Growth: In recent times, the Indian economy has shown robust growth. The broad thrust of the reforms process continues and growth in several sectors has been high. At 6% to 8% of GDP, the Indian economy is expected to be one of the fastest amongst emerging economies. This has clearly begun to benefit the FMCG sector in which many companies had experienced a rather sluggish growth in the few years prior to 2005. During the financial year 2004-2005, the sector experienced a growth of about 6%. The overall economic growth has been accompanied by increased disposable incomes both in the urban and rural markets. o Burgeoning Middle Class: India has begun to see a rise in the disposable income in the hands of the middle class. By virtue of the sheer numbers of this consuming segment, demand for FMCG products has seen a significant upturn. Attitudes towards money have also been undergoing a change. Indians are becoming more willing to take on debt. The use of credit cards is growing exponentially, leading to ?consumerism?. Consumers however seek value for money and the challenge for companies is to ensure affordability in order to gain critical mass. Also, competition from regional players and the unorganized sector is ever increasing. FMCG companies must therefore find innovative ways to differentiate their product offerings and at the same time to reduce cost. All this has opened up several opportunities and challenges for FMCG
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companies. At the upper end of the spectrum are aspirational categories with very low penetration as compared to other emerging markets indicating the possibility of high paced growth. Colour cosmetics, premium skin care and male grooming products are a few examples. Discerning consumers are willing to pay a higher price for superior products. These categories may continue to see a plethora of launches including the introduction of imported brands. Companies will have to invest in establishing their brands and in some cases even educate consumers on product features. o Retail Expansion: Retailing has experienced a revolution over the last few years. On the one hand there are chains, which are focused on greater affordability delivered through squeezing efficiencies from the supply chain. The value that consumers are being offered through a discount as compared to a neighborhood store is significant and the future will see the expansion of this concept. On the other hand, we are observing the emergence of the large modern retail format. Whilst this is not significant as a percentage of FMCG sales today, this share will increase manifold, as has happened elsewhere in the world. Gradually, foreign direct investment in retail is expected to be permitted, which would attract overseas retailers, to participate in one of the fastest growing consumer markets today. FMCG players would have to upgrade their skills in merchandizing and shelf management as the open formats allow more interaction between the consumer and the products. This provides an
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opportunity for new brands / products to be picked up by the experimental consumer. Companies can also leverage information technology to create supply chain synergies. o Working Women: There are an increasing number of women managing their homes as well as their work. They are willing to pay a premium for products that provide convenience. Packaged foods should continue to witness increased demand in the coming years. FMCG players would however have to develop innovative products that suit the Indian palate. The branded snacks category has seen fast paced growth in the recent past. The trend towards living healthy lifestyles, taking to various forms of exercise, be it mere walking or going to a gym, has also led to less guilt associated with occasional indulgence. The branded snacks category will leverage this together with the possibility of introducing healthy snack products without compromising taste. o Emergence of Young Working Class: India’s leadership in the ITES sector and the BPO boom has given rise to large numbers of young consumers, who typically live with their families and have large disposable incomes that can be spent at their discretion. These young consumers are experimental and willing to try new products. Capturing insights into their needs and synthesizing these into actionable strategies and final product formats is important for FMCG players. This may lead to the launch of many youth products over the next few years.
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o Branded Solutions Sector: The rising disposable income level in India has also seen the emergence of lifestyle solutions offerings. Brands of gymnasia, spas and health clinics are becoming established in large cities as well as resort locations. Consumers are willing to pay significant premiums for efficacious solutions and better services levels. Apart from using personal grooming products, consumers are also using services for their hair care and skin care needs. Advances in the area of cosmetology, have made it possible to leverage technology and medical science to offer solutions to address health based grooming needs. The industry is still in its nascent stage in India and is poised for rapid growth.
The further expansion of the organization
Globalization Think IBG = Think BIG
Marico's International Business Group reaches out to more than 20 countries in the Middle East, Asian sub-continent, Australia. The International Business Group was formed in early 90's to cater mainly to the demand of Indians settled abroad. The Business was then small and it has over the years assumed increasing proportions with a phenomenal topline growth rate of more than 30%. Initially Marico exported only Parachute Coconut Oil. Now it caters to varying needs of customers in different countries with a host of varied offerings.
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Customising for local needs
The International Business Group has been customizing its products to cater to customers who belong to diverse cultures and consumer habits. For example, it offers perfumed oils to consumers in Bangladesh and Hair Creams and Hair Oils (with lower coconut oil content) to Arabs in the Gulf.
Market shares of Marico's brands overseas have been rising. Parachute Coconut Oil is the market leader in Bangladesh with almost half the market share while other hair oils and hair care products have been consolidating their share of the market. Hair Cream in Gulf is increasingly growing into a big brand.
IBG over the years - IBG Turnover in INR Million
IBG contribution up from 10% to 16% of total turnover. Kaya clinic Kaya Ltd (erstwhile Kaya Skin Care Ltd.) was an entrepreneurial leap of faith marking Marico's entry into skin care solutions business. Kaya Ltd. has been focused on meeting the emerging needs of the modern day consumers by providing useful and effective
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services in the beauty and wellness space. The pioneering effort has been in the area of skin care with Kaya Skin Clinic. For over 5 years Kaya Skin Clinic has refined the standards and professionalisms of the skin care industry through innovative, world class treatments and services that have been tailor made to suit Indian skin. Kaya Limited is now recognized as a pioneer in skin care and has become a benchmark for efficacy and client care. In just over 4 years, Kaya now spans 57 Skin Clinics in 20 Indian cities, in addition to the 9 in Middle East. Over 350,000 delighted customers now pledge their trust in Kaya.
In 2001, Marico Chairman & Managing Director Harsh Mariwala was approached by a New York-based company to sell laser hair-removal machines in India. It was perhaps looking at distribution synergies with Marico’s personal care business. Mariwala, on his
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part, turned down the proposal. Instead, the very next year, he ventured into skin care services and thus was born the Kaya range of clinics.
Last month, Kaya opened its 100th outlet. That might not seem a very big number over seven years. And the business still doesn’t make money. It clocked a loss of Rs 50 lakh on a turnover of Rs 164 crore last year. Not all is mired in a loss. Last year, domestic operations made a profit of Rs 2.5 crore — it was the international business (West Asia) which lost Rs 3 crore. So far, not a single clinic has downed shutters. From the beginning, Kaya was averse to the franchisee route because it wanted to control quality and ensure the delivery was consistent across the chain — the principal rule of service. ?We are not just another beauty parlour, we provide customers a dermatologist’s expertise in a comforting ambience,? says Pandey. Positioned somewhere between a beauty parlour and a dermatologist, the service called for technology, superior hygiene and consistency. Which is why Kaya was unwilling to let others handle the job. Over a fourth of Kaya’s 600,000 customers have signed on in the last one year. And the share of men has grown from 18 per cent in 2004 to 25 per cent now. The company’s strategy is to increase penetration within cities rather than spread to more towns. Today, Kaya has a presence in 24 cities in the country either through standalone outlets or a shop-in-shop in department stores such as Lifestyle or Shopper’s Stop. That’s not to say Kaya won’t venture into some Tier II cities; for example, after Lucknow, it could explore places like Kanpur.
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Kaya has also tied up with Jet Airways and HSBC to offer their customers special benefits. And since the average ticket size of such customers is fairly hefty at Rs 6,000, Kaya has tied up with ICICI Bank and HDFC bank to offer customers zero-interest loans. A key focus area will be to reduce lapses; in other words, prevent customers from dropping out midway through the treatment.
To attract new customers, Kaya has roped in Riddhima Kapoor as brand ambassador. Although not a star, she is considered approachable with some star quality because of her parentage — she is the daughter of yesteryears’ film stars Rishi Kapoor and Nitu Singh. And, of course, she has good skin. Riddhima’s like the girl next door but with some aspirational quality and adds credibility to the brand. A couple of months back, Kaya unveiled a new television campaign. ?Our brand was perceived as being too distant, one that was talking down to people and with a low warmth quotient,? concedes Das. So the tone was softened to allow the brand to relate to more people, within the same target group of 25 to 45 years. That was also the time when Kaya launched a huge digital initiative: Routine display advertisements apart, key words like acne could be linked from Google and there’s a clinic group on Facebook. Ad spends are 10 to 12 per cent of sales with television accounting for the bulk of the expenditure. Print advertising has become more focused. For instance, when Femina did a swimsuit special recently, Kaya advertised its hair-free service. Such focused work, it hopes, will do the trick.
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The factors that led to its further expansion
Diversification Big retailers have to first create economies of scale before looking at private labels and make these robust enough to compete with branded players. The real challenge will be in staple foods, cleaners and disinfectants and we are not in that space at all. Only 4 per cent of our business is with modern trade. Indian FMCG companies have traditionally worked through distributors, I do not see that changing for a while. But eventually some part of our distribution will become direct with the likes of Wal-Mart coming in. Changing customer needs Today's consumer is awakening to the benefits of health and wellness. Changing lifestyles and the fast pace leading to deterioration in overall health and the growing obesity in the country led us to launch our new initiative Kaya Life. 'Kaya' was an entrepreneurial venture of Marico's entry into skin care solutions business. It was a true reflection of uncommon sense for a company in hair care products to move, instead of merely logical product extensions, straight into skin care services. It attempted to leverage Marico's strengths in the Personal Care business and in-depth understanding of the needs of the Indian consumer and her/his desire to enhance her/his natural beauty with the best cosmetic dermatology procedures available internationally.
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Conclusion
CEO & MD Harsh Mariwala recognized opportunity for FMCG products and separated a division of BOIL. Values those which are ingrained in the organization now are due to the choices that Harsh Mariwala made in the initial stages. The flat structure also helped the company to nurture the values of innovation, entrepreneurship and empowerment. Marico keeps a tap on environment by involving with suppliers, changing according to customer needs and maintains a leading position in the market segments in which it is present. Marico strategized to use its core competency of knowledge in health care and hair care to gain competitive advantage in skincare through Kaya skin clinic.The organic structure of organization worked well with the values of the organization to make an approach to social activities. Thus, it is an example of a successful organization that has grown and evolved in a competitive market, also a market where the customer is very demanding needing the organization to make changes that keep growing on a sustainable basis.
Learnings from the project
Organization growth will happen only when leaders recognize opportunities and organizations change according to the needs of environment. If the organization is in a market which is unstable and dynamic then innovation plays a big role. Marico sensed this and implemented well.
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In order to grow and stretch its wings, Marico is trying to open its own retail chain which infers that to make an organization grow is to venture into different segments by diversifying
Reference sources
www.marico.com www.livemint.com www.business-standard.com www.ciionline.org
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