Competitive analysis of Toilet Soap Industry (DOC)

					N. L. Dalmia Institute of Management Studies and Research
        Srishti, Sector – 1, Mira Road (E) - 401104



                  PROJECT REPORT
                           ON
 “COMPETITIVE ANALYSIS OF TOILET SOAP
                     INDUSTRY”
                                             Competitive Analysis of Toilet Soap Industry



                          TABLE OF CONTENTS


      Sr. No                        Particulars                           Page
                                                                           No.


         1        Introduction                                              3


         2        Porter five forces model                                 11


         3        PEST Analysis                                            17


         4        SWOT Analysis                                            19


         5        Value chain Analysis                                     21


         6        HLL (Overview & Swot analysis)                           24


         7        Nirma (Overview & Swot analysis)                         38


         8        Godrej (Overview & Swot analysis )                       42


         9        Suggestion & Conclusions                                 46




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Vishal Mungekar
                                           Competitive Analysis of Toilet Soap Industry



Toilet Soaps- An Introduction

The toilet soaps market is estimated at 530,000 tpa including small imports.
Hindustan Lever is, of course, the market leader.

The market is littered over with several, leading national and global brands and a
large number of small brands, which have limited markets. The popular and
premium brands include Lifebuoy, Lux, Cinthol, Liril, Rexona, and Nirma.

Toilet soaps, despite their divergent brands, are not well differentiated by the
consumers. It is, therefore, not clear if it is the brand loyalty or experimentation
lured by high volume media campaign, which sustain them. A consequence is that
the market is fragmented. It is obvious that this must lead to a highly competitive
market. Toilet soap, once only an urban phenomenon, has now penetrated
practically all areas including remote rural areas. The incremental demand flows
from population increase and rise in usage norm impacted as it is by a greater
concern for hygiene. Increased sales revenues would also expand from up gradation
of quality or per unit value.

As the market is constituted now, it can be divided into four price segments:
premium, popular, discount and economy soaps. Premium soaps are estimated to
have a market volume of about 80,000 tonnes. This translates into a share of about
14 to 15%. However, by value it is as much as 30%.




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Market Segmentation


                                      Size (In Lakh Tonnes)



                                  1         0.8
                                                                      Premium
                                                                      Popular
                                                                      Economy
                            1.3
                                               2.2                    Discount




Soaps are also categorized into men's soaps, ladies' soaps and common soaps. There
are a few specialty soaps as transparent Glycerine soaps, sandal soaps, specially
flavored soaps, medicated soaps and baby soaps. Specialty soaps are high valued
but enjoy only a small share of the market in value terms.

The market is growing at 7% a year. This means that the incremental demand
generation is 5% over and above the population growth. With increasing awareness
of hygienic standards, the market could grow at a rate higher than 8% annually.
Interestingly, 60% of the market is now sourced from the rural sector. This means
that the variance between the two segments is not very large. Since upper-end
market focus is the urban areas, margins come from the urban sector.

Factors affecting buying behaviour

Price is the most important factor which effects the buying behavior of consumer,
by which a consumer goes for the various segment of soap like premium, popular,
sub-popular and carbolic which are basically decided by the cost factor and fat
content in the soap.

The buying frequency is either monthly that is done by the families or in case of
bachelors it is more than once in a month. The occasions when premium soaps are



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Vishal Mungekar
                                            Competitive Analysis of Toilet Soap Industry



purchased are usually when there are festivals and ceremonies. Moti Soaps are
usually presented during festivals and occasions for presents and gifts.

The promotional techniques help to boost sales. Various tactics like the price off’s,
buy one get two free, free gifts and other schemes help boost sales in short run and
also help in clearing stocks.

One of the important points a soap marketer should note is that the soaps are usually
purchased by women in urban areas as most of the day to day consumption of
personal care products are made by women. A point to note is that women use more
personal care product than men do and hence premium soaps are mostly targeted at
them. Men normally make purchase decisions in rural areas. Hence the marketer has
to adopt different strategy for such a market.




                                      Demand

                       2000-01

                       1998-99
                Year




                       1996-97

                       1994-95                                  Tonnes

                       1992-93

                       1990-91

                                 0    200        400    600
                                        Tonne s




The market shows a seasonal behavior for some brands, i.e. the brands change as
per the customers' need for that particular season. For e.g. in summer - running
brand popular and sub-popular most of the buyer take bath twice in a day specially
in northern belt, in monsoon - running brand antiseptic and medicated soap, in
winter running brand premium (moisturizer and creamy soap).




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                                          Competitive Analysis of Toilet Soap Industry



Benefits sought by various customers from various brands are

Beauty - Lux

Freshness – Liril, Cinthol

Natural – Medimix, Margo

Baby – Johnson & Johnson, Doy

Cream – Dove, Doy Care (moisturizing)

Medicated – Dettol, Savlon,

Glycerine – Pears, Emami




Penetration

One of the factors, which affect the demand of soaps, is the penetration, which the
products have in market. In case of soaps this has not been a major issue as the
penetration in the rural area is as high as 97% and that for urban area is around
99%. Thus the approximately the penetration is around 99% for overall India.




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Vishal Mungekar
                                                    Competitive Analysis of Toilet Soap Industry



Market Share




                                            Market Share

                         Others             14.8
              Players


                        Godrej        4.4
                        Nirma                16.8
                          HLL                                         64

                                  0          20       40         60         80
                                                    % Share




In terms of market share, the data indicates that HLL had a market share of 64 per
cent in the soap market, followed by Nirma at 16.8 per cent and Godrej at 4.4 per
cent. However, when contacted by ET, Nirma officials said their market share was
in the region of 21 per cent.

Hindustan Lever is the largest contributor to the toilet soaps market of India. It
enjoys almost a two-thirds share, with the second ranked Nirma Soaps placed at a
distantly low share of 16.8%. Lux and Lifebuoy have held the sway of the market
for almost fifty years. While the former brand remained the preserve of the high-end
rich consumers, Lifebuoy ruled the roost with health-conscious users as a hygienic
soap. The products underwent up-gradations with the introduction of versions like
International Lux and Lifebuoy Personal. In between came brands like Nirma Rose,
Nirma Beauty Soap, Breeze, Caress, and LeSancy. In 1993 came Dove. Earlier,
Liril made waves with its lemon touch and bathing acrobatics.

At the medium and lower rungs, brands like Hamam, Moti, Jai, Rexona (third
largest brand) were well supported by OK and later by OK NSD Bar.

The brands have undergone a full foray of launches and relaunches, making each
occasion to give a more vigorous thrust to the marketing effort. Quite a few of the

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                                             Competitive Analysis of Toilet Soap Industry



brands have been acquired: Hamam from TOMCO and Baby Toilet soap from
Johnson & Johnson, for example.

While Pears has dominated as high profile specialty soap, HLL undertook, in 1992,
a project to manufacture the product for the world market at Khamgaon in
Maharashtra. Commercial production commenced in 1993.

To provide a sound base to its toilet soaps operations, HLL has also branched out
into other toiletries like shampoos and related products like glycerine, fatty acids.

Godrej Soaps had a disappointing experience in forging an alliance with Procter &
Gamble (P&G). Infact P&G is withdrawing itself from the premium soap segment
like Camay.

P & G has now a fully-owned subsidiary in India and now it is concentrating more
on personal care products. Godrej retained all soap brands and transferred detergent
brands to P&G in 1993. Godrej found it convenient to shed the detergent brands -
Ezee, Key, Biz and Trilo - as they represented a losing portfolio.

Godrej is promoting a number of brands, Cinthol, Ganga, Shikakai, Fairglow, No.1
and Crowning Glory, while it has others to bother about such as Vigil and Fresca.
Cinthol ranks third and accounts for 60% of all Godrej Soap's brands. It is an old
brand launched about five decades ago in early 1950s. New Cinthol Lime and
Cologne gave it a new look in 1985. Two variants were introduced in 1989 placing
an added emphasis on their brand of soaps. Its deodorant and complexion soap is
styled as Cinthol Spice. Cinthol is perceived largely as a male soap, as Lux is a
lady's soap. The company expects a very high growth for Cinthol in 1997-98.
Ganga did well and a new version Doodh Ganga has been introduced. Ganga had
notched up a 5% market share but declined to 2% later with sales at Rs 350 mn.
Godrej wants to revive it. Godrej Soaps was giving a tough competition to
Hindustan Lever. Crowning Glory was pitched for hair care.




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Vishal Mungekar
                                            Competitive Analysis of Toilet Soap Industry



Even Nirma has achieved a significant penetration and has notched up an
impressive 60,000 tonnes sale in just three years. Nirma Ltd has been putting up a
backward integration plant to produce soda ash and linear alkyl benzene (LAB).

Capacity utilization in the industry varies from as low as 50% to 80%. Godrej Soaps
Limited (GSL) has been using its capacity by working for other producers. GSL
makes Rexona and Dettol for Reckitt & Colman of India and Johnson's Baby Soap
for Hindustan Lever (Johnson & Johnson). And yet only half of its capacity of
71,000 tonnes is being used. Also companies like VVF Ltd. has state of the art
technology oriented plants, which they mostly use for producing brands like Dettol,
Nivea Creame soap and also internationally well know brands like Fa for other
marketers.

It seems Indians have sacrificed hygiene at the altar of thrift. If numbers are
anything to go by, Indians do seem to be washing themselves, as well as their
clothes, rather less. Data collated by industry certainly points to this rather
unpleasant conclusion. The consumption of soaps and detergents has shrunk
substantially with volumes declining by 11.5 per cent and consumption of
detergents declining by 4.1 per cent in the year.

The evidence of this decline in consumption is somewhat perplexing in a country
with a growing population as the consumption of soap and detergents should
logically be directly proportional to population growth. "Soaps and detergents are at
the back of the house and are not status products like TVs or refrigerators. It’s
possible that consumers may be economizing on their use or buying cheaper brands
during a downturn," explains an official at a leading FMCG firm.

One possible reason could be increased production in the small-scale sector. For
instance, besides detergents sold as powders and bars, which is produced by
organized players, a large quantum of detergents are sold in the form of laundry
soaps, which are used for washing clothes. Production of laundry soaps are reserved
for the small-scale sector and data is not readily available. There is also a large


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Vishal Mungekar
                                           Competitive Analysis of Toilet Soap Industry



cottage industry producing cheap soap, used for personal wash, for which reliable
numbers are not available.

Another possible reason for the apparent decline in consumption could be the free
samples of soap which have been handed out as part of incentive schemes, say
industry sources. “The quantum of such samples may not be picked up in the data,”
said the official.

There is another whacky hypothesis. Many households earlier used soaps for twin
purposes: for body wash as well as shampoo substitutes.

However, successful sachet marketing in shampoo seems to have now
penetrated this market, which has directly impacted the sales of soaps.

A detailed analysis of the data shows that sale of premium soaps, the likes of HLL’s
Lux or Godrej’s Cinthol, declined by 13.1 per cent. But even the carbolic or
discount soaps — the likes of HLL’s Lifebuoy or Nirma — saw volumes decline by
9.9 per cent. Even though the market has shown de-growth in toilet soaps segment,
analyst say that it will grow at a meager rate of 3 to 4 per cent especially in the
premium category, which was previously looking attractive. This can be attributed
to factors like excessive dependent of Indian rural sector on monsoon, which can be
uncertain. Also due to high excise duty prices have remained high enough to keep
the huge middle class chunk away from this market. Thirdly 80% of the raw
materials used in premium soap are imports, which attract high import duty. All this
factors lead to increase in cost, which deters the players to provide value for money
product to the middle class consumer.




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Vishal Mungekar
                                               Competitive Analysis of Toilet Soap Industry



Porters 5 Forces Model

                             SUPPLIER POWER
                             Supplier concentration
                             Importance of volume to
                             supplier
                             Differentiation of inputs
                             Impact of inputs on cost or
                             differentiation
                             Switching costs of firms in the
                             industry
                             Presence of substitute inputs
                             Threat of forward integration
                             Cost relative to total purchases
                             in industry

BARRIERS TO ENTRY
Absolute cost advantages
Proprietary learning curve                                      THREAT OF
                                        RIVALRY
Access to inputs                                                SUBSTITUTES
Government policy                                               -Switching costs
Economies of scale                                              -Buyer inclination to
Capital requirements                                            substitute
Brand identity                                                  -Relative price
Switching costs                                                 performance of
Access to distribution                                          substitutes
Expected retaliation
Proprietary products

                             BUYER POWER                        DEGREE OF
                             Bargaining leverage                RIVALRY


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Vishal Mungekar
                                                Competitive Analysis of Toilet Soap Industry



                               Buyer volume                      -Exit barriers
                               Buyer information                 -Industry concentration
                               Brand identity                    ratio
                               Price sensitivity                 -Fixed costs/Value
                               Threat of backward integration added
                               Product differentiation           -Industry growth
                               Buyer concentration vs.           -Intermittent
                               industry                          overcapacity
                               Substitutes available             -Product differences
                               Buyers' incentives                -Switching costs
                                                                 -Brand identity
                                                                 -Diversity of rivals
                                                                 -Corporate stakes




New Entrants

The major raw material required for toilet soap is palm oil which is required to be
imported from countries like Malaysia. Palm oil is an expensive ingredient and this
gives a low cost advantage to the soap industry of countries like Malaysia, China
etc. The exporters of these countries could supply good quality soaps at rates less
than the Indian competitors.

There are companies like Marico, Kopran, and Anchor to launch soaps in the
premium category. Oriflamme has entered the market recently with premium soap
for the niche segment Milk & Honey (40 Rs 100 Gms) and Kopran has titled its
new offering Shine & Smile.

The new entrants generally cater to small markets for e.g. there are a large number
of soap manufacturers catering the local markets of southern states. Most of these
players are a part of the large unorganized sector, which directly purchases fatty
acids of palm oil from the Indian manufacturers.

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Vishal Mungekar
                                           Competitive Analysis of Toilet Soap Industry



HLL takes complete advantage of the economies of scale by procuring huge
quantities of raw material and flushes the market with vast varieties of soaps with
minor variations.

Brands like Liril, Lux, Dettol created by existing players proves a hurdle for the
new entrants like Doy Care (VVF Ltd.) but there are a large number of players
operating at the local level.

The switching cost for the consumers is not very high in the soap category.
Premium Category, although compared to other does enjoy a better Brand Loyalty.
Even in case of specialty soaps like J&J, Santoor, where Brand Loyalty is generally
high.

The capital required for manufacturing process is very high in this sector especially
if one needs to manufacture standardized quality soap. Most manufacturers in the
organized sector like import the machinery from Italy.

Distribution is the key factor in this sector. Companies having a good distribution
network are able to cater to a wider market across the country. Sales are volume
driven and not value driven.

The specialty about this sector is that it has a high level of learning curve that
improves with experience and therefore soap manufacturing is quite often called an
art rather than a science.

The duties applicable to this sector are very high and thus prove to be major barrier
for the new entrant.




Substitutes

Generally one can point at two general broad substitute threats in the Premium soap
category. One threat is from the use of products like body wash and face wash.
Though the use of these products forms a very small part of consumption this is

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                                            Competitive Analysis of Toilet Soap Industry



basically due to the high costs associated with such products. One can see in the
some developed countries which have already registered a cent percent penetration,
the consumption of soap has now decreased due to the customers upgrading to Body
wash and Face wash.

The second threat is from downtrading i.e. the consumers from the premium
category opting for the popular category soap. Any small change in the price of the
Premium soap can cause in the shift of the price conscious consumer to opt for
shifting to a soap in the Popular category. Most companies like HLL, Nirma cater to
both the categories.




Suppliers

The major input for the soap manufacture is vegetable oil (around 80% of the raw
materials). Earlier Animal Fat was used which was even cheaper, but after the
Indian government banning animal fat, one had to shift to vegetable oils. They are
not available in India and thus have to be imported from countries like Malaysia,
Indonesia and China. There are only few players who export palm oil from these
countries and as such these exporters have a commanding position.

There are various grades of palm oil available and the manufacturer can switch
between these grades to save on the cost of inputs.              Besides, soap can be
manufactured either from fatty acids or directly from the oil.

The soap manufacturers cater to the current and future needs of consumers through
the development of new formulations and relate these to their suppliers. A prime
example of this is the current trend towards producing higher quality soaps and the
customization of the products for e.g. Soap for different skin types. Such moves
result in new formulations that force suppliers to modify quality of inputs.




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Vishal Mungekar
                                           Competitive Analysis of Toilet Soap Industry



Companies like Godrej and VVF who previously used to supply soaps to other
bigger companies have gone for forward integration and started selling their own
brands.

Small players cannot afford to import Oils as the price of Oil keeps on fluctuating
and these fluctuations, if on the higher side cannot be incorporated in the price of
the product in this age of cut-throat competition. So they directly purchase fatty
acids of oils from large-scale Indian manufacturers who import Oil and convert
them to fatty acids.




Buyer

To a large extent, Premium Soap is a price sensitive market. Off late there has been
an increasing trend towards downtrading. And this has forced the manufacturers to
lower the prices or offer temporary discounts to woo the consumers who are either
downtrading from the popular segment or graduating upwards from carbolic soaps.

This sector faces low level of brand loyalty. Switching costs is very low and these
results in price war and people are concentrating on value-for-money. This forces a
lot of players to go for frequent promotional schemes like 3-on-1, 2-on-1.

Earlier the decision for purchasing the soaps was equally balanced between man
and woman (50:50).

Now the decision ratio is 60:40 in the favor of woman purchaser. This proves the
fact that today most soaps are targeted at the Indian woman.

The buyers, even in the rural area are subjected to the media invasion and are well
informed about the basket of products available in the market and thus take a
rational decision.




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Vishal Mungekar
                                            Competitive Analysis of Toilet Soap Industry



Industrial Rivalry

As India has a low per capita consumption of soaps the growth in this sector has
been stagnant. Penetration though on an average is 95%, consumption in our
country, as compared to other developed countries is a bare minimal (In the rural
market, even though penetration is high the frequency of taking a bath with soap is
one out of 5 occasions). Capacity utilization in the industry varies from as low as
50% to 80%. The market is littered over with several, leading national and global
brands and a large number of small brands, which have limited markets.

There exist high exit barriers in the industry due to high capital investment.




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Vishal Mungekar
                                           Competitive Analysis of Toilet Soap Industry



PEST Analysis:

Political Factors: --

Earlier the soap industry was under the Licence-raj restrictions. But, after
liberalization of economy by the Narshima Rao government there has been a spurt
in the number of players in the organized as well as the unorganized sector. A
player like Henkel SPIC is good example of this. The political system in India is
undergoing vast change. There has been competition between various states like
Maharashtra, Gujarat, Andhra Pradesh and Madhya Pradesh. The sops given to new
entrants like sales tax concessions and other incentives help encourage players to
open their shops in these states.

Government banned the import of tallow, a soap making raw material (which was
requiring a very little processing to make soap). It then followed an incidence of
adulteration of vanaspati by unscrupulous manufacture.




Economic Factors

Soaps in India cost very high in India as compared to other countries like Indonesia.
E.g. 100 gms of soap in Indonesia costs rs.4.25 whereas in India it costs rs.10
approximately. This is primarily attributed to the high cost of imports due to high
import duties. Since India is now a WTO member India will have to bring down the
import duty rates to as much as 20% from 35%. Also the excise rate at 16% forms
formidable portion of the cost. The Indian players are lobbying with the government
agencies to reduce this duty which can bring down the cost of the final product. For
toilet soap, the average expenditure per user household for low-income households
is Rs. 237, while it is Rs. 706 for high-income groups.




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Social factors:

The social factor is very important when it comes to Premium soaps segment of the
soap market. With the rising education and disposable income levels, the need for
hygiene and personal / skin care becomes important. Premium soaps are thus
targeted at the audience to change their habits by raising their aspiration levels.

Lack of good hygiene factor like availability of clear water for bathing purpose also
discourages extensive use of premium soaps by vast population. Fragmented
approach of govt. and NGO’s towards inefficient PHC-primary health center also
aggravates the problem. Investment in basic sanitation will make biggest
improvement to health and also to the soap market.

The growing reach of advertising medias like satellite and cable TV too is expected
to give a boost to the market penetration initiatives of the industry players.




Technological Factors:

The industry though capital intensive is not very technology intensive. Premium
soap manufacturing though compared with other soaps manufacturing relies to an
extent on technology (especially in the finishing stage). The more important is
logistics management where marketing and distribution play a pivotal role. Here
technology like (SCM) Supply Chain Management and (E-CRM) Electronic
Customer Relationship Management will play a pivotal role. Companies like HLL
are working very hard towards such a system to rope up the entire small stores and
retailers (Kirana Stores).

The results of a survey done by National Council of Applied Research (NCAER)
suggest that Indian FMCG space is all set to enter a new growth phase, sample this:
the study says that the lower income group is expected to shrink from over 60
percent (1996) to 20 per cent by 2007 and the higher income group is expected to



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rise by more than 100 per cent. It looks; the industry is all set for a fast-paced race
ahead.




SWOT ANALYSIS

Strengths

Soap penetration: soap has a very high penetration of 95% in the urban region while
the rural region contributes to 85% penetration, which shows a potential for growth
in the rural sector.

Soaps is a Delicenced Industry, which symbolizes that any individual with finance
and marketing skills can enter the industry.




Weakness

The duty structure: excise duty is at the rate of 16% on all toilet soaps and the sales
tax structure varies from state to state with a minimum of 8 % in some states
ranging upto 20 % in most of the southern states like Andra Pradesh, Tamil Nadu,
and Orissa

India solely depends on the Imports for vegetable oil mainly from Malaysia &
Indonesia and import duty is as high as 35%.

The fairly high contribution from rural market makes this category sensitive to the
fortunes of the agriculture economy

The large-scale organized sector where the Technology and Capital Invested are
high. The other popular and carbolic soaps are manufactured by small
manufacturing units predominantly existing in the southern sector.

Heavy launch costs



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                                            Competitive Analysis of Toilet Soap Industry



Opportunity

Indian Exports for Soaps are quite insignificant. The reason being other South Asian
countries like Malaysia, Indonesia and China have Palm Oil available in abundance.
Hence exporting Soaps becomes an expensive proposition. India can concentrate on
exports of specialty soaps like ayurvedic, herbal and special categories like fairness
soaps.

Internet is fast emerging as a strong distribution channel and the new players are
finding it easier to launch assaults through this medium very effectively.

In the world of cut throat competition ‘Quality’ at an affordable price is the new
mantra. Companies are trying every measure to improve the quality of the product
by maintaining or at times even decreasing the price to make the product affordable
and competitive.

Presence of a large unorganized market: branded products can wash the
unorganized market by providing value for money products at competitive market




Threats

Industry Growth – the entire soap Industry is growing at a minimal rate of 3 % and
the entire FMCG industry is passing through turmoil, where the soap segment
registered actually a negative growth leading to saturation.

The only players we see are the low (cheap) quality soaps from countries like
Indonesia, Malaysia and China, which has a low freight cost structure and also a
substantially low cost of manufacturing.




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Value Chain Analysis

There has been rapid change taking place in the way firms function as a result of
changes in the external environment. Instead of a constant and predictable demand
pattern, firms now have to deal with tremendous variations in demand patterns. In
the case of FMCG companies, this is especially true in the commercial soap
business. Also, instead of limited product offerings, firms now have a wide range of
products to offer – soap manufacturers manufacture as many as 350 different brands
today. Earlier, firms used to work with a high level of outsourcing. At present
however, vertical integration is the preferred option and is increasingly gaining
importance. Companies like HLL have become a leader in the soap sector because
of this vertical integration.



                    Supply Chain Management SOAP-THE NEW
                                  (OUT)LOOK


                                    THEN                                  NOW



  Customer                          End of the value                       Beginning of the value
                                         chain                                     chain

  Offering                           Few                                  Variety to suit the
                                    Brands                                      needs

       Role of                       Supplier of                            Supplier of value for
     Manufacturer                     product                                     money


     Advertising & Sales            Intermittent                            Intense &
         Promotion                                                          Extensive

  Distribution                         Only support                              Important role
                                        function                           -right product, right place




The supply chain is fast evolving (see figure above). The customer is now at the top
of the chain; offerings from firms have become varied and cater to the specific need


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Vishal Mungekar
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of the customer, competition is high and there is high level of price war that induces
players to provide the value for money product for the customer. Companies are
now focusing on logistics both inbound as well as outbound which will supply
product to the lowest level of the value chain that is the end user. Transporters are
graduating from offering merely the transportation of goods to providing end-to-end
logistics solutions. The duty rates on the higher side coupled with the fluctuating
price of imports make it very important to have good procurement system. These go
a long way in controlling and at times minimizing costs of raw material that can
then add value to the final product.

There are three important and inter-linked variables in the supply chain

 Cost reduction,

 Quality improvement,

 Logistics both inbound & outbound.



The focus at soap manufacturers is equal on all the above factors as these are
interlinked to large extent. Quality is linked to Total Fatty Matter (TFM) which
increases the cost of the soap. This is because this fatty matter is imported which
attract high import duty. These costs can be controlled by good procurement system
that will minimize the inbound logistics cost. Soaps are manufactured by two
methods.

Directly from oil where you do not get glycerin as a byproduct.

From Fatty acids where you get glycerin as a byproduct.

Thus by using the second method soaps manufacturer sell glycerin and reduce cost
of actual final product i.e. soap. But the technology is far more superior when it
comes to using the second method that increases the fixed cost of manufacturing
soap.


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Vishal Mungekar
                                            Competitive Analysis of Toilet Soap Industry



While inbound logistics helps to minimize cost at input stage, a good out bound
logistics support will help in reducing cost of the product by providing the product
at the right place and at the right time with minimum inventory levels. An important
factor in soaps industry is that there are many channel of distribution like stockists,
distributors and retailers. At every stage margins (stockists 2-6 %, distributors 6-10
%, retailers 5-10 %) are added to the product cost which increase the price of the
product. These margins are added for non value adding activity. A proper
management of channel using computerized (SCM) Supply Chain Management
system along with good outbound logistics support enhances the value of the
product. HLL envisages its success on this factor as it has a very good distribution
and channel management system.




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                                             Competitive Analysis of Toilet Soap Industry



HLL-The FMCG Giant

Hindustan Lever is the largest contributor to the toilet soaps market of India. It
enjoys almost a two-thirds share, with the second ranked Nirma placed at a distantly
of 16 %. Some of the big brands in Soaps are Lifebuoy, the largest selling soap in
India, Lux, Liril, Pears, Hamam, Rexona, Breeze, Dove, and Savlon.

Lux and Lifebuoy have held the sway of the market for almost fifty years. While the
former brand remained the preserve of the high-end rich consumers, Lifebuoy ruled
the roost with health-conscious users as a hygienic soap.

The products underwent up gradations with the introduction of versions like
International Lux and Lifebuoy Personal. In between came brands like Breeze,
Caress, LeSancy. In 1993 came Dove.

Earlier, Liril made waves with its lemon touch and bathing acrobatics. At the
medium and lower rungs, brands like Hamam, Moti, Jai, Rexona (third largest
brand) were ruling the roost.

While Pears has dominated as high profile specialty soap, HLL undertook, in 1992,
a project to manufacture the product for the world market at Khamgaon in
Maharashtra. Commercial production commenced in 1993.

To provide a sound base to its toilet soaps operations, HLL has also branched out
into other toiletries like shampoos and related products like glycerine, fatty acids.

Denim is HLL’s franchise for Men’s toiletries.

The Core Competencies of HLL is its nation wide strong Distribution network.
Before we look at its distribution network, the best so far in this country, let us
reflect on the rural India scenario.

Around 700 million people, or 70% of India's population, live in 6,27,000 villages
in rural areas. 90% of the rural population is concentrated in villages with a
population of less than 2000.

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The statistics is daunting. Particularly for HLL, which markets Packaged Mass
Consumer Goods (PMCG) of everyday use, the size of the rural market makes it
essential to tap.

HLL has traditionally focused on the rural market. Several of our company's major
business categories, such as Fabric Wash, Personal Wash and Beverages, already
get over 50% of their sales from rural areas.




Rich Company Poor Consumers: The Plan of Action

HLL realises that there is much more that needs to be done. To service rural
markets, the key issues that need to be addressed are the 3 important A’s viz.
availability, awareness and overcoming prevalent attitudes and habits.




Extending Availability

Data on rural consumer buying behaviour indicates that the rural retailer influences
35% of purchase occasions. Therefore, sheer product availability can determine
brand choice, volumes and market share.



Project Streamline was conceptualized to significantly enhance HLL’s control on
the rural supply chain through a network of rural sub-stockists, who are based in
these very villages. As part of the project, higher quality servicing, in terms of
frequency, credit and full-line availability, is provided to rural trade. Thereby,
giving HLL a substantial competitive edge over the next decade.

The principle of Project Streamline is to leverage HLL’s scale and organizational
synergy to increase reach in rural markets. The pivot of Streamline is the Rural
Distributor (RD), who has15-20 rural sub-stockists attached to him. Each of these
sub-stockists is located in a rural market. The sub-stockist then performs the role of


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driving distribution in neighboring villages using unconventional means of transport
such as tractor, bullock cart, and other means of transport.

From 1998, the project has been rolled out in select states of the country where the
terrain or poor stage of market development typically makes any distribution system
unviable. The Streamline system has extended direct HLL reach in these markets to
about 37% of India's rural population from 25% in 1995. Most important, the
number of HLL brands and SKUs stocked by village retailers has gone up
significantly. Having done that, the project now aims to expand our coverage to
50% of rural population by 2003.




Influencing Affordability

Influencing affordability Project Streamline focused on extending distribution,
Project Bharat’s influence was restricted to raising penetration and awareness
levels. On the anvil, is a new rural program, which will reach villages with a
population below 2000 and influence income as well.

This path-breaking venture aims to facilitate the doubling of our share of the rural
consumer's wallet in three years. The model is unique in that it influences all the
variables that influence growth. The model triples physicals reach, doubles
communication reach, creates a platform for influencing attitude changes and
raising incomes.

HLL’s rural growth engine raises incomes of rural families by channel intervention
through rural Self - Help Groups (SHG), which operate like direct-to-home
distributors. The model consists of groups of (15-20) villagers below the poverty
line (Rs.750 per month) taking micro-credit from banks, and using that to buy
HLL’s products, which they will then directly sell to consumers. In the process,
generating employment and incomes for themselves, and increasing the reach of
their products.


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HLL is tying up with various Non-Governmental Organizations, United Nations'
Development Programme (UNDP), and voluntary organizations to propagate health
and hygiene messages. The goal is to reach 2,35,000 villages up from the current
85,000; 75% of the population up from 43% today; and a message reach of 65% up
from the current TV reach of 33%. In the process we aim to increase access,
influence attitudes, create a channel to raise awareness of its brands and catalyze
affluence in rural India




Enhancing awareness

Mass media reaches only 57% of the rural population. Generating awareness, then,
means utilizing targeted, unconventional media including ambient media. HLL has
been utilizing events such as fairs and festivals, etc. as occasions for brand
communication. Cinema vans shop-fronts, walls and wells are other media vehicles
that we have utilized to heighten brand and pack visibility.




Overcoming attitudes and habits

Creating distributive reach is not sufficient to tap the rural markets. Market
development can be a difficult task because in rural India, both consumption and
penetration of Soaps is quite low. For instance, even for other personal care
products only three out of 10 people in rural areas use toothpaste or talcum powder,
or shampoo and skin care products, and only six use washing powders.

In Soap category, which has the most high penetration amongst the other PMCG,
the consumption is barely once per five bathing occasions.

Project Bharat, the first and largest rural home-to-home operation to have ever been
mounted by any company, sought to address many of these issues. The operation
was conducted in high-potential districts of the country. The exercise was started by
the Personal Products Division in 1998, and covered 13 million households by the

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end of 1999. In the course of the operation, company vans visited villages across the
country and distributed sample packs comprising a low-unit-price pack of soaps.

The distribution was supported by explanation of product usage and a video show,
which was interspersed with product communication. Thus we generated awareness
of its product categories and the availability of affordable packs.

Consumers were also made aware of the superior benefits of using our products vis-
à-vis their current habits (example: stress on hygiene), and the affordability of the
pack sizes on offer. The project, thus, successfully addressed issues of awareness,
attitudes and habits. Hopefully, as consumers in rural areas get exposed to such
value-added, value-for-money alternatives, they will continue to buy into the
categories. The project saw a 100% increase in penetration, user-ship and top-of-
mind awareness in the districts targeted. However, sampling once is not adequate to
convert non-users. So Personal Products rolled out a follow-up program, the
Integrated Rural Promotion Van (IRPV), to once more target villages with a
population of over 2,000.




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HLL - SWOT

Strengths

Local Subsidiary of Unilever, world’s largest manufacturer of Consumer Goods.

Cutting edge distribution network in place, which ensures that the products reach
across the length and breadth of this vast country.

Maintaining favorable trade relations, providing innovative incentives to retailers
and organizing demand generation activities among a host of other things.



The evolution of HLL's distribution network – 4 Phases

Phase 1: The first phase of the HLL distribution network had wholesalers placing
bulk orders directly with the company. Large retailers also placed direct orders,
which comprised almost 30 per cent of the total orders collected.
The company salesman grouped all these orders and placed an indent with the Head
Office. Goods were sent to these markets, with the company salesman as the
consignee. The salesman then collected and distributed the products to the
respective wholesalers, against cash payment, and the money was remitted to the
company.



Phase 2: The focus of the second phase, which spanned the decades of the 40s, was
to provide desired products and quality service to the company's customers. In order
to achieve this, one wholesaler in each market was appointed as a "Registered
Wholesaler," a stock point for the company's products in that market. The company
salesman still covered the market, canvassing for orders from the rest of the trade.
He would then distribute stocks from the Registered Wholesaler through
distribution units maintained by the company. The Registered Wholesaler was given
a nominal margin of 1 per cent to cover the cost of warehousing and financing the



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stocks held by him. The Registered Wholesaler system, therefore, increased the
distribution reach of the company to a larger number of customers.



Phase 3: The highlight of the third phase was the concept of "Redistribution
Stockist" (RS) who replaced the RWs. The RS was required to provide the
distribution units to the company salesman. The RS financed his stocks and
provided warehousing facilities to store them. The RS also undertook demand
stimulation activities on behalf of the company.

The second characteristic of this period we realised that the RS would be able to
provide customer service only if he was serviced well. This knowledge led to the
establishment of the "Company Depots" system. This system helped in
transshipment, bulk breaking, and as a stockpoint to minimise stock-outs at the RS
level.



Phase 4: In the recent past, a significant change has been the replacement of the
Company Depot by a system of third party Carrying and Forwarding Agents
(C&FAs). The C&FAs acted as buffer stock-points to ensure that stock-outs did not
take place. The C&FA system has also resulted in cost savings in terms of direct
transportation and reduced time lag in delivery. The most important benefit has
been improved customer service.

The role performed by the Redistribution Stockists has also undergone changes over
the years. Financing stocks, providing manpower, providing service to retailers,
implementing promotional activities, extending indirect coverage, reporting sales
and stock data, screening for transit damages are some of the functions performed
by the RS today.




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Nationwide manufacturing facilities

The diverse product range of this giant is manufactured in close to 100 factories,
located across the length and breadth of India. The operations involve 2,000 suppliers
and associates. About 28 factories are situated in backward areas. In fact, all major
investments of HLL, in recent years, have been either in A-Category backward areas
or No-Industry Districts. These include factories in Khamgaon and Yavatmal
(Maharashtra), Chhindwara (Madhya Pradesh), Orai and Sumerpur (Uttar Pradesh),
Dabgram (West Bengal), Silvassa (Dadra & Nagar Haveli) and Pondicherry.

Equally, HLL has an enviable track record in taking over sick enterprises, in response
to requests from government authorities, and converting them into viable operations.
The company's units at Mangalore, Rajpura and Gajraula all bear testimony to this
achievement. In the process, HLL has saved precious jobs and developed local
economies.

Many of HLL's factories, including the export-dedicated units, have already
received ISO 9002 certification. Some manufacturing facilities, like the Khamgaon
soap plant and the Sumerpur detergent bar unit, have been recognized as among the
best in the Unilever world. The Sumerpur unit has also been conferred with the
Total Productive Maintenance (TPM) award for excellence by the Japan Institute of
Plant Maintenance (JIPM), the first Unilever factory in the Central Asia & Middle
East region to get the award.




State-of-the-art research facility

HLL has traditionally been a company, which incorporates latest technology in all its
operations. The Hindustan Lever Research Centre (HLRC), with facilities in Mumbai
and Bangalore, has over 100 highly qualified scientists and technologists, many with
post-doctoral experience acquired in the US and Europe. Set up in 1958, HLRC’s aim
is to develop new products and processes, improving benefits and quality of existing


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                                            Competitive Analysis of Toilet Soap Industry



products, optimal use of resources, energy conservation and pollution control. The
company has many achievements in these areas, with 169 patents till date.

Unilever has set up an International Research Laboratory in India, its sixth worldwide
and second outside Europe and North America. It focuses on Skin Research to meet
both global and regional requirements in these two core product categories.

One of the most significant breakthroughs of HLL’s research initiative has been the
development of a technology to use non-conventional forest seed oils for soap-
making, which, since the 1970s has helped save around $1.2 billion in foreign
exchange. HLL has received the Government of India's prestigious award for import
substitution. Development of Structuring Technology for soap manufacturing also
helps save costly conventional oils without any compromise on product performance
and quality. The latest technology to produce Distilled Fatty Acid for soap making
and the resultant plant capacity expansion has drastically brought down specific
energy consumption while improving distillation yields.




Product and process innovations

Valuable insights have also been gathered in understanding soap phases and how
soap properties such as the feel, lather, colour, appearance, size and shape can be
improved, resulting in better performance. Research into how soap gets its rigidity
has enabled development of bars containing liquid actives.

HLL has also developed the capability to design and manufacture machines in-house
or have them assembled by third parties as per given specifications. This enables the
company to set up plants at half the cost of others. Such technological developments
have also led to significant improvement in productivity. The capacity of a toilet soap
line has gone up from 6,000 tonnes per annum in the early nineties to 10,000 tonnes
per annum now, while that of a detergent bar line has gone up from 7,000 tonnes per
annum to 25,000 tonnes per annum now, thus substantially increasing capital
productivity.

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Strong Brand equity

While other players are concentrating on the popular and sub-popular segments,
HLL is making a bold decision of appealing consumers in the Premium. Lux- the
Beauty bar of film stars has managed to tap the aspiration levels of Indian woman
and today enjoys a big chunk of the Premium market. Close on its heals is Liril,
again dominating the Premium market and enjoying a strong brand equity. Lifebuoy
is a major cash cow of HLL which currently enjoys the place of being the largest
selling soap brand in India. The company in this stagnant market has made a bold
decision to relaunches lifebuoy in the popular segment, with Lifebuoy plus and
Lifebuoy Gold and has been successful.




Product Innovations & Niche markets

HLL has fragmented the market and has soap for every segment. A pear is doing
very well as the translucent soap and has a popular catch line of ‘Kuch Nahi’. Dove
cleverly positioned as not soap but a ‘moisturizer’ which takes special care of your
skin. Fair & Lovely soap, launched after the immense success of its parent F&L
Fairness Cream (Leader in the fairness cream segment) promises to change the
melanin of your skin by making you fairer. Lux International Skin Care, a
innovative patented formula which protects your skin from the sun, ‘ab dhoop se
kya darna’ claims the beautiful Aishwarya Rai facing the bright sun. Savlon
specially targeting the health conscious family members who need a soap to fight
bacteria and germs. Lux is now re-launched with extracts of mil, almonds and
honey keeping with the popular natural theme. And Denim, as the name symbolizes
soap targeted to the rugged masculine male. HLL has thus been very successful to
have a product positioned in every segment.




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                                           Competitive Analysis of Toilet Soap Industry



Constant Marketing Initiatives – Few Examples

Soap executives at HLL realized that people who didn't see dirt on their hands
thought that their hands were clean. This attitude partly explained why people didn't
wash their hands after washing clothes in the river or feeding the cows, a key cause
of disease transmission. Although the connection was clear in the executives' mind,
they had to create a similar urgency and emotional connection to soap for the
consumer.

And what better place to educate people about the importance of frequent soap use
than where 70 million people come to clean themselves? Hindustan Lever joined
the pilgrims visiting Allahabad for Kumbh Mela, the religious festival held every 12
years. Executives wanted to show that dirt is always present, though often invisible.
Marketers waved an ultraviolet-light wand over attendees' hands to show where
germs and dirt resided. While the pilgrims came to bathe at the confluence of India's
sacred rivers to cleanse their souls, they also learned to keep their hands free of
pathogens.

The village street theaters represented a more emotional play. Lever and Ogilvy
Outreach, the unconventional marketing arm of Ogilvy & Mather, recruited local
magicians, dancers, and actors who knew each market and village that the company
wanted to target. In total, 50 teams of 13 performers were recruited to serve as
connections between the brands and the residents. Scripts were changed for
different dialects, education levels, and religions. In all, Ogilvy coordinated two-
hour performances at 2,005 haats over six months.

The results seem compelling. Awareness of Breeze, a low-cost soap with more of a
beauty pitch, increased from 22% to 30% over the six months that the performances
were running.




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Opportunities

Converting the users of the Popular segment to the Premium segment.

Presence of a large unorganized sector, who find it difficult to import oil from south
east Asian countries hence buy oil from local manufacturers and cannot produce on
the economies of scale.

HLL is countries one of the largest five exporters, but exports in the soap segment
are bare minimal.

Challenges and opportunities for the future in the urban market

While it is difficult to predict the exact nature of developments that would take
place in future distribution networks, early signs of certain changes are clearly
visible.
The concept of organized retail chains (the one-stop shops), which seemed unlikely
to take off in a major way, has now been accepted as an area of major growth for
the future. Indeed, retail chains are on the rise regionally, and a major influx is
expected to take place in the future. A clear trend, therefore, is the shift from
intermediation to dis-intermediation. A major determinant here would also be the
real estate costs.

Quality of transportation infrastructure, special intra-city road networks, would be a
key factor in determining the penetration of organized retail chains.

Reduced travel time would help in the growth of organized retail chains.


Evolution of retail policies

As organised retail chains come into vogue, intermediaries would start to dwindle.
The value will begin to shift and retail chains will demand higher margins and their
share of profits. This would, in turn, make it imperative for companies to evolve a
new set of retail policies that would be radically different from traditional retail
policies of companies.
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Increase in Discretionary Spends

Discretionary spends of consumers is already on the rise; and it would continue to
increase in the future. This would be particularly of interest to HLL in the personal
products business.



Business to Business connectivity
B2B connectivity (between a company and its supply chain partners) would help
reduce costs, improve inventory management, facilitate flow of information and
enhance efficiency in the distribution system. The challenge for companies in B2B
would be to ensure that all supply chain partners operate on a common platform and
packages. HLL would therefore, need to consider lending support to their supply
chain players to bring about uniformity of operating platforms. B2C too will grow,
but will not be a major strategic focus for companies selling low-value items.
The rural markets are expected to witness a different kind of a shift. As companies
aggressively compete to get a higher share of the rural pie, competitive advantage
will lie with those who have a higher reach. An effective way to achieve reach in
rural markets would be to farm out, to divest the reaching mechanisms to third-
parties like stockists/star-resellers, etc.




Threats

Major threat, especially to the Premium soaps of HLL is that of Down-threading,
the prolonged drought in the North and West of the country (until 2000) and the
sharp fall in the farm disposable incomes has persuaded the households to
downtrade, that is , switch from high to low-priced brands resulting in a de-growth
in the Premium segment. This can lead to the cannibalization of its own brands in
the segments.

Competition activity, in particular the pricing and advertising strategies of main
competitors.
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                                          Competitive Analysis of Toilet Soap Industry



Backward Integration resorted by other players (Nirma producing Caustic Soda),
giving others a cost advantage.

Success of new launches in the niche segment by the competition

Volume growth in personal products and ability to protect market share

Raw material (Palm Oil) prices as cost increases cannot be passed on fully, in a
competitive scenario.




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                                            Competitive Analysis of Toilet Soap Industry



Nirma: The David challenging Goliath.

Nirma’s success is based on the premise of consistent and effective delivery of
value for money equation to our customers. These benefits along with betterment in
the areas of distribution, packaging, advertising will ensure steady growth for Nirma
in future. Nirma's low-cost strategy is putting rivals through the wringer. Nirma's
strategy appears to have become a fashionable mantra, even among large Indian
groups.

Non-premium products account for 92% of Nirma’s revenues- and it spends little on
promoting its premium labels like Nirma Premium. Karsanbhai Patel says that
Nirma’s strategy is to get into a niche market.

Karsanbhai Patel, a 55-year-old chemist, has his rivals in lather. In three decades,
his company, Nirma, has grown from a one-man operation to a cleaning-products
empire that employs 12,000 people. It recorded sales of Rs15 billion (US$345
million) for the year ended March 1999. And it's giving multinational rivals,
including Hindustan Lever and Procter & Gamble, a run for their money.

A cost-conscious approach forced Nirma into backward integration by setting up an
80000-tpa LAB (linear alkyl benzene) plant in 1998 and a 400000-tpa soda ash
plant in 2000. Nirma has achieved a significant penetration and has notched up an
impressive 16.8%, second stand in the industry in just three to four years. Nirma
Ltd. has been putting up a backward integration plant to produce soda ash and linear
alkyl benzene.

Nirma’s formula for cleaning up? Sell at lower prices than the competition by
cutting costs throughout the production and distribution chain. Nirma’s strategy is
particularly applicable in a developing country such as India where consumers are
price conscious.

Before Nirma entered the market, rivals had used high-cost foreign technology to
produce detergents. Nirma pioneered a lower-cost manufacturing method. He looks


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for ways to save costs throughout his organization. Raw materials had accounted for
almost 80% of his manufacturing costs before 1998. Nirma saw vertical integration
as a way to slash those costs and remove uncertainties in supply. So it set out to
have the company manufacture the key raw goods it needed itself. It invested Rs3.8
billion in a plant that makes linear alkyl benzene, a key ingredient for Nirma
detergent. The factory churns out 75,000 tonnes of it a year.

Now, Nirma is setting up another plant to produce a second ingredient that's used in
making his cleaning products: soda ash. The Rs10 billion factory will make 420,000
tonnes of soda ash each year. Iodized salt, another commercial commodity, is a by-
product.

Why is Nirma investing crores in raw materials that are in oversupply?

The three major LAB makers --Reliance, Tamil Nadu Petrochemicals and Indian
Petrochemicals Corporation Ltd (IPCL)--were more or less serving the market
adequately with their combined 2 lakh tonne-plus capacity. If anything, 1997-98
saw a 15,000-tonne surplus that was exported. Worldwide there is a glut since most
detergent brands now prefer enzymes or another chemical called STPP. And prices
in India are aligned to global prices, so it isn't even as if Nirma is being cheated as a
domestic buyer

Nirma's over 8-lakh tonne detergent volume makes it highly dependent on LAB, in
which cartelisation is said to be rife -- prices fluctuate, wildly at times. Recently,
they hit a high of about Rs 50,000 per tonne against Rs 39,000 at the end of last
year.

Today, Nirma is a giant to challenge with and it has moved up the value chain.
Nirma’s new strategy includes:

Bringing together the distributors and retailers so as to ultimately eliminate carrying
and forwarding agents.

Investment in its own fleet of 400 trucks to cut transportation costs.


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Discarding dependence on contractors.

Nirma has today forayed into toiletries such as bath soap, toothpaste and shampoo.
Even in the premium categories, Nirma prices its products 25-35% lower than major
competitors. That strategy is paying off: So Nirma, though a late entrant in bath
soaps, is now second in market share after Hindustan Lever.




Strengths:

Strong Brand equity. Nirma is a Rs.17 billion umbrella brand offering consumers a
broad portfolio of products at multiple price points in the Detergents, Soaps &
Personal Care market.

Produces a range of industrial chemical products which primarily serve as raw
material or intermediates for Soaps & Detergents business.

Market leadership in detergents market and fabric wash industry and second largest
player in Toilet soaps industry.

Wide distribution network.




Weaknesses:

High interest burden.

Less presence in premium segment.

Lack global tie ups and thus lacking in export markets.




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                                             Competitive Analysis of Toilet Soap Industry



Opportunities:

Exports.

Acquisitions for strengthening its distribution tie ups.

Entry into other categories apart from soaps like shampoos, toothpastes and fabric
whiteners.




Threats:

MNCs coming to India particularly in Toilet and Soap industry.

Emergence of small but strong regional players.




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                                            Competitive Analysis of Toilet Soap Industry



Godrej Soaps – All’s ‘Fair’ in Love and War

Godrej is currently the number three player, volume wise in the Industry. Cinthol its
flagship brand has recorded since the past few years decline in its sales. This has led
to the re-launch of Cinthol targeted for the entire family unit. Currently even when
the market is declining Godrej is recording a high sale in terms of value of 24% by
competing vigorously in the marketplace. A correction in the prices of inputs
resulted in better margins in the soaps business as compared to the previous year.
Godrej has come out with a number of innovative consumer and trade offers.

The highlight was the launch of Fairglow which is the first innovative breakthrough
soap offering in the Indian market for many years. The product meets a stated need
of the consumer at no extra cost or effort and has met with universal acceptance by
the trade and consumers. Sandal and Natural variants of No.1 soap launched
keeping with the rising popularity of ‘natural’ variants in the soap industry.
Renewed focus on Institutional sales and sales to Canteen Stores Department led to
growth in sales value in this segment.

Godrej has the distinction of being the first company in the world to develop
technology to make soap with vegetable oils, way back in 1930. It is also
manufacturing for other players in the Industry. Contract manufacturing of toilet
soaps registered a 20% volume growth but grew by only 7% in value terms to
Rs618mn.

Capacity utilization in the industry varies from as low as 50% to 80%.

Godrej Soaps has been using its capacity by working for other producers. It still
makes Camay and has arrangement to produce it for two more years. GSL makes
Rexona and Dettol for Reckitt & Colman of India and Johnson's Baby Soap for
Hindustan Lever (Johnson & Johnson). And yet only half of its capacity of 71,000
tonnes is being used.




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                                              Competitive Analysis of Toilet Soap Industry



The company manufactured 45530 tons of toilet soap in 2001. Capacity utilization
of toilet soaps has improved from 46% in 2000 to 64% in 2001. In 1996, Godrej
Soaps undertook an expansion programme. It set up new toilet soap finishing lines
with a 48 tpd capacity each at its Vikroli and Malanpur factories. It also set up a
fatty acids distillation plant with a 75 tpd capacity.




SWOT

Strengths

The new product launches from Godrej have been a major success, Godrej
FairGlow which created a segment in the Industry for the color conscious Indians.
Godrej FairGlow in just a year of its launch managed to garner 1 % of the total
market share. Looking at the success of FairGlow, HLL launched Fair & Lovely an
extension of its largest selling fairness cream. But Godrej FairGlow had the first
mover advantage of being the India’s first Fairness soap. FairGlow has been a part
of innovative marketing since it was a technological innovation.

It is promoting a number of brands, Cinthol, Ganga, Shikakai, Marvel, Evita and
Crowning Glory, while it has others to bother about such as Vigil and Fresca.
Cinthol ranks third and accounts for 60% of all Godrej Soap's brands. It is an old
brand launched about five decades ago in early 1950s. New Cinthol Lime and
Cologne gave it a new look in 1985. Two variants were introduced in 1989 placing
an added emphasis on their brand of soaps. Its deodorant and complexion soap is
styled as Cinthol Spice. Cinthol is perceived largely as a male soap, as Lux is a
lady's soap. The company expects a very high growth for Cinthol in 1997-98.
Ganga did well and a new version Doodh Ganga has been introduced. Ganga had
notched up a 5% market share but declined to 2% later with sales at Rs 350 mn.
Godrej wants to revive it. Godrej Soaps was giving a tough competition to
Hindustan Lever. Its Marvel for women, who demanded a gentler soap than Lux



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                                           Competitive Analysis of Toilet Soap Industry



and Vigil, was for those who like non-carbolic soaps. Crowning Glory was pitched
for haircare.

Godrej has also realized the gap in some segments and is giving Lifebuoy and
Savlon competition in the form of its offering Godrej All Care. Besan has always
been an household name, Godrej has used Besan (along with ‘haldi’) as an
ingredient and is marketing it as a sopa doing well in the northern parts called as
Godrej Nikhar.

Godrej has priced all its new launches in the popular band of Rs. 10, signifying
Pricing plays an important role in the niche segment.

Godrej has doubled its advertising & promotion spends since 1999 and it amortises
advertising and publicity expenditure on major product launches over 12 months
from the product launch.




Weakness

Even though the new products of Godrej have done reasonably well, it does not
offer soaps at a high end of the segment. The premium segment is estimated to
grow, but Godrej believes in concentrating on the Popular and sub-popular
segments.

Unlike other major FMCG companies (HLL, Nirma), Godrej has a presence only in
soap and Hair Dye segment (where presently it enjoys a major market share),

Godrej Soaps had a disappointing experience in forging an alliance with Procter &
Gamble (P&G). Its sales, which were placed at a little over Rs 6000 mn, registered
a decline of Rs 930 mn from that of the previous year. In volume terms, the sales
dropped from about a little over 40,000 tonnes to over 30,000, marking a decline of
25%. This reduced its market share to 5.5%. In the process of restructuring, the
Equity Capital of Godrej Soaps has expanded from Rs 600 mn to Rs 3200 mn. The
promoters and associates own most of this. P & G has now a fully-owned subsidiary

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Vishal Mungekar
                                           Competitive Analysis of Toilet Soap Industry



in India. Godrej retained all soap brands and transferred detergent brands to P&G in
1993. Godrej found it convenient to shed the detergent brands - Ezee, Key, Biz and
Trilo - as they represented a losing portfolio. After the divorce from P&G, the
company is now undertaking the marketing of toilet soaps while the distribution of
consumer company products has been handed over to Godrej Hi-Care. During all
this while other entrants like Nirma went past Godrej and currently acts as a
challenger to HLL.




Opportunity

To create more out of Niche and driving volumes in a stagnating market.

Building strong Brand Equity and being leader in the niche segment.

Technology and R&D innovations in the segment would further come out with new
products like Multani Mitti, & Neem. Innovations in the manufacturing technology,
as it currently have an excess capacity and is manufacturing for other players in the
market.

Exports of niche soaps like Fairglow in Middle East, and other Asian countries.




Threats

Unorganized sector, especially in the south also catering to the niche segment
having variants like ayurvedic, natural, etc. and also delivering products at the same
(or cheaper) price points.

Godrej is a very tiny player in an arena dominated by subsidiaries of Global
companies (HLL) and other players like Nirma who refuse to enter in the niche
segment, concentrating only on popular and sub-popular segment and substantially
reducing its costs and increasing net margins by backward integration.



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Vishal Mungekar
                                           Competitive Analysis of Toilet Soap Industry



Summary & Conclusion

It seems Indians have sacrificed hygiene at the altar of thrift. If numbers are
anything to go by, Indians do seem to be washing themselves, as well as their
clothes, rather less. Data collected by the industry certainly points to this rather
unpleasant conclusion. The consumption of soaps has shrunk substantially.

The evidence of an absolute decline in consumption is somewhat perplexing in a
country with a growing population as the consumption of soap and detergents
should logically be directly proportional to population growth. Soaps are at the back
of the house and are not status products like TVs or refrigerators. It’s possible that
consumers may be economizing on their use or buying cheaper brands during a
downturn.

There is another whacky hypothesis explaining the decline in consumption. Many
households earlier used soaps for twin purposes: for body wash as well as shampoo
substitutes. However, successful sachet marketing in shampoo seems to have now
penetrated this market which has directly impacted the sales of soaps.

Penetration of toilet soaps is very high However per capita consumption levels
remain low India's per capita consumption of soap at 460 gms per annum is lower
than that of Brazil at 1,100 gms per annum.

Competition amongst the MNCs has intensified, leading to shrinkage of margins.

Low margins and high volumes characterize the industry. While the level of
disposable incomes determines the overall sector growth, the market has already
been segmented and sub-segmented.

Positioning of the product is very important in this market. The leading players in
this market are HLL (Lux, Lifebuoy, Breeze, Rexona), Nirma (Nima), Godrej Soaps
(Cinthol, FairGlow, Shikakai, Nikhar), and Reckitt & Benckiser (Dettol). The rest
of the market is highly fragmented, with companies having strong presence in select



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                                            Competitive Analysis of Toilet Soap Industry



segments or a regional presence only. Brand loyalty is very low, except at the
premium end.

Key factors to success are distribution (in rural markets) and advertising (in urban
markets).

A lower price differential between the organized and the unorganized sectors from
reducing excise duties allows the former to grow at the expense of the latter. The
organized sector also has a superior distribution reach.

Innovation holds the key. New innovative products will grow the category. Through
experience, we know that an innovative product will make a success

In terms of distribution, visibility will be of vital importance with the retail shelves
getting overcrowded with more and more brands and new products.

Soaps are available in 5 m retail outlets in India, 3.75 m of which are in the rural
areas. Therefore availability of these products is not a problem. 75% of India's
population is in the rural areas; hence about 50% of the soaps are sold in the rural
markets.
Merchandising will also be of core importance, which will involve getting the POPs
right to attract consumer attention.

Intense Distribution welfare will prompt companies to give more freebies and better
margins to retailers. Price offs and consumer offers will be predominant, this will
put tremendous pressure on companies to make their products more visible on the
retail shelves. Better sophistication will come about in terms of merchandising so as
to increase visibility.

Product would reign supreme, even as consumers would want to have a value-for-
money product in FMCG. Thus pricing would also be important

Rural demand growth is expected to occur mainly with consumers moving up
towards premium products. But in the past, the proportion of premium soaps to
economy soaps has not changed much, in volume terms. This is because as some

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Vishal Mungekar
                                          Competitive Analysis of Toilet Soap Industry



consumers move up the value chain with increase in disposable incomes, some
consumers move down looking for cheaper substitutes as prices move up. This has
been the case especially, as growth in soap prices has generally outpaced overall
consumer inflation.

Deeper penetration in urban areas also holds the key to unlocking growth potentials
especially in the Premium Segment.

Thus, Product innovation, smart merchandising and distribution would be of key
importance for FMCG products to become a success in the coming years. While
marketers will need to explore new areas of growth potential, FMCG marketers also
warn against being laid back to the fact that retail shelves are overcrowding by the
day.

Even as toilet soaps market faces a slowdown in growth, there is still potential to
stoke growth through increasing product usage.

The only reason is not that markets have matured, but that usage and consumption
of a particular product per person is still low. The manner in which marketers tap
this growth potential in the years to come - be it through advertising or creating
awareness through below-the-line activities - will be worth watching.




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Vishal Mungekar