FMCG_HUL by cuiliqing

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									To design a Specialized
GTM Model for the launch
of a New Chilled Product in
the SCC&D (Spreads and
Dressings) Category



               Submitted By:
               Arpit Kapur
               PGDM - Marketing
               Birla Institute of Management Technology, Greater
               Noida




                                                      1
           Summer Project Certificate


This is to certify that Mr. / Ms. ARPIT KAPUR Roll No. 09DM023 a

student of PGDM has worked on a summer project titled TO

DESIGN A SPECIALIZED GTM MODEL FOR THE LAUNCH OF

A NEW PRODUCT IN THE SPREADS AND DRESSINGS

CATEGORY (SCC & D) -KISSAN at HINDUSTAN UNILEVER

after Trimester-III in partial fulfillment of the requirement for the

Post Graduate Diploma in Management programme. This is his/her

original work to the best of my knowledge.



Date:___________                    Signature________________

                                  (_________________________)

     BIMTECH SEAL                             Name of Faculty




                                                                    2
                              ACKNOWLEDGEMENTS
First of all I would like to express my gratitude to the respected executives of the Foods B.D.
team at Hindustan Unilever(HUL),Andheri for allowing me to work with them for a period of 8
weeks. This has been a wonderful learning experience and has enlightened my knowledge about
the Fast Moving Consumer Goods (FMCG) Sector in India, possibly one of the most important for
the Indian economy.

I am especially thankful to my tutor at Kissan, Mr. Sachin Sharma, under whose tutelage I
underwent my training and learnt a lot of first hand application of marketing principles in
development of a product. Also, I would like to thank my faculty guide, Prof. Dhruva Chak, for
his guidance and cooperation during this internship. I am grateful to them for their help and
support without which I would have been unable to learn as much as I did from this internship.




                                                                                             3
                            EXECUTIVE SUMMARY



Hindustan Unilever is India‟s largest FMCG manufacturer with a turnover of close to
2600 million euros in 2008. Out of this 2600 million, 47% of the contribution comes
from the Home Care segment while the next highest contribution is from the Personal
Care division. HUL boasts of having the largest product portfolio amongst all of its
competitors with brands such as Dove, Pears, Surf, Axe etc. to name a few that are
marketed in India. They are considered the “Gurus of Marketing” and most firms look at
HUL as a benchmark in the FMCG sector.
 This study is an effort to develop a Go-To-Market (GTM) model for a new chilled
product that the company plans to launch in the near future.
The GTM model is vital for the project to proceed to the Launch Stage as the indicative
activities in the capability stage of the innovation funnel near completion. Thus this study
will look at analyzing and designing the best possible GTM model keeping in mind their
current distribution channel and the model being followed by their competitors.




                                                                                          4
                                              TABLE OF CONTENTS
ACKNOWLEDGEMENTS..................................................................................................................................3
EXECUTIVE SUMMARY...................................................................................................................................4
TABLE OF CONTENTS .....................................................................................................................................5
1 INTRODUCTION TO HUL .............................................................................................................................7
   1.1 Heritage ................................................................................................................................ 7
   1.2 Social Initiatives ................................................................................................................... 8
2 COMPANY PROFILE .....................................................................................................................................9
   2.1 Overview of HUL .................................................................................................................. 9
3 HUL FOODS OVERVIEW ........................................................................................................................... 11
   3.1 Category Roles ................................................................................................................... 14
4 KISSAN OVERVIEW ................................................................................................................................... 16
   4.1 Birth of Kissan .................................................................................................................... 16
   4.2 Brand Building Pyramid .................................................................................................... 17
   4.3 The Present: Robust Pyramid v/s Key Competition ....................................................... 18
   4.4 Kissan Turnaround Story .................................................................................................. 19
5 PROJECT BACKGROUND........................................................................................................................... 20
   5.1 Proposition ......................................................................................................................... 20
   5.2 Challenges .......................................................................................................................... 21
6 UNDERSTANDING THE PRODUCT ............................................................................................................ 22
   6.1 Margarine Fats Science ..................................................................................................... 22
   6.2 Classification of Fats .......................................................................................................... 24
7 UNDERSTANDING THE BUTTER , SPREADS AND MARGARINE MARKET.................................................. 26
   7.1 Broad overview of the Market for Oils and Fats.............................................................. 26
   7.2 Butter and Margarine market growth.............................................................................. 29
   7.3 Branded Butter Purchased – All & Centre ....................................................................... 31
   7.4 BASES Concept Database Comparisons ........................................................................... 32
   7.5 Awareness of Different Nomenclature Of Fats ................................................................ 33
   7.6 Butter – Consumer understanding ................................................................................... 34


                                                                                                                                                5
   7.7 Butter Substitutes Awareness, Perception & Usage- All ................................................ 35
   7.8 Dis-Advantages of Using Butter Substitutes- .................................................................. 36
   7.9 Margarine -Awareness And Usage ................................................................................... 37
   7.10 Consumer understanding of Margarine / Butter Substitutes ...................................... 38
8 QUESTIONNAIRE FOR MARKET VISIT ....................................................................................................... 39
9 COMPETITOR ANALYSIS ........................................................................................................................... 40
   9.1 NUTRALITE ........................................................................................................................ 41
   9.2 AMUL .................................................................................................................................. 45
10 ROI MODELLING .................................................................................................................................... 48
11 ROI CHARTS............................................................................................................................................ 49
   11.1 Investment Model ............................................................................................................ 50
   11.2 Growth Model .................................................................................................................. 54
   11.3 Sensitivity Model ............................................................................................................. 62
   11.4 3P Model........................................................................................................................... 70
12 RECOMMENDATIONS ............................................................................................................................ 73
13 PROJECT SUMMARY .............................................................................................................................. 75




                                                                                                                                               6
                         1 INTRODUCTION TO HUL
Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods
Company, touching the lives of two out of three Indians with over 20 distinct categories
in Home & Personal Care Products and Foods & Beverages. The company‟s Turnover is
Rs. 20, 239 crores (for the 15 month period – January 1, 2008 to March 31, 2009).

HUL is a subsidiary of Unilever, one of the world‟s leading suppliers of fast moving
consumer goods with strong local roots in more than 100 countries across the globe with
annual sales of €40.5 billion in 2008. Unilever has about 52% shareholding in HUL.

Hindustan Unilever was recently rated among the top four companies globally in the list
of “Global Top Companies for Leaders” by a study sponsored by Hewitt Associates, in
partnership with Fortune magazine and the RBL Group. The company was ranked
number one in the Asia-Pacific region and in India.

The mission that inspires HUL's more than 15,000 employees, including over 1,400
managers, is to “add vitality to life". The company meets everyday needs for nutrition,
hygiene, and personal care, with brands that help people feel good, look good and get
more out of life. It is a mission HUL shares with its parent company, Unilever, which
holds about 52 % of the equity.

                                     1.1 Heritage

HUL‟s heritage dates back to 1888, when the first Unilever product, Sunlight, was
introduced in India. Local manufacturing began in the 1930s with the establishment of
subsidiary companies. They merged in 1956 to form Hindustan Lever Limited (The
company was renamed Hindustan Unilever Limited on June 25, 2007). The company
created history when it offered equity to Indian shareholders, becoming the first foreign
subsidiary company to do so. Today, the company has more than three lakh resident
shareholders.

HUL‟s brands -- like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Sunsilk,
Clinic, Close-up, Pepsodent, Lakme, Brooke Bond, Kissan, Knorr, Annapurna, Kwality-
Walls - are household names across the country and span many categories - soaps,
detergents, personal products, tea, coffee, branded staples, ice cream and culinary
products. They are manufactured in over 35 factories, several of them in backward areas
of the country. The operations involve over 2,000 suppliers and associates. HUL's



                                                                                            7
distribution network covers 6.3 million retail outlets including direct reach to over 1
million.

HUL has traditionally been a company, which incorporates latest technology in all its
operations. The Hindustan Lever Research Centre (now Hindustan Unilever Research
Centre) was set up in 1958.

                                1.2 Social Initiatives
HUL believes that an organisation‟s worth is also in the service it renders to the
community. HUL focuses on hygiene, nutrition, enhancement of livelihoods, reduction of
greenhouse gases and water footprint. It is also involved in education and rehabilitation
of special or underprivileged children, care for the destitute and HIV-positive, and rural
development. HUL has also responded in case of national calamities / adversities and
contributes through various welfare measures, most recent being the relief and
rehabilitation of the people affected by the Tsunami disaster, in India.

HUL‟s Project Shakti is a rural initiative that targets small villages populated by less than
5000 individuals. Through Shakti, HUL is creating micro-enterprise opportunities for
rural women, thereby improving their livelihood and the standard of living in rural
communities. Shakti also provides health and hygiene education through the Shakti Vani
programme. The program now covers 15 states in India and has over 45,000 women
entrepreneurs in its fold, reaching out to 100,000 villages and directly reaching to over
three million rural consumers.

HUL also runs a rural health programme, Lifebuoy Swasthya Chetana. The programme
endeavors to induce adoption of hygienic practices among rural Indians and aims to bring
down the incidence of diarrhoea. It has already touched 120 million people in
approximately 50, 676 villages across India.




                                                                                            8
                            2 COMPANY PROFILE
                              2.1 Overview of HUL

                             Company          Turnover 2008
                                               (Euro Million)

                             HUL                  2600
                             P&G                  150
                             Nestle               450
                             Colgate              300
The above table shows the leadership and dominance of HUL over all other significant
FMCG brands thus providing credibility to the claim of being a market leader. The
diagram below shows the contribution of various divisions in HUL‟s product portfolio:-




                                  9%

               1%         11%

                 4%                                 47%



                            28%



Home Care                 Personal care              Foods
Icecreams                 Beverages                  Others



                                                                                         9
It is clear that the largest contributor is the Home Care division with a 47% share in the
total revenue while the personal care division contributes 28%.


The organizational diagrams below show the hierarchy in HUL: -




                              HUL structure

                              CEO


      Exec Director - HPC            Exec Director Foods           Exec Director - CD



                        BB Category Heads                          GM – Sales (N-E-W-S)


                              Marketing Managers
                                                                  Regional Sales Mngr


                                  Brand Managers
                                                                    Area Sales Mngr




                                                                                             10
                                             HUL structure

                                      Nitin Paranjpe


                    Gopal Vithal - HPC             Shrijeet Mishra - Foods     Hemant Bakshi - CD


                                         Sidharth Singh
                                         – Processed Foods


                                           Amit Nanda – Processed Foods


                                                  Sujit Bawa - Kissan




                                         3 HUL FOODS OVERVIEW


              The aim is to Build a 1.4 Billion Euro foods business through brands that make a real
              difference to the Indian consumer by helping them enjoy food, enjoy health and enjoy life




              This vision to build a € 1.4 Billion Euro Foods Business has a targeted CAGR of 21%
              seen as crucial to fulfill its ambition of being the No 1 foods & vitality company by 2015.




                                                                                                       2015
        2008                                                   2011



                                                             ICD                                      ICD
        ICD                                                  10%                                      10%
        7%

Foods
 24%                                                Foods                                                        Beverages
                                                     28%           Beverages                  Foods                 55%
                                                                      62%                      35%
                Beverages
                   69%


                                                                                                            11
     360 E mln                                     657 E mln                                   1.4 E Bn




                                                                                             E 137 mln
                                                   E 55 mln
      E 28mln
Packaged, 5%
 € 10 Billion
                                       € 1.5 Bln
                                       8% growth
                                                   € 5 Bln      € 10 Bln
                                                   11.5% growth 13.1% growth




                                            Unpackaged/ Fresh, 95%
                                                 € 200 Billion




           The Packaged Food Market in India is estimated at around € 10 Billion and 80% of
           this is urban with a rapid historical growth: 13%. It is poised to accelerate. But the
           bulk of food in India is still consumed fresh, that is, unpackaged. This is clearly
           visible as 95% of the 200 Billion Euro Foods market is unpacked.




                                                                                                    12
                             Build from small –        Reach Leadership –             Strengthen
              High             Savoury, Kids             Tea, & Instant               Leadership
                              Nutrition, Heart         Coffee, Ice Cream
                                   Health


                              Extract Cash –           Stay in the Fight
                                                                                          Defend Leadership
                              Modern Foods            Dressings (Ketchup)
                                                                                           Spreads (Jams)
  Attractiveness




                                                                 Generate Cash – Annapurna
                                                                         (Staples)
              Low


                              Low                   Competitiveness                            High



The above figure clearly illustrates the strategic priorities set by HUL Foods taking a
trade off between attractiveness and competitiveness in the various categories it is
currently playing in.




                                                                                          13
Below is a table which shows the future projections for growth that HUL Foods plans on
attaining by 2015 with 2008 as the base year:-

Figs in Euro Mln                  2008      2015 Gth%
Brooke Bond / Lipton              198       587 16%
Bru                                58       222 21%
Kwality Walls                      24       143 28%
Knorr                              12       143 41%
Kissan                             43       159 20%
Annapurna                          23        79  19%
NF                                  1       127 117%
Total                             359       1460 21%




                                3.1 Category Roles
The following are the category rules that Kissan planned on achieving in various foods
products:-
   1) Savoury – They planned to convert from scratch cooking to Packaged

    2) Tea- In Tea they planned on becoming the undisputed #1 in India by upgrading
       faster than Tata.

    3) Ice-Cream- Here they thought of building a habit of consumption among
       consumers which was related to the idea of driving frequency.

    4) Instant Coffee- Here their main aim was to garner non-south shares as the
       maximum frequency of consumption was taking place in southern India.

    5) Dressings- In this category they planned to convert from home-made to packaged
       dressings & drive frequency.



                                                                                         14
6) Spreads –In spreads they wanted to provide a substitute to butter

7) Kids Nutrition- They aimed at getting a share of the Kids Functional Foods
   Market.

8) Non-Carbonated Beverages- The aim in this category was to gain a share in the
   non-carbonated market using Soya.

9) Heart Health – This was one particular space they wished to succeed in by
   successfully substituting unhealthy fats with healthy fats.



The following table shows the market share and position of various components of
HUL Foods (Kissan) against its closest competitor in the category:-




     Category                        Brand                         2008 %

    Ketchups                        Kissan                             25
                                    Maggi                              30
                                     Tops                              13
      Jams                          Kissan                             68
    Squashes                        Kissan                             50
     Soups                          Knorr                              70
                                    Maggi                              26
        Salt                      Annapurna                            16
                                     Tata                              22
        Tea                          HUL                               23
                                     Tata                              21
      Coffee                         HUL                               44
                                    Nestle                             41




                                                                                   15
                             4 KISSAN OVERVIEW

                                4.1 Birth of Kissan

The Independence of India also saw another fruitful birth, Kissan. The name that was to
make millions of people add a little more flavor to their food.
The year was 1935, Trains traversing across the Punjab would make an unofficial stop
near a processing unit where the farmers sold their freshly picked fruit. In return, the
drivers got a luscious hamper. Soon the locals named this spot Kissan.

What started as a "short-break" went on to become the brand KISSAN in 1947, when the
famous Mitchell Brothers of UK set up a manufacturing unit in Bangalore. They
introduced the naturally wholesome flavor of classic Olde English recipes. In 1950, Vittal
Mallya with his legendary foresight acquired Kissan. And revolutionized the canning and
bottling industry by introducing the latest techniques which subsequently led to the
phenomenal growth of Kissan. Today, Kissan is the market leader offering a range of
delicious products which include fruit juices, squashes and syrups, jams, marmalade and
fruit jelly, baked beans, canned green peas, pineapple slices and biscuits. Fresh
handpicked tomatoes are also the source of Kissan's finger licking ketchup and sauces,
great tasting tomato juice and the housewife's favorite tomato puree.

Today, Kissan cherishes an international fame that is well deserved. Every fruit and
vegetable is picked with the greatest care and cleaned, washed, and processed under the
most stringent quality control procedures.
In fact, a team of highly qualified horticulturists on experimentation in farms ensure the
development of richer fruit and vegetable strains and more successful farming methods.
Besides, R&D at Kissan is committed to bettering its products and is constantly
delighting consumers with new and better flavors that tantalize the palate.
Kissan has won several international and national accolades, including the highly coveted
'Le Monde' at Brussels and Productivity, Performance and Quality awards in the fruit and
vegetable processing industry.
Overseas the demand for Kissan is ever increasing. Kissan exports to Europe North and
South America, the Middle and Far East markets. The perennial favorites are mango,
papaya and guava pulp, apple juice orange juice, mango slices and mushrooms. Kissan,



                                                                                       16
Four decades ago they began as a food enhancer. Today, for millions of people, they are a
part of every meal, cherished by young and old alike.




                          4.2 Brand Building Pyramid


                                                                  Kissan 2006
      Kissan 2004
                                                     Jams                      KETCHUP
                   9%
                            Bonding                  66%                          79
                                                                  68              %         50
                            g
             51%                                     98%          %               97        %
                            Advantage                                                        86
                                                                   99             %
             58%                                     98%           %              97         %
                            Performance                             99            %           99
                                                     99%            %
                                                                    100           97          %
             76%                                                                               98
                            Relevance                                %            %
                                                                                  99           %
                                                     99%
             98%                                                                  %
                            Presence




                Kissan 2008
                                                Ketchup
       Jams                                                              73%
                                               69%
69%                76%
                                                                         95%
                    98%                        90%
91%
                                                                         97%
                                               92%
93%                  99%

94%                                            95%                        98%
                        100%
94%                                            97%


                                                                                       17
  From the above figures it can be seen that up to 2004 Kissan lacked dynamism mainly
  due to dated packaging, limited communication to the consumers, absence of a common
  message and a push based approach rather than a pull based one. As a result, the
  extension away from the core was short lived and resulted in the erosion of its equity and
  core values. Thus performance suffered as a whole.
  But in the following years the brand built on its performance which can be seen by the
  higher advantage and bonding it developed with the consumers in 2006 and continued
  with that in 2008.




           4.3 The Present: Robust Pyramid v/s Key Competition


 Pyramid            Kissan               Maggi                Heinz               Tops

    Bonding
                    69%                          15%                  2%          28%
 Advantage
                    90%                   60%                        7%           18%
   Adequate
                    92%                   68%                 14%                 26%
Performance
  Relevance         95%                   71%                  15%                27%

   Presence         97%                   76%                  18%                28%


                             90%              55%              12%              69%
  Spont Awareness


    Pyramid             Kissan                   Amul                 Tops            Britannia

       Bonding
                        69%                             26%                  1%          28%
     Advantage
                        91%                      70%                       9%            11%
      Adequate
   Performance          93%                      73%                  13%                18%
     Relevance          94%                      75%                  14%                19%

      Presence          94%                      80%                  15%                20%


  Spont Awareness         94                86                4%             14
                          %                 %                                %




                                                                                           18
The above diagrams clearly show Kissan‟s Brand Building Pyramid against those of its
key competitors in that particular category along with a survey of the spontaneous
awareness of the brand in the mind of the consumers. First is a comparison in the
Ketchups segment and below is the comparison in the Jams segment.




                        4.4 Kissan Turnaround Story
The following was the approach that was adopted by Kissan that led to a turnaround in
their business:-

       1. Earlier there was an absence of a common brand thought across categories

       2. There was a lot of constraint on resources to support and build

       3. The strategy that was adopted was built around the idea of shifting from a
          category focus to a brand focus

       4. The other crucial idea was to pitch Kissan as the ideal accompaniment to
          snack food

       5. The belief in the mind of the consumers as interpreted by Kissan was that the
          snack is always the Hero and the accompaniment is only the side kick

       6.    As a result it was decided that to ensure higher profitability brands role must
            be underplayed so as to connect with the current consumer reality




                                                                                           19
                          5 PROJECT BACKGROUND




                                    5.1 Proposition

Unilever had initially thought of staking a claim in the margarine market through a heart
health (HH) benefit proposition under their “Flora” brand. Flora intended to provide
consumers a heart healthier “good fats” choice to current bad fat options such as butter,
ghee and vanaspati. However, a HH proposition in the India market was found to be
niche, due to a high price premium, with a relatively small business potential and was
therefore not progressed to launch.
Therefore, in order to tap into the large spreads opportunity in India, the intent is to enter
the market through the Family Goodness (FG) platform, under the popular and
established brand Kissan. The belief is that a FG proposition at a price parity to butter can
be a much more broad based consumer opportunity and has the potential of generating a
fair share of the market.
This would be implemented with an objective of encouraging mothers to „switch from
butter‟ to Kissan margarine for healthy growth of their kids and also encouraging them to
„spread more‟ with the positive health benefit of the product.

Apart from price, a FG proposition is also relevant to a larger segment of consumers.
70% of urban households in India have kids. In the foods category, HH consumption and
frequency of products is highly influenced by what the children need or demand.

Additionally, this would have the advantage of being launched under Kissan, which has a
very strong equity in kids‟ products like jams, and hence can be naturally extended to
margarine.




                                                                                           20
                                   5.2 Challenges

The ambition for distribution of Kissan margarine would be to match the distribution of
butter in the top 20 cities of India. With MT (Modern Trade) being at a very nascent stage
in India, and GT (General Trade)still accounting for more than 85% of foods sales, it is
absolutely critical for us to have a GTM model which enables us to take the product
satisfactorily to thousands of general trade outlets.

The challenge is that the summer season in India, especially in the North, can be very
extreme and can reach temperatures of around 45 degree for a period of two months and
above 40 degrees for a period of 3-4 months in the year. The chilled product would
require a front end distribution model which maintains the product at <10 degrees
throughout, and would require a specialized „controlled‟ chain which keeps the products
within acceptable temperature limits in the peak summers (~4 months a year).

        The primary mission here would be to improve the nutrition of children so that
they are better equipped to grow to their full potential. The underlying goal is to make
FAMILY GOODNESS be known as the rich source of the good fats and fat-based
nutrients essential to children‟s daily growth. The product would ideally be in every
meal, every day. The consumer impact as a result of would result in the Recruitment and
tightening of the bond with the Mothers of Young Families.




                                                                                       21
                    6 UNDERSTANDING THE PRODUCT



                             6.1 Margarine Fats Science


It is a well known fact that fat is essential for health and soft margarine is full of healthy
oils. Unilever's soft margarine is a good source of the essential fatty acids such as
Omega-3 and Omega-6. It is also free of Trans-Fats and spreading with soft margarine is
better than using regular butter or not spreading at all.

Dietary Fat is an integral part of one's diet. It adds flavor, palatability, taste and nutrients
to the food that is eaten by an individual.

Nutritionally it is a good source of energy, essential fatty acids. It is also a carrier of fat
soluble vitamins and improves the uptake of fat-soluble nutrients

Dietary recommendations of the WHO for the basic fat intake of an individual are as
follows :-




Carbohydrates
    55%

                                                                                   Good fat
                                                      Fat                          2/3
                                                      30%
                                                                               Bad fat
                                                                                1/3

                                  Protein                                                    Figure 2
                                   15%


                                                                                                  22
       The figure below illustrates the contribution of the different types of ftas percentage wise
       in the oils and spread that are used for cooking:-



100%                                                                            poly- and mon-
                                                                                unsaturated fatty
75%                                                                             acids

50%                                                                             saturated fatty
                                                                                acids
25%
                                                                                trans fatty acids
 0%




                                                                                               Figure 3




       This figure clearly shows that softer the product the healthier it is.
       Soft and liquid margarine are relatively low in SAFA also they are virtually trans free
       (VTF) and are high in PUFA and MUFA. These numbers are based as % of food product.
       On a fat/fat base, these numbers are more beneficial to margarine. Data is based on the
       Dutch food table, and may differ slightly in different countries. All heart health tubs have
       < 25% SAFA as agreed with IMACE. Some of their other margarine products may have
       higher SAFA composition.

       Margarine contains fat soluble vitamins A, D and E. These vitamins are essential for
       good eyesight, strong bones and protection of body cells. A human body cannot make
       them. They are obtained from the fat that you eat.
       The intake of vitamin D is low and does not meet the recommendation for European
       children, adolescents and young women. The average vitamin D intake in children of
       European countries is below 3μg/day whereas the recommended intake is 5-10μg/day.
       Rama, a Unilever brand in Europe, is an important contributor to the intake of vitamin D.


                                                                                                 23
                             6.2 Classification of Fats



Fats can be classified into categories:- Good and Bad fats. These can be further classified
as:-



               ‘Good’ fats                                     ‘Bad’ fats

          PUFA                    MUFA                      TFA               SAFA
     poly-unsaturated        mono-unsaturated            trans fatty      saturated fatty
        fatty acids             fatty acids                 acids             acids



     Omega-6       Omega-3
   linoleic acid alpha-linoleic
                                            ESSENTIAL
                     acid                  fats/fatty acids

        AA               EPA               DHA
    arachidonic     eicosapentaen     docosahexaenoic
       acid            oic acid             acid




Essential fats are essential because they cannot be made by the body.




                                                                                         24
The table below shows the various sources of good, bad and essential fats present in our
daily diet:-



Bad             Trans           Cakes and pastries, meat, butter
                SAFA            Meat, butter, whole milk, tropical oils


Good            MUFA            Olive, rapeseed, peanut
                PUFA            Sunflower, rapeseed, soybean, walnut,
                                linseed,      margarine
Essential       Omega-3         Safflower, linseed, algae, margarine
                Omega-6         Sunflower, soybean, rapeseed, margarine


Margarine is made from good vegetable oils, such as soybean, sunflower seed, linseed,
and rapeseed, excellent sources of „good‟ and essential fats (omega-3 and omega-6).
Bad fats are usually solid at room temperature while the good fats are spreadable or
liquid even when taken out straight from the fridge.

Good Fats are mainly of plant origin while the Bad Fats are typically of animal origin.

Fat is a part of a healthy and balanced diet: up to 30% of the daily energy intake should
be provided by fat. Up to 10% of the daily energy should come from essential fatty acids,
that the body needs but cannot make on its own. Data collected in Europe shows a gap
between the intake and the recommendations for the essential fatty acid ALA and
vitamins A and D. Margarine is also an important nutrient acting as a dense source of the
essential fatty acid ALA and the fat soluble vitamins A and D. In order to ensure optimal
health, daily use of margarine is better than using butter or even than not spreading at all.
This fact is also acknowledged by health authoritative bodies that have included
margarine in their dietary recommendations.




                                                                                           25
       7 UNDERSTANDING THE BUTTER , SPREADS AND
                 MARGARINE MARKET


           7.1 Broad overview of the Market for Oils and Fats

The figure below shows the overall consumption all types of spreads, oils and fats across
all sections.



                         ALL
                                     Refined Oil                                            92

                                    Sliced Bread                                          90

                    Branded butter from market                                       73

               Branded Pure Ghee from market                                    70

                    Unrefined oil or Filtered oil                 46
                                                                              Findings
Branded Vanaspati / local vanaspati from market              30            similar across
                                                                               LSM’s
                                      Bun Bread         24

                        Home made Pure Ghee             22

                               Home made butter     6                  Base : 1292




It is evident from the above figure that mainly branded oils are consumed , with home
made butter/ghee having a low presence. Also, these findings are similar across most of
the LSM‟s. ( Living Standard Measure)




                                                                                               26
The figure below shows the frequency of use of different types of spreads, oils across the
four metro cities in India.
                     6
                                   Few use the
                                   Many usethe product                                              Many use the product
                                                               Unrefined oil
                                     but infrequently
                                   product, frequently                                                 and frequently                 Refined
                                                Home made Pure Ghee                                                                     oil
                     5

                                                                                                             Branded Pure Ghee


                     4                              Branded Vanaspati                                           Branded Butter        Sliced
                             Home made Butter         (Mum, Del)                                                                      Bread
  Frequency of Use




                     3
                                                         Branded Vanaspati

                                                                                    Branded Vanaspati
                                                 Bun Bread
                     2                                                                 (Chennai)




                                   Few use the product                                             Few use the product
                                                                                                   Many use the product
                     1               and infrequently
                                                                                                   butand frequently
                                                                                                       infrequently


                     0
                         0    10          20         30            40          50          60           70           80          90             100
                                                                        Product Used




                     From the above diagram the following conclusions were drawn about the
                     consumption habits of people in the below mentioned cities:-

                     1) Mumbai: - The main consumption is of Refined oil and butter, whereas niche
                     consumption of Ghee, homemade butter and Vanaspati takes place.

                     2) Delhi: - In Delhi Branded Ghee, Branded Butter, refined oil and unrefined oil have
                     heavy usage and a niche market exists for homemade butter/ghee, Vanaspati

                     3) Chennai: - Branded Ghee and Refined oil are primarily consumed here and a very
                     niche consumption of Home made ghee and unrefined oil exits. Also many people in
                     Chennai use Vanaspati but infrequently.




                                                                                                                                                  27
   4) Kolkata: -Core consumption here was found to be of Branded Ghee, Branded
   butter, refined oil and Unrefined oil whereas a niche market was found for Home
   made ghee.

The following figure shows the purpose for which the products either:- Branded Pure Ghee or
Branded Vanaspati or Branded Butter are used -




                                                                                                                                                        Branded butter
                                                                                                                        Branded
                                                                    Branded pure ghee                                   Vanaspati

                                     As spread on roti / chapati                         43
                     As spread on roti/chapatti                                           As spread on roti / chapati                 39
                                                                                                                                As spread on roti / chapati       20
               As topping(putting in dal, on rice , in vegetable)                                       69
                                                                                                      As in vegetable) 7
   As topping(in dal, rice, on vegetable)                               As topping(putting in dal, on rice ,topping(putting in dal, on rice , in vegetable)             29
                                        Cooking special dishes                                                 79
                     Cooking special dishes                                                   Cooking special dishes                               dishes
                                                                                                                                   Cooking special76                         36
                                          As spread on paratha                      33         As spread on paratha                31As spread on paratha         18
           As spread on paratha
                                        Cooking regular dishes                 26             Cooking regular dishes            20 Cooking regular dishes     4
        Cooking regular dishes
                                             For making sweets                      35            For making sweets                   40 making sweets 3
                                                                                                                                       For
        For making sweets
                                            As spread on bread           17                      As spread on bread        13          As spread on bread                           91
        As spread on bread
                                                     For Baking         14                               For Baking        15                  For Baking     7
           For Baking
                                                                                                                                  Base : 393
                                                                             Base : 910                                                                                Base : 943




From the above figure it was concluded that:-
Ghee is used for various applications, while Vanaspati is consumed for making certain
dishes only. The consumption of Butter was mainly found to be as a spread on bread
while Refined / Unrefined oils remained the main cooking medium for everyday cooking
purposes.




                                                                                                                                                                       28
                                  7.2 Butter and Margarine market growth




                                                                                                  Volume
           500                   Value                                                                                7.2%
                                               11.2%




                                                                          Vol in "000 Tons
                                                                                             30               -0.7%
                                   2.9%
           400
                                                 404                                                 25       25            27
Val (Cr)




           300      353           363                                                        20

           200                                                                               10
           100
                                                                                             0
             0                                                                                      2004     2005      2006
                   2004           2005          2006
                                                                                                           Vol in Th Tons
                               Value in Crs


                 It is concluded from the above figures about the value and volume growth in the butter
                 and margarine sector that the average price increased by 3.8% in 2006 and 12% in Q1 of
                 2007. The category growth was driven by throughputs, and even though a slight dip was
                 evident for the dealers in 2006, the distribution for Margarine has gone up.




                                                                                                             29
                             Value Contribution
                2              3            4                  5
   100%

    80%

    60%

    40%

    20%
               98             97           96                  95
     0%                                                                          Value Growth YA
              2004           2005         2006             Q1 07

                    BUTTER                 MARGARINE
                                         Val Growth     2004       2005   2006    Jan-Mar'07
                                         Butter Margr   14.5        2.9   11.2       33.4
                                         Butter         14.8        2.5    10        33.5
                                         Margarine       2.9       21.1   54.6        30




It is clear that Butter is the major subcategory with 95% value contribution. However, the
contribution of Margarine is also growing at a fast pace.
Similar trends were seen in terms of Volume.




                                                                                                   30
                7.3 Branded Butter Purchased – All & Centre


  Amul is seen as the universal butter brand in Mumbai, Delhi and Kolkata
Where as in Chennai, Aavin is seen as a larger brand than Amul.

                                                                  ALL


                                 Amul                                        91


                                Aavin                4


                             Oothukuli           1
                                                                                       Base : 305


                               Mother
                               Dairy
                                                 1                                                                     Amul is the universal
                                                                                                                        butter in
                                                                                                                        Mumbai,Delhi and
                                                                                                                        Kolkata

                              Nutralite          1                                                                     In Chennai Aavin is
                                                                                                                        seen as a larger brand
                                                                                                                        than Amul

                     DELHI                                                                                  CHENNAI




       Amul                                                             96
                                                                                              Amul                    24

      Aavin     0
                                                                                            Aavin                                       45

   Oothukuli    0
                                                                                    Oothukuli               13

Mother Dairy    2
                                                                             Mother Dairy               3                                       Base : 75



    Nutralite   0
                                                         Base : 943


                    MUMBAI                                                            Nutralite         3              KOLKATA




       Amul                                                             96           Amul                                                                   97


      Aavin     0                                                                   Aavin           0


   Oothukuli    0                                                            Oothukuli              0


Mother Dairy    0                                                        Mother Dairy               0


    Nutralite   2                                                                 Nutralite         0


                                                                                                                           Base : 265

                                    Base : 298




                                                                                                                      31
                       7.4 BASES Concept Database Comparisons

The A.C. Nielsen BASES are used by HUL for gathering data for research in all projects
and the Healthy Heart is one of the concepts that were short listed for this project. The
following are the findings: -
 vs. the BASES Database of ~ 30 premium initiatives offering nutrional benefits studied in Asia
                                         Pacific
     Overall                                                                                Claimed Annual
    Purchase                                                               Claimed Units       Purchase
     Intent*            Liking             Value         Uniqueness       per Purchase**     Frequency**
                                                                                                             100%
     C1, D1            C1, D1                               C1, D1
                                                                                                             80%
                                            D1
                                                                                                             60%

                                            C1                                                                      Average
                                                                                                             40%

                                                                              C1, D1
                                                                                                             20%

                                                                                                C1, D1
                                                                                                             0%

                                   C1 - Heart Concept ; D1 - Health Concept




      Overall                                                                                       Claimed Annual
     Purchase                                                                      Claimed Units       Purchase
      Intent*              Liking              Value            Uniqueness        per Purchase**     Frequency**
                                                                                                                       100%


                                                                                                                       80%
     C1, D1               C1, D1                                  C1, D1
                                                                                                                       60%

                                                   D1                                                                          Average
                                                                                                                       40%

                                                   C1                                 C1, D1
                                                                                                                       20%

                                                                                                         C1, D1
                                                                                                                       0%

                                 C1 - Heart concept ; D1 - Health /Investment cocnept

 * Overall purchase intent represents a weighted combination of all five boxes of purchase intent
 ** Shown among consumers with positive purchase interest




                                                                                                                              32
                               7.5 Awareness of Different Nomenclature Of Fats




Base: 1292
                                                   ALL               15        ALL            7            ALL                         31
                     ALL                   17
   Base: 307
                                                Mumbai          14          Mumbai    5                Mumbai                           36
                  Mumbai         12
 Base: 320
                    Delhi                  19
                                                  Delhi                   21 Delhi                13      Delhi                   29
  Base: 327
                 Chennai                        Chennai       11           Chennai    6                Chennai              24
                                      15
 Base: 338
                 Kolkatta                       Kolkatta
                                                23                   16    Kolkatta   5                Kolkatta                             36

                                            21 Males                      22 Males            10         Males                                   42
  Base: 213
                   Males
Base: 1079       Females               17 Females               14         Females        7            Females                   29
 Base: 1063      Lsm 5 -9          15 Lsm 5 -9                  13         Lsm 5 -9       7            Lsm 5 -9                  28
 Base: 229       Lsm 10 +                   Lsm 10 +
                                                30                           26
                                                                           Lsm 10 +       8            Lsm 10 +                                   45

                           SATURATED FATS                  GOOD / BAD FATS            TRANS- FATS                 GOOD / BAD CHOLESTEROL




               The above figure shows the result of a survey done to see the awareness among different
               sections of the population about the classification of fats. The population was segmented
               into the four metro cities, by sex and by LSM segmentation. The result of the above
               survey yielded the following results:-

               Overall between different Fat names read out to respondents more seemed to be aware of
               „Cholesterol‟, but there was a very low awareness about „Trans Fats‟.
               There existed a fair level of awareness registered on hearing „Saturated fats‟ and
               Good/Bad Fats. The awareness of „Cholesterol‟ was seen to be higher in LSM 10+,
               among males and in the metro cities of Mumbai and Kolkata.




                                                                                                                       33
                     7.6 Butter – Consumer understanding


Mostly people prefer the use of salted butter. The brand most used is Amul. Amul holds
the elevated position of being the gold standard for the category.

       ‘Amul is a difficult habit to break.’ ‘Children will not eat any other butter than
Amul.’‘ It gives a different taste when added to certain dishes like dal makhani, palak
paneer, paranthas etc.’

Salted butter is mostly used as a spread for bread and paranthas. Additionally, this is used
in Pav Bhaji, Maggi, with biscuits, soups, sandwich, pizza etc.
Homemade butter is perceived to be slightly sour and hence unsuitable for bread.
Butter, as compared to ghee is perceived to be heavier and more harmful as it is
processed. Butter as opposed to ghee is considered to be „cooling’ and hence can cause
throat irritation. It melts and tends to burn easily making it a poor cooking medium.
Hence it is used mostly for garnishing dishes. The awareness of salt content and its
harmful effects on those with hypertension is high. The palatability of a variety of food
cooked or dry can be enhanced with butter. Children also tend to eat butter by itself.

The figure below shows the correlation between butter and butter substitutes.


                                  Butter


             Guilt                                   Taste
                          Butter substitute



It is basically consumed for taste and the usage is mainly as Topping / spread. But certain
guilt exists. This was a slight worry if too much butter is used by adults.
The concern for the older TG (Target Group) is that older people who are “at risk” do
understand the need to exercise control and make these changes there by they are more
likely to compromise on taste, and see this as one more step towards good health. For a
mass opportunity, this has to “fit” in to consumer life with minimum disruption, since
butter is NOT used for core cooking.
The Product offering thus has to deliver on – Taste and Price for it to be a mass
opportunity.




                                                                                            34
      7.7 Butter Substitutes Awareness, Perception & Usage- All


Except for Amul Lite a low awareness was noticed for other butter substitutes such as
Amul Delicious, Nutralite, and Spread it. Of those who are aware of Spread It, most have
correctly classified it as a butter substitute.Amul Lite and Amul Delicious were perceived
as regular / low fat butter – indicating that the real awareness could actually be very low
and that the claimed awareness could be because it being perceived as Amul Butter
Most claimed to have used Amul Delicious and Amul Lite and currently use it – again
this could have been because of the confusion with the mother brand Amul Butter. Thus
consumers might be actually using Amul Butter but claiming to use Amul Delicious and
Amul Lite

             Benefits of using Butter subistitute                          ALL
             Base : All Interviewed                                        1292
                                                                            %
             It is a good substitute for Butter                             33
             It is soft and spreadable on bread / rotis                     26
             It is tasty as well as healthy to consume                      24
             Helps in reducing weight                                       24
             Helps enhance the taste of the cooked dish                     23
             Helps in lowering cholestrol                                   23
             Prevents heart problems                                        23
             Gives a special flavour to the end dish                        23
             It is good for maintaining for a healthy body                  22
             Has low fat and is hence very healthy for me / family          20
             Is good for keeping the weight under control                   17
             It is easy to cook with                                        16
             It is good for preventing high blood pressure                  15
             It can be easily used for all the applications I use to use    14
             Helps in controlling the cholestrol levels in the body         13
             Butter is bad for health so this is more healthy               10
             It helps in controlling diabetes                               9
             Prevents Diabetes                                              9

             Not mentioned                                                 41



   Butter substitutes were still a nascent area
   Perceived benefits of butter substitute fragmented – no key benefit/s emerge
   Perceived benefits strong in Mumbai, Kolkata
   Perception of benefits of butter substitutes very weak in Chennai, followed by Delhi
   No variation in benefit perception seen across Gender and LSM segments




                                                                                        35
                   7.8 Dis-Advantages of Using Butter Substitutes-


Disadvantages of butter subistitute                                                ALLMumbai
Base : All Interviewed                                                             1292
                                                                                    %   %
It is less tasty than what I used to use(butter etc) earlier                         9
It is good for people who have problem but not for everyone                          9
It cannot be used for all applications I used to use butter for                      8

It is less spreadable                                                                8
It may not be natural and hence may contain substance which are unhealthy            8

Not mentioned                                                                       66




        The perception for Nutralite is split across it being:- a regular butter, a low fat butter,
        a brand of cooking oil and a simple butter substitute.
        Overall no major disadvantage was perceived about the usage of butter substitutes.




                                                                                                 36
                     7.9 Margarine -Awareness And Usage



The figure below shows the awareness of margarine across India, centrewise.



                                                       ALL
                                                                               Yes ,
                                                                             aware of
                                                                             margarine
                                       No , Not                                25%
                                      aware of
                                      margarine
                                        75%


                                                     Base : 1292



              MUMBAI                      DELHI                        CHENNAI                        KOLKATA


                                                                                      Yes ,
                            Yes ,                     Yes ,                         aware of
                          aware of                  aware of                        margarine
                          margarine                 margarine                          1%
                            17%                        2% No , Not
                                                                                          No , Not
                                  No , Not                  aware of                     aware of
  No , Not                                                margarine                     margarine
                                 aware of
 aware of                        margarine                    99%                           22%                    Yes ,
 margarine                         98%                                                                           aware of
   83%                                                                                                           margarine
                                                                                                                   78%

             Base : 307                Base : 320                      Base : 327                         Base : 338




   The overall awareness awareness of Margarine is extremely low and almost
   negligible in Chennai. In cities like Kolkata the awareness levels are much higher as
   a result of the launch of „Spread It‟ for which there were heavy campaigns on air to
   advertising it.




                                                                                                     37
  7.10 Consumer understanding of Margarine / Butter Substitutes


The awareness of margarine or butter substitutes is low at a spontaneous level. However,
as the discussion progressed most seem aware of the product recalling the advertisement
for the same, the brand being recalled as Amul Lite and Nutralite.
The non users had no tangible perception on taste and displayed a degree of indifference
to the product. They attributed this indifference to the „Amul habit‟ which was difficult to
break. Moreover, they perceived no requirement for this product in their lifestage.
Some positive associations were that it was easy to spread as it melts easily.
The negative associations were that it was very scattered as consumers had not really
interacted with this. Some mentioned the Bland taste, not being salty enough, and also
being hard and thus not easy to spread, There was no clarity on whether this product is
healthy or unhealthy. The consumers who seek knowledge (due to health problems in the
family) generally enquire from doctors. In Kolkata where the awareness is high the
perception is stretched further on it offering health benefits




                                                                                         38
                8 QUESTIONNAIRE FOR MARKET VISIT



-How do Amul and nutralite distributors handle power disturbances and outages?

- Do they keep the refrigerator on all night or they switch them off sometimes?

- How are damages at distributor/ retailer point handled by Amul/ Nutrallite. What is
their policy regarding the same? Do they reimburse for damages?

-What is the typical ROI modeling of a Nutralite distributor?

-Does any seasonality exist in the sales of butter/ margarine?

- Which SKUs move faster 500g or 100g?

- For Nutralite, does the salesman book only margarine orders at retailer or some other
products also from the company (like Sugar Free) as well?

- How do they ensure visibility of their products given that refrigerators in most outlets
are not visible?

- What is the no. of outlets covered by a typical distributor?

- What is the criteria for outlets serviced (like outlet must have a fridge etc. etc.)?

- How do they service MT chain stores like Big Bazaar? Do they take orders at every
store and deliver store wise or consolidated?

- Who are the prospective guys that may be partnered with for the chilled chain?




                                                                                             39
9 COMPETITOR ANALYSIS




                        40
                                                  9.1 NUTRALITE

                                       9.1.1 Order/Material/Money Flow



                                             Flow of Goods: -
                                             (n+1) days




                                 3P                                                                              B
                                                                    Retail
                             Distributor


                                               Flow of Money                 Ad             Flow of Order:-
Flow of Goods   :-                                                           va             Bi-weekly
   Wed – Sat                                       Advance
                                                                             nc
                                                                              e
                                                                     3P
                                Depot
                                                                 Distributor




                                                Flow of Order :-
                                                 Mon/Tue - Fri

                The above figure clearly illustrates Nutralite‟s distribution pattern and all the transactions
                happening between the Warehouse/Depot, the distributor and the Retail outlet.
                As far as the flow of order and goods is concerned between the depot and the distributor,
                the order is placed at the warehouse twice in a week and the goods are delivered by the
                depot the very next day. The distributor is a 3rd party who also stocks and distributed
                other cold storage products that belong to other companies such as Venky‟s, French fries,
                Green peas and even ice-creams (like Pastonji in Mumbai) etc. The depot which is
                company owned receives the money from the distributor in advance as per Nutralite‟s
                policies.
                Even the flow of goods from the distributor to the retailer happens on the (n+1) day
                which means the day after the order is placed by the retailer to the distributor‟s salesman.


                                                                                                           41
                             9.1.2 Company Margin

The following margins are provided by the company to the retailer and distributor on
Nutralite margarine: -


   •   Distributor :-        6.5%

   •   Retail :-             17%




                                                                                       42
                          9.1.3 Salient Attributes:-



1) The cold room typically operates for 16 hours in day and the power supply gets
   disconnected from the load at about +1‟C and gets connected again at +5‟C thus
   increasing the efficiency.

2) The Nutralite distributor is a 3rd party distributor and he stores and distributes
   other chilled products as well. These products include Venky‟s, French Fries,
   Green Peas and even ice-creams (like Pastonji in Mumbai) etc.

3) There is a problem of frozen water droplet formation on the surface of the outer
   cover when kept in sub zero temperatures.

4) For the purpose of promotion and merchandising, danglers and posters were used.
   This ensured its visibility. Some SVS‟s (Super Value Stores) were also given
   fridges.

5) To store the product the distributor uses Empty Rooms which maintain the
   necessary temperature of +1 to +5‟C .

6) The product gets transported from the distributor to the retail outlets in Insulated
   Boxes in Tempos or Rickshaws depending on the size of the beat to be serviced.

7) The criteria for servicing retail outlets in General Trade depends on the outlet‟s
   existing butter sales and if it possess a fridge or not.

8) There is a take-off in sales during the October-December quarter each year.

9) The depot is serviced 2-3 times in a month by the company which has its
   operations based in Gujrat.

10) There is a hybrid method for collection of the order from the retail stores where
    either the company salesman or the distributor‟s own salesman can go and take
    the order.

11) There is a provision of back-up generator in case there is an outage/ break down
    for a long duration.

12) A 15+1 scheme on Nutralite products was introduced for retail stores when it was
    launched.


13) The temperature requirement during storage is +1 to +5‟C for Nutralite
    margarine.


                                                                                        43
14) Recently a scheme has been introduced to provide 2500 fridges to certain selected
    retail outlets all across North India.

15) A 15 day stock should be maintained at the Depot at all times and the company
    must service the depot atleast twice a month.

16) There is a different salesman for taking the orders for Nutralite and Sugar Free
    from the retail even though they belong to the same parent company, Zydus
    Wellness Pharma.




                                                                                       44
                                        9.2 AMUL


                      9.2.1 Order/Material/Money Flow



                                        Flow of Goods: -
                                        (n+1) days


                          Distributor                      Retail

                                                    Same day           Flow of Order-
                                                                       Bi-weekly
                                        Flow of Money
Flow of Goods :-
Mon - Wed - Fri
                                           Next Day
                             Depot                      Distributor




                                         Flow of Order :-
                                         Tue –Thurs - Sat

The above figure clearly illustrates Amul‟s distribution pattern and all the transactions
happening between the Warehouse/Depot, the distributor and the Retail outlet.
As far as the flow of order and goods is concerned between the depot and the distributor,
the order is placed at the warehouse thrice in a week and the goods are delivered by the
depot the very next day. The distributor is an authorized Amul distributor who also stocks
and distributes other Amul products such as milk, shrikhand, cheese and other Amul
products which are classified as: - Wet and Dry depending upon the temperature
requirements during storage. The depot receives the money from the distributor the next
day as per Amul‟s policies regarding the same.

Even the flow of goods from the distributor to the retailer happens on the (n+1) day
which means the day after the order is placed by the retailer to the company salesman
while the retailer pays the distributor for the goods delivered to him on the delivery day.
Margin




                                                                                          45
                             9.2.2 Company Margin


The following margins are provided by the company to the retailer and distributor on
Amul and Amul Lite/Delicious.




      At Distributor:-
           Amul                3.5%
           Amul Lite/Delicious 7-8%

      At Retail:-
           Amul                            8-9%
           Amul Lite/Delicious             15-17%




                                                                                       46
                          9.2.3 Salient Attributes:-


1) There is reduced interference (movement in and out of the cold room) during an
   outage or power cut and there is a provision of back-up generators if it is for a
   longer period.

2) The Cold Room is typically operated for around 18hrs in a day( the temp. range
   maintained is between 4 to 8‟C) with a 4‟C acting as the cut-off point and the load
   gets disconnected till the temperature rises back to 8‟C.

3) The distributor sells the damaged products to hotels/restaurants at reduced prices
   to avoid complete wastage.

4) During the mid1990‟s the company had taken an initiative to provide fridges at
   the retail outlet for increasing awareness among people about Amul Butter.

5) The seasonal fluctuations in butter sale are such that there is an off take in sales
   from August and this continues right up to January on account of the festive
   seasons.

6) The distributor sells the product without the outer cover to hotels, this is called
   Institutional Packaging and is not for retail sale.

7) The trade scheme that Amul had initially for Delicious was that 15% margin was
   given to the Distributor.

8) Also the consumer scheme was to give Rs. 5/25 off on100/500 gm packs of Amul
   Lite.

9) The damage policy in place is that the company gives the distributor a 0.1% of
   the total sales per month as damage claim.

10) A 3rd party transporter is used in each City for taking the goods from the depot to
   the distributor.

11) A consolidated billing/summary is prepared the same evening by the distributor
    as the order taken from the retail outlets by their salesmen.
12) At the loading point the cold storage is shutdown incase more than 150 cases are
    to be loaded into the truck.

13) The Carry and Forwarding Agent(C N‟ F) gets a 2% commission in the process.

14) On asking it was found that an Amul distributor maintains an ROI of around 36%




                                                                                         47
                       10 ROI MODELLING




                                    3P
                                Distributor
           RS
         Analysis

Growth   Sensitivity   Investment
Model     Model           Model




                                              48
                                11 ROI CHARTS
The ROI modeling was the heart of the project as this was used to build the GTM model
and thus be used to find a solution as to which model should be followed to ensure
maximum efficiency.

The RS (Redistribution Stockist) Investment Model was studied more extensively by
focusing on the Growth and Sensitivity to understand how profitable it would be for the
RS as well as prepare a pitch to present in front of the Stockist.




                                                                                      49
                             11.1 Investment Model

This model helps in understanding the impact on the ROI if the investment on the fridges
is made by the RS independently or if it is provided by the Company to the RS, thus
helping in establish the appropriate margin to be given in order to reach the desired ROI
level.




                                                                                       50
                          11.1.1 Assumptions

1) The Fridge Cost is assumed to be Rs. 5 Lacs for a NON-GTM and Rs. 8 Lacs for
   a GTM RS. This cost assumes that more fridges are required due to higher in
   demand in a GTM compared to a NON-GTM.

2) The fridge cost is shown in the expenses record by applying a Written Down
   Value Method of Depreciation taken at a rate of 30% per annum on the overall
   cost and taking the monthly amount.




                                                                                  51
        Chart 1: NON-GTM comparison Chart for with and without
                  Investment under 2 levels of Inventory




                                Comparison For Non-GTM

                    90%
                    80%
                    70%
                    60%                                                    With Inv(4 days stock)
                    50%                                                    With Inv(1wk stock)
ROI




                    40%                                                    W/O Inv.(4days stock)
                    30%                                                    W/O Inv.(1wk stock)
                    20%
                    10%
                        0%
                               (8%             7%            6%)
      With Inv(4 days          39%            16%
      stock)
      With Inv(1wk stock)      33%            14%
      W/O Inv.(4days           79%            57%            34%
      stock)
      W/O Inv.(1wk stock)      67%            48%            29%
                                            Margins




  Inference: - This chart shows that there is negligible ROI below a 7.5% margin in the RS
  Investment Model.
  Around 8% and 6% margin levels are seen as the optimum levels for With and Without
  RS investment respectively.


                                                                                       52
 Chart 2: GTM comparison Chart for with and without Investment
                  under 2 levels of Inventory




                                   GTM Comparison

             100%

              90%

              80%

              70%

              60%

              50%

              40%                                                           1 day-With Inv.
                                                                            2.5 days with Inv.
              30%
                                                                            1 day w/o Inv.
              20%                                                           2.5 days w/o Inv.

              10%

                0%
                         (8%              7%              6%)
  1 day-With Inv.        53%             25%
  2.5 days with Inv.     47%             22%
  1 day w/o Inv.         96%             68%              40%
  2.5 days w/o Inv.      86%             61%              35%
                                        M argin




Inference: - This chart shows that there is negligible ROI below 7% for RS Investment
Model. A 6% margin is sufficient if it is implemented without the RS Investment
and a margin of around 8% if implemented with the RS Investment


                                                                                        53
                                11.2 Growth Model

This model helps in understanding that if the Turnover for the RS increases every year by
a particular rate then what will be the corresponding increment in ROI. Through this
technique it can be understood whether or not the product is a safe future investment for
the RS.




                                                                                      54
                            11.2.1 Assumptions


1) The Annual Growth Rate for the Turnover is assumed to be 25% for a NON-GTM
   and 30% for a GTM respectively.

2) The Cost Increment in salary is assumed to be 15% annually, in Distribution
   expenses it is assumed to be 25% annually and in electricity it is assumed to be
   15% annually.




                                                                                      55
Chart 3: NON-GTM with Investment for 4 days Stock-3 year Growth
                            Model




                  NON GTM with inv.(4 days stock) 3 yr Growth Model

          100%

           90%

           80%

           70%

           60%
                                                                                 9%
   ROI




           50%                                                                   8.40%

           40%                                                                   7.40%

           30%

           20%

           10%

            0%
                          1                  2                  3
          9%             62%                76%                88%
          8.40%          48%                62%                74%
          7.40%          26%                40%                52%
                                           Year




Inference: -A Double-Digit year-on-year ROI growth is seen with a 14% increase in ROI
levels from year1 to year2 and 12% in the subsequent year across all the 3 margin levels.




                                                                                      56
  Chart 4: GTM with Investment for 2.5 days Stock-3 year Growth
                            Model




                    GTM with inv. ROI-3 yr Growth Model(2.5 day stock)


         120%



         100%



         80%


                                                                                        9%
   ROI




         60%                                                                            8%
                                                                                        7%


         40%



         20%



          0%
                      year 1                 year 2                 year 3
           9%          73%                    92%                   109%
           8%          47%                    67%                   84%
           7%          22%                    42%                   59%
                                             Year




Inference: -It is clear from the above chart that the ROI increases at a rapid rate thereby
making a margin of around 7.5% ideal from a Year1 perspective.


                                                                                          57
   Chart 5: GTM with Investment for 1 day’s Stock-3 year Growth
                             Model




                      GTM with Inv.(1 day stock) Growth Model

         140%


         120%


         100%


         80%                                                                        9%
   ROI




                                                                                    8%
         60%                                                                        7%


         40%


         20%


          0%
                      (year1               year 2               year3)
           9%         81%                  103%                 121%
           8%         53%                   75%                  93%
           7%         25%                   47%                  65%




Inference: -There is a significant jump noticed in the ROI of almost 40% points over a 3
year period across all the 3 margin levels of 9%, 8% and 7% respectively.


                                                                                      58
   Chart 6: NON-GTM without Investment for 4 days Stock-3 year
                        Growth Model




                 Non-GTM(4 days stock) w/o Inv. 3yr Growth Model

         120%


         100%


         80%
                                                                                    9%
                                                                                    8%
   ROI




         60%
                                                                                    7%
                                                                                    6%
         40%


         20%


          0%
                      (year1               year2                year3)
           9%         102%                 108%                 114%
           8%         79%                   86%                  91%
           7%         57%                   63%                  69%
           6%         34%                   40%                  46%




Inference: -There is a stable increase in the ROI of almost 6% percentage points year-on-
year thereby making even a 6% margin level profitable for the RS in this case.




                                                                                      59
Chart 7: GTM without Investment for 2.5 days Stock-3 year Growth
                            Model




                  GTM w/o Inv.(2.5 days stock) 3 yr Growth Model

          120%


          100%


           80%

                                                                                 8%
   ROI




           60%                                                                   7%
                                                                                 6.40%

           40%


           20%


            0%
                       (year1              year2               year3)
          8%            86%                 96%                106%
          7%            61%                 71%                81%
          6.40%         45%                 56%                66%




Inference: -A stable increase in the ROI is seen of nearly 10% points year-on-year thus
further strengthening the 6% margin level as the optimum level as evident in the chart
above if without RS Investment model is followed.




                                                                                      60
  Chart 8: GTM without Investment for 1 day Stock-3 year Growth
                             Model




                     GTM w/o Inv.(1 day stock) 3Yr Growth Model

      140%


      120%


      100%


        80%                                                                       8%
                                                                                  7%
        60%                                                                       6.40%


        40%


        20%


         0%
                    (year1                year2               year3)
       8%            96%                 108%                 118%
       7%            68%                  80%                  91%
       6.40%         51%                  63%                  74%




Inference: -There is a stable growth seen in ROI year-on-year in the above chart. This
growth can further be argued to be more on the higher side even at lower margins.




                                                                                         61
                              11.3 Sensitivity Model

This model is basically used to understand the variation in the ROI at different margin
levels. This is achieved by making the assumed turnover for the RS flexible by a certain
percentage for the GTM and for the NON-GTM RS. This helps us understand that if
these fluctuations happen in the worst case and the best case along with the original
assumed turnover then in which case is the ROI feasible.




                                                                                       62
                          11.3.1 Assumptions

1) The assumption for the Turnover Sensitivity taken here is 10% and 25% for a
   Non-GTM and a GTM RS respectively.




                                                                                 63
   Chart 9: NON-GTM without Investment for 4 days Stock-3 Level
                       Sensitivity Analysis




                                  Non-GTM sensitivity
                             w/o investment(4 days stock)

         120%


         100%

         80%
                                                                                      reg.
   ROI




         60%                                                                          UL
                                                                                      LL
         40%

         20%


          0%
                   9%                8%               7%               6.4%
          reg.    102%              79%               57%              43%
          UL      111%              89%               66%              52%
          LL       91%              68%               45%              32%
                                            margin




Inference: -This is a highly stable ROI pattern; also a sufficiently high ROI is seen at a
6% margin across all the 3 Turnover levels and hence could be considered if the without
investment model is implemented.




                                                                                           64
         Chart 10: GTM without Investment for 1 day’s Stock-3 Level
                           Sensitivity Analysis




                                   GTM Sensitivity
                             w/o investment(1 day stock)

         160%

         140%

         120%

         100%

          80%                                                                      UL
   ROI




                                                                                   Reg.
          60%                                                                      LL

          40%

          20%

           0%

          -20%
                   9%               8%              7%               6%
           UL     149%             121%             93%              65%
           Reg.   124%             96%              68%              40%
           LL      81%             53%              25%              -3%
                                          margin




Inference: -A pattern of highly uneven ROI spread is seen across all the Turnover levels
(at any particular margin),
A sufficiently high level of ROI is seen between the 6-7% margin at all the 3 Turnover
levels.




                                                                                        65
    Chart 11: GTM without Investment for 2.5 days Stock-3 Level
                       Sensitivity Analysis




                              GTM w/o Inv(2.5 days stock)

        160%

        140%

        120%

        100%

        80%                                                                         UL
  ROI




                                                                                    reg.
        60%                                                                         LL.
        40%

        20%

         0%

        -20%
                   (9%              8%               7%               6%)
          UL      134%             108%              83%              58%
          reg.    111%              86%              61%              35%
          LL.      72%              47%              22%              -3%
                                          Margins




Inference: -The impact of removing RS investment costs are evident as ROI shoots up
tremendously. A margin level of 7% yields sufficient ROI at all the 3 Turnover levels –
Hence it is recommended due to the above mentioned reason.




                                                                                         66
    Chart 12: NON-GTM with Investment for 4 days Stock-3 Level
                      Sensitivity Analysis




                                 NON GTM-sensitivity
                            with investment(4 days stock)

         80%

         70%

         60%

         50%
                                                                                   reg.
   ROI




         40%                                                                       UL
                                                                                   LL
         30%

         20%

         10%

         0%
                     9%                     8%                     7%
          reg.       62%                   39%                    16%
          UL         74%                   52%                    29%
          LL         46%                   23%                     0%
                                          margin




Inference: -Despite large ROI fluctuations a relatively stable ROI is seen at an 8%
margin for all the 3 Turnover levels. Hence due the stability in ROI at around 8% margin
this model is recommended.




                                                                                        67
Chart 13: GTM with Investment for 1 day’s Stock-3 Level Sensitivity
                           Analysis




                                 GTM sensitivity
                          with investment(1 day stock)



         140%

         120%

         100%

         80%

         60%                                                                 UL
   ROI




                                                                             reg.
         40%                                                                 LL

         20%

          0%

         -20%

         -40%
                 9%              8%              7%             6.4%
          UL     115%            87%            59%
          reg.   81%             53%            25%
          LL     24%             -4%            -32%
                                       margin




Inference: -There are massive ROI fluctuations which appear to be triggered by the
fridge cost and significant Turnover changes.
The recommended margin here is 9% (6% + 3%) for year1 keeping in mind the Turnover
sensitivity for Lower Level as shown in the table.




                                                                                  68
         Chart 14: GTM with Investment for 2.5 days Stock-3 Level
                           Sensitivity Analysis




                            GTM with Inv(2.5 days stock)

         120%


         100%


         80%


         60%
                                                                                  UL
   ROI




         40%                                                                      reg.
                                                                                  LL
         20%


          0%


         -20%


         -40%
                     (9%                    8%                    7%)
          UL        103%                   78%                   53%
          reg.       72%                   47%                   22%
          LL         21%                   -4%                   -29%
                                         margins




Inference: -There are rapid ROI fluctuations happening due to significant Turnover drop
and constant costs (primarily due to the fridge depreciation component of the costs)
The recommended margin would be 9% (6%+3%) for Year 1 and a subsequent
assessment at end of Year 1.




                                                                                       69
                                    11.4 3P Model


The purpose of studying this model is to understand that if a 3rd party distributor is given
the responsibility of storing and distributing the product to the retail outlets as well as for
merchandising then how it would fare against the HUL Redistribution Stockist.
This Distributor model is similar to the one that Nutralite is using currently.




                                                                                             70
                          11.4.1 Assumptions



1) The Cost Estimate is taken as 4% and 5% of the monthly Turnover for a NON-
   GTM and a GMT 3rd Party Distributor respectively.

2) The Credit Estimate is taken as 45% and 30% of the monthly Turnover for a
   NON-GTM and a GMT 3rd Party Distributor respectively.

3) The Stock Holding Period is assumed to be 14 days and 7 days for a NON-GTM
   and a GTM 3rd Party Distributor respectively.




                                                                                71
                    Chart 15: 3P Distributor ROI Model




                                   3P Distributor

                   80%

                   70%

                   60%

                   50%
                                                                     GTM
       ROI




                   40%
                                                                     NON-GTM
                   30%

                   20%

                   10%

                   0%
                            8%             7%           6%
             GTM            68%           45%          23%
             NON-GTM       52.4%         39.3%        26.2%
                                        margin




Inference: - Higher ROI than HUL RS at similar margins thus a lower margin could be
fixed but there is a high level of uncertainty regarding the credibility.




                                                                                      72
                       12 RECOMMENDATIONS


1) The RS is more profitable as compared to the 3P if the without investment model
   is implemented

2) The RS margin on a whole should be close to 8%

3) The 3P is more suitable as the distributor makes the investment.

4) Insulated Boxes should be used by the RS for transporting the product to the retail
   outlets.

5) There could be a provision for giving a Fridge to some SVS‟s during the initial
   stage of the product launch.

6) A Generator back-up should be maintained by all the RS‟s in case of a power
   breakdown or outage and this generator should have a suitable capacity to carry
   the load of all the fridges installed for storing the product.

7) Institutional Packaging could be considered as an option to cater to the hotels or
   restaurants more efficiently like the way the other competitors are doing it.

8) In case of a 3P care should be taken to avoid storage with other strong odor
   products that the 3P might be distributing alongside.

9) A Temperate Detector (with memory) could be used at the RS Storage, fitted
   inside the Cold Room and also during transportation from the Depot to the RS in
   a Reefer Truck to ensure that the suitable temperature is being maintained by the
   concerned authority. This is done as the RS sometimes to save money can switch
   of the cooling plant for a longer time than allowed to save electricity thus causing
   spoiling of the product.

10) A Robust Damage claim policy should be in place such that no mis use is done by
    the RS or Retail or any negligence on their part under the comfort of the damage
    claim.




                                                                                     73
11) It could be considered to provide fridges on loan to the RS.



12) The costs for using a Generator could also be included while finding the RS
    costing in the ROI calculations.

13) The Innovation Risk should be kept in mind while designing the entire model
    right from back-end logistics to the front-end.




                                                                                  74
                       13 PROJECT SUMMARY



1. For a GTM RS with Investment (at 2.5 day inventory level) 9% margin is seen as
   profitable. The Turnover sensitivity of 25% with 6% as the basic margin and an
   additional 3% margin to offset the cost incurred for Year1 with an ROI review at
   the end of Year1 to scale down the additional 3% margin in line with the
   projected Growth Rate of 30% y-o-y.

2. The Lease vs. Buy option in case of the RS Investment for both GTM and Non-
   GTM should be evaluated.

3. For a Non-GTM RS with Investment (at 4 day inventory level) an 8% margin is
   seen as profitable. The Turnover sensitivity of 10% is considered with 6% as the
   basic margin and an additional 2% margin to offset the cost incurred for Year1
   with an ROI review at the end of Year1 to scale down the additional 3% margin in
   line with the projected Growth Rate of 25% y-o-y.




                                                                                 75

								
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