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| Abheek Singhi
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CONTEXT
05
Foreword
07
Executive Summary
13
21
37
53
63
64
FOREWORD
The FMCG and retail sectors in India have shown steady, albeit lower, growth even in the last few quarters despite a
slowing economy and several other challenges. Todays business environment is characterized by rapid, extensive change
and unpredictability. The combined effects of demographic shifts, globalization, hyperconnectivity and feedback through
social media are posing many external challenges to companies. In addition, we see that companies are often hampered
by internal complexity that makes change difficult.
Corporate transformationthe endtoend reinvention of a businesshas often been seen as a lastditch effort
undertaken by companies that have failed in the market place. But that does not hold true in todays environment. It is
important for companies to start transforming themselves before they are forced to do so by external challenges. But
too many companies, especially those with a sustained track record of success, fail to transform themselves till it is too
late. Flat sales, rising costs, disgruntled customers, demotivated employees as well as increasing and new competition
are typical late signals that a company needs fundamental change. Yet, it is only after the business comes under severe
pressure that they wake up to the need for this change.
This report highlights how an integrated topdown effort to drive successful transformation can be undertaken in
the FMCG and retail industries. The report defines several drivers that companies must take into account, as they set
themselves up for a journey of reinvention and relevance in an ever changing market place.
We would like to take this opportunity to thank The Boston Consulting Group (BCG) for sharing their latest and best
insights on the subject of large scale transformations through this report. We look forward to your continued cooperation
and support as we work together toward accelerated performance in both sectors.
We hope you find this report interesting and informative for your businesses.
Kurush Grant
Suresh J
EXECUTIVE SUMMARY
Transformation Imperative
EXECUTIVE SUMMARY
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
EXECUTIVE SUMMARY
There are three effective levers for extracting cash from the
current business to prepare for the identity transformation
journey
10
EXECUTIVE SUMMARY
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
Transformation Imperative
13
What is transformation?
A transformation is a CEOled, cross-functional, resultoriented, plan for large scale
change to outperform
competitors sustainably
It requires strong
engagement of senior
leadership and strong
involvement at all levels in
the organization
It has disproportionate
impact on the core customer
offer with multiple
changes made to the
operating model and
organizational capabilities
Changing
consumers
Increasing
uncertainty
of leadership
position
Rise of new
technologies
Increasing
commodity price
volatility
14
Transformation trajectory
TSR
Phase I
Phase II
Developing a differentiated
offering to build medium term
competitive advantage
Performance or
industry shift
that triggers
transformation
Declining
impact of
operational
moves
No transformation is shorttruly
sustainable results require time. BCG
experience suggests that there are two
phases in a transformation journey:
Inflection point as
new strategy /
vision / model
deployed
Drive growth
through
adaptive
innovation
Operational
turnaround to
arrest decline
and begin
recovery
Failure to
innovate in
the long term
leads to decline
Trigger
Operational
turnaround
New strategy /
business model /
vision
Adaptive
innovation
Time
Types
Note: TSRTotal Shareholder Return.
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
15
Phase II
Phase I
Halfway stop
Stopping with just
operational efficiency
improvement, rather
than driving growth and
long-run TSR
Legacy trap
Failing to shed core
elements of the current
business model that are
no longer competitive
Insufficient moves
Not making sufficient
moves proportional to
the scale and scope of
the challenge
Inadequate independence
Undermining new
business models by
keeping them too close to
the core organisation and
operations
Lack of persistence
Underestimating time
and effort required to see
results; changing course
prematurely
Premature confidence
Believing that the change
is on the right track early
on and not continuously
revisiting vision and
strategy
16
57%
43%
Do you believe the external environment for your organization is going to become
more uncertain / complex?
Yes
(quite a lot)
57%
Yes
(somewhat)
Not to
large extent
29%
14%
Have any new player(s) entered your business segments and taken share from the
established players? Do you believe this will also happen in the future?
Many new players
(have entered and taken share
will continue in the future)
86%
14%
What are the major internal challenges to define a transformation agenda for the
next 3-5 years?
The company has a vision but
doesn't have concrete milestones
and action plans to achieve it
71%
29%
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
17
Phase I:
1 to 3 years
Fund the journey
Extract cash from the business
Pricing strategy
Cost optimisation
Supply chain efficiency
Phase II:
3 to 5 years
Win the medium term
Develop a differentiated offering
Chapter 2:
Business
transformation
for FMCG
Chapter 3:
Business
transformation
in retail
Chapter 4:
Take measured
bets and
enabling
transformation
Common across
FMCG and Retail
21
Sustainable 'go-to-market'
Evaluate emerging trends, invest light and early behind them now
7
Digital experience
Brand advocacy
International markets
11
Organization structure,
span and influence
22
100
21
19
18
80
60
27
30
30
34
Trade
up
39
Neither
27
Trade
down
40
52
51
52
41
0
US
30
29
20
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
23
Efficient spend
(product offer,
pricing, and event
optimization)
Payment structures
Performance
based
Execution,
measurement and
monitoring
Point of sale
compliance
enforced
Supporting pillars
Take 'portfolio'
view of brands
Simple
Promote end-to-end
efficiency
Spend tracked
and event returns
analyzed
Steer to channel
partners that
perform and have
potential plan
collaboratively
Flexibility at
customer level
within 'guardrails'
Sales force
trained, and
incentives aligned
24
Customer
expectations
are getting tighter
Demand
variability
is increasing
Range of products
and promotions is
getting wider
Larger number of
innovations tested and
launched
Higher regional / segment
specific offerings
Newer wholesale delivery
formats
Infrastructure
quality is unable to
keep pace
Inefficient warehousing
and cold chain
Lower technology adoption
Lesser number of logistics
friendly zones
Low improvement in road
and rail infrastructure
External challenges
Customization
requirements of
distribution are
increasing
Larger number of delivery
configurations (channel, size,
partner type...)
Wider range of customers
New multichannel activation:
smaller orders straight to
customer
Supplier base is
becoming wider and
more complex
Higher number of
suppliers each for a
specific advantage
Internal challenges
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
25
Manage cost
and service
trade-offs
Enable end-to-end
visibility on costs and
benefits of supply chain
decisions strike the
right trade-offs
Costs
Availability
(service)
Change
Revisit KPIs to enable
organization
cross-functional
and employee
collaboration
behaviour
Rethink
operations
and network
Revisit data
collection and
analysis
Set up data-exchange
Set up right
platform
Allow seamless access
technology
and integration across
infrastructure
functions
Incentivize suppliers
and retailers
Align metrics
and incentives Share critical outcomes
across functions
26
30pts
30pts
0pts
0pts
-30pts
-30pts
60pts
-60pts
0%
20%
60pts
40%
60%
-60pts
-10%
-5%
0%
5%
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
27
Production
Supplier engagement
People productivity
Alternate sources
Plant location,
capacity-sizing
Distribution
Marketing
Merchandizing
Return on Marketing
material deployment
Investments
Span management
Scale in media
buying
28
Demographics
driven
Target
consumer
segment
Geography
Income ...
Education ...
Residence ...
Access ...
Product
driven
Category and subcategory ...
Packaging format ...
Flavours, fragrance,
colour ...
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
29
Out of home
In home
Gender
Age
Income ($ '000)
At peace
Sharp and focused
Comfortable
Sense of Pride
Splurging on me
Hip and in the know
Personally connected
Family friendly
At peace
Sharp and focused
Comfortable
Sense of Pride
Splurging on me
Hip and in the know
Personally connected
Family friendly
Total (%)
Male
Female
Total
24-44 24-44 45+ 45+ 24-44 24-44 45+ 45+
(%)
<100 >100 <100 >100 <100 >100 <100 >100
15
5
10
10
5
5
10
3
10
0
0
5
7
5
2
8
20
10
15
20
10
5
10
10 100
Rationalize brand
footprint
>1.5
1.0-1.5
Develop a wider
play in categories
of strength
0.5-1.0
<0.5
Leverage scale to
reduce spends
30
Specific
to trade
Halwai /
traditional
sweets
Bakery
Consoli-d
ation
Pay for
performance and
value added
Chemist
Sales force
excellence
Convenience/
Paan shop
Company A
Alternative
channels
Kirana /
Grocery
Level
Highly
consolidated
Uniformity
of fixed
margins
More than
4 types
Company B
Consolidated
Variable
margin
High variable,
basis input
metrics and sales
Sales
structure
Handheld
automation
Fragmented
2-3
types
Highly
fragmented
Same
margin
Assured ROI,
not subject to
performance
Distributed team,
structured salaries,
multi layers
Focus
Focus
SKUs, time
initiatives,
tracking, GPS time tracking
Shop target
achievement
focus
Salaries, benefits
vary by dist;
single layer
Order
booking only
Modern trade
involvement
Low
Moderate
High
Rural reach
Low
Moderate
High
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
31
Execution
Strategy
Objectives
and goals
Transforming
the go-to-market performance
Consumer value proposition
Partner / customer
value proposition
Urban general
trade
Rural general
trade
Modern
trade
Making it happen
32
Operating
model
Value
proposition
Product
to service
to outcome
Product to
experience
Trust premium
"Free"
Change offerings
either from
product to
service, or from
service to
outcome
IBM
Integrated
platform that
goes beyond the
product itself
Apple
Establish a clear
reputation and
position the
company to trust
Whole Foods
Provide a product
/ service at zero
or very low cost
and find other
ways to monetize
offering
Facebook
Matchmaker
Integrator
Low cost
Direct
distribution
Lower costs of
operating across
divisions
JetStar Airways
Adjacencies
System
manager
Bring external
companies
together to better
serve a market
Li and Fung
Ltd.
Business
architecture
Open
Leverage peer
production,
crowd-sourcing
and open
platforms to
increase value of
offering
Android OS
Vertical
integration to
control all
aspects of the
value chain
Zara
Peer to peer
Establish and
foster
connections
between
customers
PayPal
Leverage core
strengths and
brand equity to
enter a new
market
IKEA
Create standard
system and subcontract aspects
of system to
external
companies
McDonald's
Ecosystem
generator
Join forces with
external companies
towards a common
goal with complete
alignment on value
chain
UltraViolet
Capillary
networks
Grass roots sales
and distribution to
reach greater
number of
customers
Unilever
Serial
Repeatedly seek
opportunities
beyond core
business
GE
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
33
20,000
15,000
Ventures into
'ice cream'
category
10,000
5,000
Started in
1946 as
KDCMPUL;
primarily
into milk
and butter
India's largest
food sales $ 3 bn
National leader in almost
all dairy categories
India's most trusted F&B
brand (2011, 2013)
Launches new
'Taste of India'
campaign with
new products
and packs
Planned
investment of
4,000-5,000 Cr. in
milk processing
capacity
Aggressive retail
expansion6000
retail outlets added
Signs 10 year agreement with
IBM to transform and manage
Amuls IT landscape
0
1946
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
CAGR
19%1
5%
18%
22%
34
85%
1st
Milk
powder
65%
1st
Cheese
65%
1st
Long life/
UHT milk
60%
Ice cream
40%
50 100
1st
1st
Supply chain
Infrastructure
Attractive pricing
geared up to
across products
manage supply
creating strong
chain for varied
consumer traction
Low and consistent product range and
conditions
distribution
Simple ordering
margins
mechanics with IT
Gradually
integration from
expanding
sourcing to sales
exclusive /
franchise retail
Proposition and
product portfolio
Leaders in
innovation within
dairy space
Brand promise
always
contemporary to
changing India
Cost structure
Scale driven cost
advantages milk
procurement from
primary
shareholders
allows supply
assurance
Mother brand used
to leverage scale
on A&M spend
Advantaged
business model
Four channels of
Investment in
distribution
processing
managed: frozen,
technology and
fresh, chilled and
capacity
ambient
Partner with other
Network of 10,000
private packers and
dealers and 1 mn
state co-operatives
retailers largest
Wider procurement
in India in relevant
network through
categories
district co-operatives
Go-to-market
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
37
Multi-channel management
Advantaged business
model and network
Evaluate emerging trends, invest light and early behind them now
7
Digital experience
Brand advocacy
International markets
11
Organization structure,
span and influence
38
Multiple
prices...
Regular
Promo
Online...
...depending
on store
uniqueness...
Local
competition
Geography...
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
39
Strategic
alignment
Pricing approach
Pricing
model
Pricing
platform
5 Multichannel/
6 Promotional
online
Focus on highest
return categories
Preferred channel to
Offers that attract
push sales
store trip
Cost to serve
7 Customerbased pricing
Tailored programmes
for most profitable
customers
2 Category pricing
Price versus
competition
"Essentiality" for
customer
8 Capability development
Organizational readiness, skills development
Tools and data availability for taking decisions
In-store initiatives
Promo display locations
Daily deals
Price cut announcements
In-store signage
External initiatives
Marketing initiatives
(coupons, pamphlets...)
40
Out of
stocks
Excess
inventory at
times
Handling
and transit
damages
and stock
losses
Unmanaged
slow moving
products
Supply
cycle not
following store
replenishment
rhythm
Unplanned
new and
promotional
stock
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
41
Need to Take an End to End View of Supply Chain: Optimize for the
System, not for a Function
Illustrative
Retailer
warehouse
+ 1-2 days
Traditional
supply chain
Demand
spikes
250%
+ 1-2 days
Total: 10-18 days
CPG
warehouse
CPG
factory
Raw
materials
+ 1-2 days
+ 1-2 days
+ 1-2 days
Total: 4-8 days
+ 2-3 days
+ 1-2 days
+ 2-3 days
Demand
Drive
Supply
Chain
Demand
spikes
250%
+ 1-2 days
Total: 4-8 days
+ 1-2 days
+ 1-2 days
Information flow
+ 1-2 days
Product flow
42
International
retailers
Indian
retailers
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
43
Scale
Assess scale efficiencies
Negotiate holistically
across categories
Assortment balancing
Use PL to maintain
profit umbrella / negotiating
position
Rationalize supplier portfolio,
SKUs to enhance profitability
Strategic partnership
Supplier discovery
Parity
Process optimization
44
Phase A
Growth
Phase B
Rationalization
Phase C
Maturity
Phase D
Decline
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
45
Mega
trends
Consumer
discovery
Store
economics
Store team
and service
model
Develop
category
concepts
Discover
Concept
strategy
Full
concept
Store Bible
Integrate
and prepare
Concept
ready to
be tested
Store card
Test and
Improve
Store kits
Rollout
Market-tested
concept,
ready for
rollout
46
1.3
~3X
0.2
3.8
2.4
0
Single-channel
Multi-channel
Transactions (index)
~2X
0
Single-channel
Multi-channel
Internet
retailing
Total
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
47
Inspire the
customer
Digital
out of
store
Own
device
Digital
in
store
Store
device
Physical
stores
Make
them aware
Help
them decide
Sell them
the product
Support the
customer
Self pick
Click 'n'
collect /
reserve
Smart
Product info
trolleys with
kiosks
'model'
Product
shopping lists simulator
Next best
product
marketing
Tweet
mirrors
Product
locators
Personalized Store /
Scan and
product info
product info
shop
NFC
payments
On the
go
Recommen- Product
ded recipes
reviews on
Cloud-based Twitter /
shopping
Facebook
At
home
1-to-1
Recipe
Product
marketing
functionality reviews
Personalized Personalized and
shopping list recommen- Inventory
checks
dation
inquiries
out of store TV
sponsorships
Store info /
availability
apps
Physical
coupons
Click 'n'
collect
Returns
policy
In-store
advisors
Reward
their loyalty
Loyalty cards
Loyalty kiosk
for managing
account
Online
product
support
Mobile based
loyalty card
Product
refunds
based on
photo
e-Loyalty
vouchers
Mobile points
Loyalty
website
Online
redemption
N/A
Loyalty
newsletter/
magazines
Telephone
support
centre
48
Known for
fresh'
E.g. Whole
Foods,
Publix
Value led
model
E.g.
Costco,
Asda
Playing
across wide
variety of
formats
and
channels
E.g.
Tesco
Winning
private
label
offering
E.g.
Trader
Joe's
Aldi
Nord,
Mercadona
Franchise
led model
E.g.
Save-A-Lot
(Supervalu),
EU coops
Premium
experience
led
E.g. Whole
Foods,
Mariano's
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
49
Delivering
consistently well
Performance
Win in the
medium
term
Right team,
urgency,
organization
and culture
Fund the
journey
Improved efficiency
Easy ordering completed
Store renewal
development
Liquor renewal
Improved customer
service
Appealing fresh food
offer
Stronger delivery of
value
Scale rollout of new
formats
Culture of continuous
improvement
Year 1 2
Year 2 4
Year 4 5
50
200
Pre-transformation
In-transformation
150
100
50
Year -4
Year -3
Year -2
Year -1
Year 1
Sales
Year 2
Year 3
Year 4
Profit
10
Pre-transformation
In-transformation
0
Year -4
Year -3
Year -2
Year -1
Coles
Year 1
Year 2
Year 3
Year 4
Key rival
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
53
Five Common Levers for Taking Future Bets and Enabling the
Transformation
Fund the journey
Sustainable 'Go-to-market'
Evaluate emerging trends, invest light and early behind them now
7
Digital experience
Brand advocacy
International markets
11
Organization structure,
span and influence
54
2013
Internet
users
28
Digital
influence
Digital
buyers
15
47
29
14
Need to challenge
digital reality in India
Who is
online?
How do
users
access
internet?
Why are
they
online?
What
drives
the
online
traffic?
Sources: BCG CCCI India Digital Influence Study 2013-14; BCG analysis.
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
55
Digital
footprint
Digital
influence
Digital
buyers
71%
48%
25%
Air travel
of air travel
buyers have
internet access
buyers used
internet in the
purchase process
buyers bought
it online
Cars
55%
32%
6%
PC and
mobile
accessories
68%
28%
8%
2013 category
56
Adoption of a testrefinescale up
approach rather than starting too
fast.
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
57
120
2009
2011
+18%
Advocacy is the most trusted
source for recommendations;
traditional media influence
declining
100
92
80
78
-24%
Advocacy importance
increases even more with
offline, digital expands
62
61
60
47
Best-in-class marketing
companies have started to
use this tool aggressively
-25%
46
0
Recommendations
from friends and
family
TV
Sources: Nielsen ReportGlobal Trust in Advertising and Brand Messages, April 2012 (3Q 2011 data) 28,000
internet users from 56 countries participated in the study.
58
Powerful
messages
3
Continuous relationship
and viralization
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
59
External
criteria
(e.g. macro
and industry
dynamics)
Prioritize
countries
Revenue
potential
(e.g. local
demand)
Develop
strategy and
target portfolio
Portfolio
definition
(e.g. timing /
phasing,
mode of
entry)
Local players
(e.g.
competitive
dynamics)
Internal
criteria
(e.g.
leverageable
assets)
Value creation
opportunity
(e.g.
competitive
advantage)
Pre-requisites
(e.g.
organization
and operations)
60
High
Indian
companies still
need to address
gaps in desire to
adopt technology
6
4
2
4.0
2.7
Enterprise
mobility
Business
planning
3.0
4.4
3.0
4.1
3.3
4.4
Procurement
Many options to
extending
technology
across
organizational
functions to
'link-in'
4.2
2.3
Future aspiration
Reverse
auctioning
platforms
Daily price
discovery from
suppliers
Real-time
inventory and
purchase
situations
Common
portals and
wider
connectivity
Manufacturing
Supply chain
Integrated
End to end
equipment and
replenishment
production cell
control
operations
Warehouse
Remote
and order
controlling of
management
machinery /
trouble shooting
Equipment
based
industrial
automation
Perpetual
inventory
management
algorithms,
code readers and
handheld devices
Sourcing/
procurement
Sales and
distribution
Outlet level
sales and
inventory
Key customer /
partner data
Commercial
status
Hand held
devices with
high connectivity
and easy data
inputting
interface
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
61
Wage rates
(manufacturing)
500
Nominal GDP
per capita
2000
2002
2004
Senior
management
2006
2008
2010
2012
2014
Mid
management
62
Source
Perform
Develop
Affiliate
Manpower
planning
Performance
management
Leadership
development
Engagement
Recruitment
strategy
Rewards and
incentives
Talent
management
Motivation
and work-life
balance
On-boarding of
new hires
Productivity
management
Roles and
responsibilities
Culture
Training and
development
Diversity
HR marketing
and
branding
Career path
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
Indian Agribusiness
Cultivating Future
Opportunities
A report by The Boston
Consulting Group, July 2012
The Tiger RoarsAn In
Depth Analysis of How
a Billion Plus People
Consume
A report by The Boston
Consulting Group, in
association with The
Confederation of Indian
Industry (CII), February 2012
63
64
Acknowledgments
This study was undertaken
by The Boston Consulting
Group (BCG) with support
from the Confederation of
Indian Industry (CII).
We would like to thank
Mr. Kurush Grant
Chairman, CII National
Committee on FMCG 2014
15 & Executive Director
FMCG Businesses, ITC
Limited as well as
Mr. Suresh J Chairman, CII
National Retail Committee
and Managing Director
& CEO, Arvind Lifestyle
Brands Limited for their
support and guidance while
developing this report.
Amitabh Mall
Partner and Director
BCG Mumbai
+91 22 6749 7079
mall.amitabh@bcg.com
Changing your Orbit The Handbook for Transformation in FMCG and Retail Businesses
Abheek Singhi
Senior Partner and Director
BCG Mumbai
+91 22 6749 7017
singhi.abheek@bcg.com
Rachit Mathur
Principal
BCG New Delhi
+91 124 459 7293
mathur.rachit@bcg.com
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06/2014