Marico Ltd.

ME Final Project Presentation Group P

Agenda
Part 1: An Introduction to Marico Part 2: Exploration of the Company Demand for products Supply of raw materials Production, externalities & transaction costs incurred Competitive and Pricing strategy Part 3: Examination of the Industry Monopolistic market scenario Performance of peers Part 4: Rationale for performance Reasons for success/failure Suggestions for improvement

An Introduction to Marico
Part 1

Introduction to Marico
Started out as with Parachute and Saffola as product offerings in 1988 32 products today with a turnover of Rs. 26.6 billion Products across Coconut Oil, Hair Oils, Post-wash hair care, Anti-lice Treatment, Premium Refined Edible Oils, niche Fabric Care and skin care segments
Marico

Consumer Products (India)

International Business Group (FMCG)

Kaya

Personal & Nature Care

Wellness & New Products

Brands

Exploration of the company

Part 2

Demand for products Parachute

Parachute has been in the market since the past 30 years A strong brand loyalty exists The current market share of 46% 14% price increase in the past 8 9 quarters has not affected the volumes Demand in relatively inelastic This is a significant competitive advantage for Marico when it comes to pricing

Demand for Products Saffola

Per capita spending on health in India is very low compared to other countries. India has one of the highest mean cholesterol levels in males aged 15+ Due to lack of willingness or time, regular exercise is no taken up. This gives rise to eat healthy, stay fit concept Saffola has 55% market share in this segment

Demand for Products Kaya Skin Clinic

Per capita income has increased 1.5 times in the last 5 years and is expected to increase another 63% in another 5 years 38% of Indian population in the age group of 20 44 Kaya skin clinic is the only player in this segment and thus has monopoly power.

Supply of raw materials

Monopsony Power
Largest buyer of coconut 1 out of 13 coconuts produced in India goes to Marico Tied up with 6000 vendors directly Reduces impact of coconut price rise by stocking three months coconut requirement

Production & Distribution

Size and scale advantages in relation to competitors Finesse in production planning, scheduling, and matching with marketing requirements High reliability suppliers superior quality assurance Production at Marico's manufacturing facilities are at 7 locations largest factory at Kanijikode with capacity of 1,500 MT Extensive distribution network covering 3,600 stockists around the country

Externalities
Maximization of potential of society at large
o Think Fresh, Be Green o Reduced Carbon Footprints/Pollution Rain-water harvesting at Pondicherry plant Energy efficient project at all a manufacturing facilities Reduced plastic consumption: use of recycled bags Reduction of paper usage o Saved Rs. 7 million by green initiatives

Transaction costs
Transaction cost: cost of distributing products to retailers across the country Marico implemented the mySAP Supply chain management system to streamline these operations and reduce costs These processes included:
o Calculation of monthly shipment requirements o Electronic transfer of stock level data from the distributors to Marico o Push distribution of products from Marico to distributors based on forecasted retail-level demand and distributor inventory levels.

Competitive across all brands, Strategy Focus on increasing volumes

without much focus on improving margins
o Introduction of new products o Taking existing products to new market o Educating consumers about healthy use of Saffola and shift from loose oil to rigid oil

How is this done?

Why this is done?

o Provides economies of scale, reducing cost o Leverage country specific benefits, increasing margins

Pricing Strategy
High pricing power
o Market presence for last 30 years o Market leader products: Parachute (46%) and Saffola (55%) o Market share unaffected in spite of considerable rise in price of Parachute and Saffola o Products available in various price segments

An examination of the industry

Part 3

Overview of FMCG Industry

Indias FMCG sector is the fourth largest sector in the economy Rural India accounts for more than 700m consumers (70% of the Indian population) and accounts for almost 50% of the total FMCG market The demand for FMCG goods is increasing by 18% in the rural areas and by 11% in urban areas

SWOT Analysis
Strengths
First mover advantage in many markets Powerful brands

Weaknesses
High cost capital Failure of product line extensions Lack of a diversified product portfolio Lack of extensive resources for expansion

Strong inventory control

Efficient distribution channel Deep rural reach Economies of scale

Opportunities
Growth in Indian Middle class Expanding Market Size Opening up of Rural Markets

Marico
Threats
Increasing Competition from global players Increasing commoditization of products Entry of private labels

Leverage on flagship brands to introduce products

Peer Comparison
Peers:
o o o o HUL P&G Dabur Godrej Consumer Durables

Comparison done on three parameters:

o Sales o Operating Profit Margin o Advertising expenses as a percentage of sales

Comparison - Sales
2008-09 growth decreased as a result of US Recession

Comparison - Operating Profit Margin

Sales can be boosted by: Reducing the OPM when Cost is constant Reducing cost by decreased raw material prices and OPM maintained

Comparison Advertisement as % of Net Sales

20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2006 Godrej 2007 Marico 2008 HUL 2009 P&G Dabur 2010

One of the important expenditures in the FMCG Industry

Performance rationale
Part 4

Parachute: Key Success Factors

Success largely attributed to purity value Strong brand loyalty Flexibility of raw material acquisition strategy Packaging innovation that conquered rural markets and prevented duplication from local brands Sub-brands that cater to different market segments Smaller package sizes targeting the rural population

Kaya: Reasons for Failure

In spite of benefits of scale and advantage, longer than expected turnaround - High attrition of skin practitioners - Low client retention

Suggestions
Focus on areas of competence remain in low competition segments (hair oils) rather than move into high competition segments (functional foods) Leverage well-established brands Extend presence in rural regions to enhance volumes

Thank you