FMCG Wholesale Industry

One of member of FMCG Marketers, Gaurav asked me put some insights on Wholesale industry in India, its operation, key factors etc. Let me give you some pointers which may help you guys.

For any product category which is high selling will have wholesalers. Take the case of biggest FMCG product category - cigarettes or the next family of product categories - Personal products, all have a combination of wholesale and Retail Sale. The only difference between the two is the offtake levels, financial capacity and sometimes infrastructure to deliver to retailers.

Normally the rates for wholesale is cheaper than retail, as it is in bulk. This sometimes lead to price cutting in market. Both retail and wholesale have a role to play. Its always good to have high retail thruput (Total Retail Sales/ Total Sales) to have higher control of organization over the retailers. This will help the organization to launch new brands in future, increase visibility at the outlets, which is just because of relationship of organization saleman with Trade.

At the other end, in case of insufficient supply from factories or C&F, there will be sufficient stock to deliver to outlets to serve the conserve. Also, there are many markets which is practically and financially not possible for many organization to cover like less than 10K narkets, Here these small retailers in smaller markets get the stock from these wholesalers which are located at some distance from them.

Its really interesting to see wholesale mandis in some pockets in different areas.

Sunfeast foray into Biscuits

Major players in biscuits who dominated the industry long back were Parle and Britannia. With that there were smaller brands in various regions. Instead of all this ITC took a bold step to hit on these biscuit mammoths making 82% of industry (in 2004)

Now the important question at hand is the reason why ITC entered into this product category. Let me enumerate some reason:

1. Food segment is Rs. 550,000 crores (112 b$)
2. 6% is FMCG (Branded and packaged) – Rs. 33000 crores
3. In developing markets, the above percentage is as high as 95%. So looking into future, India’s will have more organized and branded food product categories. It will lead to dual effect: Increase in base of biscuit segment and Increase in % of branded food categories
4. ITC has a great scope to be a branded player
5. Branded Biscuits industry come out to be around Rs. 4000 crores
6. Increasing at the rate of 12 to 14% yoy
7. Synergies with ITC core competencies (value addition to wheat with Aashirwad Atta brand)
8. Biscuits as a segment positively effects the bottom line
   

Threats for ITC: Behemoths like HLL tried their hand in this segment but unsuccessful (Max brand exit in 2005)

Reason for Entry into Biscuits

1. Innovation: Research revealed that the category had gaps which ITC could settle into. Findings revealed that consumers wished to taste new and innovative products. That was precisely what the competition had not done in a big way. Glucose was Glucose and same is the case with Marie. The company decided that this could be its biggest point of attack. In 2003, ITC launched Sunfeast with six ranges. But it was a calculated risk. ITC stuck to category favourites like Glucose, Marie and Bourbon cream. Along with that, it also launched innovations such as orange-flavoured Marie, Marie light and butterscotch-flavoured cream biscuits. In 2004, Sunfeast followed this up with the launch of Sunfeast Milky Magic. More recently, it also has launched the Sunfeast Snacky and Sunfeast Golden Bakes. The biscuits industry had not witnessed any major product innovation in years. Consumers were just waiting for something new, something fresh, when Sunfeast happened
2. Distribution: Distribution is the key for FMCG products. In biscuit category, distribution and visibility is extremely important as it's partly an impulse purchase product. Priya Gold, which entered the western region in 2000, is struggling to find its feet even five years later. However, in this regard, Sunfeast did not stumble. The main credit goes tobacco business – its understanding and deep grasp in distribution. But it was not limited to just panwaris, but looked at the grocery stores and other retail formats. The company says the brand is now available in nearly 1.8 million outlets. Britannia claims it has a superior distribution clout with its presence in nearly 3.3 million outlets. Parle, the seasoned player itself, says it is available in 1.5 million outlets. Sunfeast's next step was to step up its branding and promotion
3. Promotion: In August 2003, a month after its launch, the company undertook a major sampling exercise to promote the product. For two years then, the brand did all the usual rounds - riding behind buses, blocking television spots, corner space in newspapers P
4. Pricing: The biscuits industry now has two clear models. Parle products plays the low price game at all varieties of biscuits from glucose to cream. Parle plays a high volume, low margin game. But Britannia and Sunfeast look at a two-pronged strategy. High margins in cream variants and volumes from the Marie and Glucose segments. For instance, cream biscuits from both Britannia and Sunfeast cost Rs 10 for 100 grams. Parle, however, only charges Rs 5 for its cream variants. Except for Hide & Seek, all of Parle's products lie in the price range between Rs 4 and Rs 6 for 100 gram packs. Biscuit consumer is willing to pay more only when he sees a clearly differentiated product. Hence companies have little choice in terms of pricing. No wonder all the Glucose and Marie variants straddle price points of Rs 4-6 (for 100 grams)

Results
1. Volumes: In March 2006

• Britannia's shares have dropped from 35.8 per cent in 2004-05 to 30.5 per cent in May 2006
• Parle's shares have also dropped from 42.2 to 38.4 per cent in the same period
• Priya Gold has seen a minor dip from 6.4 per cent to 5 per cent
• ITC's Sunfeast has been a big gainer with its share increasing from 2.7 to 6.7 per cent
  

2. Value

• Britannia leads the market with 37 per cent market share
• Parle's 31.3 per cent
• ITC's 6.3 per cent

Definately a long journey for ITC. Lets wait and watch ITC reaching the peak in next set of years.