Marketing strategies of packaged food companies in india. Dissertation

Marketing  Strategies  By  Packaged  Food  Companies  In  India                                                                                                          Nikunj  Agrawal  M.Sc.  Marketing  Management    

Aston  Business  School  Academic  Yr.  2010  -­‐  2011  

08  Fall  

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Acknowledgement

Writing a dissertation is always the most challenging part of a student’s life. It was definitely

the most important academic contribution by me. This however would not have been possible

without the encouragement and support of a few people. Here I take this opportunity to

display my gratitude towards them.

First and foremost, I would like to thank my professor, Dr. Erik A. Mooi for being a source of

support and encouragement, guidance and persistent help. Thank you sir for your time,

support and patience. My Sincere thanks to both academic and non-academic staff of the

Aston University and Aston Business School, for all their assistance.

I would like to thank my parents for love and support bestowed on me. Thank you for your

blessings. Also I would like to thank my friends for staying by me during the difficult parts in

the strange and unknown country. I would then like to thank all the data sources which helped

me complete the dissertation.

Last but not the least, I would like to thank God for all.

Nikunj Agrawal

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Abstract

This research attempts to study the packaged foods market in the lucrative Indian market. The

study gives an overview of the Indian packaged food market. Market leaders in the Indian

packaged food market in the six different categories of packaged foods are studied. Factors

such as the market leaders, market share, factors influencing buying, key drivers in the

packaged food market and future of the packaged foods in India are some of the important

aspects of the research.

To understand the successful marketing strategies and the role of marketing strategies in

company’s success, a company analysis of ITC Foods from the point of view of marketing is

done. Major information sources for the research is the internal and external data available

online. Importance of Innovation and competitive strategy in the formation of marketing mix

of ITC Foods is firstly studied. The effectiveness of proper execution of the marketing mix is

then studied with the help of various marketing theories and models propounded by marketing

scholars. The finding, recommendation of marketing strategies and the future on packaged

foods in India is then stated.

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Table of Contents

1. Introduction ..................................................................................................................... 7

1.1 Research Introduction ....................................................................................................... 7

1.2 Packaged Foods ................................................................................................................ 7

1.3 Industry Background. ....................................................................................................... 8

1.4 Indian Food Processing industry ...................................................................................... 8

1.5 Research objectives and road map. ................................................................................. 10

1.6 Research Structure .......................................................................................................... 11

1.7 Methodology ................................................................................................................... 11

2. Literature Review ......................................................................................................... 13

2.1 Definition of Marketing ................................................................................................. 13

2.2 Marketing Strategy ......................................................................................................... 13

2.2.1 Marketing mix ......................................................................................................... 16

2.2.2 Competitive Strategy ............................................................................................... 17

2.2.3 Porters Five Forces .................................................................................................. 18

2.3 Brand image .................................................................................................................... 19

2.4 Awareness of consumers and reasons for popularity ..................................................... 20

2.5 Factors influencing consumption and Brand Composition ............................................ 21

2.6 Marketing strategies by companies ................................................................................. 24

2.7 Importance of promotion ................................................................................................ 25

2.8 Innovation in food marketing ......................................................................................... 26

3. Methodology .................................................................................................................. 30

3.1 Research design .............................................................................................................. 30

3.2 Secondary research ......................................................................................................... 31

3.2.1 Sources of secondary research ................................................................................. 31

3.3 Constructs ....................................................................................................................... 33

3.4 Propositions .................................................................................................................... 33

3.5 Case study (Company Analysis) ..................................................................................... 34

3.6 Analysis type .................................................................................................................. 35

3.7 Models and theories ........................................................................................................ 35

4. Market overview ........................................................................................................... 36

6  4.1 Area of Research: Indian Market .................................................................................... 36

4.2 Processed Foods India : .................................................................................................. 37

4.3 Indian Packaged foods market : ...................................................................................... 38

4.4 Consumer Trends Fuelling the Indian Packaged Food Market ...................................... 48

4.5 Key Growth Enablers ...................................................................................................... 49

5. ITC Case ........................................................................................................................ 52

5.1 ITC Company background ............................................................................................. 52

5.2 ITC Packaged Foods ....................................................................................................... 53

5.3 Company Culture ............................................................................................................ 55

6. Analysis and Discussion ............................................................................................... 57

6.1 ITC Marketing strategy Analysis .................................................................................... 57

6.2 ITC Corporate Strategies : .............................................................................................. 58

6.3 Porters Five Forces - FMCG Sector Of ITC ................................................................... 59

6.4 ITC’s Strategies with respect to packaged foods are ...................................................... 64

6.4.1 Entry into packaged foods ....................................................................................... 64

6.4.2 Product ..................................................................................................................... 65

6.4.3 Price ......................................................................................................................... 66

6.4.4 Place ......................................................................................................................... 67

6.4.5 Promotion ................................................................................................................ 68

6.5 Analysis of ITC Food’s organizational effectiveness ..................................................... 69

6.6 Innovation And Competitive Strategy For Designing The Marketing mix - Marketing

Mix Development For Sunfeast Biscuits .............................................................................. 70

6.7 ITC Bingos’s Marketing Mix ......................................................................................... 72

6.8 Financial Data ................................................................................................................. 73

6.9 Sales Of Food Sector And Its Projection : ...................................................................... 74

6.10 ITC Strategy analysis .................................................................................................... 75

6.11 ITC’S New Challenges: ................................................................................................ 75

6.12 ITC Case Conclusion : .................................................................................................. 76

7. Emerging New Categories and the future of Packed and processed foods in India77

8. Findings and Recommendations and Research Gap ................................................. 79

8.1 Findings of the research. ................................................................................................. 79

8.2 Recommendations ........................................................................................................... 80

8.3 Research Limitations and further research scope ........................................................... 81

9. References ...................................................................................................................... 82

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1. Introduction

1.1 Research Introduction

This study tries to give a picture of the current market scenario of the Indian packaged and

Instant food industry and the marketing strategies used by the companies. The Indian

Packaged food industry is observed in a complex and dynamic environment.

The research begins by understanding the Indian Packaged food market. An overview of the

consumers, their needs, the products in the Indian Market will be carefully analysed. The later

part of the research explains the positioning of the market leaders in the market and the

marketing strategies adopted by them to capture the lucrative Packaged food market. Apart

from the Mighty 4 P’s there are many other factors which play a very important role for

designing a strategy in such a way that it is flexible to the environments affecting the business

and industry. To name a few Situation analysis, marketing tactics, marketing budget, resource

allocation, operational timeline and etc. Innovation strategies used in the food industry will be

studied, revealing an inappropriate focus on internal knowledge.

1.2 Packaged Foods

The phrase 'food' means the chemical substances consumed by the human body in order to

keep the body in an active and healthy condition. The body needs food for its growth, repair,

replacement and treatment of the worn-out tissues. Therefore, food has to deliver the required

energy, raw material, and other regulating constituents, like minerals and vitamins, for the

efficient and smooth functioning of the body, apart from fulfilling the calorific needs like

protein, fats, carbohydrates, etc., Oxford Advanced Learners Dictionary defined instant food

products as “Instant food products which are prepared and packaged often in powered form

are required only the addition of a liquid as water or milk for final preparation”.

The Instant food products, which originated in Japan with Instant noodles had its beginning in

India in 80’s, are found today in the kitchen shelves of every Indian household. The

advancement of science and technology offered the people new foods processing vessels,

8  tools and equipment, despite this fact, people are still searching for new methods to prompt

up the cooking activities with a view of coping up with their mechanical life, as they lack of

adequate time to cook in the conventional Indian methods. In this ever changing social and

domestic scenario, both women and men have to unavoidably go for work and are employed

to supplement their income, as a result of this, cooking food in the conventional methods is a

suffering for women. Capitalizing this situation, business houses ranging from small time

manufactures to multinational corporations have started innovating and commercializing

“easy to cook food items” like noodles, vermicelli, gulab jamun, instant idli, vada, dosa mix,

etc., that are otherwise called instant. The instant food products are not only easy to cook but

also have a significant role and place in the celebration of the family functions and religious

functions of the people.

1.3 Industry Background.

India being the world’s succeeding major producer of foods after China, is expected of being

biggest food industry with agricultural and food sector contributing 26 per cent to Indian

GDP. It has the capacity of producing over 700 million tons of food products every year; is

expected to be doubled of what it is in the coming ten years. Foods has the largest share in

consumer expenditures in India. Foods and food products count for more than 53 per cent of

net private consumption. The stake in expenses is considerably more than in developed

countries, where consumer spending for food and their food products sum up to about 20 per

cent. (www.tata.com, 2010).

1.4 Indian Food Processing industry

India saw quick economic growth powered by economic transformations during the phase of

2004 to 2007. FDI inflow increased and GDP growth was at 8-10 per cent during the period.

The global economic downturn seen in 2008 had a deep impact on the economy with

industrial output slowing down and inflation increasing by two percentage points over the

previous year to 8.3 per cent. However, real GDP growth still remained as strong as 7.3 per

cent.

With India’s huge population base, steady macro-economic environment and a rise in middle

class population, processed foods has been one of the fastest growing segments in the Indian

market. Rapid lifestyle change, especially in the urban areas, has caused a histrionic rise in the

demand for packaged, processed, ready-to-eat foods and food products.

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With he entry of food multinational companies and the propagation of Quick Service and fast

food Restaurants (QSR) outlets have indeed further added to the boost of the packaged food

industry. The proliferation of modern-day retail business types and the rapid increase of

hypermarkets/ supermarkets, fast food outlets and shopping malls combined with the

promising industry trends is adding to the fundamental shifts in the Indian grocery and food

industry.

The food processing and production industry in India is considered to be one of the largest in

terms of growth, production, export and consumption prospects. Significant sub sectors in the

food processing industry are, fish-processing, processing of fruit and vegetable, milk

processing, packaged/convenience foods, meat and poultry processing, grain processing, soft

drinks, and alcoholic beverages. . (Sajani Mrinalini Dutta, Rohit Chadha, Rohit Bhatiani

(2008).

In the past few decades, Indian companies have taken big and vital steps in producing milk,

food grains, vegetables and fruits. The production of raw food materials is worth over Rs

60,000 crore in India. After the calculation of primary, secondary and tertiary processes, total

sum of the food industry is estimated as Rs.1,10,000 crores. This huge cost overrun replicates

the alluring opportunities in the food-processing industry, offered to the Indian economy to

the whole and to the entrepreneurs in individual. The attractive marketing opportunities lie in

advancing the grains and commodities to branded and packaged products and into convenient

foods, which yield value for money paid. Products aimed towards young adults and children

and products providing to those who live a rapid modern-day life are the need of the hour.

Appreciating the potentials in the food market and with a view of providing further boost, the

government has provided exemption from excise duty for ice cream, condensed milk,

preparations of meat, pectin’s, fish and poultry, yeast and pasta. Adding to the relief, excise

duty on a few ready-to-eat and packaged foods is curtailed from 16% to 8%. (Budget, 2007)

The volume of packaged foods market in India is valued to be US $ 10 million & with the rise

in the segment, it is expected to cross US $ 20 million by the end of the year 2014. Packaged

food contribution is now 4 % of the total Food and Grocery (F&G) market, is anticipated to

reach 5 per cent of total food & grocery market by 2014. . (Sajani Mrinalini Dutta, Rohit

Chadha, Rohit Bhatiani (2008).

The Food processing industry plays an important role in associating the farmers to the end

consumers in the Indian domestic together with the international markets. Food processing

10  along with efficient marketing efforts has the capacity of resolving the basic agricultural

problems like wastages, surpluses, reasonable remuneration to the harvesters and growers and

rural jobs. Keeping a view of 10 years ahead, production of foods is anticipated to double.

These harvests, if processed and marketed briskly, can led to become India the leading

suppliers of food, globally.

Among the processed food segment, Packaged food products occupied a considerable shelf

space in stores and super markets in India. Food companies through instant food products had

provided high quality food choices, which would have been inconceivable to ancestors.

Instant food mixes formed a range of convenience food for households, being easy to use

without terminal processing and women found it very convenient to use. It helped them to

save time and effort and relieved them of the tedious jobs of collecting various ingredients,

cleaning and sorting them and preparing food.

1.5 Research objectives and road map.

1. Reasons of popularity and rising demand for packaged and instant foods in the indian

market

2. The market leaders and the Brand Composition of the various packaged food products in

the Indian Market.

Factors that will help us analyse this are :

• What made them the leaders

• Reasons for the preference and Brand Loyalty.

3. Marketing strategies adopted by ITC Foods, in the Indian packaged food market.

• The Strategy by ITC Foods with respect to demographics, product life cycle stage,

competition, area of operations and etc will be studied and taken under consideration.

• The efficiency and effectiveness of ITC Foods’s functional and departmental activities

will be analysed.

11  1.6 Research Structure

The research is structured in two fundamental parts. While the first part of the paper attempts

to present a clear understanding of the current food industry situation, providing reasoning

behind the increased amount of products and services continuously appearing on the market.

The analysis will comply the market leaders, the brand composition in the market, the brand

preferences, reasons for preference and etc. The second part aims at explaining the Marketing

strategy adopted by the market leader by illustrations and Indian Market facts. It will cover

the marketing strategies adopted by ITC Foods in the Indian packaged food market. A Case

study based on the company’s current position will be formed and the marketing strategies

adopted by the company will be then analysed.

Once these two parts have been explained and fully understood, they will materialize

1.7 Methodology

The research tends to understand the packaged foods market in India. For understanding the

marketing strategy, The primary data sources are available public data, industry studies and

selected private data files to measure trends in packed food sector. Research will take a close

look into the articles, readings, and publications about successful marketers and various

packaged food companies strategy implications.

Additionally the structure of the research presented, so as to give a clear explanation of each

construct and the propositions taken, is designed in such a way to answer the research

questions with all the components of the paper. Research will be aided by graphical

representations and marketing models to add theory aspect and make the research intact with

the theories.

The research is then followed by concrete recommendations to answer the final research

question, that is understanding the Marketing strategies in the Indian Packaged food Industry.

1.8 Contribution by the Research

The research tends to contribute towards the strategy planning and execution element of

marketing, successfully executed or in progress in the Indian market.

It will prove as a navigator for the managers of the SME’s which tend to enter the

complicated but lucrative Indian packed food Industry.

12  The findings in the research of the successful marketers will act as a bench mark for the

new entrants or failures in the packed food industry.

13  2. Literature Review

In this chapter, research works done in the past regarding awareness, factors influencing the

consumption, brand loyalty, brand composition and demand estimation of food products by

researchers and scholars has been reviewed and presented. The literatures and the studies

done will help in understanding the marketing mix of the companies.

2.1 Definition of Marketing

“Marketing is a social process by which individuals and groups obtain what they need and

want through creating and exchanging products and values with others.” - (Philip Kotler).

Marketing is a process of analysis, planning, implementation, and control with a view of

achieving organizational objectives by delivering value to the targeted market.. “It relies

heavily on designing the organization’s offering in terms of the target markets’ needs and

desires, and on using effective pricing, communication, and distribution to inform, motivate,

and service the markets”. - (Philip Kotler, 2008). While Some of the definitions of marketing

include The elements of profit. The Chartered Institute of Marketing defines the term as " the

management process responsible for identifying, anticipating and satisfying customer

requirement profitably ". (www.marketingteacher.com) According to others, like (Chandler in

http://idl-bnc.idrc.ca/) have stressed into the promotional characteristic of marketing where

marketing consists the vital components of – information about your customers/potential

customers who are gearing your products and services and making sure they know about you.

Cronin's definition covers everything outlined so far. To (Cronin in http://idl-bnc.idrc.ca/),

marketing Is “a consumer-oriented philosophy”. According to Cronin, marketing can be very

well defined in just a word, ‘proactivei1'. Hence according to service philosophy, marketing is

an exchange relationship, being user-oriented rather than being product-oriented and

ultimately aims towards satisfying customers needs.

2.2 Marketing Strategy

Marketing strategy is where you specifically define, how the business is going to achieve its

objectives, by setting goals and high-level strategies. A study into marketing strategy will take

us through the different aspects of strategy formulation, implementation and its effects.

14  Kotler (2003) defined marketing strategy as “a set of business principles that an enterprise

uses to serve its customers and achieve profitability.” Armstrong and Kotler (2003) realized

that marketing strategy is designed to direct an organization to use its resources optimally to

meet the customer requirements and realize its marketing goals in a more efficient way than

its competitors. While some of the others regarded marketing strategy to be four dimensional,

channel strategy, including low-cost strategy, branding strategy, and innovation strategy.

Hence it can be derived that marketing strategy and product innovation are inter-related and

closely linked. Therefore Innovation is given importance in our study and different aspects of

Innovation related to the industry will be studied.

Although marketing strategy has been proposed in many different ways, most researchers,

scholars and theorists have explained marketing strategy via the incorporated aspect of 4P’s -

Product, Price, Place, and Promotion. (Kotler, 2003).

Implying the theories, it can be said that Marketing strategy is the marketing sense through

which an organization tries to achieve its marketing objectives by optimum utilization of

resources and opportunities in the market. It reflects the strategies for target markets and

positioning accordingly to build the firm's differential advantage. It should include the market

segments where the company will target. These segments differ in needs and wants, responses

to marketing, and profitability. The company should then work into those market segments

where it can best perform from a competitive point of view. It should develop a marketing

strategy on the basis of feasibility and potential success for each targeted segment

accordingly. Matching of the activities of an organization to the environment in which it

operates is referred as strategy. Marketing strategy formulation involves setting the objectives

of an organization by performing the internal and external analysis.

Though formulating a strategy which is consistent and constant in nature is a difficult task for

any marketing team, performing the strategy work that is, implementing it as it was planned

throughout the organization structure – is even more difficult (Hrebiniak, 2008). There are

countless factors that can potentially affect the process of successfully implementing the

strategic plans in the organizational action. Strategy implementation, unlike strategy

formulation is many times considered as a craft, instead of a science, and the previous

researches have described it as as uneven and eclectic (Noble, 2008). It can be implied that,

even after a comprehensive strategy, strategic framework or single strategic decision has been

planned and formulated, significant difficulties and practical problems are usually

experienced during the successive implementation process.

15  Here are some of the illustrations in the packaged food market over the previous few years,

where many companies have successfully implemented their strategies and without increasing

their sales volume significantly, they have increased the net earnings. It was done by

implementing the strategies successfully. Either by improving productivity, raising prices,

simplifying promotions, or by cutting product costs. Companies focused on Product

development through line extensions than developing new products.

In the coming years, beverages and packaged food sales are just expected to increase by mere

2 percent—and much of it is prospected through non-traditional and unorganized food service

channels. As a result of the fact that beverage and food expenditure is virtually flat,

competition among companies and producers is sure to intensify. In the cut throat Indian

Packaged food market, it can be said that commercialization and product development is the

need of the hour for succeeding.

In our study of processed and packaged foods which are novel to Indian market and

consumers, majority of Indian consumers and potential customers have had less of experience

and hence have not exactly developed predisposed and willful attitudes towards processed and

ready to eat products. Moreover, food and taste is closely affiliated with the rick Indian

culture.

Our research unearths that in order to achieve their business goals how important is the role of

product development and commercialization. After a company defines its objectives clearly,

level of performance would be realized. The dimension in which the company appears to be

the most distinguish and capable from the rest, should incorporate the business practices foe

its product development.

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For designing the marketing mix for the strategy planned, a strategic fit of companies

resources and the market opportunities should be considered.

2.2.1 Marketing mix

Marketing mix is defined as A planned mix of the controllable elements of a product's

marketing plan commonly termed as 4Ps: product, price, place, and promotion.

These four elements are adjusted until the right combination is found that serves the needs of

the product's customers, while generating optimum income.

http://www.businessdictionary.com/definition/marketing-mix.html)

A marketing mix must be designed with carefully keeping in mind the following aspects

* the right product

* sold at the right price

* in the right place

* using the most suitable promotion.

Each element of the marketing mix should be designed keeping the following aspects in

consideration:

* The product should have the required right features – ex. It should be attractive and

efficient.

* The pricing must be reasonable and right. Consumer should buy in bulk to generate more

profits

* The goods should be placed in the right location at the right time. Having the goods

available to the consumers every time.

* The products need to be made aware to the public informing their existence and availability.

(www.thetimes100.co.uk [online)

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2.2.2 Competitive Strategy

“A firm's relative position within its industry determines whether a firm's profitability is

above or below the industry average. The fundamental basis of above average profitability in

the long run is sustainable competitive advantage. There are two basic types of competitive

advantage a firm can possess: low cost or differentiation. The two basic types of competitive

advantage combined with the scope of activities for which a firm seeks to achieve them, lead

to three generic strategies for achieving above average performance in an industry: cost

leadership, differentiation, and focus. The focus strategy has two variants, cost focus and

differentiation focus.”

(Porter, Michael E., "Competitive Advantage". 1985)

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2.2.3 Porters Five Forces

“Porter's 5 Forces analyses the external factor to an industry that affect the nature

of competition within it, the forces inside the industry (microenvironment) that influence the

way in which firms compete, and so the industry’s likely profitability is conducted in Porter’s

five forces model. A business has to understand the dynamics of its industries and markets in

order to compete effectively in the marketplace. Porter (1980a) defined the forces that drive

competition, contending that the competitive environment is created by the interaction of five

different forces acting on a business. In addition to rivalry among existing firms and the threat

of new entrants into the market, there are also the forces of supplier power, the power of the

buyers, and the threat of substitute products or services. Porter suggested that the intensity of

competition is determined by the relative strengths of these forces.”

(http://www.coursework4you.co.uk)

19  2.3 Brand image

The processed food consumer market is highly dependent on the factors like Brand Image and

satisfaction. A study of Brand image will guide us understand the different aspects of Brand

image and consumer perception on Branding and Product selection.

Rajarashmi and Sudarsana (2004) revealed that, almost all the sample respondents preferred

branded products and if their favourite brand is not available in the retail shop, they will go

for another store and their favourite brand. If it is not available in the market, the respondents

are ready to postpone their decision. It is clear with the research that consumers just don’t

want to buy the product but give preference to the brand they like. In the Indian packaged

food market where the buyers have lots of options, they still prefer the brands they want to

buy.

Kim-Hyunah et al. (2005) analysed the relationship among brand equity factors (brand

awareness, brand image, brand preference and brand loyalty) and suggested a strategy for

brand management in contract food service management companies. He concluded that brand

awareness has positive effect on brand image and brand preference and recommended that the

contract food service companies should focus on improving brand awareness as a brand

strategy. In the intense race of packaged foods companies, it is thus very important for

companies to design their promotion strategies in such a way that people are aware of the

product. In addition, brand preference and brand image have significant positive effects on

brand loyalty. Thus, the companies should strive to strengthen brand loyalty through building

brand preference and brand image. Brand loyalty promotes more customer visits, which is

directly related to profitability of contract food service management companies, the authors

concluded.

Al-Weqaiyan (2005), using the attitude behaviour model, conducted cross-national study, of

fast-food meals purchase intentions in Kuwait, where it was found that long term marketing

success was highly dependent on generating and maintaining brand loyalty. It was discovered

that, repurchase action varies a result of four independent factors (1) Approach derived by

past experiences with the product and brand;(2) Perceived barriers of switching to another

brand from present brand; (3) propensity to go for variety as a result of boredom resulted

because of dealing with the consistent and same brand choices. (4) cultural differences were

seen in some characters of national character. It can be seen, that food products globally are

chosen with a lot of particularity and brand preference is built on the basis of constant value

20  delivery to the customer.

2.4 Awareness of consumers and reasons for popularity

The purchase action is influenced by many factors. Foremost the consumer needs to be aware

of the product, its features, benefits derived and etc. Apart from advertising there are several

other means of consumers being educated. For ex. Word of mouth, attractive packing,

company image and etc. A study on consumer awareness and reasons for popularity will help

us understand the importance, means and effects of consumer awareness. Indian purchasing

pattern is changing. Branded products purchases have increased from 25 percent to 35 percent

over the past years. Products like KFC’s Chicken and Basmati rice have been successfully

implying the fact that there is a rise in demand for branded products, provided hygienically at

affordable reasonable prices.

Brown et al. (2000) reported that it has been important to educate the young consumers about

the nutritional benefits of foods, observing the routine and general behaviour and food habits,

especially during adolescence and found that there is an interaction between the youths food

preferences and nutritional awareness within the three environments namely home, social and

school. The observations indicate that there is development of some ‘individual traits’

especially during the adolescent years which surpasses the perceived domination of school,

home or social environment. The researchers suggest that the food consumption and

preferences are frequently of 'fast food' and ‘junk food’ types which feed them poor nutrition

and unevenly balanced meals. Although the youth consumers were aware of the facts and

healthy eating, the food consumption and preference behaviour did not seem to portray such

knowledge, especially within the social and school environments. The study made it clear that

educating the consumers about the product right from nurturing stage is equally important

even if the foods does not offer much of nutritional value.

Aaker (2000) regarded brand awareness as a remarkably durable and sustainable asset. It

provided a sense of familiarity (especially in low- involvement products such as soaps), a

sense of presence or commitment and substance and it was very important to recall at the time

of purchasing process. Apart from the conventional mass media, there were other effective

means to create awareness viz., event promotions, publicity, sampling and other attention-

getting approaches. Packaged foods which are generally consumed by people living in the

21  urban areas, promotion and awareness thus becomes easier for the companies as the access

to people in urban areas is easier and convenient.

Beverland (2001) analysed the brand awareness for ZESPRI kiwi fruit within the markets of

New Zealand. The efficiency of the branding strategy used for the kiwi fruits in New Zealand

was studied. The implications from the research for ‘agribusiness’ in using the data,

composed of surveys of the kiwi fruit consumers in three of the major super markets in

Auckland, the findings suggested that there is a low level of Brand awareness of ZESPRI

among the consumers (n=106). It was indicated that the brand awareness could increase by a

customer relationship-making program, towards the targeted supply chain and target

customers. Customer relationship, though being a modern day marketing concept has become

a necessity for the companies to adhere, for creating a differential advantage over the

competitors.

Nandagopal and Chinnaiyan (2003) concluded that the level of awareness among the rural

consumers about the brand of soft drinks was high which was indicated by the mode of

purchase of the soft drinks by “Brand Name”. The major source of brand awareness was word

of mouth followed by advertisements, family members, relatives and friends. From the

research it is clear that buying behaviour in rural India is often an influence of trend

prevailing in the society. Innovative ways of promoting the product is the necessity for

spreading awareness and brand preference in the rural India.

It can be concluded that brand awareness is the first stage of acquiring customers. But there

are various ways of acquiring customers, it differs with the area of operation, price elasticity

and ways of promotion

2.5 Factors influencing consumption and Brand Composition

Kumar et al. (1987) examined the factors influencing the buying decision making of 200

respondents for various food products. Country of origin and brand of the products were

cross-tabulated against age, gender and income. Results revealed that the considered factors

were independent of age, education and income. The brand image seemed to be more

important than the origin of the product, since the consumers were attracted by the brands.

Thus brand image has an upper hand over the other factors influencing the consumption, and

brand image as discussed earlier is built wit constant delivery of value to the consumers

22  building positive relations with the customers.

Silayoi and Speece (2004) suggest the significance of packaging and design as a way of

branding and communicating in the highly competitive consumer markets of packaged food

products. The packing conveys implied meaning, whether favourable or unfavourable and the

presumption about the product.

Underwood et al. (2001) advocates the impulsive imagination aspects of how a consumer

reacts to the product tastes, looks, smells, feels, or sounds at the time when they are watching

a product on the shelves. Furthermore, if the brand is competing in a highly competitive

market or a crowded category, an eye catcher trick for the crowd could be disrupting their

eyes as they walk past the shelf set. Some of the most vital quantitative tools are density,

spectral data, ink trapping, dot area and control of the observed area. It should be insured that

the printer uses these methods and devices for a better print quality on the package (Levey,

2004). The theories of Levey and Underwood talk about the first impression of the product. It

can be implied that the fist impression gives the customer a feel of the product. The product

should be designed in such a way that it conveys a positive perceived value of the product.

Jorin (1987) examined changes in spending power and buying habits of Swiss consumers

since the beginning of the 20th century and in the more recent past. Current trends include

greater emphasis on health and safety of foodstuffs and less attention to price, increased

demand for low calorie light products and increased demand for organically grown foods. For

young people, more concern with enjoyment and less for health, with more meals eaten away

from home, and generally an increased demand for convenience foods. The prospects for high

quality branded products are seen to be good. Quality is such an element in foods, which

cannot be overlooked.

Ryan (1982) recommended that attitude formation is influenced by normative beliefs, as

perceptions might be based on the information and reviews provided by the experts or by the

expectations and demands of other socially or personally significant people. He believed that

external expectations do affect internal and psychological predispositions (attitudes). For

example : in the case of new products. There are many ways of forming perceptions about the

products. In the case of an established product, the reviews, past experiences, the availability

and promotion by the company are few of the factors which lead to formation of moulding of

perceptions about the product. While in the case of products to be launched, the pre-launch

promotions, the product expectations, the content, innovation and etc. are seen.

23  Sabeson (1992) in his study stated that, high quality, price and taste of the product were the

major criteria based on which the consumers selected a brand of processed fruits and

vegetable products. Fruits and vegetables when sold without association of any brands the

above factors count. But after the radical change in grocery and food sales pattern, marketing

strategies and brand image do matter and play a vital role in the buying behaviour.

Rees (1992), observed that factors that influence the consumer’s intent and choice of

packaged food are advertising, texture appearance, flavour, means, reduction in traditional

cooking, disintegration of family, an increase in ‘snacking’. etc. Increasing use of microwave,

ovens and household and demographic role changes have moulded the eating habits.

Development and organization in retailing with as much as 80% of the food sales in

supermarkets is said to be vital. Consumers have been responding positively to messages and

notices about healthy and safe eating. They are particular of the ways in which the food is

provided and produced and want ‘natural’, safe and high quality food, priced reasonably.

While the study undertaken by Sheeja (1998) in Coimbatore district considered the quality

aspects like aroma, taste, freshness and purity as the major factors deciding the preference for

a particular brand of processed spices. It can be inferred that there are different characteristics

that build up the brand image and positive buying attitude of customers for food items in

India.

Kamalaveni and Nirmala (2000) reported that, there is complete agreement between ranking

given by the housewives and working women regarding the reasons promoting them to buy

Instant food products. Age, occupation, education, family size and annual income had much

influence on the per capita expenditure of the Instant food products. Women are still the

decision makers for household stuffs in India. The companies ought to decide the marketing

strategies according to the thinking, mind sets, perception and buying behaviour of women.

Kubendran and Vanniarajan (2005) elicited that the change in consumption pattern was due to

changes in food habits. If income and urbanization increase among consumers, the percentage

of income spent on consumption increases. The urban consumers preferred mostly branded

products compared to rural consumers. The most significant factors influencing buying

decisions were accessibility, quality, regular supply, door delivery and the mode of payment.

Ramaswamy et al. (2005) studied consumer behaviour towards instant food products in

Madurai, the second largest city in Tamil Nadu, India and observed that consumers do build

24  opinion about a brand on the basis of which various product features play an important role

in decision making process. A large number of respondents (78%) laid emphasis on quality

and 76% on price which is an important factor, while 64% of respondents attached

importance to the image of the manufacturer and 50% considered packaging as an important

factor and an equal percentage (50%) felt longer shelf life influenced them.

Low and Lamb Jr. (2000) came out with an interesting finding that famous and renown

brands exhibit multi-dimensional brand associations, complying with the fact that customer

have a more developed remembrance and memory structures with brands more familiar to

them. Consumers would generally spend more energy in recalling and processing earlier

information relating to familiar brands as compared to novel and unfamiliar brands.

From all the above researches it is clear that there are various factors that influence the

consumers buying behaviour for food products.

Some of the imperative ones are quality, price, promotion, social trends, family preferences,

brand image, past experiences and etc.

This research is concerned about the marketing strategies by the companies with reference to

the marketing mix designed by the companies that lead to market penetration.

2.6 Marketing strategies by companies

Food marketing

Food products usually require general marketing practices, techniques and approaches useful

for the marketing of other types of products and services. Topics such as segmentation,

targeting, positioning, test marketing, market entry strategy, branding, and consumer research

is the most suitable and highly appropriate for food marketing.

Above this, food marketing is influenced by various challenges and problems – such as to

deal with perishable products, where availability and quality varies as a matter of current

harvest conditions. Value chain – Value chain is the amount to which successive parties in

marketing channel adds value to the final product – is predominantly important. Presently,

new distribution and processing choices offer increasing opportunities available for food

marketers and producers to provide the customers with convenience. Marketing, processing

and services although added, result in visible higher costs (Kohls and Uhl, 2001)

25  The analysis of consumers assists companies in developing the marketing strategies by

gripping issues like :

• The psychology of consumers choices affected by factors like reason, sense, and choice

between different types of food (e.g. products, brands);

• The psychology of consumer being affected by the environment (e.g., family, culture,

media, signs);

• The behaviour of consumers while shopping or making other marketing decisions;

• Restrictions in consumer knowledge, customer education or information processing

skills affecting decisions and marketing results;

• How the customer motivation and decision strategies differ amongst food products,

different in the level of importance or interest which is caused to the customers; and

• How companies can develop and adjust the marketing strategies and marketing

companies to access the consumer’s minds more effectively.

The basic aim of the study after understanding the packaged food market is to analyse the

marketing strategy of companies in the market. Relevant models will be used for doing the

analysis, comparing the data with theories and coming on a conclusion.

2.7 Importance of promotion

The (Institute of Practitioners in Advertising (IPA) in tutor2u.net), the body representing

advertising agencies, defines advertising as :

"The means of providing the most persuasive possible selling message to the right prospects

at the lowest possible cost".

While Armstrong and Kotler (2003) give an alternative definition:

"Advertising is any paid form of non-personal presentation and promotion of ideas, goods and

services through mass media such as newspapers, magazines, television or radio by an

identified sponsor".

Mela Carl (1997) studied the long term effectiveness of promotion and advertisement on

consumers brand choice behaviour. A panel data of 8 years for a frequently purchased

packaged goods were taken as a base for answering two research questions. Firstly the

consumers behavioural response to variables of marketing mix such as change of price over a

long period of time. And secondly, the changes related to companies retailer promotion and

26  advertisement policies. Using the results, the researcher drew implication for the trend in

company policies related to pricing, promotion and advertisement. The researcher used a two-

stage approach, allowing him to assess the quarterly (medium term) effects of promotion and

advertisement along with their long term (infinite horizon) effects. The results observed were

consistent complying with the hypothesis tested that consumers tend to be more of promotion

and price sensitive across time as a result of increased promotion and reduced advertisement.

Neslin Scott (1999) developed a model and tried to examine the role of retail promotions in

assessing future brand loyalty of customers with the help of feedbacks given after purchases.

Purchase feedbacks denoted the effects of present purchases on brand preferences in the

future. The research was conducted on the basis of two product categories and comparison of

the effectiveness of non-price versus price retail promotion was done. It was observed that in-

store price promotion has a negative purchase feedback compared to non-promotion

purchases, while non-price promotions like sampling or features display had a negligible

effect or had a positive purchase feedback, compared to purchase made without promotion.

2.8 Innovation in food marketing

Roger and Shoemaker (1971), defines innovativeness as “the extent to which innovation is

adopted by an individual earlier than others in the system”. This definition advocates the time

adopted as a method to measure innovativeness by individuals.

TQM represents principles that are similar with innovation (Dean; Mahesh; Tang, Roffe and

Kanji; in TQM and innovation: a literature review and research ). In this context, the customer

focus principal motivates the organizations to search constantly for different and new

customer expectations and needs and hence leads the organization to be path breaking and

innovative with reference of introducing and developing new and innovative products as

recurrent adaptation to the changing needs in the market ( Juran, 1988). Consumer focus even

advocates the significance of pleasing customers. It implies that suppliers and providers just

do not need satisfy stated and basic requirements but to do it creatively that they exceed the

expectations and needs beyond performance. This strategy is closely related with innovation.

In a similar way, continuous improvement and up gradation encourages creative thinking and

change in how the work is conducted and organized. To conclude, the principles of

involvement, empowerment, and teamwork are also considerable in deciding the success of

innovation in the organization.

27  Midgley and Dowling (1978, p. 236) states innovativeness as: “the degree to which an

individual is receptive to new ideas and makes innovation decisions independently of the

communicated experience of others.” According to them, innovativeness is like a personality

trait which can have an influence over a range of product-specific behaviours, comprising the

early adoption of innovations.

An intermediate level of innovativeness - ‘product-category-specific innovativeness’, which

portrays definitive action on one hand, and abstract personality traits on the other has been

recommended by Midgley and Dowling (1978). They try to measure the effect of “innate

innovativeness” on the basis of various differences between individuals, situational factors

and variables which have an influence on the actual adoption of innovations.

Earlier studies have found that there is a relation between innovativeness and various

consumer characteristics discovered by various researchers such as opinion leadership

(Turnbull and Meenaghan, 1980), demographics, communication behaviour (Bass, 1969;

Boyd and Mason, 1999), and various consumer values (Daghfous et al., 1999). Extremely

innovative consumers generally are youths, economically affluent, highly educated and

qualified opinion leaders, who get the new product specifications and information directly

from the marketers and mass communication (Turnbull and Meenaghan, 1980).

Hirschman (1980) disputes that distinctive innovativeness only partly accounts for the

differences within individuals in the adoption behaviours. She anticipated that innate novelty

seeking, “conceptually indistinguishable from the willingness to adopt new products”

(Hirschman, 1980, p. 285) and creativity are complimentary, with the other variables, so that

to serve to clarify or to distinguish adoption behaviour.

Grounded on the two conceptual outlooks, Foxall (1988) advises that cognitive style

influences objectified consumer innovativeness more than cognitive level (creativity),.

Cognitive style is well-defined as “the individual’s characteristic mode of information

processing and is distinguished both conceptually and operationally from level of creativity

and cognitive level or complexity” (Foxall, 1988, pp. 80-81), and could be used to

differentiate customers in relations of behaviour of innovation adoption. Bonfield (1974)

discovered a greater normative influence on behavioural intents for customers with low brand

loyalty and higher education.

Apart from this, distribution and marketing concerned policies and decisions are now of the

supreme significance in the food marketing world. This is with respect to the existing

economic crisis state in most of the economic world and the cost effectiveness issues that

28  ought to be considered at fluctuating level of economic development. While reviewing

food-marketing systems from varied cultures, economic, political, environmental and cultural

aspects should be considered of the respective countries involved (Kaynak, 2002).

Furthermore, religious and cross-cultural food taboos should be taken into consideration

while conducting food business globally. For example, it would be as grave as a sin, trying to

sell pork-based products in Pakistan and other Muslim countries and beef-based products in

India. As both the food products are strictly prohibited due to religious constraints in the

respective countries, although their consumption is quite high in the western countries without

any constraints. This is the reason all the foresaid issues and conspiracies must be considered

while performing food marketing, globally. Though, best marketing and business practices

should be established to increase the business performance appreciably.

As the society has gradually turned into a knowledge society, the always rising significance of

knowledge demands a modification in rationals concerning innovation.

Nonaka, 1994 expressed that innovation is a process by which the organization creates and

defines problems and then actively or pro-actively develops new knowledge systems to solve

them. Nonaka's theory can be perceived as a continuation to the Schumpeterian theory, which

opposes the focus on unchanging products/processes and believes that firms should make

rivals' positions obsolete by creating or adopting innovations!Conner,(1991). Thus, the

relationship between knowledge and innovation lies at the core of competitive advantage and

can prove to give the firm sustainable competitive advantage over the competitors.

Our approach of marketing innovation shadows Nonaka's belief and is within the framework

of strategic value innovation. !Hamel, 1998; Kim and Mauborgne, 1999. Hamel, 1998

stresses that strategy innovation leads to wealth creation; it is explained as the capacity to

restructure the present industry model in such a way that it creates new and fresh value for

customers, undermines competitors, and produce wealth for all stakeholders in newer ways.

In marketing, the corresponding concept is marketing innovation.

Innovation lies in different aspects and functions of the business. This research focuses to

cover the significance of Innovation as an independent variable which has an effect on the

three of the 4 P’s of the marketing mix, namely:

• Product

Innovation has a lot to do with the product development, especially in the food

industry. Innovative techniques are being used to make the food taste better, to make

the food healthier and cost it less to the customers. Innovativeness is also very vital in

developing new products with creative ideas and efficient operations.

29  

• Place

Packaged foods, a product purchased by the families or individuals to meet the

hunger need, needs to be placed strategically and wise fully to penetrate in the

markets. Ex. Availability of “lays chips” in the hill stations and remote areas. New

innovative techniques are developed by the companies to place the goods strategically

in the market such that, they do not loose out customers.

• Promotion

Innovative ways to promote the brands and spreading awareness are developed and

used in the current food markets of India.

30  3. Methodology

This chapter gives an outlook of the methodology used for the research undertaken to study

the Indian packaged food market, the awareness of consumers about packaged food products,

factors influencing consumption in choosing the particular brands in the study area and to

analyse the marketing strategies adopted by ITC Foods in the packaged food market.

3.1 Research design

The research design best suitable for our research is Exploratory type study.

As the term suggests, exploratory research is often conducted because a problem has not been

clearly defined as yet, or its real scope is as yet unclear. It allows to familiarize with the

problem or concept to be studied. It is the initial research, before more conclusive

research (definition of conclusive research) is undertaken. “Exploratory research helps

determine the best research design, data collection method and selection of subjects, and

sometimes it even concludes that the problem does not exist.”

(http://www.uoguelph.ca/htm/MJResearch/ResearchProcess/ResearchDesignDataCollectionT

echniquesandSelectionofSubjects.htm)

Another common reason for conducting exploratory research is to test concepts before they

are put in the marketplace, always a very costly endeavour.

Exploratory research can be quite informal, relying on secondary research such as reviewing

available literature and/or data, or qualitative (definition of qualitative research) approaches

such as informal discussions with consumers, employees, management or competitors, and

more formal approaches through in-depth interviews, focus groups, projective methods, case

studies or pilot studies.

(http://www.uoguelph.ca/htm/MJResearch/ResearchProcess/ResearchDesignDataCollectionT

echniquesandSelectionofSubjects.htm)

31  3.2 Secondary research

Research will be based on the secondary data collected. Its basically a desk based research.

Desk based research refers to analysis of data, collected by third party, often secondary

research.

Secondary data is the data that already exists which has been collected by someone else for

some other purpose. Secondary research involves the investigation and analysis of data from

secondary sources.

The origin of sources for secondary data varies with the research. Secondary data sources can

be from the firm itself – this is known as internal secondary data. Where as external

secondary data is the data that has been published by other organizations.

3.2.1 Sources of secondary research

For the successful completion of the proposed objectives, a secondary research was

undertaken.

The sources of data for our analysis are various types of internal and external secondary data

like annual reports by companies, market analysis by market research companies, newspaper

articles, already done researches, trade journals and etc.

Internal sources of secondary data:

Every department in an organisation will have its own data records that represent a potential

source of valuable data. For instance, records of past advertising campaigns within the

marketing department can be compared with copies of invoices held in the sales department in

order to judge their effectiveness and get ideas for future campaigns. Past sales figures can

also be used to spot trends and forecast future figures.

External sources of secondary data:

There are several sources of existing data available from outside of the organisation. Many

research, surveys and dissertation done by people will be used as the main source of data.

There are many books and researches used which were found in the Aston Library. Websites

such as Google, Google scholar, Emerald, EBSCOHOST, JSTOR, Aston E library were the

32  websites mainly used to access data online.

(http://tutor2u.net/business/marketing/research-secondary.html)

The secondary research helped establish knowledge base and give better insights for

interpretation, analysis and suggestions relating to the project.

For implying the theories and relating it to the market, lecture slides on marketing and

strategy, books by marketing experts, journals and articles will be used. According to the

research structure designed, the first part of the research will comply of the market analysis.

The analysis will comply the market leaders, the brand composition in the market, the brand

preferences, reasons for preference and etc.

Research will take a close look into the articles, readings, and publications of successful

marketers and various packaged food companies strategy implications for giving the market

overview.

The second part of the research is explaining the Marketing strategies adopted by ITC foods

by illustrations and Indian Market facts. It will cover the marketing strategies adopted by the

company operating in the Indian packaged food market.

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33  

3.3 Constructs

The first Construct is taken as the marketing mix design of the companies. The elements of

marketing mix are dependent on two of major factors.

Product (ex. product development), place (ex. supply chain management and SKU’s),

promotion (ex. innovative ways to promote and create awareness about the product) and price

(ex. competitive pricing) are dependent on innovativeness and competitive strategy seeing the

area of operation. These factors will help to design the 4 P’s.

Therefore Product, place, price and promotion are the dependent variables, dependent on the

independent variable Innovation and competitive strategy.

The measurement of effectiveness of the 4 p’s will be the execution success of the marketing

mix and the observed results after the implementation.

Second construct is the effect of marketing mix in market penetration. Market penetration is

dependent on the marketing strategy designed by the company, which is portrayed by the

marketing mix of company.

Sales, market share and other financials are the metrics which can be used to determine the

market penetration.

In the second construct, Market penetration is the dependent variable which is depended on

the independent variables Product, Place, Price and Promotion.

3.4 Propositions

As per Prof. (Nick Lee, 2008, pg 127, 128) in the book Doing business research, a proposition

is, a statement that predicts a relationship between two or more variables, one that answers

research questions and makes predictions. The propositions valid for the research are as

follows:

• Marketing mix is led by Innovation and competitive strategy

• Effects on market penetration with the helps of 4 P’s of marketing mix

The propositions will be tested in the ITC Foods case.

34  

3.5 Case study (Company Analysis)

Case study method is an in depth study of a particular situation rather than a sweeping

statistical survey. It is a method used to narrow down a very broad field of research into one

easily researchable topic. In simple terms case study is detailed analysis of a single case. A

case is defined as a single social setting.

A case study method is where, a case of market leader in the packaged foods market in India

will be studied and the marketing strategies adopted by them will be analysed.

(http://www.experiment-resources.com/case-study-research-design.html)

Possibly the key decision in a case study is the choice of case itself. The case should be

chosen for a solid theoretical reason, most commonly because it should be able to answer the

research questions. Therefore the case study formed is of the current market leader in the

packaged food market in India.

The company taken for Case study formation on the basis of their product line is ITC Foods.

ITC Foods is used in the analysis as a matter of fact to study the success factors and success

formulas used by the company in the packaged food sector

Company Segment Products

ITC Ltd. Staples, Biscuits, Snack

foods and Ready to eat

foods

Wheat flour, salt, ready-to-

eat meals, biscuits,

confectionaries, snacks

and cooking pasta

The main aim of forming the ITC case and giving its background is analysing the marketing

strategies adopted by the company.

35  

3.6 Analysis type

Analysis for the case studies tends are more opinion based than statistical methods. The

general idea is to try and organize the company data into a convenient form and construct a

narrative conclusion around it. Case study evaluation and analysis will be of qualitative

research type.

Qualitative research design is perhaps the most flexible of the numerous experimental

techniques, comprehending a mixture of accepted methods and structures. This method of

research is particularly useful for testing the theoretical models by using them in real world

and market situations.

3.7 Models and theories Theories are attempts to answer the `why' questions in social science. These theories differ in

their complexity (number of variables and links), scope and abstraction. Different marketing

theories and models are hence used in the analysis with a view of merging the gap between

theory and market reality. Marketing theories and models propounded by marketing scholars

like Kotler and Armstrong (2003) will be used with the due explanation. For example theories

like porters generic strategy model, PESTEL analysis, Porters five forces for industry

analysis, distribution channel and etc will be used.

36  4. Market overview

4.1 Area of Research: Indian Market

Across the world, India is counted as an essential food producer mainly because of its huge

and utmost arable land in terms of area. It is a leading producer of tea, milk, sugarcane and

pulses in the world. Also it is the second largest producer of wheat , rice , fruits and

vegetables.

Food processing industry is among the major industries in India .It is ranked fifth in terms of

export, production , consumption and the expected growth. The Indian food industry is valued

over US$ 200 billion and is anticipated to surpass US$ 300 billion by 2015. Even though

India is one of the major food producers in the world, it accounts for only 1.7 percent (valued

at US$ 7.5 billion ) of the world trade in the food sector. It is expected that by 2015 this stake

will increase to 3 percent (US$ 20 billion

The food processing industry in India is estimated at US$70 billion. In 2003 its share in

India’s GDP was 6.3 percent and 6 percent share in the overall industrial production. This

industry provides employment to 1.6 million workers.

India being the world's succeeding major producer of food after China , it has the potential to

become the biggest in the agricultural and food sector. The Indian Food Industry is always at

its peak as Indians have a feast around the year with large number of festivals and events

taking place. The consumption pattern in the food sector has shown remarkable changes due

to Indians having large disposable incomes and expenditure on food and their habits.

The increase in income is always complemented by modifications in the food baskets for

Indians. The proportionate expenses on cereals, salt, pulses, spices, edible oil , sugar etc

reduces once the expenditure class is upgraded by the households in Urban India. Whereas it

is seen that it is opposite where meat, eggs, fish , milk and its products, beverges, fruits are

concerned.

For example: In the rural India the proportionate expenses on staple food such as pulses,

cereals, gram declined from 45 percent to 44 percent. The expenses settled at 32% of the net

expenses in urban India for food.

37  4.2 Processed Foods India :

Processed foods have been majorly responsible for the change in consumption, where the

processed foods in the net food market account for more than 32 percent. The Indian market

is estimated to be US$ 91.66 billion out which processed food accounts for US$ 29.4 billion.

According to Confederation of Indian Industry (CII), in the span of coming 10 years the food

processing sector is capable to attract US$ 33 billion in terms of investment and employment

to 9 million person-days.

The government of India has framed and executed numerous Plan Schemes with a view of

providing financial help for creation of infrastructure, development and modernization of the

food processing units, research and development , support for human resource development

and various other promotional means so that the country’s processed food sector grows.

The food processing sector is enormous and it includes many activities like plantation,

horticulture, agriculture, animal husbandry and fisheries. It even comprises of various

industries that employ agricultural inputs for production and making of other edible products.

As per the Indian government, Food Processing Ministry , the food processing industry

consist od the following segments: processing of fruits and vegetable processing, poultry,

fisheries, dairy, processing of grains, meat processing ,lastly consumer foods which include

beverages , packaged foods and packaged drinking water .

Even though the food processing industry is quite huge, it is still at an emerging stage. Just 2

percent of the country’s total production which includes agricultural development and food

production is processed.

This industry is projected to grow at 9-12 percent in the phase of 2002 - 2007. Value

additions in food and food products are likely to rise by 35 percent by 2025, from the current

8 percent. Vegetable and fruit processing, which is 2 percent of the net production has

increased to 10 percent by the year 2010 where as it is expected to be 25 per cent by 2025.

The dairy sector contributes maximum to processed foods, where 37 percent production is

processed of the total dairy production. out of which, organized sector only process 15 per

cent. In the approaching decades this business is on the pathway to safeguard profitability

and pull exceptional investments worth Rs 1400billion or more.

38  

(Annual report, Ministry of food processing India, 2004)

India saw a speedy growth in the economic segment with the help of economic reforms

during the phase of 2004 to 2007. FDI inflow increased and GDP growth was at 8-10 per cent

during the period. The global economic downturn seen in 2008 had a deep impact on the

economy with industrial output slowing down and inflation increasing by two percentage

points over the previous year to 8.3 per cent. Nevertheless, the real GDP growth remained

sturdy at 7.3 per cent.

4.3 Indian Packaged foods market :

The Indian packaged food market is projected to be US$ 10 million and is predictable to reach

US$ 20 million by 2014. Of the F&G(food and Grocery ) market packaged food constitutes 4

percent and is anticipated to be 5 percent of the F&G market by the end of year 2014.

39  The main categories of packaged food include, baby food, dried/ canned processed food,

dairy products, confectionery, frozen processed food, meal replacement products, ice cream,

noodles, pasta, nutrition/staples, ready meals, dressings and condiments, sauces, snack bars,

spreads, soup, sweet and savoury snacks, bakery products, etc. Exhibit 1 summarizes the key

players in the packaged food segment.

Company Segment Products

Hindustan Unilever

Limited (HUL)

Staples, Beverages, Snack

Foods, Dairy,

Tea, biscuits, instant

coffee, Ice creams, wheat

flour, salt, instant drinks,

jam, squash and soups,

Nestle India Pvt. Ltd. Beverages, Dairy, Snack

foods

Instant coffee, dairy

whitener, condensed milk,

chocolates, infant food,

and confectionaries

ITC Ltd. Snack foods, Biscuits,

ready to eat and staples

Wheat flour, ready-to-eat

meals, salt, biscuits,

snacks, confectionaries

and cooking pasta

Pepsico Snack Foods and

beverages

Fruit juices, Snack foods,

cereals, dairy derivatives

Dabur India Ltd. Culinary Products and

Beverages

Fruit Juice, coconut milk,

Cooking pastes, tomato

puree, chilli powder,

lemon drink, and honey

Cadbury India ltd. Confectionary Chocolates, malt foods,

hardboiled confectionary,

cocoa powder

Haldiram Marketing Pvt.

Ltd.

Snack foods Namkeen, Sweets, Syrups,

chips, crushes and papads

Britannia Industries Ltd. Bakery Products Biscuits, dairy whitener,

flavoured milk, bread,

cake, ghee and rusks

Godrej Industries Ltd. Staples and Beverages Edible oils, bakery fats,

vanaspati, fruit drinks,

40  fruit juices, fruit nectar,

and tomato puree

Parle Agro Private Ltd. Bottled water, Beverages

and Snack foods

The growth of the Indian processed food market is expected to be supported by the growing

and organized retail penetration. A number of categories, which are highly dependent on

organised retail-like frozen food products - are expected to witness significant growth in the

years ahead.

The segment that has shown maximum exponential growth is the ready-to-eat segment. Ever

since the processes of freezing and chilling products have become very refined,

technologically sound and subject to stringent hygiene practices, this sector has expanded and

is anticipated to grow in the coming few years. Staples, which are currently sold loose, are

also expected to undergo significant changes with the advent of private labelling. The trends

of wellness food, is expected to grow in the forms of nutritionally enhanced, fortified foods,

organic foods and probiotic food. Organic food is rapidly becoming a distinct and well-

defined category. Similarly, the other concepts mentioned here will grow as much and

gradually occupy more shelf space in the near future.

41  

The market of packaged food in India is an anticompetitive monopolistic market. In all the

different categories of packaged food there are several players which have similar product

lines and comparable prices yet they are striving to differentiate their products with their

planned marketing strategies .The market can be further segregated in 5 segments

• Ready - to - eat packaged food

• Dairy

• Confectionaries

• Biscuits

• Snacks

• Staples

Ready to eat Meals

The Indian ready- to- eat market, was estimated to be of Rs. 128 crores (2006) and was

anticipated to grow to Rs. 2900 crore by 2015, according to the analysis done by Tata

42  Strategic Management Group, (TSMG). In their analysis, it was assumed that the factors

adding to the growth of this sub-sector would be changes like disintermediation, cold chain

development, streamlining of taxation, diminishing culinary skills, economies of scale

possessed by the supplier, complemented with rising disposable Indian's incomes, and the

necessity of convenience on the customer side.

Brands Description

Gits

Gits manufactures particular type of ready – to- eat, instant

foods, which covers a variety of ethnic traditional Indian

cuisine, and their recipes have a "Global acceptance".

Haldirams

The company provides particular Indian snacks in the packaged

forms of chats like, bhel puri ,alu tikki, dhokla, chana masala,

pao bhaji, pakoras, gol gappa and sev puri.

Ethnic Kitchens

Offers packaged syrups, sweets, namkeens, pickles, cookies,

aloo Masala, Kajui Ladoo, Bhelpuri, Bhujia, Chana Dal and

many more such items.

MTR

The company presently offers twenty- two

scrumptious, traditional and utterly ethnic Indian curries,

gravies and rice.

Priyafoods

Priya offers a variety of famous traditional and authentic

recipes like rajma masala, dal makhni, Punjabi chole, navaratan

korma, palak paneer, paneer butter masala. It also offers

southern delicacies like Mango Dal, Andhra Veg Pulav and

Gongura Dal.

43  

Dairy

The dairy sector ranks first in terms of processed foods with 37 per cent of the produce being

processed. The organized sector processes an estimated 15 per cent of the total milk output in

India. There are 676 dairy plants registered with Government of India, which come under the

organized sector. Milk and its products contribute about seventeen percent of the country’s

net expenditure on food and food products. The traditional products of dairy is responsible for

about fifty per cent of the net amount of milk produced. The dairy products market is

hopefully to grow at more than 20 per cent over the coming years.

Following are the facts related to Indian dairy industry as per Indian Brand Equity Foundation

(2008). Food Processing : Market and opportunities.

• “ India stands first in the world in terms of milk production .The output is expected to

be about 108 million tonnes, growing at a compounded annual growth rate of 4 per

cent.

• The dairy whitener market comprises of sweetened milk powders, condensed milk and

creamers. Its market size is estimated at US$ 450 million.

• Ghee is the most widely marketed and branded product with a nation-wide penetration

of 24.1 per cent. It is estimated to be growing at a rate of 8 per cent per annum

• The cheese market is estimated at US$ 2.49 million for (54000 tonnes in volume

terms), growing at a rate of nearly 10 per cent per annum. The organized cheese

market is dominated by processed cheese which accounts for 74 per cent market share

• The ice-cream market in India is estimated at US$ 226 million, with the organized

Market Share - Ready To Eat

48%

35%

8%9% ITC Ltd.

MTR

Kohinoor

Others(Gits, PriyaFoods etc.)

44  market at US$ 158.2 billion. This is currently growing at 20 per cent.”

Confectionary

The Indian Confectionary market is valued around Rs.2500 crore. The market is segregated

into seven major categories:

1. Hard boiled candies

2. Toffies

3. Eclairs

4. Chewing gum

5. Bubble gum

6. Mints

7. Lozenges

Perfetti van melle ITC Ltd. Nestle Cadbury

Cofitos

chocotella

Alpenliebe

Centre mint

Centre fruit

Marbels

Chocoleibe

Mentos

Protex happydent

Big babol

Alpenliebe

lollipop

Happydent white

Frittella

Chatar patar

Alpenliebe

creamfills

Centre shock

Candyman

Minto

Eclairs

Munch Pop Choc

Polo

Milk chocolate

Munch

Fun bar

Kit Kat

Polo power mint

Milky Bar

Kit kat Lite

Bubbaloo

Dairymilk

5 Star

Gems

Perk

Halls

Eclairs

45  

Biscuits

The biscuit market in India is valued to be approximately worth Rs. 5000 crore. In the Indian

Biscuit industry out of the net production 60% percent is produced by the organized sector

and the rest 40% is produced by the bakeries which form a part of the unorganized sector.

Britannia ITC Ltd

(Sunfeast)

Parle Priyagold

Good Morning

Milk bikis

Pure magic

Treat

Good day

Nutri choice

50-50

Tiger

Marie

Dream cream

Milky Magic

Fit kit

Choco Nut

Butter Nut

Parle-g

Krack-Jack

Monaco

Kreams

Hide and Seek

Milk Shakti

Butter Bite

Classic Cream

Butter Lite

Big Boss

Marie Lite

Magic Gold

Market Share - Confectionery

3%

37%

11%7%

42%

ITC Ltd.

Perfetti Van Melle

Cadbury

Nestle

Others(Parle,Joyco, HUL etc.)

46  

Snacks:

Snacks industry overview

The Indian Snacks industry is valued to be of 1800 Crore Rs. and is growing at a remarkable

10% every annum. In the world the Indian snack market is the largest and is dominated by

potato chips which has a share of about 85% in the total snacks market.

Product Price

(ITC Ltd)

Product Price

(Frito Lay)

Product Price

(Haldiram)

Bingo

Rs. 5

Rs. 10

Rs. 20

Lays

Rs. 5

Rs. 10

Rs. 20

Lehar Namkeen

Rs. 5

Rs. 20

Kurkure

Rs. 5

Rs. 10

Rs. 20

Namkeen

Rs. 5

Rs. 10

Rs. 20

Market Share - Biscuits

12%

10%

38%

32%

8%ITC Ltd.

Priyagold

Britannia

Parle

Others(Bonn,Anmol etc.)

47  

as on June, 2008

Staples

Key players in the stales market are :

• ITC

• HUL

• Pilsbury

• Marico

• Nirma

Market Sahre - Snacks

16%

45%

27%

12%

ITC Ltd.FritoLay IndiaHaldiram'sOthers

Market Share - Staples

42%

21%

13%

24%

ITC Ltd.

HLL

Pillsbury

Others(Sri LalMahal, LocalBrands etc.)

48  4.4 Consumer Trends Fuelling the Indian Packaged Food Market

Changing Demographics of the Indian Population

The population of India is younger in age, mostly urban, with greater disposable income and

high purchasing power parity (PPP). Urban consumers are typically busier and more affluent,

thus they do not mind paying for the convenience that can be enjoyed. Convenient products

are demanded more as a result of urbanization. Ready meals thus saw a strong 18 per cent

growth in 2008 over the previous year, with these products observed as a convenient

substitute of cooking from scratch. Packaged soup also benefited, with dehydrated soup

growing by 21 per cent in current value terms, whereas instant noodles came out to be a meal

component or at least an increasingly popular snack, proven by sales growing at 24 per cent.

Convenience

The demand for ‘convenience' is dominant in more than one segment. Apart from

convenience in cooking at home, food services and chains have an equally strong share in the

purchase of packaged foods. There was a strong focus on expanding consumer food service

chains across urban areas, which is set to continue to grow. Consequently, urban commuters

will enjoy easy access to trusted consumer food service brands offering affordable food. This

demand for convenience also supported good growth in canned/preserved food and frozen

processed food, with consumers appreciating the convenience of stocking up and keeping

easily-prepared food at hand. Consequently, canned/preserved food saw 12 per cent of the

present value growth in 2008 compared to 2007, while frozen processed food grew by 13 per

cent

Nutritional and Health Benefits

It has been observed that, customers are focusing more on health conditions, with most

consumers having at least a rudimentary awareness of cancer, diabetes and heart disease. The

bulk of new product development is expected to focus on nutritionally enhanced and

fortified/functional products, with these areas having proved successful. Increasingly, the two

concepts will be combined, with low-fat impulse and indulgence products more and more

likely to offer fortification. Players meanwhile launched numerous products with a health and

wellness positioning. NestlAC India, for example, re-launched Maggi - Two Minute Noodles

fortified with 20 per cent of the RDA of protein and calcium in 2008. While Gujarat Co-

operative Milk Marketing Federation Ltd. in 2007, launched Amul Prolife Probiotic Wellness

Ice Cream and Amul Sugar Free Probiotic Frozen Dessert thus creating a new niche of

probiotic ice cream. Players will also seek to become first-movers within the niches of

49  wellness and health packaged foods. Organic products are thus likely to see strong

development, generally targeting affluent urban consumers. Naturally healthy products could

also see a growing emphasis on their health benefits, with basmati rice, for example, having

its low glycaemic index emphasised on the packaging.

4.5 Key Growth Enablers

Urbanisation

India has witnessed on-going urbanisation in the past decade or so, and this is linked to the

country’s economic growth and foreign direct investment. The main impact of urbanisation

was a growing demand for convenient products, with consumers preferring to have ready

access to easy-to-prepare foods that were either canned/preserved or frozen.

Aggressive advertising campaigns by food companies have led urban consumers to develop

an increasing interest in Western lifestyle trends. Urbanisation boosted sales of products such

as breakfast cereals and ketchup, which grew by 13 per cent each in current value terms in

2008 over the previous year. These products are strongly advertised and benefited from a

fashionable western image. Canned/preserved food saw 12 per cent growth in 2008 over the

previous year, while frozen processed food grew by 13 per cent. The graph below shows the

share of food and grocery sales in the organised and unorganised sector between 2005 and

2008 and its estimated growth expected in coming 6 years.

This is expected to drive strong growth in many product areas in meal solutions, with pouch

instant noodles, for example, set to see 115 per cent growth. These products offer a quicker

and more convenient meal component than rice and, thanks to their use of flavouring, can also

be consumed as a snack. This trend is also expected to benefit canned/preserved food, ready

meals, frozen processed food, dressings, sauces and condiments, all of which make food

preparation quicker and more convenient.

50  

Growth of Organised Retail

Retailing saw strong growth in India benefiting from strong GDP growth and the emergence

of a large consumer base-the urban, young middle class. Supermarkets notably saw strong

growth, with sales rising by 108 per cent in 2008 alone. Exhibit 6 summarises the key facts of

the growth of organised retail formats, and consumption of packaged food and grocery

products.

Supermarkets/hypermarkets gained share across the packaged foods throughout the review

phase, thanks to expansion in the number of outlets. This channel more than doubled it’s

share to 11 percent in 2008 from 5 percent in 2003. In the year 2008,

supermarkets/hypermarkets also accounted for a dominant share in canned/preserved food and

frozen processed food, at 68 per cent and 79 per cent respectively. The channel’s most

significant growth was seen in impulse and indulgence products such as sweet and savoury

snacks and ice cream and dairy beverages. Share of supermarkets/hypermarkets grew to 11

percent in 2008 from below 4 percent in 2003, challenging the regional dairies’ dominance in

this area by offering good quality fresh milk at affordable prices.

Improvement in Packaging Technology

Until recently, the majority of foodstuff was sold unpackaged. In last few years, all the sectors

have increased their packaged production share. Although there is a certain rise in the amount

of packaged food products, many of the products are still sold unpackaged.

Sustainable packaging of products through technology with a view of increasing the shelf

lives of the product is the matter of concern and hence is being adopted and developed very

speedily. Along with the emergence of various forms of processed foods, a corresponding

suitable packaging technology is also developing. Milk is one product which is sold in four

different types of packaging, with each type further having different designs and forms.

51  Advances in packaging technology have not only improved the shelf life of products but

also significantly reduced the cost of packaging.

New Product Introductions by Brands

Many manufacturers/brands are creating the market by frequently introducing new products

for packaged food. Large multinational companies like Nestle have been able to do this very

successfully. The new products are customised as per the requirements of Indian consumers

and are targeted at satisfying their unmet needs.

In addition to existing brands, a number of importers are also importing a significant amount

of processed food from European and South-east Asian countries. The imported product

categories are targeted at the premium segment of the market.

Growth in Freezer Space

There has been a remarkable expansion in product categories and ranges due to considerable

growth in freezer space in modern retail formats. The retail freezer space for 2008 is

estimated to be 247,000 cu. ft. This is expected to grow to 531,000 cu. ft by 2014 at a CAGR

of 14 per cent. The frozen food segment, originally covering only frozen meats, fish and

poultry products, currently includes frozen vegetables, ready-to-eat foods also, and will grow

to US$ 2.6 billion by 2014 from US$ 1.8 billion in 2008. This growth has been fuelled by the

increasing availability of freezer space in modern retail shops.

The graph below shows the increase in freezer space corresponding to the increase in number

of stores in future. Dairy products, confectionery and ready-to-eat products have received a

robust boost in obtaining shelf space and corresponding sales due to their positioning and

supporting infrastructure.

(Sajani Mrinalini Dutta, Rohit Chadha, Rohit Bhatiani (2008). Opportunities in the Packaged

Food Market in India.www.technopak.com. 03)

52  5. ITC Case

5.1 ITC Company background

ITC was set up in Kolkata as ‘the Imperial Tobacco Company of India Ltd’ on the twenty

fourth of august 1910. In 1974 it was renamed as ‘ I.T.C Limited’ and in 2001 it was

ultimately changed to ‘ITC Ltd’ . ITC is a part of many businesses such as apparel, tobacco,

hotel, food, packaging, paper boards and confectionery.

In 2001, ITC diversified in the food division. In the Ready-to-Eat segment the KOI brand was

launched by them. They further expanded their brand in different segments such as staples,

snack food and confectionery.

ITC can achieve the first place in the market if its standards are maintained and increased in

the future as at present it has been able to fulfil the requirements and needs of the nation.

ITC’s hotel business has nurtured few restaurants such as Dum Pukth, Bukhras etc that are

famous throughout the world. This shows that the company understands the Indian taste and

has the required expertise who can convert the knowledge gained into pleasant experience of

dining for the customers. For the last ninety eight years ITC has provided high quality

products and many of its brands are benchmarked internationally because of its quality.

The products offered by ITC foods are a result of rigorous market research based on the

insights of the consumer.

Many innovative new products besides the existing products are being developed in ITC’s

state of the art Product Development facility situated at Bengaluru. ITC has developed

intimate business relationships over ninety eight years with the farmers in India and is

boosting the ability of the farmers to access the global markets via schemes like e choupal.

This close relationship is used by the company so as to get quality agricultural products for

their food business. This makes the procurement easy and feasible for ITC foods.

53  5.2 ITC Packaged Foods

In August 2001 ITC entered the branded and packaged food business by introducing the

brand named Kitchens of India. A broader entry was made in June 2002 by launching brands

in the staples, snacks and confectionery segment. The strengths of ITC in the fields of

branded cuisine, hospitality, packaging, sourcing agricultural products can be utilized for

packaged food business.

To guarantee the customers high standard of food hygiene and safety, it assists outsourced

manufacturers to implement hygiene standards that are world class by the certification of

HACCP. ITC has quickly gained a standing in the market in all of its six brands such as

sunfeast, Bingo, candyman, AAshirvad, Kitchens of India and mint o because of its strong

commitment towards quality which is benchmarked internationally. Lately the food segment

of ITC made plans on the first of August 2008 to extend into frozen food through brand-

Kitchen of India.

The business of branded packaged food is expanding as sales grew by twenty three percent

from the last year. Along with the cost required for the development of new products, the

company has to bear the current economic slowdown and also the increase in prices of

various input commodities such as maize, vegetable oil, wheat, and skimmed-milk-powder.

To add to it the fuel prices are also rising.

ITC in a short time has gained a reasonable scale. They are increasingly focusing to

consolidate the portfolio in some of the segments, enhancing servicing of the market and also

motivating efficiencies in the supply chain.

The food market in India is monopolistic. In all the different categories there are several

players who offer almost the same products and at the same price, yet they are differentiating

themselves with their planned marketing strategies. It is very easy to enter this business and

this is a big benefit to ITC as they have been able to enter numerous categories in this

business.

Packaged foods are divided into 5 major parts

54  1. Ready to eat

ITC diversified into the branded & packaged food segment through the introduction of a

brand named Kitchens of India. In the year 2004, it launched the brand KoI which included

spice conserves, spice and fruit conserves. The spice and fruit conserves were made jointly

with a food expert named Karen Anand. To target the elite segment its price of spice and

fruit conserve was set at Rs 70 and cooking paste for Rs 30 which was a hundred grams pack

.The Aashirvaad brand introduced cooking pastes that were multipurpose and for a pack of

eighty grams it was priced Rs 10. The production of these products was outsourced to save

the operating cost to contract manufacturers.

In 2005, ITC introduced itself to the branded spices segment and in the year 2006 to the

segment of instant mix through Aashirvaad brand. The annual turnover as per April 2006, in

the segment of ready to cook and ready to eat was about Rs. 700 million and posted a growth

of twenty percent annually. In the year 2006 the ready to eat market was dominated by MTR

which had 60 percent share whereas ITC had 35percent share. 40-50% products of the KoI

brand were exported to Switzerland, Canada, The USA, Australia and the UK.

During the mid of 2006, within the KoI brand ITC decided to offer 10 more varieties within

the price of Rs 35- 98 . In the year 2007, few products were introduced in the ready-to-eat

segment such as conserves, curries, chutneys ,biryanis ( Bhori Biryani, nor Mahal )and few

new variety products from Gharana ( Keema Mutter, Paneer malai). ITC food expects to have

a market share of 50- 60% by 2008-09 after the launch of these products.

2. Confectionary

ITC at present has the brands named ‘Candyman’ and ‘Mint-o’ in the market. Mint o fresh

was able to secure 17 percent share in the market of cough lozenges in India whereas Perfetti

the former leader was able to achieve only 14.3% share by chloromint. In the whole

confectionary market ITC has just 3 percent share whereas Perfetti has 37 percent or more

and offers many brands. Hence it can be seen that ITC is lagging behind.

55  3. Staples

In the year 2002 ITC introduced itself in the staples market by offering wheat flour with the

brand Aashirvaad. The Aashirvaad brand was extended to edible salt in the year 2003 by ITC.

In 2006, ITC had 40 percent share in the market of the whole packaged food industry worth

Rs 6 billion. Its biggest Competitor was Annapurna brand by HUL which had a market share

of just 18 percent. The market growth rate was 12 percent. ITC extended the Aashirvaad

brand by launching mixers, salt and ready-to-cook pastes under the Aashirvaad Umbrella. In

the organized salt market worth Rs. 4 billion (2006) ,ITC had a market share of mere 5

percent compared to the market leader , Tata salt with market share of 28 percent.

4. BISCUITS:

.The biscuit market in India is valued to be approximately worth Rs. 5000 crore. In the Indian

Biscuit industry out of the net production 60% percent is produced by the organized sector

and the rest 40% is produced by the bakeries which form a part of the unorganized sector.

SUNFEAST a premium product of ITC is helping the company to acquire a huge share in the

market. They should get 12 percent market share within the next few years.

5. Snacks

The Indian Snacks industry is valued to be of 1800 Crore Rs. and is growing at a remarkable

10% every annum. In the world the Indian snack market is the largest and is dominated by

potato chips which have a share of about 85% in the total snacks market. ITC has been able to

penetrate quickly into the market through its brand Bingo by its adaptive pricing technique

and unique promotion.

5.3 Company Culture

ITC’s vision

• Maintaining its position as one of the valuable corporations in India by providing world

class performance.

• To create increasing value for the stakeholders and ultimately to the Indian economy

56  

ITC's Mission

• To improve the potential of the company in the global environment.

• Offer sustainable and better stakeholder value.

5.4 Design

As per the culture and structure of ITC, it can be concluded that ITC’s design is roughly

based on divisional structure. The different businesses of ITC in the different industries are

autonomous units but they are all controlled by the board and corporate management

committee which is the top level. The operating and strategic decision making power is in the

hands of the divisional managers. They also have the responsibility of the performance of the

business. Support services are provided by the top management to the different divisions. The

top management behaves as an external evaluator , overseer and controller of performance.

Thus the top level is able to concentrate on the long term goals as it does not have to

concentrate on the everyday operating details.

In the December 2010 quarter the sale of Potato Chips under the brand Bingo grew by 48

percent. In the category of biscuits, Sunfeast sales increased by 28 percent in the quarter

where the product mix was improved. This was led by huge growth in the sale of value-

added varieties of creams and cookies. The key drivers of growth in the food business are

biscuits and snacks.

57  6. Analysis and Discussion

6.1 ITC Marketing strategy Analysis

ITC has been a leader in the tobacco business, but it realize from the up coming trends that

remaining with a single business is not a noble thought, moreover the company was

threatened of the anti-tobacco campaign. Therefore the company decided to diversify into

various fields like in Info tech through ITC Info Tech, in greeting cards with expressions,

food through Kitchens of India and under the name of will sport into lifestyle retailing. It was

intended that each field would draw above 25 million GBP by the year 2005.

ITC’s latest diversification has been into the food division. This decision to enter the food

business is a part of ITC’s strategic decisions so as to build up new product lines by using the

core competencies collectively according to the Indian consumers. ITC’s already established

distribution network and culinary expertise helped itself to successfully penetrate in the

market.

ITC Foods is focusing mainly on their short term and midterm goals, which can be seen by

the company’s rigorous efforts of heavy investments and market share capitalization

strategies. Therefore the current design of the organization looks like rational, but due to the

external factors, the company should develop it to be a ‘developmental design’. The ITC

foods structure is ‘market oriented’, as they are focusing of penetrating the market deeply, but

as the market is is highly intense and uncertain, they should move towards an adhocratic

structure for flexibility within the organization. In adhocracies, as defined by Mintzberg

(1983), “power and work relations are relative and vary through time. Adhocratic

environments are dynamic social networks. They are said to be the ideal organization

configurations, if the purpose is to create new knowledge and novel solutions. The

coordination of work is based on mutual adjustment.” (Mintzberg 1983).

In the food division of ITC leadership is rational since the leaders function logically

according to the market forces. Skills of the leader were portrayed easily when he made

optimal use of ITC’s limited resources in ITC’s foods division. The ITC distribution network

was used very efficiently when they launched the food products across the nation.

58  6.2 ITC Corporate Strategies :

Following are the corporate strategies set up by ITC. These strategies map the consequent

business and functional strategies for ITC’s other businesses.

• to maintain the growth drivers and matching the internal capabilities of the firm to the

opportunities in the growing market.

• Follow excellent competitiveness in all the different business and even throughout the

whole value chain.

• It is best in terms of:

a) Profitability

b) Market Standing

c) Internal Vitality

• Governance processes and strategies of the firm equipped to control the different

businesses.

• Blending of core competencies and leveraging ITC umbrella positives to form new

areas of growth.

Through the launch of the brand Kitchens of India ITC entered the packaged and branded

food business. ITC has been adopting a broad spectrum for entry in the staples, confectionery

and snack food segment since June 2002. Today the food business in the market can be

represented in four different categories. They are

* Snack food

* Confectionery

* Staples

* Ready-to-eat food

To guarantee the customers high standard of food hygiene and safety, it assists outsourced

manufacturers to implement hygiene standards that are world class by the certification of

HACCP. ITC has quickly gained a standing in the market in all of its six brands such as

sunfeast, Bingo, candyman, Aashirvad, Kitchens of India and mint-o because of its strong

commitment towards quality which is benchmarked internationally.

59  6.3 Porters Five Forces - FMCG Sector Of ITC

In case of ITC, following were the main reasons for the degree of threat from each factor :

It almost seemed packaged food had evolved over the years from its status from a bare

psychological needs in Maslow’s hierarchy to aesthetic needs of health and well being. The

only chant heard around was about the forces of consumerism, globalization and rising

income levels in third world countries, which would be upholding the future of this Industry

high. However it did not take long for this recent recession to shed those claims and reject

those profound theories.

The matter of fact is that packaged food Industry, particularly its consumption is as

susceptible to cyclical trends of economy as any other industry today It does not take much

for any consumer today to trim his food budget in wake of credit crunch and move to alternate

cheaper avenues like fresh foods. Hence, it becomes imperative for both, Incumbent players

and New Entrants to estimate the very forces that will be deciding the fate of this industry

over a period of next 2-3 years.

Porters  Five  Forces  

BUYER  POWER:-­‐LOW-­‐

UNFAVOURABLE.  

SUPPLIER  POWER:-­‐NEUTRAL  

THREAT  OF  NEW  ENTRANTS:-­‐  NEUTRAL  

DEGREE  OF  RIVALRY:-­‐  LOW  UNFAVOURABLE  

THREAT  OF  SUBSTITUTES  :-­‐  

HIGH-­‐  MODERATELY  UNFAVORABLE  

60  Following are the conclusions drawn on the basis of observations about the company’s

performance and results.

Competition and rivalry - Low Unfavourable

Characteristic Comments Conclusion

Product

Differentiation

There has been convergence in the attributes of

food labels with most desirable being Natural,

Nutrients, High Quality and Convenience.

Traditional differentiation models based on brand

and product formulation are losing relevance.

Unfavourable

Low Switching

Cost

The customer is not loosing on anything by

switching from one brand to the other, hence

leading to frequent churning and fierce

advertisement rivalry to attract and retain customers

Unfavourable

Price and

Process War

Rigorous price and process wars are waging the

entire spectrum of value chain from raw material

procurement to customer delivery.

Unfavourable

Consolidation & Concentration

Due to spate of acquisitions and expansions, the

industry is getting concentrated and

consolidated.

Unfavourable

Storage Costs &

Time to Market

As this industry deals with highly perishable

products there storage costs are significant and time

to market forms a critical part. This occasionally

leads to unloading of similar products at the same

time by different players and further intensifies the

game.

Unfavourable

Growth

Worldwide packaged food industry has been

witnessing more than 7% growth over the last 3

years, much better than 4-5% growth rate of the

entire economy.

Favourable

Economies of Economies of scale are becoming more and more Favourable

61  Scale

important in attaining cost efficiencies. Each player

is trying to exploit the global sourcing model to

rationalize its cost and pass on the benefits to its

customers

Buyer Power - Low-Unfavourable

Characteristic Comments Conclusion

Buyer

Awareness

Consumer is becoming more aware and capable to

compare each product on all the 3 fronts of health

ingredients, safety and alternate price discounts

making it more challenging for players to enjoy

consumer focus and loyalty.

Unfavourable

Price Sensitivity

In the wake of recent recession, consumers have trimmed their expenditures drastically and have further led to closing of several retail chains. The only mantra for marketer is price discounts. Unfavourable

Incentives and

Rebate

Retailers are expecting the big players of this

industry to share their expenditure and losses,

helping them sustain their operations in the cut

throat price wars. And are vouching for products

with which companies that are sharing their burden.

Unfavourable

Product

innovation

Customer is loaded with plethora of new and

attractive product options to initiate their buying

momentum, ever increasing his expectations and

further rewarding him with significant buying

power to exercise.

Unfavourable

Availability of

Substitutes

The option of moving to alternate foods like fig

bars for cookies and soy proteins instead of meat

reduces the bargaining power that the food

manufacturer would have enjoyed otherwise.

Unfavourable

Low threat of

backward

Integration

Retailers do not pose credible backward

integration threat. This is not feasible for their cost

efficiencies and also because the producers

subsidize a large part of their marketing budgets

Favourable

Buyer The buyers for this industry are highly fragmented Favourable

62  Concentration

and only likes of Walmart, Carrefour are able to

exert any influence, retaining the threat of

retaliation.

Supplier power - Neutral

Characteristic Comments Conclusion

Raw Material

Availability

There has been a marked shortage in the raw

materials due to usage of agrarian lands for energy

crops. This has been further worsened by the

commodity trading leading to highly volatile prices

of grain and animal feed.

Unfavourable

Low

Concentration

Majority of suppliers to ITC are cooperative or

individual farmers. This takes away the leverage

they could have utilized if they were providing

large volume of suppliers individually.

Unfavourable

Low input

differentiation

The raw materials procured by food companies are

commodity products or livestock that cannot be

differentiated on any factor other than quality. This

gives the companies alternate sources of raw

materials, rather than depending on a sole supplier

for its highly specialized unit.

Favourable

Switching Costs

The switching cost for the suppliers are huge as the

procurement for raw materials are done through

contracts and tender processes and are long term in

nature.

Favourable

Barriers to entry - Neutral

Characteristic Comments Conclusion

Access to

Distribution

With opening of array of retail chains in every nook

and corner, and as a consequence of rapid

globalization, the unique access to distribution

channels earlier enjoyed by only a few is available

Unfavourable

63  to all

Customer

Loyalty

The buyers of packaged food are exhibiting easy

brand switching for promotions and discounts. This

makes it easy for a new player to enter and attract

customers

Unfavourable

Capital

requirements

Capital required for setting up plants, machinery

and regional sales offices is no more difficult with

easy access to equity, loans and seed funding.

Unfavourable

Compliance

regulations

With new laws emerging like COOL and MTC, it

becomes difficult for a new player to manage the

legal and quality requirements by these laws.

Favourable

Asset

Specification

The plant and machinery and processes for food companies are highly specialized and cannot be used in other industries. This makes it difficult for players to exit the industry because of low re-usability of assets. Favourable

Expected

retaliation

With neck to neck price wars in the industry, any

effort by a player to outsmart rivals by cutting

prices or offering new product formats is matched

by rivals. This fear of retaliation also deters new

players from entering using low cost advantages or

a new product.

Favourable

THREAT OF SUBSTITUTES :- High- Moderately Unfavourable

Threat of substitutes is high- moderately unfavourable because Substitutes are specific to

product categories in this industry and they may or may not pose the relevant threat. They can

be a significant threat if the price performance value offered by substitute is better than

products being offered, hence to be considered on a case by case basis. There are numerous

substitutes are available for each product in the category.

64  6.4 ITC’s Strategies with respect to packaged foods are

6.4.1 Entry into packaged foods

The Big Decision

It was a strategic decision by ITC to enter the food business. The company tobacco business

was under jeopardy due to many factors such as bans by the government on smoking and

advertising in public places, anti- tobacco movements and hiking the excise duty on

cigarettes. Thus ITC strategically moved towards food division with extensive CSR activities

etc and decided to use its surplus in the huge business of packaged food which had a big

potential.

ITC’s portrayed an exceptional example of combining its internal core competencies to grow

as an organization by entering foods business. It started in August 2001by introducing

‘kitchens of India’ Indian ready to eat dishes. In the year 2002 , ITC introduced itself to the

staples and confectionery segments by launching Aashirvaad atta that is wheat flour and

Candyman and mint –o confectionery . they entered the biscuit segment by introducing

Sunfeast on 2003 and the snacks segment by launching Bingo in the year 2007. The food

business has reached great heights in just 7 years and offers almost 200 varied products under

6 different brands, has a wide distribution reach , strong market standing and the market share

is growing rapidly.

Market Entrance

It was a strategic decision on the part of ITC to enter the food business in the year 2001. Its

focus was on unleashing the markets where there was no competition or hardly any. In the

year 2008, ITC declared its wish to cater to the frozen food segment in the Indian Market.

The competition was between limited players and ITC wanted to bank on this opportunity.

Even though the competition is tough for Bingo , it has to compete mainly with Frito lays.

The outlook helped ITC to establish itself in the market at a rapid pace. ITC Ltd. Entered the

market as a premium and high end consumer brand. This was possible only because it already

had the tag of a premium organization.

65  6.4.2 Product

Diversification of products:

Diversification of its products has been ITC’s successful strategy. Where Bingo is considered

it introduced sixteen different flavours in comparison to ‘Lays’ its biggest competitor which is

available only in four flavours. This can be seen in the biscuits and ready-to eat segment also.

A wide market could be attracted with the help of this strategy.

Market differentiation

ITC diversified in the packaged food division by introducing ready to cook products under the

KoI brand. These products are premium and the target group includes NRIs, tourists, etc. It

launched varied products in all the segments of biscuits also. For instance under the Sunfeast

product segment it launched cream biscuits with butterscotch, Orange Marie , biscuits with

chilli flakes and honey flavoured biscuits .

Maintenance of freshness and hygiene

ITC ensured that the supply chain gave positive response and stressed on forecasting the

sales accurately with the help of MIS system through inputs from sales personnel and

distributors. The company worked on minimizing the transit time so as to assure the product’s

freshness by keeping the transit norms company specific. The tangible characteristics of

supply chain such as the trucks and warehouses were controlled and monitored to retain

cleanliness.

Regular introduction of new products (all products):

ITC gained a reasonable market share in a short time and thus recognized that, it was

necessary for the company to come up with new products on a regular basis to be in the

competition. Hence ITC is increasing its product range and also its distribution network. In

the wafers and biscuits segment, its launching new flavours and products on a weekly basis.

It’s the same with Ready-to-eat.

Innovation (all products):

ITC changed its focus to innovation when the need and time came to launch new products.

66  ITC for all of its products could identify the niche or market innovatively. .

6.4.3 Price

Cost control strategy

ITC’s main challenge when it entered the food division was to compete with the existing

players. It recognized that it will have to price the products equivalent to the competitor’s

price or even less so as to overcome this challenge. For this, ITC planned to use the strengths

of other businesses of the company. ITC’s packaging and printing business offered cost

effective, innovative and high quality packaging. Through its e choupal initiative ITC gained

cost advantage over its rivals. This facilitated the company to procure resources to the fullest

efficiency.

ITC placed itself in the mid of the table of Porters generic strategies in order to compete with

the market leaders like Britannia and Parle.

67  6.4.4 Place

Distribution Network

The distribution network of ITC was already huge because of its tobacco business. The same

network of distribution was used by ITC for its wafers and biscuits. Through this the products

got a good launch and it also facilitated in increasing sales. At the moment ITC’s Bingo and

sun feast are offered in about 1.8 million stores while Parle is offered in only 1.5 million

stores. For Kitchens of India, ITC Ltd had to just append to the already well established

network and enjoy the larger market share. ITC uses FIFO method to reduce the wastage of

goods due to expiry. They also keep the good on constant move from low sales area to high

sales area. The company collects all the expired goods four times a year, and destroys them.

Retailers must return expired or damaged products within six months after the date of expire.

Adjustment for them is done in three months time. ITC provides their retailers with racks,

hangers, etc to display the products. The benefits received by the retailers depend upon their

sales volume and also the location of their shops.

Flow Diagram

FACTORY

CNF

WHOLESALE DISTRIBUTOR

WHOLESALE DEALER BASE

RETAILER

68  6.4.5 Promotion

Extensive advertising

It is the difference in advertising where ITC showed a difference when compared to its

competitors. They appointed the best ambassadors and the best professionals available in the

country so that their products are renowned. The marketing campaign for minto and bingo

were award winning. They hired the most famous stars from the sports and film industry for

eg Sachin Tendulkar and Shahrukh Khan for biscuits and for mint-o fresh Rakhi Sawant was

hired. Per day, per channel on television ITC booked 10-15 spots on youth channels like Star

World and MTV, news channels and Hindi Channels like Star and Zee TV. IT advertised on

radio channels and in national dailies too. The products were even advertised through

hoardings in the top thirty cities. As per the industry analysis , the company spent somewhere

around hundred crores on marketing. These promotion activities made ITC’s products known

in the market and helped in attracting consumers.

To sum up..

In the year 2003 by entering the biscuits market and introducing 3 different types of biscuits

such as cream, marie and glucose , ITC did what any new entrant would do i.e emulating and

imitating Britannia as it was the leader. Their strategy focused on producing those products

which were successful from before. ITC introduced new flavours which were never before

made once their brand was recognized in the market, which was a result of ITC’s plan of

exploiting the opportunities through new products. Finally by launching Bingo in the year

2007 and with the help of the strategies mentioned above, ITC became successful in its food

business in the year 2008. At last it turned into a profitable business after the launch in the

year 2001.

69  6.5 Analysis of ITC Food’s organizational effectiveness

Following is the organizational effectiveness table, analysing the various functions and

activities of ITC Foods’s marketing execution.

Sr.

No.

Organizational

Effectiveness criteria

Rating

Remarks

1

Flexibility

9

Due to the restrictions in the cigarette

industry it entered the food business. The

different new products in various categories

are launched according to the demand of the

consumers in the market.

2

Acquisition of

resources

8

The production of confectionary items was

outsourced, to acquire improved seeds an

Australian firm was acquired, In haridwar a

new plant was set up as there tax exemption

for the first five years, also increasing the

number of employees by increasing the

market.

3

Planning

7

Goals are comprehensive and are understood

well as they know which market to cater and

which they should not. ( however they did

not cater to milk products)

4 Productivity and

efficiency

8 To enhance efficiency different facilities are

combined. For instance manufacturing is

combined with packaging and printing.

Most of the Products are priced equivalent to

the competitors. In the last six years their

selling average rate has increased by 20-25

percent. At their plant in Haridwar they were

able to get more production in the year 2007

even though with limited machine utility and

technology they had in the year 2006.

70  5 Availability of

information

8 Before a new project or system is put up the

employees are conferred with.

6 Stability

9 Timely logistics to sustain the freshness of

the various inputs for eg the a fine is

imposed on the transporters is there is a

delay.

7 Skilled work force

9 ITC supports work force for competitiveness

by developing creativity, entrepreneurship

and knowledge. To expose employees to the

modern developments and technologies it

has many training programs.

Here is a study of ITC Food’s marketing strategy of two of its successful brands, Sunfeast

biscuits and Bingo ! snacks.

6.6 Innovation And Competitive Strategy For Designing The Marketing mix -

Marketing Mix Development For Sunfeast Biscuits

In Chennai , twentieth April 2004 the food division of ITC ltd announced the ‘Sunfeast’

variety of biscuits by introducing Marie, Glucose and cream biscuits. According to ITC

Chennai Branch manager Mr Sambit Satapathy sunfeast marked the entry of ITC foods in the

branded biscuit market and offering biscuits in both value added and basic segments. The

brand essence of Sunfeast, ‘Spread the smile’ denotes

contentment, pleasure, happiness and satisfaction that a person would get from the biscuits.

The Sun mascot reinforces the brand imagery and positioning by expressing the gratifying

and emotional features of the product.

For launching the new recipe of biscuits, ITC did a market research. It was revealed by the

research that there were gaps in the segment which the company could use and the consumers

desired to experience new differentiated innovative products. It can be revealed that the

existing players did not come up with innovative products. There was hardly any innovation

in the biscuit industry as Marie was Marie and Glucose was still Glucose, so ITC decided to

attack on this point. In the year 2003, Six ranges of Sunfeast were launched by the company.

71  But the risk was calculated. ITC was not only stuck with the favourite categories of

biscuits like Bourbon cream, Marie and glucose but also launched innovative biscuits such as

Marie light, cream biscuits with butterscotch flavour and also Marie with orange flavour. The

Sunfeast umbrella grew by introducing Sunfeast Milky Magic in the year 2004. Lately it has

introduced the Sunfeast Golden bakes and sunfeast Snacky. ITC ‘s annual expenditure on

marketing is estimated around Rs115-120 crores and is one among the largest spenders on

promotions and ads in the biscuits segment. Pricing model of Sunfeast Biscuit.

For initial offerings, Sunfeast Glucose Biscuits which delivered the goodness of wheat, is

available in 19 gms, 75 gms, 100 gms priced at Re 1, Rs. 3, Rs. 4 respectively, which targeted

the children from 4 years to 14 years.

Sunfeast Orange Marie offered in a differentiated way in packing’s of 200 gms, priced at Rs.

13,and the crispy &light Sunfeast marie Light were offered for the housewives in packing’s of

400 and 200 grams which were priced at RS 24 and Rs 13 respectively. Smooth and yummy

cream biscuit , Sunfeast Bourbon cream ,Sunfeast butterscotch Cream , Sunfeast orange

cream , all these biscuits are available in a packing of 100 grams and are priced at Rs 12, Rs

12, Rs 11, and Rs 11 respectively. These biscuits target the children between the age group of

4 to 14 years. ITC placed itself in the segment where it could compete with the bullies in the

market and survive with cost foucs.

After an years research and development in the products and wide spread sampling

throughout the country the food division of ITC Ltd as they are ahead in product innovation

came up with 2 new flavours Butterscotch cream and Orange Marie biscuits. These biscuits

were launched in the Indian market for the first time.

The market share of both Britannia and Parle is reducing as indicated by AC Nielson.

According to the March2006 sales audit , there is loss in the volumes of both parle and

Britannia. Britannia’s share dropped to 30.5 percent in may 2006 from 35.8 percent in the

years 2004-05(volumes) and parle share dropped to 38.4 percent from 42.2 percent during the

same period. The biscuit market in India is approximately around 4500-5000 crores and is

dominated by Britannia and parle.

Parle is considered as the volume leader and includes brands like Monaco, Krackjack and

parle-G whereas the value leader is Britannia and comprises of brands like Goodday, tiger,

milk bikis, 50:50 etc. but now this market has moved away from the core. ITC’s sunfeast

share has increased to 6.7 percent from 2.7 percent. Where value is concerned , the market is

lead by Britannia which has 37 percent share , parle 32.3 percent and lastly ITC with

72  6.3percent. However, there is still a wide gap and hence Sunfeast has a long way to go.

Both Parle and Britannia are big players and have high volumes ,thus they can easily lower

their margins. So for sunfeast to be in the reckoning it will also have to lower its prices which

will squeeze the margin further. At present the game is not fully played but today sunfeast is

the brand which is preferred.

6.7 ITC Bingos’s Marketing Mix

Product strategy

Bingo positioned itself as chips with an Indian twist. The 16 flavours introduced at launch

were carefully developed through R&D. The initial offerings were a mix of potato chips and

finger snacks. The Potato chips segment includes variants like masala, salted, tomato inspired

by the snacking habits of the Indian consumer The offerings under Finger Snacks included the

Khakra which is inspired by ‘Mad Angles’ and ‘Live Wires’ inspired pakoras. These

offerings were further differentiated by providing SKU’s at Rs. 5, Rs.10 and Rs. 20

Pricing strategy

The main objective for ITC was to see through the existing competition in the market.

Hence, it launched a direct frontal attack by introducing similar priced SKU’s.

ITC already enjoyed cost advantage over competitors through its initiatives. One of them was

e choupal. The timely supply of raw inputs and materials are also facilitated through this.

ITC’s packaging and printing business has led to innovative, cost effective and high quality

packaging.

Promotional strategy

During the world cup the launch of Bingo was strategic to cash in on the popularity of snacks

among the cricket lovers of the country. The advertising strategy revolved around slapstick

humour and irrelevant themes to hold eyeballs, garner attention and interest, and stand out

from the clutter. Bingo’s advertisement was a perfect combination of innovation in

advertisement and creativity.

Per day, per channel 10-15 spots were booked by ITC, 20 spots on radio stations supported by

1000’s of hoardings advertising the product. According to industry estimates, the total

advertising spend in the initial 6 months were roughly 100 crores.

While its competitor Fritolay focuses on celebrity endorsements, Bingo chose a different

route. It didn’t have an ambassador!

73  As the product is aimed at the youth, digital media was heavily used. For instance, the

Bingo National Gaming Championship across 4 cities with more than 25,000 participants.

Bingeonbingo.com and Mad Angles Twister Application (Facebook) were other initiatives in

online media.

Distribution strategy

ITC already had a well-established distribution network through its cigarette and tobacco-

related offerings which were leveraged in case of Bingo. Further, the company distributed 4

lakh racks across all retailers for the benefit of displaying the brand at maximum points of

sale. Within 6 months, Bingo was available across the whole country among 2,50,000

retailers. A crucial alliance which happened with the Future group lead to all future group

retail outlets like Big Bazaar, Food Bazaar stocking just the Bingo brand. Local Betel shops,

HORECA (Hotels, Restaurants and Cafes), were used for distributing Bingo’s to the varied

classes of audiences.

Thus it was proved in the case of ITC Foods that innovation and competitive strategy were

responsible for the design of marketing mix.

6.8 Financial Data

In 2001 ITC ltd entered the food division and since then they have been growing

tremendously. Every year their investment is increasing by taking into account the range of

market. Due to investment in surveys, costly advertisement, market research, expansion plans

and R&D the firm could not maintain it’s continuously rising profit margins. Furthermore

they introduced themselves in a complete new market of food, however ITC had a strong

distribution market for this market which it had been using for its tobacco products. ITC

performed well specially in the ready-to-eat , biscuits, staples and snacks market considering

all the above factors and the short time period.

Annual Result of ITC Rs. In crores

Particulars Mar ‘08 Mar ‘07 Mar ‘06 Mar ‘05 Mar ‘04

Sales 13,947.53 12,369.30 9.790.53 7,639.45 6,470.44

Operating profit 4.403.94 3,956.41 3,327.38 2,792.56 2,360.59

Interest 4.61 3.28 11.93 42.43 24.79

74  Gross profit 5,010.23 4,289.62 3,601.53 2,985.94 2,560.68

EPS 8.28 7.18 5.95 8.79 6.43

The net sales of ITC increased to 13947.53 crores out of which the sales of non cigarette

business grew by 29 percent as a result of investments in the FMCG market.

6.9 Sales Of Food Sector And Its Projection :

Particulars 2006 2007 2008

Sales (crores) 1230.54 1698.53 2526.60

The food business is growing at a rapid pace and sales grew by 35 percent in 2007. Almost

150 products are included in it. The growth in the different sectors as per product

categorization is: there was a growth of 55 percent in the biscuits sector.

In the staples category there was a growth of 52 percent , and in the confectionary segment

sales grew by 51percent.RTE sales increased by 35 percent. to maximize the company’s

profit, ITC is planning to expand its RTE segment.

On the whole, ITC foods has been able to capture 10 percent of the market in the sectors

where other companies too are operating – confectionery (Rs 20 billion), Salt and Aata (above

Rs 10 billion) ,biscuits (Rs 45 billion) among others. In the next year or so , ITC’s strategy

will be to offer and consolidate a wide range in the present categories and thus growing those

markets. As a part of its long term strategy apart from the Rs 1.5 billlion that the company has

invested ,ITC foods has planned to invest Rs 450 crore in the coming 3 years so as to rule the

Indian Branded food market. It can be seen that ITC increased the sales every year and

penetrate in the market as a result of its successful implementation of marketing strategies

which was led by innovation and competitive outlook.

The company was able to penetrate in the market with its rising sales figures and was able to

acquire majority of the market share in the ready-to-eat and staples sector.

75  6.10 ITC Strategy analysis

• ITC by entering the food sector created a huge impact on its progress. This involved a

big risk but due to the strategies it was able to mitigate it.

• The different strategies ITC adopted were: they introduced six flavours in Sunfeast

which no other leading biscuit company had done and thus were able to create interest

among people and children especially.

• To promote their brand they applied the strategy of celebrity endorsement and their

brand ambassador was made as Shahrukh Khan. This increased the demand as

Shahrukh Khan is famous amongst children.

• The sunfeast biscuits had a different taste than the others which increased the craving

for newer taste.

• ITC also launched many other famous brands like easy-to-cook products, sunfeast

pasta-treat etc.

• The easy-to-cook products were well liked by the Indians due to the fast life. They

continuously innovate and create high quality new brands and products which helped

them to create customer loyalty.

• ‘Quality never comes cheap’ but the same quality can be provided in a reasonable price.

The products of ITC in context to quality are at par to the quality of other products in

the market as well is priced reasonably.

• The fine advertisement policies carried out by them has encouraged the customers to

try their products once at least. For instance their advertisement in which a kid enters a

cream world creates excitement among children which leads to increasing sales.

• ITC's tagline "Spreading the Smile" is very attractive for people. ‘Sun' their mascot

creates a healthy and a happy feeling among the consumers seeing it.

6.11 ITC’S New Challenges:

The profit margins are very low in the food industry hence the key to this industry is low

operational cost. In addition to it, the middle class in India is highly price sensitive.

Competition is really tough in this area be it regional, national or international. Also the cost

of labour, petrol and wheat are rising every day. The government is imposing different

restrictions which have also led to reduction in profit margins for instance there is a restriction

on the export of non vegetarian food. To make up for this, the company is working on

76  reducing the cost of the biscuits by directly buying wheat in large quantity from the

farmers with the help of its e choupal initiative. The price of the staples is also reduced

following this measure. Lately where its confectionary segment is concerned, its planning to

launch a brand of chocolates in association to an American Firm. Lastly After analysing it

can be said that food sector is the toughest to compete in as big companies are present

already.

6.12 ITC Case Conclusion :

It can be concluded that, they have excelled in innovating, advertising, marketing and offering

high quality products. As a result of these activities ITC has gained a lot in a short time and is

cherished among children. Their growth has been tremendous over the last 3-4 years and will

continue growing in the coming years as the company is quite innovative, stable and

understands the needs of the market. No doubt it has been fulfilling the needs and demands of

the consumers. ITC can become the market leader within a few years if it keeps up to its

standards or improves it.

77  7. Emerging New Categories and the future of Packed and processed

foods in India

Value-added Dairy Products

India is globally the leading milk producer in terms of quantity and dairy is considered as the

segment with the most potentials in the food processing. The Indian dairy products market is

presently valued to be worth US$ 33 billion. Dairy product demand is anticipated to grow in

the next five years by some 15-20 percent

This segment offers the highest potential and scope for value addition at 37 per cent in the

food processing industry in India. Consequently , the present organized sector share is 15

percent which is relatively small, denoting a scope for growth and development for organized

players.

The Indian Government has been focusing on the dairy industry too through policy support

with major supportive initiatives like:

In the sector of dairy processing 51% of foreign equity participation is permitted

• The SSI(small-scale-industries) has de-reserved various dairy segments such as ghee and

ice-cream

• In order to promote dairy processing the excise duty on the machinery used for dairy

processing is fully removed which was16 percent earlier.

• Succeeding to de-canalization, few dairy products based on milk can be exported freely. If

the products conform to the mandatory requirements as per the in charged regulatory

authorities such as Export Inspection Council, National Dairy Development Board, etc.

Health-focused Snack Foods

The Indian snack food market is assessed at US$ 265 million. For mass products, this trade is

characterized by low margins and high volumes, and considered as highly competitive. Ever

increasing health consciousness gives a wider market for snack foods which are health-

focused in nature. Many of the of large existing companies like ITC Foods, Parle Agro and

Frito Lay, have considered this fact and focused on this segment by targeting customers by

offering a product line in health focused segment. With the boosting demand for healthy

foods, this segment will witness a huge share in snack food industry.

78  

Frozen Ready-to-eat Segment

As the penetration of organized retail has improved, it is expected that there will be a

significant rise in the frozen ready to eat segment, which is currently valued at US$1804

million. It is expected that freezer space will be doubled in the coming 4-5 years, increasing

the accessibility of frozen products in the Indian market. The growth of this market will be

aided by the entrance of enormous multinational companies such as McCain, Tyson Foods(

JV with Godrej Agrovat), etc

Non-vegetarian Processed Foods

Presently, In India majority of non-vegetarian products that are sold are in raw form which is

unhygienic . Given the increasing need for convenience and increasing health consciousness,

considerable development in the category of non vegetarian food is anticipated. The

increasing penetration of supermarkets/hypermarkets and improvement in cold chain

infrastructure will significantly aid the growth of this segment.

The Indian packaged food segment is now at a very budding stage. Changes on the general

market, affecting demand and supply side such as increasing urbanisation, need for

convenience, health consciousness, increased penetration of organised retail, improved cold

chain infrastructure and entry of international players are key drivers that will result in

significant growth in the market.

79  8. Findings and Recommendations and Research Gap

8.1 Findings of the research.

• The rapid positive change in Indian demography; increased disposable income;

increased concerns over Post Harvest Losses; encouraging steps taken by the Indian

government to provide the technological know-how, infrastructure, tax exemptions,

export and import regulations.

• Each player is competing with the other to capture larger market share.

• With plenty of modular interconnected options available in the market, the consumer

hardly has few choices. This means there is intense competition in the market.

• Many packaged food companies gets the product outsourced, which delays the

delivery time.

• Delivery time and design of the products ordered, have a significant effect in

generating demand for the product.

• The government of India is doing its best to encourage the processing sector by

introducing various schemes, subsidies, trade liberations, tax deductions etc. It has

also made efforts to bring in new technologies to India by using its international

contacts, set up R&D labs, centers and industrial training facilities.

• The main reasons for consumer shift towards processed and Ready To Eat foods is

because:

§ Global acceptance of the Indian food and its culture.

§ Fast growing foreign market.

§ Growth of Retail outlet culture

§ Shelf- life: minimum 12-18 months.

§ Taste, Quality, and Flavour remains fresh till the expiry date.

§ Women’s wish of spending less time in the kitchen.

§ The increasing number of working bachelors who stay away from their homes.

80  • Less expensive as compared to the availability of Indian cuisine in the foreign

country restaurants.

• The consumers came to know about RTE packs from Television Ads and display at

malls and the word of mouth was virtually very less. This proves that two promotion

methodologies were very effective. The third and the most important as far is food

products are concerned with word of mouth. Marketers can work on it only happen if

the consumers are satisfied with their experience and will they give a positive word of

mouth feedback to their relatives and friends. This is the most effective form of

communication when it comes to something edible as Indian consumers tend to trust

people who have already sued it rather than advertisement.

8.2 Recommendations

• They have a perception that these RTE meals are not manufactured under good

conditions. Secondly, they also feel that Ready to eat meals is not good for health.

Hence marketers have to touch upon this point. The advertising, communication and

promotion should revolve around this point. Packaged foods are relatively new to

India hence proper awareness have to be created by companies.

• The ready to Eat marketers should bank upon its strengths i.e. time saving, effort

saving and easily available option. The promotion, Packaging should revolve around

these characteristics as we all know in the traditional Indian urban family time is less.

People crave to spend time with their family after hard day at work. However, various

limitations like cooking food etc hamper this. RTE should consider this as their

positioning strategy.

• The pricing strategy should be designed in such a way so as to be competent with the

restaurants rate. People do not mind spending more if it saves time. However they will

spend only a reasonable hike in price. If there is a lot of difference between the

restaurant price and RTE price they would go for the former.

81  • Aggressive marketing and product development activities undertaken by the

processed foods players. This collaborative learning from each other and collectives

successes and failures enhances the viability and growth of the industry as a whole.

• Any Organization works in an organizational manner. A proper combination of co-

ordination amongst the different functions of the business will certainly enhance the

performance of the organization.

• The need of the hour is aggressive marketing. With the rising competition, new and

innovative ways of marketing products aggressively should be used.

• The competition is intense in the market, so for gaining the preference, the company

should add some value. CSR and customer service are examples of doing it.

8.3 Research Limitations and further research scope

Having had a holistic approach to the study, the scope of the project for further research lies

in identifying the further advancement and research on the same topic. The project was done

on the basis of secondary data analysis. This leaves a wide scope for research.

Though the Indian government is doing its best to offer as much incentives as possible though

its policies and regulations, it is a must to assess how much of it is known to the people in the

industry and how much of it is being utilized. Thus a primary research could be done to assess

the same whose respondents would include the entire chain including the farmers/producers,

Intermediaries, Processors, Marketers (if not same as processors) and Retailers.

The secondary research done to assess the marketing strategies of companies was done on a

very small scale and limited to just one company. India a diverse nation with gradations in

culture and habits may have an impact on the consumer behaviour for packaged food

products. Thus, a research may be conducted across different cities and locales to reinforce

whether or not there is a relationship between consumer behaviour for packaged food

products and diversity rather than just profession and income levels.

The project revolves around domestic giant ITC Ltd. But it would also make sense to

compare with a global player like Krafts Foods to assess what more could be done and what

may not be done by the Indian players to improve their brand image and engrave their mark in

the world packaged foods rankings.

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