Presentation On Strategic Analysis of FMCG Companies
Presentation On Strategic Analysis of FMCG Companies
Presentation On Strategic Analysis of FMCG Companies
• Financial analysis gives a top down picture – from which we infer things like brand
performance and expected stability.
• Lack of transparency by firms when their brands are not performing well – noticed in
quarterly reports
• AC Nielsen (industry research statistics) requires companies to keep knowledge of
market shares proprietary – therefore, less incentive for firms to give a clearer picture.
Aim: To combine grassroots analysis of product positioning in it’s market place with
financial analysis so develop richer understanding of brands and by extension their
parent companies.
BACKGROUND INFORMATION ON THE FMCG MARKET
• Current Market Size - $49bn – expected to grow at 20.6% CAGR till 2020 ($104bn
Growth Sources
1. Favorable demographics – Increasing consumer base with higher population
2. Rising per capita incomes –Strong economic growth expected to increase volume
purchased and drive premiumization
3.Tapping into a bigger consumer base –Dabur, Emami upped rural distributon
networks to improve reach; HUL and ITC already had such investments in place
4. Modern trade expansion – Expected consumption increase from ecommerce
channels opening up (Amazon $4bn investment)
• Policy support – Liberalization of FDI policy and initiatives like ‘Food Security Bill’ are
going to increase activity in the FMCG space
INDUSTRY FIVE FORCES ANALYSIS
Competitive
Rivalry
(medium)
Key Facts:
• Last 3 Years - Average Sales growth – 8% ; Margins - 63%
• Rural growth has been 1.5x Urban growth
• Advertising plays a key role – people want to be aware as dental needs can be
specific – Whitening, Freshness, Medicated etc.
P&G,
56%
METHODOLOGY: INTRODUCTION TO PORTER’S GENERIC STRATEGIES
1. Collected Data from Quarterly Reports up to 5/10 (where available) years ago - about
brand performance (volume growth). Used a binary rating system where;
1 = Growth > 5%
0 = Growth between 0 and 5%
-1 = Growth < 0%
2. Computed a growth score by averaging binary score for each quarter
3. Growth score weighted with focus on recent data– didn’t make sense to equally
weigh product performance from 5 years ago with recent data. Half the weightage
was assigned to the first year of data. Decay factor used was 0.87.
4. To gauge strategic positioning we standardized brand prices on a per gram basis
– and then used price position and qualitative analysis to map each brand to one (or
more) of Porter’s generic strategies.
FIGURE 1 – PRICE STANDARDIZATION AND STRATEGY BUCKETING
• Potential for error in strategy bucketing; though, wherever their was doubt between
which strategy bucket to chose we included the brand in both buckets as hybrid
strategies which are possible conditional on effective execution.
FIGURE 2: RESULTS FROM PRICE V/S GROWTH ANALYSIS
• Growth scores(<-1,<1) have been scaled to assume Brand with max growth score = 1
and then scaled.
• Price units: -1 = Lowest cost (Red) and 1 = Highest cost (Sensodyne) – rest scaled
• Low cost toothpastes are driving growth on the back of Dabur Red and
Patanjali
• Colgate displays healthy growth (0.46) and premiumization (0.71)
HOW THIS SUPPLEMENTS FINANCIAL ANALYSIS
• Our analysis is consistent with financials in that both show growth and premiumization
Net Sales (2013-2016)
1,200 1,091
994 989 1,022 1,032 1,006 1,006
921 951 924
896 884
900 845
600
300
• While sales and margins have grown well – EBIDTA margins have not due to
expenditure on Advertising to maintain market share – intense competition from
Dabur Red and Patanjali
15.00%
10.00%
5.00%
0.00%
DEVELOPING INSIGHT WITH THE VRIO FRAMEWORK
• The VRIO (Valuable, Rare, Imitability, Organization) views brands as being able– to
sustain a competitive advantage only if it’s processes are valuable, rare, inimitable
and organized.
How rare are is the
strategic
implementation?
• Colgate has a competitive advantage in the market from its Product range/quality and
“Trust” factor” – evident in high market share without pure low cost position. Colgate’s
strategy is a hybrid of focus and differentiation – where focus results from 79% of
revenue and differentiation from medical authenticity resulting in a trusting
consumer base – presence of “switching costs”
• Colgate has made it clear that it intends to maintain market share – and has
enough resources (corporate parent, healthy cash flow) to fight off Patanjali and
Dabur Red by making low cost variants like “Cibaca” cheaper – especially to high
growth rural markets