Case Study Analysis on Cargill India Pvt
Cargill India Pvt. Ltd. 1 Auro University
CASE STUDY ANALYSIS ON CARGILL INDIA PVT. LTD. OVERVIEW OF THE CASE Objective of company Examine the opportunity to expand its operation into business to consumer segment or space in India. Seeing this plan of Siraj A. Chaudhry was to launch a portfolio of food products, beginning with edible oils for the consumer market in which the domestic demand was being met largely by importers. Case background B2C was a new strategic direction for Cargill Inc., as it was popular for B2B products and services. Reason for entry are : 1) B2C model would enable the company to tap into the popular end of domestic edible oils market 2) It would improve the contribution of Cargill India to global revenues of Cargill Inc. 3) If it worked in India, The B2C model could be replicated in different geographies, particularly in emerging markets. COMPANY BACKGROUND Cargill is an international producer and marketer of food, agricultural, financial and industrial products and services. Founded in 1865, our privately held company employs 140,000 people in 65 countries. It is a diversified conglomerate with a total of 75 business organized around 4 below mentioned areas:
Agriculture They originate process and distribute grain, oilseeds and other commodities to makers of food and animal nutrition products. They also provide crop and livestock producers with farm services and products.
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Food They collaborate with food manufacturers, food service companies and retailers to provide highquality food and beverage ingredients, meat and poultry products, and health promoting ingredients and ingredient systems.
Financial They provide our agricultural, food, financial and energy customers with risk management and financial solutions in world markets.
Industrial Cargill serves industrial users of salt, starch and steel products. They also develop an market sustainable products made from agricultural feed stocks.
CARGILL IN INDIA Cargill maintains a number of businesses in India, with operations including the handling and processing of a wide range of products, including refined oils, grain and oilseeds, sugar, cotton and animal feed. In addition, Cargill develops flavour systems and operates a value investing business. Our presence in India has been growing since we began a joint venture operation in 1987.
Products & services Cocoa & Chocolate, Cultures & Enzymes, Flavor, Functional System, Health Promoting Ingredients, Hydrocolloids, Juices, Mait, Oil & Fats, Proteins, Starches & Derivatives, Sweeteners
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Cargill group of companies Cargill Refined Oils India imports, refines, sells and markets a wide range of vegetable oils and fats to wholesale trade, industrial and household consumers across India. they own and operate three vegetable oil refineries located at PARADIP (Orissa),
KANDLA (Gujarat) and
KURKUMBH (Maharashtra). Cargill Refined Oils India has been operating within India since 2005 and employs more than 750 people. These are (K2)CARGILL INDIA PVT.LTD.,POST-BHIMASAR,TALUKA ANJAN,KUTCH-370240(GUJARAT) (KK)CARGILL INDIA PVT.LTD.,E-4,E-45,MIDC,KURKUMBH413802(MAHARASHTRA) (PD)CARGILL INDIA PVT.LTD.,OIL TERMINAL ROAD, ATHARBANKI,JAGATSINGHPUR-754142 (PARADIP)
CARGILL MILESTONES IN INDIA 1987
Cargill Seeds - a joint venture operation - commenced in India.
Cargill starts its fertilizer/crop nutrients operations in India.
Cargill launches its primary sugar and edible oils trading business in India.
Commences grain and oil seeds business in India.
Launches food business under Cargill Foods – launch of brand “Nature Fresh”.
Cargill acquires the Food Flavors business from Duckworth Group UK, and Duckworth
Flavors India becomes part of Cargill India.
Cargill sets up green field edible oil refineries at Kandla and Paradip.
Cargill diversifies its fertilizer business into a joint venture with IMC global. Cargill India's DAP business renamed as Mosaic India.
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2005 Cargill acquires Parakh Foods with brand "Gemini" and sets up a new Business Unit called Cargill Refined Oils India. This is first business unit with headquarters in India.
Cargill launches SAANJHI UNNATI Program in Rajasthan for development of malt barley
in active collaboration with the Government of Rajasthan and SAB Miller.
Cargill set up grain collection centres to deal directly with farmers.
By 2005, Cargill had set up 85 Saathis Serving 250000 individual farmers.
2006 Cargill starts its sugar off shoring business to support the execution activities of Cargill Netherlands.
Cargill sets up CARVAL India Pvt. Ltd
Cargill entered into tolling arrangements with local Soybean crushers in Maharashtra,
Rajasthan and Madhya Pradesh
Cargill enters into a joint venture and subsequently owns and leads a shrimp feed
manufacturing business in Rajahmundry in Andhra Pradesh. 2007 Cargill launches cotton trading business in India.
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The Indian Food Industry India has the second largest population, which account to nearly 17% of world population. According to forecast India will grow by 1.3 billion people by 2020. India is the largest producer of milk and second largest producer of fruits and vegetables. India generates 12% of global food output. Value chain of food industry consists of 4 phases: 1) Farming 2) Procurement 3) Processing 4) Consumption. In India there is a constraint at each stage, which together has an impact on volume. The Indian economy was one of the fastest growing economy in the world, GDP recording a growth rate of between 6 per cent to 8 per cent annualy over the period 1992-2004. Indian Retail market was estimated at $364 billion in 2005,accounting for 44% of GDP. The Food Industry was largest at $165 billion, which accounted for 45% of total retail market in 2005. Many international and national players were active in retail of food items but still seeing the size of the economy Cargill had a great chance to cover market.
Regulatory Impact The edible oil segment was particularly regulated because production of edible oil was short of demand, making imports necessary to make up the deficit. So this was the major area of Concern for Cargill Inc. The import was routed through the State Trading Corporation, a federal government enterprise. There were a lot of incentives for local farmers to divert part of their farming to produce edible oilseeds. In 1994,edible oil were placed under Open General License, by this law, private owners could freely import edible oil. Differentiated tariff were applied to different oil such as palm and soy on the basis of supply and demand.
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Characteristics of Indian Market in B2C Segment : 1) At home consumption was maximum, people rarely go out to eat, hence B2C was the viable option. 2) Diversity of markets, brands were local or regional rather than national. 3) Over 95% of retail activity are conducted through “traditional retial” 4) Younger demography, 70% less than 35 years of age. 5) Value for money, “paisa vasul” nature. Edible Oil In spite of being import dependent, India was the fifth largest producer of oilseeds in the world, after the US, China, Brazil and Argentina. Total market size in 2005 was Rs.600 Billion. The industry had low entry barriers due to low capita need and low technical requirements. Challenges for Cargill: 1) Building networks among vendors and customers, setting up manufacturing capacity in a small period was a challenging job. 2) It was not easy building food brands in India and moreover creating a supply chain network was very expensive. 3) Diversified and scattered population of India. 4) Cargill was known for B2B, so Chaudhry was concerned about the recruitment of specialist staff in B2C segment. 5) There were other issues like pricing, adverting, competitors, etc.
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SOLUTION OF THE CASE Yes, the B2C was the right thing to do for Cargill India as in India people have a habit of preparing food at homes for most number of times, eating outside in restaurants, hotels and other outlet is very less as compared to US, China and Indonesia. In US maximum percentage of edible oil is consumed by big institutional players, on the other hand maximum consumption of oil is by individual households, so it was necessary for Cargill India to come in B2C segment. India being the second largest market as per population there was a huge scope for Cargill to increase its revenue many fold in India. Most important part of this process was the distribution. Indian market was scattered and widely spread, beyond that people in different region had different taste and preference for edible oil, eating patterns were different. So, Chaudhry was correct that, approach need to be slow as cracking the complex process would be hard for once, but a viable option in a long run. Most widely used edible oil (product) were Palm oil, soybean and mustard oil accounting for 46%,16% and14% of oil consumption respectively. The demand for mustard oil was met fully by domestic production,45% by soybean oil was imported, palm oil was imported largely in crude form and partly in refined form. Major advantage of Cargill was its Import, being an old company Cargill had an access to various category of edible oil at a reasonable rate. Only advertising on TV and radio was not the feasible option for Cargill, as it would only cause awareness, but major success of operation was with reaching the distribution. There are more than 12 million small retail outlets (kiryana) are there. So in order to reach maximum retail stores the option with Cargill was to go for Hub and Spoke, where hub it the main warehousing unit in each major district and spoke are the regions nearby hub, and hub should be given responsibility to sell the edible oil pacets and pouches in rural segment, an extra commission to spoke, on selling it to retial outlets. It would promote the products of Cargill directly in rural area too, who account for major part of the population.
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This is the team of Cargill India.
The elements of the marketing plan, that would ascertain profit and growth for Cargill India are: 1) Branding of the product, tough edible oil are available in loose in Indian markets, but with the latest trend, refined oil is experiencing increasing sales. So Branding of the product was very essential.
2) Brands are not born but made, so the process might take some time, but in few years down the line Cargill can face huge profits.
3) A combination of above the line communication (largely adverting) will cause awareness in the mind of people by which people will develop liking for the products. Radio ad. In local language and TV commercial would play a major role behind the success of this.
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4) Hiring good experienced employee in the field of marketing and branding, as Cargill did not had any experience in the field of B2C segment.
5) Major attention should be given in the field of packaging. Buying capacity of maximum population of India is not good, so Cargill should decide 250ml special packs for rural areas and pack of 500ml,1 liter ,5 liter and 10 liter thereon, depending upon the segment and market.
6) Below the line communication would also play a major role behind the success of sales, as Indian consumer are price sensitive, promotional scheme would attract many consumers and will lead to volume sales.
7) Keeping a price which is best suited for people in India, and is competitive or less as compared to other competitors, who are old and big. Six leading players were Adani Wilmar which include brands like Fortune, King’s, Bullet, Raag Gold. Ruchi group, Bunge India, Kamali Oil Industries and Marico. All the companies had popular oil brands which were synonym for oil in India, so task of the brand management team was to come up with brand names which are familiar with health and could be spelt easily.
8) Merger and Acquisition was a good option, acquiring some established brands would help Cargill to save time, but that would be an expensive option.
9) Come up with variants of Mustard oil, Soy oil, Palm oil and new variants of oil like Olive oil, which was a new concept in India in early 2000’s.
10) Following the strategy of Competitive pricing as Indian consumers are price sensitive, they compare the products of same category of different brand in terms of price and quantity, so setting up a price which will built sales for the company
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CONCLUSION Cargill Company has huge resources in terms of Human resource, finances required. Indian market is huge and has a huge potential, as still few players are there in edible oil segment, India spends more than 45% on food products plus more than 80% of this 45% is consumed by household, so in this case B2B model would not be of much use, rather B2C is a more viable option, i.e. tapping individual households. Edible oil seed demand projections show that total demand will increase from 10.9 in 2004 to 21.3 in 2015 as per exhibit 8 of case study. Cargill should also go for backward integration in India, in terms of growing of mustard, this will help company to decrease it costs of procurement from other vendors.
Both the exhibit show the potential of B2C in India. If the company, Chudhry considers the above mentioned 10 points, Cargill B2C venture in India will be a major success.
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REFERENCES The entire study and analysis of this case study is done on the basis of the case provided in the class issued by Ivey Publishing.