Marketing Management Project _ITC-Aashirvaad-Atta

A Project Report On

ITC – Aashirvaad Atta

1

Contents Topics

Page No.

Executive Summary

3

Introduction ♦ Preamble ♦ History and Evolution ♦ Corporate Strategies ♦ Board of Governors ♦ Operating Units in India

4 5 9 9 9

Market Analysis ♦ SWOT Analysis ♦ Understanding the four P’s of ITC Food Division ♦ Financial Analysis of ITC ♦ Competitors Analysis ♦ Financial Analysis of Competitors ♦ Price, Place, Product, Promotion Strategies in Orissa ♦ Decision Making Process ♦ Inferences from the Survey

33 38 39

Future Strategies

45

Suggestion and Recommendations

46

Annexure

47

References

55

10 10 18 25

2

Executive Summary In ITC’s branded packaged foods business, the company has created a new epicenter of rapid growth by blending its time tested key competencies and organizational strengths. ITC’s portfolio, currently consisting of 45 value added products, appeals to changing consumer preferences in virtually all categories – staple, confectionery, snack foods and biscuits, and ready to eat meals. ITC’s ‘Aashirvaad’ atta has already established leadership as the number one branded atta among national branded players within barely two years of launch. The ‘Aashirvaad’ assurance of quality now extends to ready-to-eat foods, ready –to- cook pastes, atta and salt. ITC pioneered the launch of butterscotch cream and Orange Marie biscuits under the sunfeast brand – example of product innovation widely accepted by the consumer. ITC has achieved a significant market presence in the confectionery segment with the rapid growth of the ‘Mint-o’ and Candyman brands, which between them now have 11 variants. ITC’s ‘Kitchens of India’ ranged of gourmet products showcases India’s traditional cuisine. The company is engaged in scaling up the supply chain through distributed and outsourced manufacturing capacity to service market requirement in the cost effective manner. Significant investment in brand building activities is also envisaged in the light of heighten competition. Despite sluggish performance and pressure on margins in recent times the micro trends in FMCG sector shows compelling opportunities. Per capita consumption and penetration lines of most FMCG categories in India are relatively low as compared to other south Asian countries. Branded atta consumption in India is only 5%. Disposable incomes are projected to grow rapidly and drive up the demand for consumer and FMCG Goods. Gross turnover of the company for the year 2004-05 grew by 13% to Rs. 13350. Pretax Profit increased by 15.3%. The financial for the year include Rs. 692 crores representing net income from exceptional items. ITC has planned to invest around Rs.3500 crores in the Atta, confectionery businesses and greeting cards over the next five years with its prime focus on the food business. Some of the recommendation that can be incorporated for Aashirvaad aata like collaborating with government for the supply of atta in military canteen, and also with fast food retail joints in India by giving them some discount, they company can also try to export its atta to the countries where wheat is currently being exported. Also an aggressive advertisement is required. 3

Introduction Preamble Over the years, ITC has evolved from a single product company to a multi-business corporation. Its businesses are spread over a wide spectrum, ranging from cigarettes and tobacco to hotels, packaging, paper and paperboards and international commodities trading. Each of these businesses is vastly different from the others in its type, the state of its evolution and the basic nature of its activity, all of which influence the choice of the form of governance. The challenge of governance for ITC therefore lies in fashioning a model that addresses the uniqueness of each of its businesses and yet strengthens the unity of purpose of the Company as a whole. Globalization will not only significantly heighten business risks, but will also compel Indian companies to adopt international norms of transparency and good governance. ITC's governance policy recognizes the challenge of this new business reality in India. Definition and Purpose ITC defines Corporate Governance as a systemic process by which companies are directed and controlled to enhance their wealth generating capacity. Since large corporations employ vast quantum of societal resources, we believe that the governance process should ensure that these companies are managed in a manner that meets stakeholders aspirations and societal expectations. Core Principles ITC's Corporate Governance initiative is based on two core principles. These are : Management must have the executive freedom to drive the enterprise forward without undue restraints; and This freedom of management should be exercised within a framework of effective accountability. Cornerstones From the above definition and core principles of Corporate Governance emerge the cornerstones of ITC's governance philosophy, namely trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. ITC believes that the practice of each of these leads to the creation of the right corporate culture in which the company is managed in a manner that fulfíls the purpose of Corporate Governance. 4

History and evolution ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India Limited'. Its beginnings were humble. A leased office on Radha Bazar Lane, Kolkata, was the centre of the Company's existence. The Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This decision of the Company was historic in more ways than one. It was to mark the beginning of a long and eventful journey into India's future. The Company's headquarter building, 'Virginia House', which came up on that plot of land two years later, would go on to become one of Kolkata's most venerated landmarks. The Company's ownership progressively Indianised, and the name of the Company was changed to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-Exports, Foods, Lifestyle Retailing and Greeting Gifting & Stationery - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited'. Though the first six decades of the Company's existence were primarily devoted to the growth and consolidation of the Cigarettes and Leaf Tobacco businesses, the Seventies witnessed the beginnings of a corporate transformation that would usher in momentous changes in the life of the Company. ITC's Packaging & Printing Business Division, was set up in 1925 as a strategic backward integration for ITC's Cigarettes business. It is today India's most sophisticated packaging house. In 1975 the Company launched its Hotels business with the acquisition of a hotel in Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'. The objective of ITC's entry into the hotels business was rooted in the concept of creating value for the nation. ITC chose the hotels business for its potential to earn high levels of foreign exchange, create tourism infrastructure and generate large scale direct and indirect employment. Since then ITC's Hotels business has grown to occupy a position of leadership, with 66 owned and managed properties spread across India. It also has a marketing and reservation arrangement with the Sheraton Corporation, the reputed international hotel chain. In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards Limited, which today has become the market leader in India. 5

Bhadrachalam Paperboards amalgamated with the Company effective March 13, 2002 and became a Division of the Company, Bhadrachalam Paperboards Division. In November 2002, this division merged with the Company's Tribeni Tissues Division to form the Paperboards & Specialty Papers Division. ITC's paperboards' technology, productivity, quality and manufacturing processes are comparable to the best in the world. It has also made an immense contribution to the development of Sarapaka, an economically backward area in the state of Andhra Pradesh. It is directly involved in education, environmental protection and community development. In 2004, ITC acquired the paperboard manufacturing facility of BILT Industrial Packaging Co. Ltd (BIPCO), near Coimbatore, Tamil Nadu. This KOVAI Unit allows ITC to improve customer service with reduced lead time and a wider product range. In 1985, ITC set up Surya Tobacco Co. in Nepal as a joint venture with the reputed Soaltee group. In August 2002, Surya Tobacco became a subsidiary of ITC Limited and its name was changed to Surya Nepal Private Limited (Surya Nepal). In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing company and a major supplier of tissue paper to the cigarette industry. The merged entity was named the Tribeni Tissues Division (TTD). To harness strategic and operational synergies, TTD was merged with the Bhadrachalam Paperboards Division to form the Paperboards & Specialty Papers Division in November 2002. Also in 1990, leveraging its agri-sourcing competency, ITC set up the International Business Division (IBD) for export of agri-commodities. The Division is today one of India's largest exporters. ITC's unique and now widely acknowledged e-Choupal initiative began in 2000 with soya farmers in Madhya Pradesh. Now it extends to 6 states covering over 3.1 million farmers. In 2000, ITC's Packaging & Printing business launched a line of high quality greeting cards under the brand name 'Expressions'. In 2002, the product range was enlarged with the introduction of Gift wrappers, Autograph books and Slam books. In the same year, ITC also launched ‘Expressions Matrubhasha’, a vernacular range of greeting cards in eight languages and ‘Expressions Paperkraft’, a range of premium stationery products. In 2003, the company rolled out ‘Classmates’, a range of notebooks in the school stationery segment. ITC also entered the Lifestyle Retailing business with the Wills Sport range of international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of exclusive stores later expanded its range to include Wills Classic formal wear (2002) and Wills Clublife evening wear (2003). ITC also initiated a foray into the popular segment with its men's wear brand, John Players, in 2002. 6

In 2000, ITC spun off its information technology business into a wholly owned subsidiary, ITC Infotech India Limited, to more aggressively pursue emerging opportunities in this area. ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the Kitchens of India brand. A more broad-based entry has been made since June 2002 with brand launches in the Confectionery, Staples and Snack Foods segments. In 2002, the 'mint-o’ trade mark was acquired and relaunched in orange and mint flavours. In the same year ‘Candyman’ was added to the confectionery range and ‘Aashirvaad’ atta was rolled out. The 'Aashirvaad’ brand now extends to ready-to-eat foods, ready-to-cook pastes and salt. In 2003 the ‘Candyman’ range was expanded to include deposited candies and éclairs. In 2003 ‘Sunfeast’ biscuits were launched and ‘mint-o’ lemon mint flavour was introduced. In 2004 the ‘Kitchens of India’ brand was extended to cooking pastes. In 2002, ITC's philosophy of contributing to enhancing the competitiveness of the entire value chain found yet another expression in the Safety Matches initiative. ITC now markets popular safety matches brands like iKno, Mangal Deep, VaxLit, Delite and Aim. ITC's foray into the marketing of Agarbattis (incense sticks) in 2003 marked the manifestation of its partnership with the cottage sector. ITC's popular agarbattis brands include Spriha and Mangal Deep across a range of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa. Corporate Stategies ITC's corporate strategies are aimed at matching its core capabilities with market opportunities to produce superior shareholder value. The key corporate strategies are: Continue to focus on the core businesses of Cigarettes & Tobacco, Hotels, Packaging & Paperboard. Ensure that each of its businesses meets the three criteria of sustainability, namely Market Standing, Profitability and Internal Vitality. Exit from businesses which do not meet these criteria within an agreed time frame. Ensure that each business is internationally competitive in the Indian global market.

7

Create distributed leadership within the organization by nurturing talented and focused top management teams for each of the businesses. Institute and practise a system of corporate governance appropriate to ITC's character and constitution. Such a system of governance must achieve a wholesome balance between the need for executive freedom for management and the requirement of a framework for effective accountability. Secure the future growth of the Company by creating new businesses which leverage the strength of íts core competencies, residing in various businesses. Terms of Reference of the Board Committees shall include : - Objectives, Role, Responsibilities - Authority / Powers - Membership & Quorum - Chairmanship - Tenure - Frequency of Meetings

8

Board of Directors and Shareholding pattern Shareholding pattern Foreign Holdings Govt. / Financial Institutions Corporate Bodies(not covered above) Directors and their Relatives Other including Indian Public

As on 31st March, 2005 % 51.85 35.31 0.71 0 12.14

Board of Directors and remuneration Chairman Executive Director Non Executive Director

Company Secretary Director Nominee (LIC) Director

Yogesh Chander Deveshwar Sahibzada Syed Habib ur Rehman Anup Singh Krishnamoorthy Vaidyanath Charles Richard Green Ajeet Prasad P B Ramanujam Basudeb Sen Ram S Tarneja Balakrishnan Vijayaraghavan Bishwa Behari Chatterjee J P Daly S B Mathur Yesh Pall Gupta

Operating Units in India The company’s food division has a Operating units at Nagpur and Vardhman with a development and research centre at Banglore.

9

SWOT Analysis Strengths - Wide distribution network - Presence in varied sectors - E-Choupal Threats - Smaller regional players - Government restrictions on the tobacco industry

Weaknesses - Great stress on the sun-set tobacco industry - Social stigma attached with tobacco Opportunities - Entry into processed foods - Emergence of Hyper-Markets

ITC Four P’s in India - LET'S PUT INDIA FIRST ITC believes that an effective growth strategy for our nation must address the needs of rural India, home to 75% of our poor. It is imperative to ensure that India's economic growth is inclusive, embracing its villages, so as to free millions of our disadvantaged citizens from the indignity of poverty. It is ITC's belief that India's rural transformation cannot be brought about by the government alone. Nor can the efforts of a few enterprises make a decisive difference. Only an inspired public-private partnership can transform lives and landscapes in rural India. ITC's humble endeavors have demonstrated that it is possible to create and sustain a model that can harmonize the need for shareholder value creation with making a substantial contribution to society. ITC has partnered the Indian farmer for close to a century. ITC is now engaged in elevating this partnership to a new paradigm by leveraging information technology through its trail-blazing e-Choupal initiative. Additionally, ITC is significantly widening its farmer partnerships to embrace a host of value-adding activities: creating livelihoods 10

by helping poor tribals make their wastelands productive; investing in rainwater harvesting to bring much-needed irrigation to parched drylands; empowering rural women by helping them evolve into entrepreneurs; enhancing livestock quality to significantly improve dairy productivity; providing infrastructural support to make schools exciting for village children. Through these rural partnerships, ITC touches the lives of over 3 million villagers across India. For ITC, these are expressions of a commitment beyond the market. Of a conviction that country must come before corporation. Of a true pride in being Citizen First. ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership position in every segment of the market. Its highly popular portfolio of brands includes India Kings, Gold Flake, Navy Cut, Scissors, Capstan, Berkeley and Bristol. ITC's leadership is founded on its core strategy of continuously enhancing product values through significant investments in product design, manufacturing technology, quality, marketing and distribution. In just the last 5 years, ITC has made capital investments of over Rs. 7 billion in its cigarettes business. In ITC, one of the pioneers of market research in India, the consumer is still the King. The Company continuously endeavours to provide its consumers products that are benchmarked to international quality. This strategic focus on the consumer has paid ITC handsome dividends. The most important of these is its enriched product mix, unmatched by competition. ITC's share of filter cigarettes in the country is more than 70%. In pursuit of international competitiveness, ITC has launched four brands - Checkers, Hi-Val, Royale Classic and Gold Crest - in the extremely competitive US market. Recently ITC has launched Royale Classic, Gold Cut and Scissors Filter Kings cigarettes in the Middle East. The response to these brands has been encouraging. ITC's cigarettes are produced in its state-of-the-art factories at Bangalore, Munger, Saharanpur and Kolkata. These factories are known for their high levels of productivity and very contemporary work environment. ITC's FMCG businesses have one of the largest retail networks in the country, consisting of over 2 million retailers. Its reach covers a wide range of the retail spectrum, from premium outlets in the metros to small shops in the interiors of rural India. 11

ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the Kitchens of India brand. A more broad-based entry has been made since June 2002 with brand launches in the Confectionery, Staples and Snack Foods segments. The packaged foods business is an ideal avenue to leverage ITC's proven strengths in the areas of hospitality and branded cuisine, contemporary packaging and sourcing of agricultural commodities. ITC has stood for quality products for over 90 years to the Indian consumer and several of its brands are today internationally benchmarked for quality. The Foods business carries forward this proud tradition to deliver quality food products to the consumer. All products of ITC's Foods business available in the market today have been crafted based on consumer insights developed through extensive market research. Apart from the current portfolio of products, several new and innovative products are under development in ITC's state-of-the-art Product Development facility located at Bangalore. Leadership in the Foods business requires a keen understanding of the supply chain for agricultural produce. ITC has over the last 90 years established a very close business relationship with the farming community in India and is currently in the process of enhancing the Indian farmer's ability to link to global markets, through the e-Choupal initiative, and produce the quality demanded by its customers. This long-standing relationship is being leveraged in sourcing best quality agricultural produce for ITC's Foods business. The Foods business is today represented in 4 categories in the market. These are: • • • •

Ready To Eat Foods Staples Confectionery Snack Foods

:: ‘Ready To Eat’ Products from ‘Kitchens of India‘ Keeping alive long forgotten Culinary traditions, ‘Kitchens of India’ presents its range of exotic ready-to-eat cuisines. Each one of these legendary delicacies has been created by the Master chefs of ITC Hotels, following rare, closely guarded recipes, handed down through the ages, from one generation to the next. These delicacies are now available in imported 4-layer retort pouches that keep them fresh for as long as 12 months from the date of packaging. 12

:: ‘Kitchens of India’ Curry Pastes A special blend of handpicked spices, created by the master Chefs of ‘Kitchens of India’, in accordance with original, traditional recipes. Just add fresh ingredients, and cook. It’s truly the most deliciously authentic way to recreate your favorite dishes (These pastes by themselves are fully vegetarian). :: ‘Kitchens of India’ Conserves ‘Kitchens of India’ Fruit & Spice Conserves have been skillfully blended by ITC’s Master Chefs to create unique, delectable flavors by combining the succulent chunks of fresh fruit with an expert selection of exotic spices, A truly irresistible treat. :: ‘Kitchens of India’ Chutneys ‘Kitchens of India’ Chutneys have been created by ITC’s Master Chefs. Made from the finest ingredients and spices, this collection of popular mealtime accompaniments, is truly a feast for the senses. :: Aashirvaad Aashirvaad ReadyMeals ITC Foods launched a range of Ready-To-Eat dishes under the 'Aashirvaad ReadyMeals' label, in Hyderabad, on 25th June 2003. The range now comprises nine dishes and two Combo packs. The dishes on offer currently are Rajma Masala, Nav Ratan Kurma, Dal Makhani, Aloo Mutter, Palak Paneer, Pindi Chana, Pav Bhaji, Mutter Paneer and Yellow Dal Tadka. Rajma Masala & Basmati Rice and Yellow Dal Tadka & Basmati Rice are available in Combo packs. The Dishes are priced between Rs. 30/- to Rs. 40/- for a 285 gms pouch and the Combo packs are priced at Rs. 45/- for a 485 gms pack. The unique packaging form, using a retort process, ensures that the original freshness and taste of the recipes is protected without the use of preservatives. :: Staples

13

Extensively using its e-Choupal network to source meticulously selected grains from the best wheat growing regions in India. And processing them to stringent quality standards. Creating India's largest national atta brand within two years of launch. Aashirvaad ReadyMeals and Cooking Paste make life free for the busy housewife, leaving her more time the family. Aashirvaad iodised salt ensures taste and for the entire family.

hasslewith health

The product is now available all over India. ITC Foods also aims to delight the consumer through superior and innovative packaging. The Aashirvaad package is PET Poly, with the design showcasing the farming process undertaken in the rural heartland of India in the form of a Madhubani painting. ‘Aashirvaad Select’ Atta (2 kg pack) was awarded the World Star Award for Excellence in Packaging in the Consumer Pack Category. This is one of the most prestigious awards in the world for Packaging. ITC has also created a first in packaging in the branded atta category by introducing its premium offering in carton packaging and offering vacuum sealing in the 5kg premium pack. Both these innovations maintain the freshness of the product. Aashirvaad Salt ITC launched branded packaged salt under the brand name ‘Aashirvaad Salt’ on 26th March, 2003. The product is available in grocery stores around the country. :: Confectionery ITC currently has two brands in the confectionery segment - "Mint-O" and "Candyman" . ITC acquired the brand "mint-o" from Candico in March 2002. ITC re-launched the compressed mint product mint-o with new and improved product and packaging. minto is the first mint in India to be also available in an orange flavour besides the regular mint flavour. An innovative "Lemon mint" flavour was launched on 26th February, 2003. The product is available in two sizes – rolls of 20s and 6s. mint-o offers the discerning consumer a value-added mint that captures the international essence of youthful "cool". mint-o is currently available in all major markets. 14

'Mint-O Fresh', a hard-boiled mint candy, was launched in October 2004 in two flavours. This launch extended the Mint-O brand, which had been present only as compressed mint tablets. The launch of Mint-O Fresh is in line with ITC's marketing strategy of adding excitement and contributing to the growth of the confectionery category. It is in line with its business strategy of providing the adult consumer with the complete range of mint-based confectionery products across price points. Candyman Butterscotch Licks and Orange Licks was launched in December 2003 and is now available in markets across the country. This marked ITC's entry into the deposited candy market. In addition, Candyman Eclairs and Candyman hard boiled candies like Wild Banana, Mango Delite, Orange Josh and Pineapple Punch are also available across India. :: Snack foods : Sunfeast Riding on the success of offerings in the Glucose, Marie and Cream categories, ITC has recently enriched its ‘Sunfeast’ range of biscuits. The Company has now launched three new cream flavours -- namely Coconut, Strawberry and Pineapple. Strawberry & Pineapple creams have flavour enhancers. A flavour enhancer provides a burst of flavour to the consumer. ITC has pioneered the launch of coconut cream biscuits in India. ‘Sunfeast’ has also entered the milk biscuit category with its ‘Sunfeast Milky Magic’ biscuits. These biscuits are made out of cow’s milk. Sunfeast has tied up with ‘Aavin’, the biggest milk brand in Tamil Nadu, for sourcing cow’s milk. Milky Magic, made with cow's milk, gives them high energy, stamina and health; while the Jagmag 'flavour bursts' of the Strawberry and Pineapple Cream biscuits melt in their mouths. ITC's Sunfeast is a brand driven by innovative product development at ITC's state-ofthe-art food technology centre in Bangalore. Every Sunfeast product is made with utmost care, ensuring world class standards of hygiene. Both the new cream biscuits and milk biscuits have received an enthusiastic response from consumers. The snack food team is geared and ready to further enrich its product portfolio in the near future. 15

The Elemental Chlorine Free (ECF) paper and paperboards manufactured by ITC have set new norms in consumer safety. It is the first and only company in India to make environment-friendly ECF paperboards for foodgrade packaging. Backed by an investment of more than one thousand crores to upgrade technology to global standards, ITC's paperboards business is the largest in India with a capacity of nearly 3,50,000 tonnes. Supported by a unique R&D-based clonal forestry programme which creates thousands of livelihood opportunities for poor tribals.

Summary of Price, Place, Promotion and Product of ITC Food division This is one area where the company had some cushion in the form of its extensive and long established distribution network for cigarettes. The company could leverage its vast and wide-reaching network to ensure that the products are made available everywhere. New distribution inroads were made, and deepening it remains an ongoing task. From the one million paan, bidi shops it reached out to, ITC has added another half-a-million outlets to sell its other products. Today it has a retail network of 1.5 million outlets across the country and continues to expand this network. The company did not have any problem in making the product available even just after its launch because all the stores and retailers dealing with ITC cigarettes were given the all the new products of food division on credit. The products have their presence in retail store and supermarkets. The company used its available resources and later added on to them in terms of transportation, inventory storage and location and coverage was already there for the cigarettes. The company had to ensure that the brands be consolidated and people be made to change their earlier preferences. The company was sure the superior quality of the products would do the same for them. The company’s rich experience in Indian market comes handy in such situation. The company used both television and print media to launch its products. The company has signed up superstar Shah Rukh Khan as the brand ambassador for Sunfeast. This association is expected to yield significant value addition by reinforcing the brand attributes and reiterating the 'spread the smile' positioning. Khushiyaan Chun Chun ke (Happiness handpicked) the campaign for Aashirvaad’ promises the Indian housewife the joy of providing her family with the most delightful home-made rotis, made from the finest quality atta. ITC uses the sourcing strength of its eChoupals to buy wheat directly from the farmers to deliver happiness to the Indian consumer. The concept of e-Choupal was also used to appeal to the emotions of the people. 16

Sales promotions like extra offerings on biscuits and free salt on purchase of Asirvaad Atta are used to boost the sales. Point-of-purchase promotions like putting posters and banners on shop floors are used to raise the awareness of the brand and influence the buying decision of the consumer at the shop floor. ITC Foods also announced plans to enter the Guinness World Record through a plantation drive. To be taken up under the Sunfeast Hara Banao Campaign, the company aims to plant a record breaking 2,00,000 saplings in the Bhadrachalam area of Andhra Pradesh during the last week of August. The record aimed is for the maximum number of saplings planted on a single day. A number of farmers and children are expected to participate. Not in a hurry to make profits, ITC's foods division is taking its time to draw upon all the possible synergies it has with the group's cigarettes and hotels businesses. While ITC did its homework well in advance when it made a leap into foods nearly two years ago, taking advantage of its extensive cigarette distribution network, its network with farmers and the brand equity of its hotels' restaurants should give its foods business the competitive advantage it has been looking for. ITC’s entry into the food market was a late one and it was one of the new SBUs of the company as part of its diversification strategy. Thus there were established market players in the biscuits and confectionary (Brittania) and branded atta (Pillsbury) sector. The target market for the company in the business was the entire “Great Indian Middle Class”. ITC has launched its products on national basis and it caters to the need of all kinds of consumers. The goal was to capture as much as market share possible in the entire packaged food business. The main focus of the company was on volume and thus they followed penetrative pricing policy. The key is the ability to keep costs down. The company follows umbrella branding, so that when it advertises Aashirvaad atta, we get a rub-off on all Aashirvaad products such as salt and ready-to-eat foods. The Aashirvaad brand of atta was priced very close to other branded atta’s like Pillsbury and Nature fresh, though it is still very costly compared to unbranded atta available in the market. The company had to benchmark all its prices against the established players. There could not be any differentiation on the basis of price. Quality was decided to be the main differentiator. During the launch the company gave all the products to the wholesalers on credit.

17

Financial Analysis of ITC PROFITABILITY OF OPERATIONS ITC has traditionally been a profitable company giving the shareholder and excellent performance year on year. ITC Ltd has posted a net profit of Rs 1837 Crore for the year ended 31st march 2005 as compared to Rs 1593 Crore for the year ended 31st march 2004. Total income has increased from Rs 12,040 Crore in 2004 to Rs 13585 Crore in 2005. ANALYSIS OF ITC’s FINANCIAL STATEMENTS We will be studying the financial health, profitability and operational efficiency of the company .We have taken the financial statements of ITC Limited for the past 5 years and made an in depth analysis using ratios. We have computed the following: 1. Growth Trends – To know the growth trends in total sales and profits of ITC. 2. Liquidity ratios – Ability of the business to meet its short term obligations 3. Asset management ratios -To access the operational efficiency 4. Debt Management Ratios– To assess the companies’ ability to meet its long term obligations and to study the capital structure 5. Profitability Ratios – To access the profitability of the with regard to its Sales and investments. SOURCES AND USES OF FUNDS ITC is a business conglomerate with huge reserves. Most of financing has been done through the reserves built up over the years. Close 95%of its sources are shareholders fund (90% being reserves). In 2000 borrowings formed a substantial part of the balance sheet approximately 19%. Over the years it has reduced its dependence on borrowings. Presently it has debt equity ratio of approximately 1.5%. Now borrowings form only 2.2% of sources. The company has no debentures or bonds. There were some debentures issued earlier but all have matured. The reduction in borrowings has reduced the interest burden on the company. The company’s investments vary in nature due to its diversity. The fixed asset component isn’t very large because apart form the hotels & paper processing business, the other businesses are not capital intensive. There is huge inventory component. The investments outside the company are huge and have been increasing. This does not speak well about the company’s management.

18

RATIO ANALYSIS HORIZONTAL ANALYSIS As can be seen from the growth rates share holders funds have been growing steadily. This is mainly due to the growth in retained earnings. An important aspect which can be seen is variations in the growth rates of investments. With such growth rates we may infer that the company has no strategy in place for the investments. A huge proportion of investments are in mutual fund schemes which don’t give very high returns. This may also be construed as an indication of the company having no “good” projects left. We can also see the company is moving towards zero debt policy by the negative growth rates in loans. The current liabilities have been growing at fast rate which is because of its better management of its suppliers. Sales have been growing steadily. It is important to note that though the manufacturing expenses have grown faster than the sales profitability has not reduced. This is because of raw materials and duties which form the major portion of its cost have grown at a slower rate. GROWTH RATES (%) Share Holders Funds Loans Current Liabilities Fixed Assets (net) Current Assets Investments

00-01 26.29 31.56 7.66 41.88 26.18 1.99

01-02 24.86 -66.82 35.02 60.26 4.67 -34.53

I. INCOME (GROWTH RATES IN %) Sales Other Income Total II. EXPENDITURE (GROWTH RATES IN %) Raw Materials etc. Excise Duties and Taxes on Sales of Products and Services Manufacturing, Selling etc. Expenses Depreciation Total

02-03 21.56 -58.94 28.96 15.61 15.72 104.28

03-04 19.45 3.41 29.51 9.39 -0.80 108.86

00-01 9.12 18.09 9.25

01-02 15.62 16.74 15.63

02-03 14.14 18.60 14.21

03-04 8.15 24.07 8.41

00-01 -2.02

01-02 27.96

02-03 19.61

03-04 5.48

8.24 4.15 18.06 5.49

7.35 36.22 54.37 16.96

9.96 13.48 20.28 13.04

4.09 19.60 5.05 7.24

04-05 23.18 102.47 -14.12 19.78 1.55 26.87 04-05 12.98 4.86 17.62 04-05 15.98 6.84 21.35 29.28 18.87

19

VERTICAL ANALYSIS Through the common size analysis the note worth aspects that can seen are • Increase in shareholders funds from 81% to 94.4% • Decrease in loans form 19% to 2.2% • Fixed assets have grown from 37% to 53.8% • Investments have a very fluctuating pattern. • Inventories have fallen from 27%to 25.2%. • Current liabilities have increased from 33% to 43.4%. The implications of the above have been discussed earlier. We may hazard a guess that inventory management has been improving specially seen in light of increasing sales. But this should been seen in isolation.

Investment (In Crores)

Investment in Years 5000 4000 3000 Investments 2000 1000 0 2000

2001

2002

2003

2004

2005

Years

Loans

Loans (In Crores)

1000 800 600 Loan 400 200 0 2000

2001

2002

2003

2004

2005

Years

20

LIQUIDITY RATIOS As can be seen by both the current ratio and quick ratio have been decreasing. Not a very good sign. The liquidity of the company is falling i.e. the ability of the company to pay of its current liabilities are falling. This is must be seen along with the fact the working capital position is improving. These would in general move in opposite directions. The company should go in for an optimal trade off between the two. But as long as the current ratio is more than 1 we can say that the company has the ability to meet its short term obligations.

LIQUIDITY RATIOS

2001

2002

2003

2004

2005

Current ratio

1.61

1.89

1.47

1.31

1.01

quick ratio

0.99

1.18

0.91

0.80

0.53

Current Liabilities 400000

Current Liabilities

350000 300000 250000

Liabilities Provisions Current Liabilities

200000 150000 100000 50000 0 2000

2001

2002

2003

2004

Years

21

ASSET MANAGEMENT RATIOS OR THE ACTIVITY RATIOS We have made the calculations assuming that there are no cash sales (only credit sales) The company has not a very good performance here. Accept for debtors turnover ratio most have declined over the five year period. Though the company has made improvements in working capital it has fared rather badly in the inventory days. ASSET

MANAGEMENT 2001

2002

2003

2004

2005

69.09

84.40

49.18

46.60

43.54

5.28

4.32

7.42

7.83

8.38

(inventory*365/cogs)

51.41

59.92

55.21

58.81

66.06

TA turnover ratio (sales/TA)

1.61

1.45

1.41

1.34

1.19

FA turnover ratio (sales/FA)

6.22

4.78

3.45

3.41

3.37

RATIOS receivables (annual

turnover credit

ratio

sales/acc

receivables) average

collection

period

(365/receivables turnover ratio) inventory

period

DEBT MANAGEMENT RATIOS OR THE LEVERAGE RATIOS The company is following a policy to reduce debt. Its debt managed ratios have improved. It’s becoming unleveraged firm. This means that though the company’s credit worthiness has improved, it is not taking advantage of interest deductions as allowed by the tax laws. This is not a very good policy because it reduces the wealth creating capacity of the firm. Though such a policy will be helpful if the company is to go in for new debt because its credit rating would be higher it could result in cheaper funds.

22

DEBT MANAGEMENT RATIOS

2001

2002

2003

2004

2005

debt/net worth

0.2332237

0.2430153

0.0768422

0.0318493

0.023526

loans / TA

0.1321631

0.143273

0.0474749

0.0200969

0.014533

TA / net worth

1.7646651

1.69617

1.6185856

1.5847882

1.618817

11.92

19.85

24.94

59.52

83.1

interest

coverage

ratio

PROFITABILITY RATIOS Its profit margin has improved over the years from 15% to 19%. Net income over net worth has reducing over the years. The fall is showing a trend. This is probably because of lack of ‘good’ projects. The retained earning not being able to generate profits at the same rate PROFITABILITY RATIOS

2001

2002

2003

2004

2005

Net Income to Sales

0.15

0.18

0.17

0.18

0.19

Net Income to Total Assets

0.36

0.36

0.35

0.36

0.35

AL UA

Earnings Before Interest and taxes / Total Assets

EV

0.39

0.38

0.37

0.37

0.35

TI ON RA

Net Income over Net worth

0.44

0.45

0.40

0.39

0.37

TI

OS OR THE RATE OF RETURN RATIOS The MV/BV ratio has been decreasing this is mainly due to the increase in share prices. A ratio of 4 may seem to indicate that its overvalued but that’s not the case because the future expectation for ITC is very good. As it can be seen, it has been paying high dividends as a percentage of net profit which may indicate that the company has fewer opportunities to invest. Hence, the increase in the dividend payment.

23

Evaluation Ratios

2001

2002

2003

2004

2005

BOOK VALUE OF SHARES

141.44

177.23

214.29

256.35

315.63

MARKET PRICES

741.45

814.00

706.30

628.25

1043.10

5.24

4.75

3.29

2.45

3.30

41.00

48.07

55.41

64.34

73.72

EARNINGS PER SHARE

18.54

16.79

13.20

10.17

12.42

DIVIDENDS / NET PROFIT

0.24

0.29

0.27

0.31

0.35

MV/BV EARNINGS PER SHARE MARKET

PRICE

/

24

Competitors Analysis Annapurna Fortified Atta - tasty and healthy This particular atta is fortified with extra iron and vitamin B1 (Thiamine), B2 (Riboflavin) and B 3 (Niacin). Annapurna Fortified Atta has twice as much iron as chakki atta. Therefore consumption of rotis or chapatis, which is equivalent to 300 gms of Annapurna Fortified Atta in our daily meals, meets the daily requirement of iron and vitamins. Compared to chakki atta (which most consumers normally partake), Annapurna Fortified Atta is better in every way. It is made from a premium MP sharbati wheat blend that yields soft and tasty chapatis or rotis. What's most important though is that Annapurna is healthy and nutritive, since it is enriched with extra iron and vitamins. It proves to be a rich source of iron which consumers cannot obtain even if they use the best quality wheat at the best chakki.

25

At present, HLL's products, manufactured across the country, are distributed through a network of about 7,000 redistribution stockists covering about one million retail outlets. The distribution network directly covers the entire urban population. In addition to the ongoing commitment to the traditional grocery trade, HLL is building a special relationship with the small but fast emerging modern trade. Their scale enables us to provide superior customer service including daily servicing, improving their range availability whilst reducing inventories. They are using the opportunity of interfacing more directly with our consumers in this retail environment through specially designed communication and promotions. This is building traffic into the stores while yielding high growth for our business. An IT-powered system has been implemented to supply stocks to redistribution stockists on a continuous replenishment basis. The objective is to catalyse HLL’s growth by ensuring that the right product is available at the right place in right quantities, in the most cost-effective manner. For this, stockists have been connected with the company through an Internet-based network, called RSNet, for online interaction on orders, dispatches, information sharing and monitoring. RS Net covers about 80% of the company's turnover. Today, the sales system gets to know every day what HLL stockists have sold to almost a million outlets across the country. RS Net is part of Project Leap, HLL's end-to-end supply chain, which also includes a back-end system connecting suppliers, all company sites and stretching right upto stockists. RS Net has come as a force multiplier for HLL Way, the company's action-plan to maximize the number of outlets reached and to achieve leadership in every outlet, by unshackling the field force to solely focus on secondary sales from the stockists to retailers and market activation. HLL Way has also led to implementing best practices in customer management and common norms and processes across the company. Powered by the IT tools it has further improved customer service, while ensuring superior availability and impactful visibility at retail points. The challenge of the rural markets 70% of India's population resides in villages. Penetrating the rural markets is, therefore, one of the key challenges for any marketer. While rural markets present a great opportunity to companies, they also impose major challenges. At HLL, we have been at the forefront of experimenting with innovative methods to reach the rural consumer. Indirect-Coverage 26

Under the Indirect Coverage (IDC) method, company vans were replaced by vans belonging to Redistribution Stockists, which serviced a select group of neighboring markets. Operation-Harvest The reach of conventional media and, therefore, awareness of different products in rural markets is weak. It was also not always feasible for the Redistribution Stockist to cover all these markets due to high costs involved. Yet, these markets are important since growth opportunities are high. Operation Harvest endeavored to supplement the role of conventional media in rural India and, in the process, forge relationships and loyalty with rural consumers. Operation Harvest also involved conducting of product awareness programmes on vans. Cinema van operations These are typically funded by the Redistribution Stockiest. Cinema Van Operations have films and audio cassettes with song and dance sequences from popular films, also comprising advertisements of HLL products. Single-Distribution-Channel For rural India, HLL has established a single distribution channel by consolidating categories. In a significant move, with long-term benefits, HLL has mounted an initiative, Project Streamline, to further increase its rural reach with the help of rural sub-stockists. It has already appointed 6000 such sub-stockists. As a result, the distribution network directly covers about 50,000 villages, reaching about 250 million consumers. Distribution will acquire a further edge with Project Shakti, HLL's partnership with Self Help Groups of rural women. The project, started in 2001, already covers over 5000 villages in 52 districts of Andhra Pradesh, Karnataka Madhya Pradesh and Gujarat, and is being progressively extended. The vision is to reach over 100,000 villages, thereby touching about 100 million consumers. The SHGs have chosen to adopt distribution of HLL's products as a business venture, armed with training from HLL and support from government agencies concerned and NGOs. 27

A typical Shakti entrepreneur conducts business of around Rs.15000 per month, which gives her an income in excess of Rs.1000 per month on a sustainable basis. As most of these women are from below the poverty line, and live in extremely small villages (less than 2000 population), this earning is very significant, and is almost double of their past household income. For HLL, the project is bringing new villages under direct distribution coverage. Plans are being drawn up to cover more states, and provide products/services in agriculture, health, insurance and education. This will both catalyze holistic rural development and also help the SHGs generate even more income. This model creates a symbiotic partnership between HLL and its consumers, some of whom will also draw on the company for their livelihood, and helps build a self-sustaining virtuous cycle of growth. INDUSTRY COMPARISON For a meaningful comparison we have chosen HLL because it is the only company with similar interests and of similar size. Other companies in the cigarette industry are too small for any meaningful comparison. Current Ratio The current ratio of HLL has more or less remained constant whereas for ITC it’s been coming down lately. Even though the current ratio for ITC is coming down, it’s still higher than that of HLL. It gives ITC a better position for any investments needed. As we see the decreasing graph of ITC down the years prove that the company is investing in a lot of programs as in e-choupal etc, whereas HLL has been keeping a nearly constant liquidity ratio.

Debt to Networth Debt Vs Net worth 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00

HLL ITC

2000

2001

2002

2003

28

The debt to net worth ratio is extremely low for the both the companies from 2000 to 2002, but in 2003 due to a high value of debt taken by HLL, the ratio has gone up for HLL. ITC has hardly got any debt and so manages to maintain a constant ratio as the high amount of net worth keeps the debt to net worth ratio at a minimum. From the small amount of debt in 2000 and 2001, it has actually come down to an extremely low value of debt during the last two years. Debt to Total Assets

Debt Vs Total Assets 0.50 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00

HLL ITC

2000

2001

2002

2003

With a very low debt, but lower total assets, the debt to total assets ratio of ITC is much more than HLL, which enjoys a high value of Total assets. In 2003 we can see a very high value of the ratio mostly because of the high value of debt taken by HLL. As the main competitor’s debt to total assets ratio increases, ITC’s ratio has come down since 2001 and now is at a very low level compared to HLL.

Total Assets to Net Worth As the total assets of HLL have been increasing over the years, with a lower value of net worth the ratio has been increasing over the years. In case of ITC with total assets reducing from the earlier years but a similar trend of increasing net worth the ratio has been more or less constant.

29

Total Assets Vs Net Worth 0.35 0.30 0.25 0.20

HLL

0.15

ITC

0.10 0.05 0.00 2000

2001

2002

2003

Godrej Pillsbury Godrej Pillsbury has made a considerable dent in south India with its Pillsbury Chakki Fresh Atta cornering about 13 per cent market share in the branded-flour market. This has elevated the Pillsbury brand to the second slot displacing DCW's Captian Cook atta in the south. Hindustan Lever reigns supreme with its Annapurna brand. Earlier, DCW's Captain Cook brand had a good grip on the market with its position being second only to Annapurna. Both Lever's Annapurna and Pillsbury's Chakki Fresh Atta brand have gained market share since May this year in the southern market. These two brands have continuously gained market share since their launch. According to industry estimates, while Annapurna has upped its share to around 31 per cent in July from 28.8 per cent in May, the Pillsbury brand has appreciated its share to the current position from 9.5 per cent in May. The loser has been Captain Cook, whose market share has dropped to around 12 per cent in July from 14 per cent in May. Captain Cook’s market share has dropped mainly because of a slowdown in DCW's promotional activity, said industry observers. The country's branded-flour market has been growing rapidly at around 40 per cent to 45 per cent per annum. The southern market contributes around 25 per cent of the all30

India volumes of 1.5 lakh tonnes valued at around Rs 200 crore. Industry sources said that the market is seen growing at a faster pace in the south. According to Godrej Pillsbury chief executive officer Samir Behl, the company will soon roll out the atta brand nationally, after having tested the waters in the south first. It is learnt that the brand will soon be launched in Mumbai as part of Godrej Pillsbury's expansion drive. The company is in the midst of beefing up its national distribution network. Nature fresh SLUGGISH commodity-to-brand movement; procurement issues magnified by weak Government policies; competition as intimidating as Hindustan Lever, Agro Tech Foods Ltd and Pillsbury; strong regional players as aggressive as Shakti Bhog atta, Dandi salt and a host of combatants in South India. According to Sidhant Khosla, Director, Cargill India Pvt Ltd, purity is critical and freshness is a commitment. The ambition is driven by Cargill Corporation's vision of being the global leader in nourishment. NatureFresh is now present across six product categories. Brand NatureFresh began its journey in India with atta, followed it up by refined vegetable oils, and then came maida and suji. Earlier this year, NatureFresh was extended to salt, and rice in basmati and non-basmati form in five variants was introduced just about two months ago. More branded staples are expected this year, though plans are under wraps for the time being. Now take brand presence. NatureFresh's distribution has been up and running. The brand is now available across 1.1 lakh retail outlets, across some 600 towns and cities. An additional 15,000 outlets are likely to be added this fiscal. If NatureFresh is making big names in the industry sit up and take note, it is because Cargill India is not exactly just a new kid on the block. Cargill India Pvt Ltd, the 100 per cent subsidiary of the Minneapolis-based, $49 billion agri-foods major, has varied interests. And given its historical strengths in agri-economy and logistics management, Cargill India is advantageously positioned to service its supply chain. Today, by volumes, NatureFresh atta accounts for about 50 per cent of Cargill India's sales, by volumes. In terms of value, NatureFresh atta and oils are equally placed. While for atta, NatureFresh has been highlighting quality, consistency and packaging as its key differentiators, the oils are being pushed on the `light and pure' attribute. 31

On the pricing front, NatureFresh has been on par with any other brand on the shelf. Given that the price relationship with value is critical, our products are priced as competitively as any other brand. According to an analyst, as commodities move towards branding, brands have been moving towards commoditization, as far as pricing goes. NatureFresh Gold, a premium variant of NatureFresh atta, was added to the brand basket about three months ago. According to Cargill officials, the new variant is made from pure desi wheat, while the original NatureFresh is a full-fiber wholewheat fortified atta. NatureFresh Gold is priced at Rs 92 for a 5 kg pack; almost double that of the original NatureFresh brand. While analysts point out that staples is a category extremely sensitive to pricing, Cargill India says its objective is to straddle as many price points as possible. The commodity market will progressively move into the branded portfolio as long as the `value delivery' is in line with the product price. Branded, packaged sugar is estimated to be a 40,000 tonnes market, while the size of the domestic branded wheat market is estimated at roughly 1.8 lakh tonnes. While it is generally accepted that the standards of hygiene of atta ground at the chakki (flour mill) are far from desirable, the branded atta business continues to account for a minuscule one per cent of the total atta business. And according to ORG-MARG's retail store audit data, the size of the iodized branded salt market is estimated at 15 lakh tonnes per annum (which works out to about Rs 500 crore by value). National brands comprise only 45 per cent share of this market. Among other reasons, one reason why salt is bigger than other branded commodities is the Government's iodization drive. Meanwhile, Cargill India has made "substantial" investment in its research and development facility in Noida (near Delhi), to initiate work on process improvement, identifying wheat by mandi, and working directly with farmers. In addition to its company-owned production facility in Noida, Cargill India has three contract manufacturers for atta, four for vegetable oils, and one each for salt and rice. As and when Cargill's domestic operations expand, capacities within existing facilities could be increased, or the company could consider adding fresh contract manufacturers. Packaging is another area where Cargill says it has invested heavily. One example is transparent pouches for refined oils - a first in the industry. A fresh communication tack for both NatureFresh atta and vegetable oils is expected to break on television. The NatureFresh ad account is handled by HTA. According to Cargill officials, the new advertising will be significantly different from the earlier communication. While ad and 32

promotional budgets are not available, the company says it is doing the needful to take the battle of the brand head on.

Overview of ITC’s Product, Price, Promotions, and Place Strategy in Orissa Market The Product Mix of ITC in Orissa Market ITC offers a Product Mix for the customers i.e. a set of all the products and items that it offers for sale. It has a good length and width of the Product Mix. The length and width of the Product Mix in orissa can be summarized as follows: 33

Product Mix Width Biscuits Atta Product Line Length

Sunfeast Glucose Sunfeast Cream Marrie

Aashirvaa d W.W. Atta

Ready Meal ARM

Confectiona ry Minto

Cooking Paste

Mint-o Fresh Candyman HBC Candyman Eclairs

ITC had launched nearly all the products range off Non tobacco Products; they are very aggressive in their distribution of such products. Among them the Ashirvaad is the market leader in Orissa in the branded atta category and at the second rung after Britannia. The existing network of ITC’s Cigarettes distribution is being used extensively for the sales all products of ITC Food division. They are trying to capitalized the market by associating the products with the ITC brand. Products Launched in Orissa Market: 1) 2) 3) 4) 5)

Sunfeast Biscuit Aashirvaad Atta Aashirvaad Salt Ready Meals Salted Biscuits are to be launched sooner

ITC Pricing strategy: The pricing of the ITC food division depends upon the Customers’ demand schedule, the cost function and the competitors’ price. The pricing of the company is such that it caters to the need of all income groups of people but special provision has been kept for Low and middle income group, and their pricing are competitive with respect to other players in Orrisa like Britannia, Parle and Briskfarm. The company follows the Going rate pricing that is the price of the product depends upon the competitors price. The firm chooses pricing more or less the same as Market leader. 34

The company offers two types of Pricing Discount and allowance: 1) Price Discount: This is the discount in price to those who purchase in the large volumes. ITC’s too following such discount mostly at the distributor’s level and retailer’s level. The distributors are given a 2 -2.5% discount on the marked price on all the ITC’s non food division products, and the retailer’s are given 15-20% for the same. Price reduction is also done for the other customers who buy the product such as Aashirvaad atta in bulk quantity. 2) Quantity Discount: Some Extra Packets of Aashirvaad atta are given free to the distributors if they fulfill certain targets at the same price for the same quantity. Credits and Pricing: The price of the products get changed for amount of the credits if they availed that and in certains cases like Sunfeast Biscuits no credits are provided. In case of Aashirvaad atta the credit is usually given for 7 days, as a result of which the discount on the price is reduced by 1%. Promotion in Orissa Market: A particular budget is allocated for the promotion of the Aashirvaad Atta and other food division product, the local promotion scheme is decided by the Area Sales Manages, it give its suggestion to the District office and that is forwarded to the Head Quarter in Kolkatta. As the promotional scheme for the Aashirvaad atta 1 Kg of packed Aashirvaad atta was distributed freely to the various house hold through out Orissa. Later in another promotional scheme a packet of Aashirvaad salt was given free with a packet of 5 Kg Aashirvaad atta. In another promotional scheme for Biscuits a particular number of cases is given freely to the distributors according to the amount of sale they make, this was a drop down promotion i.e. of the number of free cases that a particular distributors gets, off them a certain part is reserved for the retailers and customer if they buy a certain level of biscuit quantity. This promotional activity was aimed at the low selling areas of Orissa. In past the company has done its promotional activity mainly through the local mode of transport like Auto and rickshaw and giving ads in local newspaper. No specific ads have been made for the Orissa market. Free Packets of Biscuit and Aashirvaad atta sample were distributed freely to the people.

35

At present there is no promotional scheme in Aashirvaad atta category but in case of sunfeast biscuit, a promotional scheme to attract the children the company is giving free things that are used by children like Ruler, Eraser, and Sharpener etc. inside the Biscuit packets. In case of Aashirvaad ready meal a promotional activity is going to attract the housewife by giving them a free dinning table mat free. And for every 2 ARM (Aashirvaad ready meal) get a 500 ml Pepsi free (mostly in Big Bazzar and Outlets). Biz Bazzar also offers the customer a special price for the ITC products like Aashirvaad atta. As an promotional activity for attracting the Distributors and retailers the company is quite flexible in replacement policy of the damaged goods as done by Rats, water and during loading and Unloading. To promote the various food division product of ITC the company is coaxing distributors and retailers who are already in business of selling the Cigarettes or other Tobacco related product of ITC. Another thing that affects the promotion at the local orissa market is the Advertisement effect done at the national level such as the recent Ads in which Sharukh Khan has given a appearance is acting as an attracting point for children and youngster. Even Sharukh khan is made as the brand Ambassador for Sunfeast Biscuit. Other Ads of Aashirvaad atta is also liked by the people and have a positive effect in making them compulsive to buy such products. Ads in National Magazine and newspaper are given extensively aiming at the literate middle income groups Still much more dedicated local ads are required for the promotions in terms of local ads in newspaper and hoardings for the people who are poor and illiterates. Place relevance for ITC products There are nearly 37-38 distributors in Orissa for selling the ITC Food division products. The main branch for distribution of the products is located at Vishakahapattanam to cater the needs of Orissa and Andhra Market. There CNF godown is located at the Telangana Peth in Cuttuck, supply for whole of the Orissa is done through this godown. Distribution channel is one of the fortes of the ITC food division, where the infrastructure and distribution channel of Cigarettes is used. The forty strong salesman team for ITC food division is the backbone of the distribution channel in orissa. There 36

are two ASM (Area Sales Manager) for Orissa market under which there are twelve Area Executives under him working for Bhubneswar market. The distributors of Orissa can contact the Branch Manager and the Area Executive for any suggestion or complain they act as interface between the company and the distributors.

Analyzing the Price of the various competitors of the Aashirvaad Atta Unit

Mrp

ATTA 7 STAR GOLDEN CHAKKI 10KG

110.00

ATTA 7 STAR GOLDEN CHAKKI 5KG

65.00

ATTA AASHIRVAAD

5 KG

68.00

ATTA AASHIRVAAD

10 KG

105.00

ATTA ANNAPURNA

10KG

135.00

ATTA ANNAPURNA

5KG

65.00

ATTA ANNAPURNA FORTIFIED ATTA 10KG

135.00 37

ATTA HEALTHY WORLD

10 KG

140.00

ATTA NTURE FRESH

10 KG

135.00

Understanding the Decision Making Process of Customers The Decision Making process of the customers depends upon a large number of factors among them the following are of more importance: Cultural Factors: A person acquires a set of values, perceptions, preferences and behaviors through his family and culture. More frequently it takes the form of social classes. They reflect not only income, but occupation, education and area of residence. 38

Personal Factors: Personal factors like Age, occupation, lifestyle, psychographics, personality plays a important role in the buying behavior of the individual. Belief and Attitudes: The belief that an individual exist in the mind of the consumer about the Product and the Brand, and buy in accordance with these belief and attitude. External factors: Factors like Advertisement, promotions, health, economic environment etc can also influence the buying decision. There are five roles that people play in buying decisions i.e. Initiator, Influencer, Decider, Buyer and the User itself that who buys the product or service. To understand the buying Decision i.e. the factors that determines the buying process of the customers in orissa market, with respect to Aashirvaad atta. Our sample size consist of 68 customers chosen from different segments and on other attributes like age, sex, income group, location of buying. The following pattern was seen in the buying decision of the customers of Aashirvaad atta.

Inferences of the survey Reason for Purchasing:

39

Reason For Purchasing 70

Percentage

60 50 40 30 20 10 0 Price

Quality

Promotion

Past Experience

The main driver in attracting the consumer of the branded atta is Quality of the product itself with nearly 65% of the people surveyed citing it as the main criterion for choosing the product, followed by past experience of the consumer with the brand (17.6%). Price was third criterion with a percentage of 11.7% of the people surveyed gave importance during buying. Availability: Availability

Yes(88.2%) No(11.8)

The Availability of the Product itself determine the effectiveness and the penetration of the distribution channel of that particular brand among the people. Of the total number of people surveyed 88.2% has agreed that the Aashirvaad atta was easily available at retail shop, supermarket etc. This shows the distribution channel of the Aashirvaad atta is quite effective.

40

Affectiveness of Advertisement: Affectiveness of Advertisement

No. of Customers

30 25 20 15 10 5 0 Highly Affective

Affective

Somewhat Affective

Not Affective

An effective advertisement will attract more and more customer to buy, helps in the brand and image formation, and informative in telling the USP of the product. In our survey only 16 or 23% of the sample agrees that the advertisement of Aashirvaad atta is effective enough to make them buy, and 41% feels that the advertisement was good enough to make them aware of the product but not capable enough to make them buy and 36% of the consumer surveyed found the advertisement of the Aashirvaad atta to be not effective at all. And None of the consumer in the surveyed found that advertisement for Aashirvaad are Highly Effective. Place: Place of Buying Corporate Store

4

Retail

32

Super Market

28

Wholeseller

4 0

5

10

15

20

25

30

35

Most of the customer buys the product from the nearest retail shop followed by the supermarket and very few buy from the wholeseller or Corporate store. 41

Customer Satisfaction Customer Satisfaction

Number of Customer

60 50 40 30 20 10 0 Extremely Satisfied

Satisfied

Somewhat Satisfied

Not Satisfied

The above graph shows the experience of the customer after using the product i.e. whether they were satisfied with the product as a whole. The higher the satisfaction level higher will be the chances that the customer will buy the same brand again and again that leads to the building of the Brand loyalty. Also it also determines whether some attribution change or any other modification is required in promoting the brand. 71% of the people surveyed were satisfied with the product and 23.5% were extremely satisfied with the product and will buy the product again and again and 6% of the people surveyed where not satisfied with the product. Decision Maker Decision Maker

Self (32) Spouse (32) Child (0) ShopKeeper (4)

These are the person who ultimately decides whether to buy the product or not i.e. whether the Men or women of the house or the shopkeeper as an external source act as 42

an instigators for making the buying decision. In our case 47% buying decision is done by the male member of the house and an equal number of people buying decision were done by spouse or women member of the house. Only 5% of the people get influenced by the external sources like the shopkeepers. Children don’t play any role in the buying of Aashirvaad atta according to the sample size surveyed. Income Group: Income Group (Rs per Month)

10 31.6 26.3

0-10000 10000-20000 20000-30000 30000+

42.1

Income group determines the sector in which a company wants to foray and be a market leader; also knowing the income level of the customer will help the company to modify the products according the buying capability of the customer which depends upon the Income level. Here we have divided the customers according to Monthly Income and found that the most of the consumer i.e. 42.1% were falling in the income group of 20,000-30,000 (Rs. Per month). Followed by the income group of 30,000+, followed by income group of 10000-20000 (Rs. Per month) with 26.3%. only 10% of the customer were in Income 0-10,000

Comparison of the Aashirvaad with competitors on the basis of Attributes

43

Competitors and Attributes

Packaging Price Taste

fre sh Na tur e

Pi lsb ur

y

Quality

An na pu rn a Sh ak tib ho g

Aa sh irv aa d

40 35 30 25 20 15 10 5 0

Aashirvaad atta ranks high in quality and taste but lags behind in price where shaktibhog has the advantage and on packaging where Pillsbury has the lead in the market.

BRAND AWARENESS TOMA 44

Though it is often taken for granted ,brand awareness can be a key strategic asset. It can provide a host of competitive advantages. Awareness provides the brand with a sense of familiarity and people like the familiar. Name awareness can be a signal of presence, commitment and substance attributes that can be held valuable by the consumers. The logic is that if a name is recognized there must be a reason. The salience of a brand will determine if it is recalled at a key time in the purchasing process. Here we present the result of a TOMA test conducted on a sample of 61 respondents. Brand Ashirvaad Annapurna Pillusbury Shaktibhog Naturefresh Captain Cook Amritbhog Govindbhog TOTAL

1st recall 16 27 6 10 0

2nd recall 7 15 20 9 3

3rd recall 11 8 11 7 3

2 0 0 61

3 1 0 58

4 2 1 47

TOMA

Ashirvaad 16%

0% 0%3%0%

26%

Annapurna Pillusbury

10%

Shaktibhog Naturefresh Captain Cook 45%

Amritbhog Govindbhog

TOMA at FIRST RECALL A quick look at the data shows that Ashirvaad though being a clear market leader does not lead in the brand recall. It is its closest competitor Annapurna that leads in the brand recall. This shows that Ashirvaad has not been able to connect with the consumers. It needs to invest in aggressive marketing and advertising to connect with the emotions of the consumer to have a sustainable market share and growth.

45

FUTURE PLANS OF THE COMPANY Today, the Aashirvaad brand stands for atta and salt and is expected to add suji, spices and rice in the staples segment. In the ready-to-eat segment, Aashirvaad has been expanding the range and the latest offering includes its combo packs of rice and gravies. Besides, an all-purpose curry paste has also been included in the range. To make a success of any foods business, apart from understanding the palate, it would be procurement and sourcing which have to deliver on two fronts: mainly that of quality and efficiency. The quarter also marked the company's foray into the branded spices market under the 'Aashirvaad' brand, leveraging the strong brand association with superior quality and consistency. Product extension is currently underway to target markets in the North and West. 'Aashirvaad' Atta continued to gain increasing consumer acceptance, further consolidating its position as the clear market leader amongst national branded players. In an aggressive bid to pump up volumes, ITC Ltd Foods Division is chalking out a multi-pronged strategy which includes extension of its distribution network, marketing initiatives and new product launches. For starters, the company is planning to extend the reach of its flagship brand ‘Aashirvaad Atta’ to 350 new markets in the next few months. At present, ITC’s atta brand is available in 500 markets across the country. They are planning to launch our biscuit brand in small towns and villages. To promote the bran, they are planning to take it to one million schools by the end of this year. As for its ready to eat category Kitchens of India (KOI), the company’s strategy is to expand the KOI product porfolio. In this category, the company plans to introduce new products to meet the evolving needs of consumers. This premium brand is targeted at tourists, consumers who order at home, NRIs and women in the age group 25 plus. Last year, ITC Foods forayed into the ready to eat category with its brand KOI. Extending the portfolio under the Aashirvaad brand name, ITC has launched Aashirvaad Multipurpose Cooking Paste and Kitchens of India Curry Paste. ITC has recently launched India's first instant pasta snack, Sunfeast Pasta Treat. Made from high protein Durum wheat, Sunfeast Pasta Treat is not fried and does not contain maida, making it a nutritious snack. This ready to cook pasta comes with a saucemaker inside the pack. It is currently available in four exciting flavours: Masala, Tomato and Cheese, Sour Cream Onion and Cheese.

Recommendations 46

According to the survey conducted and after analyzing the Price, Promotion, Place and Product of the ITC and the consumer behavior in the orissa market the company can implement the following measure for increasing the sales and volume of the Aashirvaad atta. v Advertisement for the Aashirvaad atta is found to be ineffective and infrequent. So, the company can come up with an aggressive advertisement to attract the Indian housewife as they are found to be the decision maker in the buying of Atta. v The company can come up the concept of forming a Retail chain of Food products across all over India as it is follows the marketing strategy of Umbrella branding. In such retail chains all the food division products can be sold at the discounted rate, as more and more products are coming under the Umbrella products like food processing. v The Company can collaborate with all the fast food Retail chains like Mc’ Donald, Pizza Hut, Smokin joe etc and other local fast food outlets so that they will use the Aashirvaad atta at a discounted price or a discount coupon can bee given of that outlet if they are using Aashirvaad atta. v The branded atta can be exported to other countries where we are currently exporting the whole wheat. v The company can approach the government or distributing the atta in Military canteens and can sell them to organization that provides the afternoon meals to the children as a part of mid-day meal scheme.

47

Annexure

48

49

50

51

52

Name of the Respondent: SEX (F/M): Income (Monthly): Usage Rate:

AGE:

Occupation:

ASHIRVAAD 1. Which brand of atta did you buy last time? ? Ashirvaad Atta ………… ? Annapurna Atta………… ? Shaktibhog Atta………… ? Pilsbury Atta ………… ? Nature Fresh…………… ? Others (Please Specify) …… 2. What was the reason for purchasing the above mentioned product? ? Price ? Quality ? Promotion (Advertisement) ? Past Experience 3. Are you satisfied with the product? ? Extremely satisfied ? Satisfied ? Somewhat satisfied ? Not at all satisfied 4. Which other products have you tried before? ? Ashirvaad Atta ………………….. ? Annapurna Atta…………………. ? Shaktibhog Atta……………………... ? Pilsbury Atta ………………… ? Nature Fresh …………………... ? Others (Please Specify) ……………….. 5. Was your choice anyway affected by the promotion/ advertisement strategy adopted by the company? ? Highly affected ? Affected ? Somewhat affected ? Not at all affected 6. What is your opinion about the advertisement and the promotional activities adopted by the company? ? Very attractive ? Attractive ? Somewhat attractive ? Not at all attractive 7.Is the product easily available? ? Yes ? No 8. Where did you buy the product? ? Wholeseller

53

? Supermarket ? Retail Store ? Any Other(Please specify) 9. Will you like to try any other brand? ? Yes ? No 10. If yes, which brand and why? ? Ashirvaad Atta ………………….. ? Annapurna Atta…………………. ? Shaktibhog Atta……………………... ? Pilsbury Atta ………………… ? Nature Fresh………… ? Others (Please Specify) ……………….. 11. Please assign a value from 1-5 to the products mention below according to: 5 for Excellent 4 for Very Good 3 for Good 2 for Average 1 for Bad Packaging

Price

Taste

Quality

Ashirvaad Annapurna Shaktibhog Local Brands Pilsbury Nature Fresh

12. Who is the decision maker? ? Self ? Spouse ? Child ? Other 13. Where will you decide to buy a product? ? Pre-decided (At home) ? Shopkeeper 14. According to advertisement, (if they can recall) what are the attributes they talked about and the benefits?

15. How often is this product used in the home? ? Twice in a week (Heavy User) ? Once in a week (Normal User) ? Once in a fortnight (Average User) ? Once in a month (Low User) ? Other than this ………………

54

16. Which brand have you consumed most often? ? Ashirvaad Atta ………… ? Annapurna Atta………… ? Shaktibhog Atta………… ? Pilsbury Atta ………… ? Nature Fresh…………… ? Others (Please Specify) …… 17. Do they remember any promotional strategy for the brand they opted for and which?

18. Have you ever recommended Ashirvaad Atta to others? ? Yes ? No

19. Where do you buy Ashirvaad? Please choose one answer only. ? Grocery store ? Drug store ? Department store ? Other, Please Specify

20. Are you likely to buy Ashirvaad in the future? ? Definitely Not ? Probably Not ? Might or Might not ? Probably ? Definitely 21. How strongly do you associate the following characteristics with Ashirvaad? Please answer using a 1-5 scale where (1) is "No association" and (5) is “High association."

1 No Association

2

3

4

5 High Association

N/A

Packaging

Price

Advertisement

Taste

55

References

Marketing Management – Philip Kotler CMIE database Prowess Database Websites: http://www.itcportal.com http://www.google.co.in/ http://www.blonnet.com/ http://www.just-food.com/ http://www.thehindubusinessline.com http://www.indiainfoline.com/ http://www.foodindia.org http://www.nseindia.com/ http://www.zoomerang.com/build/survey-modify.zgi# (Uploaded the Questionnaire for online survey)

56

Filename: Marketing Management Project (ITC-Aashirvaad-Atta) Directory: C:\Documents and Settings\tapan\Desktop Template: C:\Documents and Settings\tapan\Application Data\Microsoft\Templates\Normal.dot Title: Preamble Subject: Author: Shridhar Sharma Keywords: Comments: Creation Date: 12/13/2007 2:57 PM Change Number: 2 Last Saved On: 12/13/2007 2:57 PM Last Saved By: tapan Total Editing Time: 1 Minute Last Printed On: 12/13/2007 3:10 PM As of Last Complete Printing Number of Pages: 56 Number of Words: 12,737 (approx.) Number of Characters: 72,605 (approx.)