More Cash But Few Spends

Question staring at FMCG

companies :
How does one grow
consumption?

1
 Background

 People are buying , demand obviously

there :but consumption not going up.
 Top line stagnating
 Salaries are going up- yet no growth in
conventional consumption of products !...
 Result - With focus on efficiency-a decent
bottom line –but a poor top line.

2
 Company Scenario-Then..

 Managed good penetration

 Multi price points
 More outlets –better service…

All the above worked earlier …not now !

3
 Company Scenario- today…

 My Brand available in every possible retail shop

 Yet demand not growing…
 Sales are not happening !

4
 Reason : Outlets driven Sale

 New outlets coming up – does not mean demand is

growing.
 1990 :12000 outlets in Chennai
 1998 :16000
 Deeper examination shows: Original 10000 outlets
growing at 5%: Head office seeing 20% growth
….due to additional stocks in new outlets !
 New small shops not growing…
 Reason : Sales shift to large retail formats!

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 Stocks : Large vs small retail outlets

 Large outlets like Food world have better

inventory planning - stock up less !
 Small outlets carry more inventory than small
outlets.
 In the interim : Channel stocks increased
 Leading to ambitious growth targets of 20%..
 Effectively therefore : there was only a
demand shift – but no real growth !!!

6
 Growth strategy of Gerrico

 Make products available at different price points.

 Enter new categories.
 But now seeing cannibalisation of own brands.

Consumer spending of Rs.4000/-

 Earlier : On 7 categories of goods & services
 Now : On 14 categories !...
 Even if spends growing at 15% - it is by adding new
products to his portfolio

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 Competition from New Categories

 Not just Sunsilk, Nyle or Dove

 Competition now from : durables, vacation
products, entertainment…..
 Question to address : What is the plan to get
larger share of wallet ?

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 Questions

 How to retain my customer in the category – if not in

the price ranges ?
 Where is the spend going from the increased
surplus?
Some Answers
 Teacher earlier using bus : now has Maruti-finance
options ; takes away major chunk in EMI….
 Finance options –VCD players, PCs, home fitness
equipments, heating facilities, ACs, foreign holidays

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 Conventional Categories suffering

 Soaps, detergents, shampoos : no

perceptible up gradation to premium
products.
 Consumers moving in newer categories –
and fast.
 Foods : McDonalds, Pizza Hut and other
options have affordability with fun ! Taking
away spending from conventional food items,
edible oils breads etc….
10
 Consumer Behaviour

 Large ranges to choose from

 Become indifferent to price and quality as
differentiators.
 Reason: almost all products now available at
the same technology level & even price…
 Buying more than ever before: but not basic,
daily use, routine stuff: since they don’t
provide any excitement.
11
 Consumer Behaviour

 Consumer now spending more , eating more : but….

outside the home !
 Spends on groceries reducing but purchases of all
new products has increased….
 Some of the increase has come thru substitution.

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 Strategy Paradigm Shift

 Research on consumer behavior must be

redeveloped.
 Examine what is the consumer buying today
which she was not buying earlier.
 Allow her to buy new products and she will
not buy conventional stuff….
 As income goes up- consumption of
conventional products will actually drop !

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 Paradigm shift

Some of the things will not change

Like attitude :
 Mobile phones not changed till they break / get lost !
 Washing machines & refrigerators are not upgraded
with fuzzy logic- if working fine!....
 Solution lies in moving away from low excitement
categories to new ones- like the consumers !

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 Conclusion

 In a rising disposable income scenario,

consumption of conventional products seems
to be declining.
 Environment is now forcing companies to do
a complete re-jig of their strategy…
 Inaction can lead to fast depletion in market
shares, losses and company closures.
______

15
 End of Case Study

16
 Category Collides

Time to shift focus

From “Category market share”
to
“Consumer share”
-using the ‘Category collide framework’.
.

17
 Category Collide

Identify the opportunity

- focus on wallet share.
- For edible oil manufacturer –sell olive oil
thru drug stores….
- Sell edible oil positioned as ‘good for heart’
– thru drug store !

18
 Category Collide

Alternate channel development

- Kirana vs Paan shops.
Fashion finite life cycle products
-Fall collection of Brooke Bond Tea.
Only those companies who dare will grab this
opportunity !
_______

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 Enhance Value

Background
 Belated realization regarding fragmentation of
consumer spends.
 Slow down in industrial growth and first signs of
recession.
Coping up measures
 Cost cutting…
 Layoffs & retrenchments

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 Coping with recession

Business leaders work differently

 Make changes in business processes.
 Seek revenue generating opportunities
 Upgrade consumers
 Satisfy latent need that consumer is unaware of
 Quantum leap thru innovation….
 Innovation could be new technology, new products,
new services.

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 Actions by Business leaders

Continuously increasing satisfaction levels ensures

 Consumer interest
 Involvement in category
 Investment in category…
 Leading to loyalty

22
 Growth ?

Where will growth come from ?

Line extension
 New segment of an existing product category
 Helps get over taste and flavor fatigue…
 Increasing the share of consumer food basket

23
 How to combat recessionary conditions?

In recessionary times
 Consumers postpone purchases
 This impacts depth of consumption
 Gerrico should introduce incentives, discounts,
promotions to heighten consumer interest
 Co-promotions
 Banded packs, large value packs, smaller packs with
small unit value-to attract new users…
 Brand relaunch can energise the brand

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 Steps by Gerrico

 Extend the portfolio of brands to other categories

 Average companies live in the present: visionary cos plan
for future.
 Visionary cos ventured in rural markets, introduced
shampoo sachets, fuelled further growth thru media boom
 As changes happen successful cos realign their marketing
mix and service strategy, to exploit these changes.
 Eg. Rural market development by ITC & Shopper’s Stop !

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 Finally

Gerrico needs to make a fundamental choice :-

 Demonstrate intellectual foresight and join the

leaders who drive the market
OR
 Get led all the way to the corporate graveyard.!!!

_______

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 Thank You

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