Distribution Process and Competitors Analysis for Matches and Confectionery: With Special Reference to ITC Ltd. Indore.


By

Mr.Upendra Singh Panwar,
Asst. Professor
Mr. Robin Neema,
Asst. Professor
Dr.Punit K.Dwivedi,
Sr.Lecturer
Lt.Col. (Retd.) Dr.V.K.Gautam,
Professor
Modern Institute of Professional Studies
Indore
 


Overview: - As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part."

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.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards and Specialty Papers, Packaging, Agri-Business, Packaged Foods and Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods and Confectionery, Branded Apparel, Personal Care and Stationery.

Capital structure and Performance:
                                                                                                                                                     
(In Crores)

From

 

Class Of

Authorized

Issued

Paid Up

Paid Up

Paid Up

Year

To Year

Share

Capital

Capital

Shares (Nos)

Face Value

Capital

2009

2010

Equity Share

500.00

381.82

 3818176790

         1

    381.82

  2008

2009

 Equity Share

500.00

377.44

   3774399560

         1

     377.44

  2007

2008

Equity Share

500.00

 376.86

   3768610050

         1

     376.86

  2006

2007

Equity Share

500.00

376.22

   3762222780

         1

     376.22

  2005

2006

Equity Share

500.00

375.52

   3755178860

         1

     375.52

       

Table1

     
          Source: company:

ITC Ltd. completed yet another year of strong performance with Gross Turnover for the year growing by 20.2% to Rs.19505 crores. Net Turnover at Rs.12369 crores grew by 26.3% driven by the non-cigarette FMCG businesses, higher agri-business revenues and the continuing strong performance by the Hotels business. The non- cigarette portfolio grew by 37.6% during the year and now accounts for 52.3% of the Company's Net Turnover. Pre-tax profit increased by 20.1%  to Rs.3927 crores, while Post-tax profit at Rs.2700 crores registered a growth of 20.8%. Earnings Per Share for the year stands at Rs. 7.19.

Graph1.1


Rationale of Study

1) Study the distribution of Matches and Confectionary
2) Maintaining a check on the availability of matches and confectionary of ITC and competition in retail outlets.
2) Understanding retailer's opinions toward the ITC matches and confectionary and its competition.
3) Suggesting the best possible solution to the problem faced during survey to organization.

Objective of Study : - The objective of this research is to find out:-

1. The Availability,
2. The Performance and
3. The Competition of ITC Matches and Confectionary in Indore.

Methodology:

The tool employed for conducting the survey was questionnaire. We prepared one questionnaire i.e. only for retailers. The sample was selected randomly with the permanent sales person of ITC based on his planned locality on particular day of week. We interacted with different retailers in Indore city and got necessary information (data) through the questionnaire.

Face to face interaction with retailers also provided a lot of information related to matches which we used in this report.

Sample Size:

The sample has been taken from 736 retail outlets. While conducting the survey we covered maximum retail outlets in Indore city, So that a proper analysis and findings can be given for managerial decision making.

There are two main sources of data - primary and secondary. Primary research is conducted from scratch. It is original and collected to solve the problem in hand. Secondary research, also known as desk research, already exists since it has been collected for other purposes.

Total 736 outlets in 23 different beats were covered during the tenure of research. It was found that ITC products are well established in the market due to its quality and great marketing strategy.

Organizational Structure:-

The organization is arranged in a hierarchical order where the top level management consists of corporate management committee below which there is a divisional SBU which controls the divisional executive area wise the order can be shown as follows:


Distribution Process:- Root-Leaf Approach

As a large and multi-product enterprise whose products are benchmarked nationally and internationally, ITC's main supply chains can be grouped as follows:

1. For all its operations, technology, machinery and equipment are sourced from reputed and globally benchmarked suppliers/vendors who are expected to follow internationally accepted norms and standards.

2. ITC's major businesses are vertically integrated across several Divisions. A substantial part of the supply chain is therefore internal through strategic backward linkages. Common values relating to human rights performance are shared across this supply chain.

3. Being a major Agri-based company, the agriculture sector is a major supplier of inputs for its operations. The bulk of agricultural commodities are procured from state controlled trading platforms and the open market.

4. A very small proportion of ITC's business consists of supply chains comprising local vendors and suppliers. The policy framework for such entities is enunciated separately in 'Policy to Ensure Respect for Human Rights across the Supply Chain.

Distribution Process: The Perfect Channel


The Spread:-

ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 2.8 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly  enhancing the Company's marketing scenario.

ITC's wholly owned Information Technology subsidiary, ITC InfoTech India Limited, is aggressively pursuing emerging opportunities in providing end-to-end IT solutions, including e-enabled services and business process  outsourcing.

ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating.

ITC employs over 21,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 3, 73,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: "Enduring Value. "For the nation, For the Shareholder."

Flowing from the concept and principles of Corporate Governance adopted by the Company, leadership within ITC is exercised at three levels. The Board of Directors at the apex, as trustee of shareholders, carries the responsibility for strategic supervision of the Company. The strategic management of the Company rests with the Corporate Management Committee comprising the whole time Directors and members drawn from senior management. The executive management of each business division is vested with the Divisional Management Committee (DMC), headed by the Chief Executive. Each DMC is responsible for and totally focused on the management of its assigned business.

    This three-tiered interlinked leadership process creates a wholesome balance between the need for focus and executive freedom, and the need for supervision and control.

Product Line and Competitors:

FMCG - Cigarettes business has an internal code for advertising/ promotions, which is reviewed every year, and whenever any new law/rules are introduced. The internal code is more stringent than other codes. It not only comprehensively covers all aspects of other codes but also encompasses areas not covered by them. The requirements under Advertising Standards Council of India (ASCI) code of conduct, which is now the Government of India's governing code, are applied across the business.

All laws related to the product category such as The Cigarettes (Regulation of Production, Supply and Distribution) Act, 1975, The Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003, The Cable Television Networks (Regulation) Act, 1995, and The Cinematography Act, 1952, which have provisions for regulations of advertising/promotions in India are strictly followed.

Any State Government laws on advertising/promotion for ITC's products are completely adhered to. There is on-going review of these codes to ensure compliance.

The FMCG Cigarettes business sells a legal product, which is not banned in any market where it sells. Tobacco products are often a subject of public debate. Stringent quality standards/systems are established to respond to queries/ concerns and are known to all stakeholders.

The Foods business voluntarily follows the ASCI (Advertising Standards Council of India) Code for all Marketing Communication. Every time a new Marketing Communication is created; it is checked for compliance with the ASCI Code. In addition, a monthly compliance validation is done by respective managers The Foods business does not sell any product which is 'banned in certain markets' or is 'the subject of stakeholder questions or public debate'.

In the Paperboards and Specialty Papers, Packaging and Printing and Greeting, Gifting and Stationery businesses, all codes/ standards relating to Standard Weights and Measures Rules are followed. These requirements are reviewed on a monthly basis for compliance. None of the products from these businesses is 'banned in certain markets' or subject of stakeholder concern or public debate.

In the Hotels business , marketing communication is governed by self-regulation and guided by Indian Society of Advertisers (ISA) Rules and guidelines. It is reviewed quarterly to ensure compliance with relevant rules and internal guidelines. The Hotels business does not sell any product banned in the market nor is the subject of stakeholder questions or public debate.

Agri-business has not advertised its product and services in a major way and no voluntary code is therefore required to be followed. Communications and promotions done so far have been in accordance with the law of the land and have been duly approved by the Legal Department of the Company. The business is in the process of establishing a voluntary code, as it has recently initiated advertising its retail business.

The Leaf Tobacco business provides Corporate Advertisements (e.g. 'With best compliments from ITC Ltd'. etc.) to souvenirs published by certain organizations. This is in accordance with the provisions of Cigarettes and Other Tobacco Products Act (Prohibition of Advertising and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003. However, the business does advertise its Organic Agri-inputs. The business also publishes Corporate Advertisements (stating that ITC-ILTD is India's leading tobacco exporter and providing contact details) in reputed International Tobacco Journals. No product advertisement relating to tobacco is published by the business. The business also maintains a website, 'itc-iltd.com', which provides the details of Tobaccos grown in different regions of India. All the advertisements published in various form are reviewed by the Divisional Management Committee (DMC) every month. Any material change in the contents of the website is also approved by the DMC.

Lifestyle retailing business follows the Voluntary Code on Advertising and Promotion.

The code ensures that the advertisements are not deliberately misleading in terms of claim and representation, and are not offensive to generally accepted standards of public decency (nothing vulgar, indecent or repulsive). Glorification of acts of sex and violence is avoided. References to religion in general and specific religions are also avoided. It is ensured that advertisements maintain fairness to competition and the contests and promotions are as per the laws of the land. The terms and conditions of promotions are vetted by the Legal Department. There is no deriding of race, caste and community in advertisements or promotion. Packaging of the product is in accordance with Packaging and Weights and Measures Acts.

Compliance is ensured through on-going review. Each campaign/promotion is vetted for compliance before release. The Lifestyle Retailing business does not sell any product that is banned in certain markets or subject of stakeholder questions or public debate.

                                                                Graph1.2

                                                                  Graph1.3

Retailers majorly stock local brands of confectionaries due to high amount of profit margin provided in it. Cadbury is another preferred brand by retailers followed by nestle.

The sample that was questioned showed a high rate of preference for the local brand of confectionaries.

A sizeable number of retailers also prefer Cadbury and Parle.  Nestle and Perfetti also find sizeable number of customers.

Cadbury due to the profit margin provided and the high demand of customers for the product is one of the most liked brands of the retailers. Parle also has admirers.

The consumer awareness of the product BINGO is quite high in Indore city but is still not at par with that of its competitors. Due to this the sales of the product suffer. The age group of 11-18 is the most aware group of the product showing 56% awareness.

Availability of ITC's and other Matches in Market

                                                                    Graph1.4

Quality Complaints (Percentage) by Customers

                                                                   Graph1.5

Findings:

In the retailer study we came to know about their need and expectation levels regarding products and ascertainable levels of satisfaction.

While doing  product study we came to know about  modification which retailers wants as to the Quality, Packing, Shape, Color, and Quantity etc of their favorite candy.

Study of price explores ability to consume, to pay for the product i.e. how much a person can spend on his/her favorite candy. In this we tried to find out retailer's price expectations and reactions.

Under the study of advertizing we found that whether the advertisement appeals the retailers or not. This also includes evaluating and selecting the proper media-mix and measuring advertising effectiveness.

Suggestions:

1. Promotion campaign should be targeted at each level for matches and should be targeted at children and youth for confectionary as sales can be converted from that segment.

2. Use of attractive hyper bins, large and eye catching banners of matches and confectionery should be displayed.

3. Price off offer should be provided on packs as customer wants to save money.

4. The promoter can be enticed by promising him a percentage on sale of 5 bingo packs.

5. Radio and newspaper publicity of the product's can be done.

6. For promotional offers, company should go for free gifts rather than going for other ways.

7. My Suggestion also include that compulsory Purchase of match box should be implicated to purchaser who is purchasing cigarettes at pan corner.

ITC products are well established in the market due to its quality and great marketing strategy. Horse Head match sticks perceived as a below standard in comparison with other products of ITC. In spite of having more than 90% of availability of product in market, product is not able to generate the good market acceptance as well as revenue.

Organization should take this issue very seriously because it's directly or indirectly having question on ITC quality.

  • The policy of providing long payment should be continued as chameli and other brands are not providing so long site as they deal in cash
  • The rates of our match box should be decreased and should be followed to the competitor brand.
  • The strategy of distributing of match box directly to shops should be continued as other brands are not providing such benefits to grocers , pan corner etc
  • The quality of match box including  its stick's and  Rogan should be checked and maintained immediately to decrease the lose of both reputation and sales

Special bonus offers for customers also to template the customer. So that they can directly ask for the brand and purchase with out suggestions of grocers 

References:-

marktomarket@livemint.com

Richard J. O'Connor , Ph.D., Ann McNeill , Ph.D., Ron Borland, Ph.D., et all. ,Smokers' Beliefs About the Relative Safety of Other Tobacco Products: Findings from the ITC Collaboration,Oxford Journals Medicine Nicotine and Tobacco Research Volume9, Issue10 Pp. 1033-1042, 2007

Dwivedi,Amit Kumar and Dwivedi,Punit Kumar "Organized Retailing in India: Issues and Challenges " Abstract from Conference Paper, 60th   All India Commerce Conference, Osmania University, India. Dec 2007

Ahluwalia,Jasmeet and Panwar,Upendra Singh,Internship on "Comparative Study of Distribution of ITC and Competition for Matches and Confectionary" August 2009
 


Mr.Upendra Singh Panwar,
Asst. Professor
Mr. Robin Neema,
Asst. Professor
Dr.Punit K.Dwivedi,
Sr.Lecturer
Lt.Col. (Retd.) Dr.V.K.Gautam,
Professor
Modern Institute of Professional Studies
Indore
 

Source: E-mail October 29, 2010

          

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