CASE 10

Marico: Growth through Strategic Innovation and Diversifi cation

This case study is based on our video interview of Harish Mariwala, Chairman and Non-Executive Director, Marico Ltd

SYNOPSIS

The fast moving consumer goods (FMCG) industry has a quick turnover with relatively low cost. This includes products like toiletries, soap, cosmetics, tooth-cleaning products, shaving products, detergents, personal care products like hair oils, deodorants, cooking oils, breakfast items, etc. In India, the FMCG sector is the fourth largest sector in the economy and creates employment for more than 3 million people. The FMCG market in India is in excess of, ₹ 85000 crores and is currently growing in double digits every year.

The FMCG Industry is characterised by a well-established distribution network, low penetration levels, low operating costs, lower per capita consumption and intense competition between the organised and unorganised sectors.

The SWOT analysis of this Industry reveals a good distribution network in both urban and rural areas and excellent opportunities for growth and development including exports. Over one billion population in India and rising income levels has contributed to its growth. However, some of the weaknesses include lowest scope for introduction of technology. The threats include removal of import restrictions, taxation and regulatory structure and slowing down of rural demand.

The FMCG sector consists of various categories of products, which could broadly be categorised into Household Care, Personal Care and Food and Beverages. Household Care could be further classified under personal wash and detergents. Personal Care involves skin care, hair care, shampoos and oral care. The Food and Beverages segment includes cooking oil, tea and coffee, breakfast items like oats etc.

With its growing population, India is slated to cross China’s population in the year 2030 and will amount to 1.45 billion people then. A large population does provide an excellent opportunity for the FMCG industry to expand, provided the population has purchasing power The growing middle class in India has contributed to increasing the GDP from 8% to 10% over the last 4 to 5 years. Whether this trend will continue in the next 5 years with a fast growing population is a matter for conjecture.

The Marico family set up Marico Ltd. in the year 1988. It started its operations with the takeover of Bombay Oil Industries Ltd in the year 1990. From a turnover of 50 lakhs in 1971 today Marico has a turnover of ₹ 4596 crores in 2012-2013 and covers products in the area of hair care, skincare, healthy foods and services. Mr. Harsh Mariwala – CMD has been one of the most important promoters of the Company and has been mainly responsible for its growth and development including of its well-known brands like Parachute, Saffola, Medikare, Revive etc.

The DNA of Marico is ‘Innovation’ and the essence of innovation lies in the attraction and retention of people who are the driving force of the Company.

The increased turnover as above has been contributed to by the CMD, his Board of Directors, his Senior Management and the rest of the employees. Marico Ltd. has been investing a lot in the development of its employees at all levels. As on 31^st March 2013, total employee strength of Marico Limited was 1246 and that of the entire group was 3230.

(Source: Annual Report Marico Limited 2012-13)

Besides its investment in its Human Resource, Marico has also taken steps in the area of CSR. The Marico Innovation Foundation recognises and awards innovators in the country. Its sustainable initiative includes concerted efforts in improvement of energy, water, paper usage reduction areas and ensuring safety and health of its members.

When asked about the key strategies of Marico Ltd. vis-à-vis multinationals like HUL and P&G, Harsh Mariwala singled out two important factors viz. Decision Making and Empowerment. Marico has a relatively flat organisation structure and provides a lot of authority to its managers.

Harsh Mariwala was keen to enter the retail industry. In 2003, Marico decided to enter this business but in a niche area. Marico at that time was a cash rich company and could afford to take some risks. The launching of the Kaya brand was in the area of dermatology and was different from the FMCG business, which was the company’s forte.

There were definite challenges in the business and it was at this stage that Marico decided to demerge the Kaya business from Marico’s FMCG business, as it was felt that both the businesses required proper focus to facilitate growth and profitability.

Marico touches the lives of one out of every three Indians, through its portfolio of brands such as Parachute, Parachute Advansed, Saffola, Hair and Care, Nihar, Livon, Setwet, Zatak, Mediker and Revive. Every month, over 75 Million consumer packs from Marico reach consumers in about 75 Million households, through a widespread distribution network of about 4 Million outlets in India.

Marico’s International Business has a presence in more than 25 countries across the Middle East, Bangladesh, Egypt, South Africa, Vietnam and South East Asia. Marico brands in international markets occupy leadership positions and command significant market shares in their respective categories. Internationally Marico’s business initially targeted the Indian population abroad, but soon saw threads of common culture running through ethnicities and consumers across country clusters.

Over time, Marico adopted the strategy of developing localized products, entering new categories, and growing through acquisitions. Marico International has made over six acquisitions across Asia and Africa in the last seven years. With a focus in emerging and developing markets, it is present in categories like Hair Care, Ethnic Hair Care, Male Grooming, Foods, Skincare, and Healthcare with brands like Parachute, Hair Code, Fiancee, Caivil, Hercules, Black Chic, X-Men, Just for Kids etc. The group of companies has 8 manufacturing facilities across the Asian and African continents. The international consumer products portfolio is an integral part of Marico Group.

One of the important challenges before Harsh Mariwala is the question of succession planning. There are two types of succession planning - one is the Promoter Succession Planning and the other is Management Succession Planning. In the first, it is not clear who will take over as Harsh Mariwala’s two children have branched off with separate organizations. However, regarding the Management Succession Planning, Saugata Gupta who has been with the Company since 2004 has been given charge of company’s operations in India and in the International markets.

PROFILE OF THE FMCG INDUSTRY

Products which have a quick turnover, and relatively low cost are known as Fast Moving Consumer Goods (FMCG). This industry primarily includes the production, distribution and marketing of consumer-packaged goods, which are consumed at regular intervals, like toiletries, soap, cosmetics, tooth cleaning products, shaving products and detergents. It also included other non-durables such as glassware, bulbs, batteries, paper products, plastic goods, food and beverages, personal care products like hair oils, deodorants etc.

FMCG Industry Category and Products

• Household Care

  Personal wash: The market size of personal wash is estimated to be around ₹ 8,300 Cr. The personal wash can be segregated into three segments: Premium, Economy and Popular. The penetration level of soaps is 92 per cent. It is available in 5 million retail stores, out of which, 75 per cent are in the rural areas. HUL is the leader with market share of 53 per cent; Godrej occupies second position with market share of 10 per cent.

  Detergents: The size of the detergent market is estimated to be, ₹ 12,000 Cr. In washing powder,

  HUL is the leader with 38 per cent of market share. Other major players are Nirma, Henkel and Proctor and Gamble.

• Personal Care

  Skin Care: The total skin care market is estimated to be around ₹ 3,400 Cr. The penetration level of this segment in India is around 20 per cent. Unilever has a market share of 54 per cent, followed by CavinKare with a market share of 12 per cent and Godrej with a market share of 3 per cent.

  Hair Care: The hair care market in India is estimated at around ₹ 3,800 Cr. The hair care market can be segmented into hair oils, shampoos, hair colorants and conditioners, and hair gels. Marico is the leader in Hair Oil segment with market share of 33 per cent; Dabur occupies second position at 17 per cent.

  Shampoos: The Indian shampoo market is estimated to be around ₹ 2,700 Cr. It has the penetration level of only 13 per cent in India. Dominated by HUL with around 47 per cent market share; P&G occupies second position with market share of around 23 per cent.

  Oral Care: The oral care market can be segmented into toothpaste - 60 per cent; toothpowder - 23 per cent; toothbrushes - 17 per cent. The total toothpaste market is estimated to be around ₹ 3,500 Cr. The penetration level of toothpowder/toothpaste in urban areas is three times that of rural areas. This segment is dominated by Colgate-Palmolive with market share of ∼ 49 per cent, while HUL occupies second position with market share of ∼ 30 per cent. In toothpowders market, Colgate and Dabur are the major players. The oral care market, especially toothpastes, remains under penetrated in India with penetration level ∼ 50 per cent.

• Food and Beverages

  Food Segment: The foods category in FMCG is gaining popularity with a swing of launches by HUL, ITC, Godrej, and others. This category has 18 major brands aggregating ₹ 4,600 Cr. Nestle and Amul slug it out in the powders segment. Marico is also present in the same with healthy alternatives with the brand Saffola in cooking oils and the breakfast segement like Saffola Oats Franchisee and Saffola Muesli.

GROWTH PROSPECTS

Large Market

India has a population of more than 1.150 Billions, which is just behind China’s. According to the estimates, by 2030 India’s population will be around 1.450 Billion and will surpass China to become the World’s largest in terms of population. FMCG Industry, which is directly related to the population, is expected to maintain a robust growth rate.

Spending Pattern

An increase in spending pattern has been witnessed in Indian FMCG market. There is an upward trend in urban as well as rural market and an increase in spending in organized retail sector. An increase in disposable income, of household mainly because of increase in nuclear family where both the husband and wife are earning, has lead to growth rate in FMCG goods.

Changing Profile and Mind set of Consumer

People are becoming more conscious about health and hygiene. There is a change in the mindset of the Consumer who is now looking at ‘Money for Value’ rather than ‘Value for Money’. Consumers are switching from economy to premium products.

The FMCG Industry has been positively impacted with government policy by a 4 percent cut in excise duty. Moreover, it has been decided to provide FDI to the extent of 51 percent in Multi-brand retail and 100 percent in single brand retail with a view to increase investment and generate employment.

India has a vast rural market consisting of more than 700 million consumers accounting for 70 percent of the total population but which consumes only 50 percent of the FMCG market. This sis so because the working rural population is only 400 million whose purchasing power is only half that of their urban counterpart. However, the rural market is slated to grow from the current 52 percent to 60 percent within a year.

India as a whole and FMCG market in particular has been able to have a cost advantage over advanced countries because of cheap labour and quality products and services.

It must be noted that India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew apart from being the second largest producer of rice, wheat, fruits and vegetables which definitely gives it a cost advantage.

COMPANY BACKGROUND

Over the last 3 decades, Harsh Mariwala has transformed a traditional commodity driven business into a leading Consumer Products and Services Company, in the Beauty and Wellness space. Marico markets leading brands such as Parachute Advansed, Saffola, Nihar, Mediker, Revive, Setwet, Zatak and Livon amongst others. From a turnover of ₹ 50 Lakhs in 1971, Marico’s Products and Services in Hair Care, Skin Care and Healthy Foods generated a turnover of about ₹ 4550 crores during 2012-13.

At present Mr. Harsh Charandas Mariwala, Chairman and Managing Director, is also one of the Promoters of the Company. Under his stewardship, Marico has defined its Purpose to grow sustainably by maximizing the potential of multiple stakeholders in each sphere of its business; ‘Only when you are empowered with freedom and opportunity do you rise above the task at hand to take complete ownership to make a difference’. The Company has an action plan oriented towards creating value for each of its key stakeholders – consumers, members, associates, society and shareholders.

Under his leadership, Marico has won several awards and external recognition – over 100 in number during the last few years. Each of Marico’s three businesses, consumer products in India, International Business and Kaya have received awards in all functions across the value chain.. Some of them are:The NDTV Profit ‘Best Business Leadership’ Award in the FMCG (Personal Hygiene) category, in 2007 and 2009, and was rated as one of India’s Most Innovative companies by Business Today - Monitor Group Innovation Study (2008).

Marico was ranked 18^th in the top companies for leaders 2011 from Asia Pacific in a study conducted by Aon Hewitt. Marico ranks No. 1 in the Euro Money Asia’s best managed companies ratings 2013 in the Consumer food categories.

Harsh Mariwala has also been conferred with a number of awards and recognition (Ernst and Young Award at the CNBC India Business Leader Award in 2009 and the Global Excellence HR Award in 2007). He has also been a director on the Boards of a number of Companies and was elected as President of Federation of Indian Chamber of Commerce and Industry.

Marico believes in making a Difference to Different Stakeholders

• Owner. Employee.

  Marico does not differentiate between its members. At Marico, employees are encouraged to lead businesses instead of simply working for them. This is done by creating roles that foster early responsibility and independent decision-making. It stems from an empowering work culture that encourages its employees to take complete ownership of the business – and run it as if it were their own. Three pillars of progress pave the way to these roles - challenge, enrich and fulfil. To continuously challenge, enrich and fulfil the aspirations of Mariconians so that they can maximize their true potential to ‘Make a difference’.

• Associates

  Associates are treated as members. Marico considers associates as extensions of their business.

  Marico make every effort in making a difference in their associates’ lives by maximizing their potential across the supply chain – from farmers to suppliers, packaging developers, distributors and retailers.

  Through farmer initiatives like sms communication program, instant price updates, web-managed transactions, farm care centers, training in mechanized tree-climbing, etc aims at improving the quality of farmers’ lives and turn them to be better farmers.

  Innovative models such as DDR enables distributors of Marico to stock the exact quantity as per the order received from the market – maintaining near zero-inventory at all times.

• Consumer

  Marico strives to Empower, Motivate, Transform, and make a difference in the lives of their consumers.

  Whether it’s giving the consumers the confidence to present their best to the world with Set Wet, empowering them to look well groomed with Parachute Advansed, or helping them lead a healthy lifestyle with Saffola, Marico’s brands make a big difference to the way their consumers look and feel - usually a lot younger.

• Investors

  Marico delivers sustainable growth for its investors by continuously searching for growth opportunities and investing in portfolios of the future. Strict adherence to high standards of corporate governance and open and transparent relations helps to form powerful and lasting relationships.

• Society

  With the objective to make a difference to people’s lives, Marico set up the Innovation Foundation. By applying innovation as a key tool, the Marico Innovation Foundation enables social organizations to significantly scale up operations, increasing their social impact, proving beyond doubt that true power lies in the ability to make a difference.

  The company has grown from strength to strength from year to year and despite the economic slowdown, the Company has continued to grow. The reason for this could be that the Company is manufacturing products that are of daily use and a must for the average Indian. Secondly, the growth of the Company is very much linked to the growth of the population.. It must however be pointed out that over the years while the turnover has expanded, the profitability has been more or less steady. This could be because the prices of raw materials have been consistently rising and eating into the profit margins.

  Marico produces products and services in Hair care, Skin Care and Healthy Foods. Marico’s brand portfolio comprises Parachute, Saffola, Livon, Hair and Care, Revive, Nihar, Setwet, Zatak, Manjal and Mediker. These brands deal in the following categories namely Coconut Oil, Hair Oil, Health care, Anti-lice Treatment, Premium Refined Edible Oils, Fabric Care, Male grooming, styling etc. A list of the Products and Business Units are given in Annexure – III. Marico’s branded products are also present in the following countries and regions – Bangladesh, South Africa, Middle East, Egypt, Middle east is coming twice, Vietnam and Malaysia.

  Since its inception in 1990, Marico has stood for intrinsic values of innovation, transparency, consumer focus and leadership. It has succeeded by constantly aligning its endeavours to provide more to its customers, empowering its members and redefining the benchmarks of the FMCG industry.

Marico Innovations at a Glance

1997: Saffola LoSorb Technology

LoSorb Technology means that food cooked in this absorbs less oil thereby reducing oil consumption in one’s diet.

Industry Standard: Low absorb technology is used by virtually every oil manufacturer now.

2008: Parachute Advansed Deep Conditioning Hot Oil

Parachute Advansed Deep Conditioning Hot Oil was born out of a consumer insight that the consumer preferred to warm their oils for better penetration and to get an enhanced massage experience.

Innovation: Parachute Advansed Deep Conditioning Hot Oil has warming ingredients enabling deeper penetration of the oil and an enhanced consumer experience.

2011: Saffola Masala Oats

The first ever savoury oats that was made available in familiar Indian Masala flavours. It brought taste and excitement into the oats category, which was until then known to be healthy, but extremely bland and plain. It has led other players to also bring out savoury oats.

2011: Parachute Advansed Body Lotion

Parachute Advansed entered the skin-care category with the launch of Parachute Advansed Body Lotion (PABL), the first product in the Indian mass-market to bring the goodness of coconut milk on skin.

In 2013, Marico delivers the same tenets but addresses it to an evolved consumer who demands variety, simplicity and accessibility. Be it in the products they offer, their communication or the initiatives they support,

Marico is challenging the clutter in the market by offering differentiated propositions that make it stand out from the crowd.

THE COMPANY: VISION, MISSION AND VALUES

The New Marico

Philosophy: ‘Do less to do more’

Marico has undergone a change as an organization beginning with the new philosophy of ‘Do less to do more.’

What this means, is for the organization and its people to be more focussed with a view to drive growth and gain market leadership in the categories it operates in.

As a first step it has brought its domestic and international businesses under Saugata Gupta. Secondly, it has given opportunities to its employees to work in different positions within and outside India with an empowered culture. Thirdly, Marico has given a focus on the youthful India, which comprises a sizable part of the population by concentrating on products of their interest like beauty (personal care), wellness (breakfast cereals) and youth (styling and grooming). Youth today comprise about 250 million in India.

Moreover, there has been a strategic diversification in terms of products ncluding extension of brands e.g. Parachute, Nihar and Saffola with Advansed Body Lotion, Saffola Oats and acquisition of brands such as Set Wet, Zatak and Livon. Moreover, Marico has also acquired the Paras Brand in the personal care area.

Product Innovation has been a continuous effort at Marico and the Company gives a lot of encouragement to innovation and development of new products. This is evident in the evolution of Brand Saffolla and Brand Parachute.

In line with innovation in its products, Marico has also moved to a brand new office premises in Kalina, Mumbai. The premises give an innovative approach to office premises including tracing of the development of the Company and its products. The seating involves a modern approach of doing away with cabins and facilitating approachability and an open door philosophy. Besides, storage is kept on one side of the wall so as to provide more space for interaction and meetings. - This is the New Marico.

SWOT ANALYSIS OF THE COMPANY

From the above SWOT analysis, it is clear that Marico Industries is dealing with FMCG products of everyday use. Moreover, these products are linked to the population and India is an excellent market for the same. However, the raw materials prices are subject to a lot of fluctuation and comprise a major cost element. There is a constant need to innovate and be a step ahead of competition, and Marico has been doing an excellent job in terms of growth and market share.

DOMESTIC / EXPORTS MARKETS

Today, Marico has a presence in over 25 countries across Asia and Africa. Every month, over 70 million consumer packs from Marico reach approximately 130 Million consumers in about 23 Million households, through a widespread distribution network of more than 3.3 million outlets in India and overseas.

Marico’s international business initially targeted the Indian population abroad, but soon saw threads of common culture running through ethnicities and consumers across country clusters. Over time, Marico adopted the strategy of developing localized products, entering new categories, and growing through acquisitions.

Marico’s Market Share (volume) Position

During 2012-13, Marico’s India Business revenues grew by about 18% led by an underlying organic volume growth of about 11 percent. Backed by a robust Information Technology enabled manufacturing and distribution network, the business achieved a higher growth rate in rural markets; taking its share of rural sales revenue to 30%. Marico’s India Business has delivered a 5 year CAGR of 17 percent in top line.

International and Domestic Consumer Business Integration

Marico already had a huge amount of Product Innovation as a result of its presence in the international markets and now with brands in the Indian market, there is a strong possibility to tap the synergies.

Marico expects to leverage portfolio synergies in the male grooming and styling segments across India and in the International Business.

Adoption of best practices and brand management across geographies would be a possibility thanks to the integration. Marico plans to implement Supply chain benefits and ramp up scale across select categories with the unification.

With the possibility of International exposure talent rotation, engagement and retention would be greatly benefitted in a dynamic sector like consumer products.

FINANCIAL PERFORMANCE

From Figure 10.1: Steady Growth, it is clear that Marico has been growing steadily. From a turnover of 889 crores in 2004 it has reached ₹ 4596 crores in 2013. During the period 2010 to 2013, the growth has been fairly steep.

On the profit front, the profit has grown from ₹ 59 crores in 2004 to ₹ 396 crores in 2013. The profit has not grown commensurately with turnover. The profit has grown but is fairly flat. The reason for this is the consistent rise in prices of raw materials used in the manufacture of Marico’s products.

HUMAN CAPITAL – NUMBER AND DEVELOPMENT

Marico is a professionally managed organization with a flat hierarchy, which empowers people and fosters a culture of innovation. The organization believes that great people deliver great results and lays emphasis on hiring right and retaining key talent.

Marico recruits its talent from the country’s premier technical and business schools, with the longterm perspective of grooming its next-generation leaders. A strong referral mechanism operates under the brand name ‘Tareef’ (Talent referred by Mariconians). The talent referred is usually of a higher calibre and results in substantial cost savings.

Marico ensures that its work environment fosters the ‘Management by Results’ policy. This includes performance-based compensation, along with other measures that help enhance performance.

The organization believes in investing in people to develop and expand their capability. Personal development plans focus on how each individual’s strengths can be leveraged to maximize his or her potential. External training programmes and cross-functional exposure often provide the extra edge. In line with the Company’s philosophy of valuing internal talent first, a structured internal job posting mechanism - ‘MINTOS’ (Marico Internal Talent Opportunity Scheme) is implemented. Marico has a holistic member well-being program, which includes the physical, emotional and financial aspects of an employee’s well-being.

Through ‘Values Workshops’, Marico disseminates its core values to all its members, building commitment and helping teamwork with a corporate focus. ‘Popcorn with Harsh’ sessions, giving members the opportunity to interact directly with the Chairman and Managing Director, Harsh Mariwala, continue to leverage the strengths of Marico’s leaders, helping them mentor Mariconians and coach the leaders of the future.

It also lays emphasis on leadership development. Through on-the-job experiences, participation in cross-functional projects, secondments, participation in the Strategic Business Planning Process and senior management - led organizational initiatives.

Specific initiatives are underway to standardize Marico HR practices across its international locations – the Middle East, Bangladesh, Egypt and South Africa.

Employee relations throughout the year were supportive of business performance. As on March 31, 2013, the employee strength of Marico Ltd. in India was 1246 and that of the entire group in India and overseas was 3230.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

In the area of CSR, Marico Industries has taken a number of initiatives, which are detailed below:

• Marico Innovation Foundation

  Marico Innovation Foundation (MIF) was formed in 2003 with the objective of fuelling innovation in India.MIF is the catalyst that creates an innovation ecosystem through cutting-edge research, knowledge creation and dissemination – to scale up breakthrough innovations.

  The Foundation has worked in several areas to fuel innovation in India in the past 10 years. Its research efforts yielded a best seller publication: Making Breakthrough Innovation Happen: 11 Indians Who Pulled off the Impossible. About 55000 copies have been sold so far, making this India’s First best seller on innovation.

  The Foundation instituted the ‘Innovation for India Awards’ in 2006 which are declared biennially. This platform recognizes breakthrough Indian innovations that have positively influenced lives. The tally of award-winning innovators till now is 41.

  The Foundation’s Social Innovation Acceleration programme launched in 2011 provides customized capacity building, strategic advisory support and acceleration facilitation over a 12–18 month period; The Foundation has successfully accelerated five Social Enterprise Projects over the last two years.

  The Foundation has also recently launched a quarterly magazine Innowin that continuously generates and disseminates knowledge on innovation in India.

  The Marico Innovation Foundation is steered by a Governing Council consisting of eminent persons who oversee both its vision and direction.

  Visit www.maricoinnovationfoundation.org for further information.

• Sustainability Initiatives

  Marico has made concerted efforts in conserving the ecology and institutionalizing a ‘Green mindset’ amongst Mariconians. It has also implemented 50 ideas in the area of energy, water and paper usage reduction in the last two years. Marico has implemented process changes in manufacturing by investing in equipment and reducing energy consumption and reduction in the usage of plastic.

  Marico has applied for green certification of the entire project of design and layout of the new office. Intelligent light sensors are installed that gauge the outside or ambiance light and adjust the internal lights automatically.

  Water free Washrooms: Marico has gone far to save water: 42,000 gallons of it, every year through low water flushing toilets.

  The Other Initiatives are as follows:

  ‘Farmer First’: program was launched in safflower growing belts in June 2012 with the vision ‘socially responsible growth by keeping farmers as the pivot’. Under the initiative, 12500 saplings were distributed among the farmers free of cost for plantation, 1300 quintals certified seeds were sown over 32000 acres of land which improved farmers yield by up to 15 percent. A PPP model with Government of Maharashtra was worked out in Solapur and Akola districts covering 49 villages, 495 farmers and 900 hectares. This initiative has benefited (a) Farmers - by increasing their yield by 20 percent, (b) Marico - by improved safflower buying surplus domestically and (3) Society - with a greener tomorrow.

  Cluster Farming Program: This program was aimed at forming a cluster of coconut farms in an area without ignoring a single farmer in the designated area. The farmers then got together as a group and discussed the agriculture practices to be adopted under the help of a technical expert who guided in preparation of farm, fertilization, pest control, intercropping etc.

  Through the cluster program, Marico has coordinated for productivity improvement initiatives in 61 coconut clusters involving 7982 farmers covering 1737 Ha. of coconut gardens. The 2 year intensive productivity improvement program by scientific fertilization, inter-cropping and pest control has given a yield improvement close to 20% in coconut gardens covering over 3 lakh coconut palms. The program has benefitted (a) Farmers - by increasing their income by 20% and (b) Marico - by improving its productivity by 20%.

  Members: Member wellbeing has a direct impact on the Member Engagement with the organization. Marico gives importance to the overall wellbeing of a member and offers workshops and seminars in the areas of emotional, financial, health and community wellbeing.

  In the area of community wellbeing, Marico participated in the Joy of Giving Week, an initiative that promotes giving. During the Joy of Giving Week, the ‘Member Volunteering Opportunities’ initiative was launched, as a prototype in Mumbai.

  Society: Assistance is provided to neighbouring communities through various health and education programs, help to underprivileged and deprived children and support to differently abled and destitutes.

  A unique project ‘Pratyek Themb Mahatwacha - Each Drop Counts’ was undertaken in Jalgaon to educate the school children, their parents, teachers and society in general about the importance of water conservation. 5000 plus students were connected directly across 8 major schools and 10000 booklets on water conservation were printed and distributed to many schools around Jalgaon rural areas.

  Green Initiatives: Several Initiatives were taken to reduce GHG emission in Kanzikode, Dehradun and Baddi. Rain water harvesting and tree plantation activities were undertaken at Paonta Sahib. Reduction in power consumption was reported in Kanzikode, Paonta Sahib, Dehradun, Baddi and Pondicherry through various initiatives.

  Awards: Kanzikode won the Kerala State Safety Award for the 3rd consecutive year for the safety initiatives.

BUSINESS STRATEGY

Marico’s business model is based on focused growth across all its brands and territories driven by continuously improving value propositions to consumers, market expansion and widening of retail reach. Marico aims to be the leader in each of the businesses; by heightened sensitivity to consumer needs, setting new standards in the delivery and quality of products and services through processes of continuous learning and improvement.

Marico Industries, well-known Indian fast moving consumer goods (FMCG) Company, offers unique and ethnic Indian products. Prompted by the sluggishness in its core businesses of hair oil and cooking oil, Marico had, a few years ago, taken a strategic call to tap new categories.

In order to make the business profitable, Marico had segmented and targeted the market on the basis of generation, age, gender, income groups, lifestyle etc.

Segmentation, Targeting and Positioning of Saffola Brand

The brand building efforts by Marico for Saffola is to target health conscious consumers and maintaining the association between Saffola and heart care. It also deals with Marico’s innovations in product formulation (like the launch of blended edible oils), product delivery and pricing strategy.

Marico’s approach has changed towards advertising but it is still using its successful healthy heart theme which has placed itself in the minds and hearts of the consumers.

• The initial advertising which was around 1992 did position Saffola on the specialist platform, but as a therapeutic product to be used only if you suffered from heart disease.

But the heart health positioning was dropped when Marico extended into blended oils in 1998 with the launch of Tasty Blend, following a safflower crop shortage in the previous year.

• In order to appeal to other consumers in other segments in 2000, Marico unveiled a snazzy 40-second TVC for Saffola, devoid of heart attacks and anxious housewives. It just showed snippets of healthy and fit people with the jingle: ‘I want to live healthy’.

After integrating its newly acquired brands, Set Wet, Zatak and Livon (from the Paras Personal stable) into its sales and distribution network in India, Marico is currently working on implementing similar strategic plans in global markets.

According to Gupta, the Company has a sizeable presence in the male grooming and styling segment across various markets. ‘There will be many opportunities for cross-pollination of products despite the fact that we are serving different markets with different brands across the globe,’ he added.

Transformation: In order to enter businesses of the future that take advantage of India’s young demographics and leaves a lot of headroom for growth, Marico is focusing on beauty (personal care,), wellness (breakfast cereals) and youth (styling and grooming).

Marico is increasing its focus on the fast growing youth category of brands from the traditional oil business. These businesses cater to the 250 million Indians under the age of 35.

Extension into New Categories

Marico has extended its presence well beyond oils (Parachute, Nihar and Saffola) with Parachute Advansed Body Lotion, Saffola Oats and acquisition of brands like Set Wet, Zatak and Livon.

Marico’s Acquisition Strategy

Besides, diversification, Marico has resorted to a strategy of expansion through acquisitions. During the period 2006-2012 it has acquired the following brands:

In 2012 Marico acquired the erstwhile business of Paras Pharmaceuticals from Reckitt Benkiser which included popular youth brands like Setwet, Zatak and Livon.

This acquisition provided Marico significant synergies to drive future growth of the company and to connect with the youth segment. As Saugata Gupta, CEO, Marico Limited says; ‘If you look at the future demographic trends, these categories are going to continue to grow, so we expect to participate in these categories. If you really look at it, we also are present in most of the categories in either India or international markets. So in terms of capability, consumer insights and in terms of product portfolio, we do have a significant knowledge in these categories.’

Separate Space for Constant Innovation: Marico chose to keep the acquired Paras brands in New Delhi away from its head office in Santa Cruz, Mumbai. This physical distance allows the team to function with the same agility as it did when it was under Paras.

It may be observed that besides Indian brands there are also foreign brands from countries like Egypt, South Africa, Malaysia, Singapore and Vietnam. The brands are also extensions of the product lines of Marico and therefore provide a lot of synergy.

One of the qualities that differentiate Marico from its competitors is in the area of Decision Making and in the Empowerment of its people. Marico has a flat organizational structure, with just five levels between the Managing Director and the Shop floor operator. Hence, managers are given a lot of authority at a very young age. This gives Marico a competitive advantage over the multinationals who have to frequently seek guidance and direction from their head quarters in the USA or UK.

Demerging of Kaya Skin

Marico has de-merged its skincare business under Kaya Skin Care Solutions and listed it separately as Marico Kaya Enterprises (MaKe). The restructuring has been done to consolidate its fast moving consumer goods (FMCG) business by converging its consumer products business and the international business, even as it keeps its skin care business as an independent entity. This came into effect from 1st April 2013.

Keen to enter the retail business a decade ago, the entrepreneur decided to stay away from the regular modern retail business. Instead, he went into a niche area with the concept of skin-care solution clinics under the Kaya brand. The year was 2003 when Marico was a cash-rich, debt-free company and Mariwala could afford to take risks. It was unconventional for an FMCG company to foray into retail services, as it was unrelated to its original line of business.

‘As there was a lot of interest in retail during that time, we decided to try out niche retail in the area of dermatology as the cost of hiring a dermatologist would be much cheaper in India. After some quick market research, we decided to set up a single incubation cell with a manager who would report to me directly and head a small, entrepreneurial team,’ reminisces Mariwala, quite aware at that time that it was going to be a ‘long battle’ in the retail business.

In the past decade, Marico’s Kaya business has witnessed high-profile employee exits, including that of an MD. ‘Kaya was being clouded by Marico’s policies and did not have the required retail mindset for the business. It was not being run as a retail company, coming as it did from an FMCG background,’ recalls an ex-employee of Kaya.

‘After the announcement of Kaya’s demerger, Marico’s stock has been doing well and the return on equity will improve. While the focus would go back to the FMCG business, there will not be any major difference in the way the company is functioning,’ says Abneesh Roy, Associate Director, Edelweiss Capital.

Marico shareholders will be issued one share of Marico Kaya Enterprises (MaKE, to be formed) with a face value of ₹ 10 each at a premium of ₹ 200 per share, for every 50 shares of Marico with a face value of ₹ 1 each.

In spite of Kaya’s top-line growing, the same stores sales growth had slowed down to single digits. But now with smaller stores planned under Kaya with focus more on products than services, a turnaround in the skin care business may be imminent.

Five prototypes of Kaya Skin Bars are being planned in cities such as Delhi and Bangalore and these would stock products rather than offer skin care services. The Kaya range is also being offered at counters in Lifestyle stores.

A recent report on the Indian consumer by Deutsche Bank states, ‘For Kaya there is going to be light at the end of the tunnel. The format may be some time away from profitability but the business is showing strong growth. The focus on product sales has led to higher footfall through a shift from ‘cure’ to ‘prevention and cure’ positioning. The smaller store format and the Derma Rx acquisition are going to be the key reasons for the turnaround. The revenue per quarter of about ₹ 40 crore has jumped to ₹ 91.5 crore in the second quarter of 2013.’

RECENT DEVELOPMENTS AND FUTURE PLANS

Harsh Mariwala is a quiet, simple man who has taken Marico from a small business in 1990, with a turnover of ₹ 80 crore and share capital of ₹ 90 lakh, to a market capital of ₹ 14,869 crore today. ‘We are hungry for growth,’ said Harsh Mariwala. The company is undergoing a radical change in its functionality making a shift from the so-called branded commodities to more value-added brands. In Mr. Mariwala’s words, ‘transition is still continuing as we have now made inroads into male grooming’

With a growth rate of 18-20 percent annually, Marico’s strategy is clear which focuses on youth centric products in the emerging markets. It includes hair gel, deodorant and so on.

Marico’s previous portfolio was largely shielded from competition from MNCs, acknowledges Mariwala. ‘As we introduce more value-added products, the whole organization has to change its approach in managing the business. It is not just in marketing, but also sales. How do you distribute your product, how do you package your product, product development, and even manufacturing,’ he adds. ‘You need a different type of finish... the whole organisation is going through a far more complex journey and the challenge for us was to change all around.’

From a single digit share in FY05, about 24 percent of the group’s turnover is now contributed by Marico’s international FMCG business. Marico’s key geographic presence is in Bangladesh, Middle East, North Africa, South Africa and South East Asia. Meanwhile Malaysia and Vietnam are two geographies that Marico is quite excited about.

For their long-term sustainability, Marico concentrates on talent and innovation and exploits opportunities in the market place. Marico has still been able to retain its unique culture despite growing big, and expanding its workforce. ‘Ultimately, talent plays a very important role. For every organisation to grow, talent and innovation play key roles. If you get good talent, if you are focused and you give them the right culture, then things will happen automatically,’ says Mariwala.

In the last 10 years, Marico has won over 100 awards, he points out with pride. ‘We have been always a unique organisation. Our people policies have been different. The way we delegate and empower people has been different,’ ‘If you take the right talent, innovate, have right processes and if you are best in class at whatever you do, then it has to reflect in what you do,’ adds Mariwala.

Marico as an organization has never been averse to taking risks. Mariwala is known to empower his employees and encourages them to take risks. ‘Unless I encourage launches and I encourage failures, people will stop taking risks. It is good to take risks, and it is good to fail as long as you learn from those failures,’ says Mariwala.

Going further, towards social responsibility, in 2012, Mr. Mariwala has set up the ‘Ascent Foundation’. The mission of the foundation is to identify entrepreneurs with potential, enable them in their growth journey, and make them capable of facing the challenges while growing an enterprise.

Marico has been unusual in that it has garnered a strong segment of the market despite global giants in the same space.

The personal care segment in India is certainly growing at a fast pace and this trend is expected to continue as levels of disposable incomes increase. Marico has been able to identify large segments which did not have multinationals competing such as hair oils and edible oils. These categories do have some regional competition but that is relatively easier to manage.

Now it is important to target larger and fast growing segments for further growth and these segments may have more competition. The Company has recently entered newer categories like Breakfast cereals, skincare, male grooming and styling. The competitive landscape is obviously different. However, Marico has forayed into these relatively higher competitive segments with a differentiated positioning. At the same time it ensures that a large part of the market share is not already dominated by 3 or 4 players. These segments also have very low penetration which offers large headroom for growth and hence, there is a robust category choice making framework in place.

Marico holds leadership positions in the categories of hair oils and edible oils.

Marico will focus on hair care and skincare segments under ‘Beauty’ and on healthcare in ‘wellness’. There is a sharp category choice-making framework in place that not only looks at category attractiveness but also the right to win. Marico will stay with this approach as the same has yielded good results so far.

Marico will look to grow in volumes ahead of the category growth thus improving market shares. It already occupies one of the top 3 positions in most of the segments it has entered over the past couple of years for example: in the leave-on conditioners market the company has number 1 position with over 80% share led by Livon, Parachute Advansed body lotion occupies number 3 position with over 7% share in the body lotions segment, Saffola Oats franchisee occupies the number 2 position with over 14% market share in the oats segment.

These categories offer large headroom for growth, as the penetration levels are still low.

The growth in the current year is expected to be led by volumes as the component of price increase is expected to be low to negligible. The priority of the company will therefore be to continue to grow in volumes, improve market shares, expand distribution network and invest behind brands and people.

QUESTIONS FOR DISCUSSION

1. What are the characteristics of the FMCG Industry and comment on the prospects for Marico?
2. Is there a relationship between population increase and demand for FMCG products?
3. Describe how Marico’s Vision, Mission and Values have given direction to the Company’s progress?
4. Which are Marico’s product lines and describe its strategies for improving its market position in them?
5. Why was the company not affected adversely by the global slowdown?
6. What are the key elements of Marico’s HR policies and how have they impacted the company?
7. What has been Harsh Mariwala’s role in the development of Marico?
8. Elaborate on the work of the Marico Innovation Foundation
9. What are Marico’s future plans?