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Dewan Case Study

4936 words - 20 pages

Dewan India.  

CONSUMER PACKAGED GOODS – INDUSTRY BACKGROUND  CPGs  were  packaged  household  groceries  and  supplies  consumed  readily  and  regularly,  including  foods,  personal  care  products  and  detergents,  among  others.  The  CPG  industry  comprised  manufacturers,  wholesalers  and  retailers.  A  broad  spectrum  of  competitors  prevailed,  from  standalones  occupying  niches  to  integrated  firms  straddling  the  continuum.  Globally,  profit  margins  were  generally  low  for  CPG  companies,  and  their  business  models  emphasized  cutting  costs,  and  chasing  volumes  and  elusive  top‐line  growth.  Three  factors  ...view middle of the document...

  Home  care  products, snack food products and health‐care products were also growth categories.  The  CPG  industry  in  India  had  a  total  market  size  in  2006  of  $13.1  billion  (not  including  soft  drinks and tobacco products). Foods (including groceries) comprised 44 per cent of CPG sales.  Unlike the North American market, which was dominated by a few global players, the Indian  CPG market was fragmented, with over half the sales accounted for by mom‐and‐pop outfits  making  and  selling  unbranded  and  unpackaged  goods.  This  presented  an  opportunity  for  consolidation through economies of scale for makers of branded products. But building brands  was  challenging  in  the  Indian  context.  National  coverage  was  difficult,  particularly  for  new  entrants. There were over six million retail outlets in the country – two million urban and four  million rural. The supply chain was underdeveloped, and logistics were costly and challenging.  Although, overall, CPG transactions accounted for a significant part of the consumer’s budget,  they were of small individual value, making them unremunerative for marketers.  But what made India attractive was that its CPG market was among the fastest growing in the  world. The Indian economy was poised to grow at 9.2 per cent in 2007‐2008, after posting a  compound average growth rate of 8.6 per cent over the previous three years. The population 

INTRODUCTION  In  June  2007,  consumer  packaged  goods  (CPG)  companies  around  the  world  were  optimistically  betting  on  growth  in  India.  Dewan  India  Ltd.  (Dewan)  was  among  the  top  10  CPG1  companies  in  India  by  revenue  (see  Exhibit  1).  Dewan’s  chief  executive  officer  (CEO),  Sunil Duggal, was bullish on the Indian market, yet he was also convinced of the imperative to  internationalize. Scheduled to meet soon with a group of institutional investors to brief them  on the company’s growth strategy, Duggal had to factor in concerns about the priorities of the  company’s  international  business  division,  and,  in  particular,  he  needed  to  address  the  concerns expressed among foreign institutional investors. Duggal anticipated their questions :  Shouldn’t Dewan first build scale in the fast growing domestic market before attempting to go  global? Wouldn’t a strategy of pursuing new global markets detract from the company’s core  market  in  India,  where  it  was  beginning  to  face  growing  competition  from  international  players,  a  fast  changing  retail  landscape  and  an  ever  more  fastidious  consumer?  Wasn’t  the  growth  pattern  within  the  international  business  division  skewed,  and  likely  to  be  further  skewed (see Exhibit 2)? 

Duggal was keenly aware of the detractors’ arguments :  Whenever  an  Indian  company  announces  a  domestic  expansion,  through  an  alliance  or  acquisition,  its  stock  price  goes  up.  But  on  news  of  an  overseas  expansion, ...

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