strategy formulation (sf) analysis analysis of marico’s strategies to drive growth compiled by:...
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Strategy Formulation (SF) Analysis
Analysis of Marico’s strategies to drive growthCompiled by:
Group 1
Ayush Bagla (B004)Mitali Bhende (B007)
Aditya Choudhry (B012)Gagan Gulati (B018)
Shraddha Kalantri (B027)Nipun Mehta (B038)
Overview of Marico
• Marico is one of India's leading Consumer Products & Services companies in the global beauty and wellness space.• Marico is present in more than 25 countries across Asia and the African continent. Turnover of INR 4596 crore in 2012-2013.
Marico’s sustainable competitive advantage
• Backward integration: Supply chain activities
• Distribution
network
• Innovation in
packaging
• Branding
Valuable Rare Costly to imitate
Non substitutable
Overall business growth
• Marico achieved revenue from operations of INR 4596 crore(USD 851 million) during FY13, a growth of 15% over FY12. The volume growth was at 12%. .
Overview of Marico
• Marico is a market leader in hair oil, coconut oil and refined edible oil categories. Being a market leader, it has a strong competitive position in these categories and has achieved penetration in the market. Parachute and Saffola recorded a volume growth of 10% and 7% during FY13. Whereas value added hair oils (Parachute Advansed, Nihar and Hair & Care) recorded volume growth rate of 24%.
• To reduce its over dependence on its 2 major brands (Parachute and Saffola) which together account for more than 60% of total revenues and to tackle the sluggishness in its core business of hair oil and cooking oil, Marico needs to take a strategic call to tap different categories. Therefore, Marico’s primary task is to fuel growth through other avenues and to change its revenue mix with the help of a more balanced portfolio mix.
Segmental business growth
Business revenue mix
Corporate Strategy Problem Statement
Marico’s core business of hair oil and edible oil is experiencing slow growths. The oil business, especially coconut oil segment, is faced with tepid demand, fierce competition and commodity price inflation. Also, more than 50% of the revenues come from the oil business and hence there is over dependence on two major brands. The key problem is how should Marico strategize to drive growth in face of these problems?
Strategies Adopted
Prompted by sluggishness in its core business of edible oil and hair oil, Marico chose to search new business drivers and spurt growth through following strategies adopted.
Analysis of strategies adopted
Product DevelopmentMarico pursued product development strategy through brand extensions of Parachute and Saffola brands. Marico has been attempting to get a foothold in different consumer categories by expanding its portfolio.
Parachute Brand Extension
Parachute also entered men’s grooming and body lotion category. Personal care brands have been benefitting from the surge in personal grooming in India. Personal grooming though dominated by major MNCs, boasts growth rates of 20-25 percent, far higher than 7 percent seen in Marico’s core categories. Men’s grooming brands also are in line with future trends and have a lot of headroom for growth.
Saffola Brand Extension
Some of the products were neglected as far marketing efforts are concerned. To enter into new categories the company would also require to have the patience and provide monetary backing to have a long term plan for a successful brand..
Analysis of strategies adopted
Market DevelopmentMarket development involves introducing present products and services into new geographic areas. Marico has expanded its operations into emerging economies of Middle East- North Africa (MENA), South Asia, Bangladesh and Vietnam. These economies provide enough headroom for growth due to rising incomes and low penetration. The company has a presence in over 25 countries.
PARAS PHARMA ACQUISITION
• Personal Care brands of Paras Pharma from Reckitt Benkiser
• Including products like Zatak, Set Wet and Livon
• Acquistion Cost: Rs 760 Crore
WHAT DID MARICO ACQUIRE?
• Setting up a similar business from the scratch
• Advertising Campaign Cost
• Also require to strengthen distribution system
BUY v/s BUILD DECISION
3-5 YearsRs 25-30 Crore
PRE ACQUISITION ANALYSIS
CHALLENGES
• Competitive Intensity
• Demands Constant Advertisement Support
• Demanding Consumer Base
• Shift from traditional Marico Advertising Approach
• Distribution extended to Cosmetics Outlets, Chemists
INVESTMENT RATIONALE
• Higher Growth Rates Compared to Categories Marico then operated in
• Youth Oriented Portfolio
• Leveraging on the synergies of the Male Grooming Category
• Demographic Dividend
INVESTMENT RATIONALE
SPACE MATRIXSPACE MATRIX
EVALUATION
FY 2014 Performance (Half Year)Youth brands reported revenues of Rs 42 Cr with a 30% Y-o-Y growth in H1FY14 and the segment is expected to main a 25% growth rate in the
medium term
ACQUISITION OF KAYA
Analysis of strategies adopted
Unrelated diversification
Slow Growth for Marico before the acquisition
1999 2000 2001 2002 20030
1000
2000
3000
4000
5000
6000
7000
8000 CAGR = 9%
1999 2000 2001 20020.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00% 41.50%
32.70% 33.50% 32.30%
Slow Growth in Sales Declining/Stagnant RoCE
2001 2002 2003
Cash 46.74 128.08 182.90
D/E 0.02 0.03 0.05
• High cash balance• Low debt
Slow Growth for Marico before the acquisition
The Grand Strategy Matrix
1. Market Development2. Market Penetration
3. Product Development4. Horizontol Integration
5. Divestiture6. Liquidation
1. Market Development2. Market Penetration
3. Product Development4. Forward Integration
5. Backward Integration6. Horizontal Integration7. Related Diversification
1. Retrenchment2. Related Diversification
3. Unrelated Diversification4. Divestiture5. Liquidation
1. Related Diversification2. Unrelated
Diversification3. Joint Ventures
Strong Competitive Position
Weak Competitive Position
Rapid Market Growth
Slow Market Growth
The Grand Strategy Matrix
Advantages Concerns
Growth of branded salons
Problems with present
oil business
Aspirational image
Unsaturated market
No first-mover advantage
No previous experience
May not be
sustainable in long run
Advantages outweigh the concerns Advantages outweigh the concerns
Rationale behind acquisition of Kaya
High cash balance and low debt
2001 2002 2003
Cash 46.74 128.08 182.90
D/E 0.02 0.03 0.05
Rationale behind the acquisition
• Problems with present oil business
• Growth of branded salons
• Unsaturated market
• Aspirational Image
• Strong management confidence
Concerns for merger with Kaya
No first mover advantage
No previous experience
May not be sustainable in the long run
Rationale behind acquisition of Kaya
Porter’s Five Forces Theory for Retail Skin-Care Market
Porter’s Five Forces Theory for Retail Skin-Care Market
Intensity of
Rivalry
Threat of new entran
ts
Bargaining power of buyers
Threat of
substitutes
Bargaining power of suppliers
Threat of New Entrants: Moderate
• Economies of scale are not very important
• Visibility ,number of outlets, brand name & recall
• Exit & entry barriers
Competitive Rivalry: High
• Product differentiation
• Organized and unorganized sector
• Market positioning, promotional campaigns
Bargaining Power of Suppliers: Low
• Products produced in-house
• Large supply of the dermatologists and staff
Bargaining Power of Buyers: High
• Female urban consumers with a high disposable income
• Can switch to local salon and independent dermatologists
Threat of Substitutes: Moderate• Service is customized and has a
high aspirational value• Cheaper substitutes/better brand
name• Customer loyalty programs
SWOT Analysis of Marico and Kaya as a combined entity
StrengthsUnrelated Diversification Of PortfolioUnsaturated Retail Skin-Care Market
WeaknessesWeak Financial Performance
Lack Of Entrepreneurship Lack Of Consolidation
OpportunitiesGrowth Opportunities Of Retail Skin-Care
ThreatsUnder Utilization Of Talent
Cultural Differences
SWOT Analysis of
Marico and Kaya as a combined entity
SWOT Analysis of Marico and Kaya as a combined entity
Conclusion
Having analyzed strategies pursued by Marico to spur growth, we conclude that some of the strategies were aimed in the right direction while others are critically analyzed to suggest alternatives. The strategies pursued by Marico result in diversification of portfolio to introduce a host of brands from breakfast foods, men’s grooming, hair care and personal care. These categories hold promise of high growth rates and leverage on large young demographic across emerging economies. Introduction of new brands has decreased the over dependence on Marico’s business strongholds and introduced newer capabilities. The business is poised to grow faster as the newly acquired/built brands bring resources in form of India’s young demographic.
CONCLUSION