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Case View with Neelima Burra (A) - Edible Oil Retailing in India and the Role of Cargill Foods India

Case View with Neelima Burra (A) - Edible Oil Retailing in India and the Role of Cargill Foods India
ET Cases, 16 Pages
AUTHOR(S) : Dr. Nagendra V. Chowdary

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Edible Oil Retailing in India and the Role of Cargill Foods India

Neelima Burra

I. Edible Oil Industry/Market in India

1. How would you define the nature of edible oil as a product and what are the business implications thereof? Also describe India’s edible oil market in terms of its size, the composition etc.?

Edible oil constitutes an important component of food expenditure in Indian households and it is an indispensable commodity. Oil is the first thing that goes into the utensil while preparing an Indian dish. It is used to make deep fries, make the tempering to add flavor and aroma, to impart necessary texture, mouth-feel and bite to biscuits and cookies. In some places of the country, flavored oil is also used on the top of a meal to add flavor and taste. This aspect of India makes it a very special market where more oil is consumed directly than used as a bulk ingredient for businesses.

Consistent growth in edible oil consumption has been due to rise in overall household income, increasing trend in spending & better living standards, rise in per capita consumption, surging retail sector & growing affluent population. With growing health awareness, consumers are trading up to higher-priced olive oil, low-fat and low-cholesterol oils and fats increasingly. They have become very particular about their eating habits and increasingly health conscious switching to healthier varieties of oils. Though it contributes only a small proportion to overall sales of oils and fats in the country, value added products are fast growing.

The country sees a very predominant region-specific consumption patterns. Soyabean oil, for instance, is predominantly consumed in the North and the East, but in both regions, mustard oil remains the first choice. Sunflower oil is popular mainly in the South. In the West, sunflower and soyabean have become the major oils, yet they have not eliminated groundnut and cottonseed oil. Another important point to note here is the price positioning of the regional brands have remained premium with market share domination in their core regions.

The above reality makes the edible oil market in India highly fragmented with a presence of over 500 brands – mostly regional and local that have developed their own strongholds over the decades, garnering 40%-50% (as per industry sources) share in overall sales. There are several players that operate in regional pockets which have established their brands in their limited geographies over many years. At the same time, the consumers’ need for health and wellness in the country has grown manifold leading to an upsurge in the launch of value added products like blends and other imported oils like olive and canola hence increasing their penetration base in a very quick pace.

In addition, edible oil industry in India is one of the most unorganized sectors in terms of distribution. The size of the edible oil market is 21 million metric tons, out of which 6 million metric tons is catered to by organized sector and the rest is through the unorganized market (as per industry sources).

The implications of doing successful business in edible oil category in India is to have a range of oils catering to the specific needs and demands of different consumer segments – whether regional, mass-premium, premium or health & wellness related. In India, Cargill Foods India’s operations started in 1987 and it has businesses in refined oils, fats and flour. Cargill markets leading consumer brands of edible oils, fats and flour such as NatureFresh, Gemini, Sweekar, Leonardo Olive Oil, Rath and Sunflower Vanaspati brand of hydrogenated fats in India.

2. How do you contrast India’s edible oil market with the developed countries edible oil market, especially from the point of view of the organized and unorganized sector’s composition?

The usage of edible oil in developed countries is different from the India’s edible oil market because of the sheer food habits of Indians. In India, oil is the first thing that goes into the pan during the cooking process, whereas in most of the other countries, it is usually consumed post the cooking process is over and as a dressing on salads and dips.

Secondly, in India, food is equated to culture and religion. It is also a part of not just our day to day but of our every occasion whether happy or sad. In a majority of households, food still defines how well the child is being taken care of or how much the homemaker loves her family. “Maa ke Haath ka Khaana” is still what most Indians drool on. The relevance of home cooked food in the country makes this a country that eats out much lesser than the other developed countries. Hence the need for oil is much bigger at homes than anywhere outside of it.

Lastly, in most parts of the country, the sale of loose oil is still prevalent, especially in the rural markets where the unorganized sector is dominant. More than 70% of the edible oil industry is unorganized and one can witness many independent small units refining and packing oil in transparent pouches and tins. This also leads to a lot of counterfeiting in this industry where a fake brand creates pack closely resembling the original brand. Organized sector helps to improve the quality of oil by maintaining safety standards and thereby improving the quality of lives of the people, whereas in the unorganized sector there is a huge possibility that quality might get fraudulent and the consumer may end up paying a high price for a low-quality product.

Therefore, Companies like Cargill Foods India are adopting innovative technologies to track distribution presence and manage the menace of counterfeiting to ensure that quality products reaches its customers in least possible time while meeting the customer satisfaction levels.

3. What do you think are the key business drivers for edible oil business/brand in India? In other words, what according to you are the critical success factors for an edible oil brand in India?

Like every business, consumer is the core of edible oil business as well. What the consumers need from the category is the primary driver of this business. Hence, an efficient innovation and R&D system is very critical to this business. Followed by this is the other critical aspect of managing the consistency in the quality of the products. An efficient supply chain ensures that the quality and efficiency of the product is maintained during all times of movement i.e. port to consumer. Lastly, the marketing of any product starting from packaging to differentiating on the shelf among so many other brands, efficient distribution to be available at the shelf at all times so that the brand develops a loyalty amongst the consumers, unique selling proposition, generating awareness, consideration and preference at the store are also the critical business drivers for the edible oil business in India.

4. Why is that the branded edible oil market or the organized edible oil market in India hasn’t been growing?

The market share of the organized edible oil sector is approximately 30%, whereas the share of the unorganized sector is more than 70%. The growth of the organized edible oil sector is getting hampered due to some inefficiencies like the distribution gap or selling of the loose oil or counterfeit products. All edible oil companies are yet to reach the remote and minute areas of the country, where people are not completely aware of the difference in quality of packaged and loose edible oil. Cargill Foods India is trying to fill in the gap through various means such as:

• Launch of smaller SKUs like 500ml to reach out to the consumers who would like to buy little oil, to convert consumers from loose to branded oil, especially in rural areas

• Technology to keep a track on the sale of the goods in the distribution channel

• Technology to curb the menace of counterfeit products by empowering the consumers to differentiate genuine product from the fake one

• Fortification of the range of oils and fats to provide health benefits to its consumers. In fact, Cargill Foods India is the pioneer of edible oil fortification in the country

5. What have been the five major and probably the defining shifts in the Indian edible oil market in the last ten years?

1. The consumers are slowly and gradually shifting from loose oils to packaged and branded goods. As the health consciousness has developed, the penetration of branded products have also increased pushing many players to become more organized in their business operating systems.

2. While regional preferences for the oil category still exists, the health conscious consumers have started experimenting with their cooking oil. The shift has been from kolhu generated local oils to refined oils to now the blends and imported oils. Now a days, one sees a lot many launches of value added health oils.

3. Technology is being used at a much faster pace to create efficiency in the distribution system.

4. Packaging innovations are happening like never before. From structures to different SKUs, everything is fast changing.

5. Distribution is gradually shifting from traditional methods of wholesale to a lot of retail sales. Modern Trade and eRetail is everywhere evolving.

6. What is your assessment of India’s edible oil market from the point of view of consumer behavior, brand appeal, market promotions, channel efficiencies and logistics?

Despite the fact that edible oil category has regional and cultural flavors, momentum towards health oils like blends and imported premium oils like olive is growing at a fast pace. This increasing health consciousness amongst the consumers isn’t making them change their food habits in the same pace, however, the consumers are now increasingly looking at alternates that are healthier than the others. Light oil, oil with added nutrients, oil that is good for the heart, low cholesterol oil, pure oil etc. are making the consumers shift from their traditional oils. Not just the brands, consumers are slowly but steadily shifting from their traditional categories of oils like cottonseed and mustard to refined oils.

In the above scenario, consumers are also shifting their brand preference and have no loyalty towards any one brand of oil. Therefore, building brands through the purchase cycle is a very important aspect of this business. There are more than 500 brands of edible oils available in the market today with only a few with a good brand equity. Connect of the brand with the insights of what the consumer is seeking from her oil is a very critical criteria for a brand to have an appeal with the consumers. Promotions do help in generating trials and gaining new consumers into the brand portfolio but sustaining promotions for a long time doesn’t help in creating a sustainable brand equity as the brand becomes an offer brand and is picked up only if another brand is not available with a better offer.

Channel efficiencies are imperative to complete the demands of the consumers and ensuring that the products are not just available but visible at the shelves at all times. Logistics also needs to support the on-demand behavior of the channels. Making sure that the distribution channel is efficient and ensuring that only genuine product is reaching the consumer even in the remote areas of the country, companies like Cargill Foods India introduce technology in their distribution system.

7. What is the role of marketing in a highly commoditized product like edible oil?

Brands in Cargill Food India’s portfolio cater to varied consumer segments with differentiated demographics, psychographics and geography. The choice of oil is a very complex process involving the cultural background, cooking and health needs. Price also plays a role since consumers don’t see perceptible difference in various brands of oils. Therefore, engaging with the consumer is an important element of our strategy. While ATL is important for creating brand awareness, BTL plays a huge role in the last mile conversion for all our brands. Emphasis on reason to believe and engagement with the brand at the ‘place of conversion’ i.e. the shop floor goes a long way in driving purchase.

Inducing trials to gain new consumers into the portfolio is also very important in this category. Wet sampling, offers and promotions, contests and engagement are the criteria that generate trials.

New age categories require a lot of efforts on changing consumer behavior. One must look at exploring innovative marketing strategies to not just create awareness but also build advocacy and referrals.

Packaging and distribution are yet another critical aspect that helps in making the brand visible and differentiated at the shop floor so that it can advertise for itself. It is an important communication medium for establishing the value proposition of the brand.

8. Given the facts that edible oil being a non-cyclical product, what according to you would be the prime sales drivers?

The usage of the edible oil in a country like India is always on demand because any form of Indian cooking starts with pouring the oil in either wok or cooker. But during the festive period or marriage season, the quantum of the consumption of fried food goes up, thereby increasing the sales volume of oil in both B2C and B2B. The other sales drivers are the offers and the special discounts that consumers get to enjoy on regular intervals.

9. Given the nature of the product and the inherent channel inefficiencies, what should be the right approach for branded edible oil players like Cargill, Marico, Adani Wilmar, Sundrop and Mother Dairy etc.?

The channel inefficiencies in the FMCG sector are happening primarily at the distributor and wholesaler level, mostly because of the lack of control. The distributor and the wholesalers have the opportunity to replace the original with counterfeit. In such scenario, Cargill Foods India focuses upon the organized sector for its primary distribution. It also uses technology to monitor the retail footprint of all its brands hence keeping a track of any leaks. It has also adopted anti-counterfeiting technology to empower the consumers to identify genuine products over fake ones.

II. Cargill & Cargill Foods India

10. Cargill has been in business for over 150 years with total revenues of $107.2 billion, what have been the significant inflexion points over the last 150 years?

Cargill provides food, agriculture, financial and industrial products and services to the world. Together with farmers, customers, governments and communities, we help people thrive by applying our insights and more than 150 years of experience. We have 150,000 employees in 70 countries who are committed to feeding the world in a responsible way, reducing environmental impact and improving the communities where we live and work.

When Cargill began in 1865, our business was founded on the belief that “our word is our bond.” Today, as a diversified global company still grounded in a culture of trust and respect, this remains the standard by which we do business. We operate with integrity and accountability.

We focus on meeting today’s needs without impairing the world’s capacity to serve future generations. Cargill’s interest extends beyond our own operations to the suppliers, partners and other stakeholders in our supply chains. We are passionate about our goal to be the global leader in nourishing people and operating responsibly across the agricultural, food, industrial and financial markets we serve. Cargill helps build vibrant and stable communities where we live and work by supporting programs that provide long-term solutions to community issues, engage our employees and leverage their expertise and offer opportunities to collaborate with others.

We know that our ability to grow as a company depends on the way we treat people, how we enrich our communities and how well we serve our customers. Through the efforts of our employees, Cargill will continue to grow profitably and responsibly to meet the needs of a diverse, expanding and interconnected world.

Cargill in India is operating for about 30 years in Edible Oil & Food Ingredients, Grains & Oil Seeds, Sugar, Animal Nutrition, Cotton, Metal, Global Trade Solutions & Industrial Specialties.

11. Cargill Foods India has been operating in India over the last 16 years. What according to you are significant market and consumer learnings?

Cargill Foods India’s foray into the Indian market started with the initiation of NatureFresh brand of wheat flour in 2001. Presently, Cargill Foods India is amongst the top two players of the FMCG food industry with their wide array of brands. It operates across the various edible oil and wheat flour categories spanning sunflower, soybean, groundnut, mustard, olive oils and wheat flour. It employs more than 2000 employees working across offices, plants, warehouses and depots catering to B2B as well as B2C consumers. Through its gamut of brands, the company touches more than 100 million consumers every day across the country. With the focus on nourishing lives, these brands work towards creating healthier and happier families.

Over the last so many years, Cargill Foods India has understood that the market is fragmented and each region in India has its own requirements and preferences. Each region is connected to their culture, values and most importantly their food. With the passage of time, consumer trends have also changed a lot. Earlier, consumers were not completely aware of their purchase whereas, today consumers are much more educated and understand the importance of each product they buy. Consumers have started to switch to a healthier living, thus Cargill Foods India’s products are fortified with apt vitamins to provide the complete wellbeing to the modern and educated consumers. We offer wide variety of brands for each and every segment of consumer. Range of Leonardo Olive Oil, Gemini Cooking Oil, NatureFresh Sampoorna Chakki Atta, NatureFresh Acti-Lite Oils, Sweekar, Sunflower Vanaspati and Rath Vanaspati are the brands that we offer. According to Euromonitor’s report, growing health awareness has led to many consumers trading up to premium olive oil, low-fat and low-cholesterol oils and fats increasingly over the review period. In addition, the growth of oils and fats has remained driven mainly by the growing population and the high per capita consumption of oils and fats in India. Olive oil remained the fastest growing within oils and fats due to the increasing purchasing power and growing awareness among consumers have boosted demand for olive oil, mainly in urban areas. Cargill Foods India will put further efforts on bringing value added products into its portfolio in the coming years to grow health and wellness category..................................................

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Neelima Burra, Chief Markerting Officer and Business Head - Health & Wellness, Cargill India Pvt. Ltd.

A Business Leader with 17+ years of Sales and Marketing Experience in FMCG, Consumer Durables, FMCD, and Healthcare Industry. Built strong and profitable businesses in B2C, B2B & Retail space by encouraging consumer oriented Brand Marketing, Integrated Business Planning and thought leadership to stay ahead of curve with diverse thinking.

Neelima work as Chief Marketing Officer and Business Head - Health & Wellness at Cargill. Leading a highly motivated team of Sales and Marketing Team to drive Brand Leadership for the company's multiple portfolios of Oil brands Leonardo Olive Oil, Sweekar, Gemini, Rath including Cargill's own brand NatureFresh of oil and atta.

Prior to joining Cargill in 2014, Neelima worked as Head of Marketing at Usha International handling a diverse portfolio of Kitchen Appliances, Home Appliances and Sewing Machine verticals. Led Frost Free Category turnaround and refrigerator business turnaround during her association with Whirlpool Corporation, India as GM Marketing. Championed rural marketing initiatives and re-launch of Tiger Glucose Cream biscuits during her tenure with Britannia Industries Ltd. She started her career with HLL Lifecare Ltd. in 2001 as Product Manager and successfully launched the first ever Female Condoms in India nationally with the widest Media, Advocacy and PR coverage in 2004.

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