ACKNOWLEDGEMENT This project bears imprint of all those who have directly or indirectly helped and extended their kind support in completing this project. This project report has provided us with a deeper knowledge about the food processing industry. We find no words to express my gratitude towards those who are constantly involved with us throughout the project. At the time of making this report we express our sincere gratitude to all of them. We are extremely thankful and obliged to Prof. Sanjeela Mathur for providing streamed guidelines since inception, till the completion of the project which was a constant source of inspiration for us. At this moment we also thank almighty God for the blessings showed upon us, our parents for our support and care and also our friends for their valuable suggestions. This project report is a collective effort of all and we sincerely remember and acknowledge all of them for their excellent help and assistance throughout the project. 1
Transcript
ACKNOWLEDGEMENT
This project bears imprint of all those who have directly or indirectly helped and
extended their kind support in completing this project. This project report has provided
us with a deeper knowledge about the food processing industry. We find no words to
express my gratitude towards those who are constantly involved with us throughout the
project.
At the time of making this report we express our sincere gratitude to all of them.
We are extremely thankful and obliged to Prof. Sanjeela Mathur for providing streamed
guidelines since inception, till the completion of the project which was a constant source
of inspiration for us.
At this moment we also thank almighty God for the blessings showed upon us, our
parents for our support and care and also our friends for their valuable suggestions.
This project report is a collective effort of all and we sincerely remember and
acknowledge all of them for their excellent help and assistance throughout the project.
1
Table of Contents
Introduction to Industry 3
Introduction to Company 13
PEST Anlysis………………………………………………………………………………………………………………………………………15
The food processing industry in India is a sunrise sector that has gained prominence in recent years. Availability of raw materials, changing lifestyles and relaxation in policies has given a considerable push to the industry’s growth. This sector is among the few that serves as a vital link between the agriculture and industrial segments of the economy. Strengthening this link is of critical importance to improve the value of agricultural produce; ensure remunerative prices to farmers and at the same time create favorable demand for Indian agricultural products in the world market. A thrust to the food processing sector implies significant development of the agriculture sector and ensures value addition to it.
The Indian food processing industry holds tremendous potential to grow, considering the still nascent levels of processing at present. Though India’s agricultural production base is reasonably strong, wastage of agricultural produce is sizeable. Processing of fruits and vegetables is a low 2%, around 35% in milk, 21% in meat and 6% in poultry products. By international comparison, these levels are significantly low - processing of agriculture produce is around 40% in China, 30% in Thailand, 70% in Brazil, 78% in the Philippines and 80% in Malaysia. Value addition to agriculture produce in India is just 20%, wastage is estimated to be valued at around US$ 13 bn (Rs 580 bn).
India, with an arable land of 184 mn hectares is, the highest producer of milk in the world at 90 mn tonnes p.a., second largest producer of fruits & vegetables (150 mn tonnes), third largest producer of food grains and fish and has the largest livestock population. Considering the wide-ranging and large raw material base that the country offers, along with a consumer base of over one billion people, the industry holds tremendous opportunities for large investments.
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Ministry of Food Processing Industries
The Ministry was set up in 1998 and the industry segments that come under its purview are:
Fruit & Vegetable processing (including freezing and dehydration) Grain Processing Processing of Fish (including canning and freezing) Processing and refrigeration of certain agricultural products, dairy products,
poultry and eggs, meat and meat products Industries related to bread, oilseeds, meals (edible), breakfast foods, biscuits,
confectionery, malt extract, protein isolate, high protein food, weaning food and extruded food products (including other ready-to-eat foods)
Beer, including non-alcoholic beer Alcoholic drinks from non-molasses base Aerated water and soft drinks Specialized packaging for food processing industries.
The Ministry of Food Processing Industries, GoI, has estimated the size of the Indian food market at US$ 191 bn (Rs 8,600 bn). The processed food market is projected to be over US$ 100 bn, of which the primarily processed food market accounts for 60%, while the value-added processed food market is around 40%.
The average annual growth of the food processing industry has been around 8% between FY01-FY06. The segments that have driven the growth are the beverages and meat & meat products and processed fish sectors. The food processing industry in India has a share of 1.5% in the total GDP of the country, and as part of total manufacturing accounts for 9%. India’s share in world trade in respect of processed food is about 1.6%.
An extensive and highly fragmented industry, the food processing sector largely comprises of the following sub-segments: fruits & vegetables, milk and milk products, beer & alcoholic beverages, meat and poultry, marine products, grain processing, packaged/convenience food and packaged drinks. A large number of players in this industry are small sized companies, and are largely concentrated in the unorganised segment. This segment accounts for more than 70% of the output in volume terms and 50% in value terms. However, though the organized sector is comparatively small, it is growing at a much faster pace.
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Structure Of Indian Food Processing Industry
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Size of the industry of Food Processing Industry
Size of the industry = $450b (food and non food) No. of outlets = 12-15 million Organized Retail = $27 billion (6% of total retail sales) Food Retail (Modern and Traditional)= 270 billion (60% of total retail sales). Total revenue of food industry = 6.3 % of GDP ( rank 5th in the world ) Organized= 25%, Unorganized=42%, small scale industry =33%(Processed
food) Size of processed food market = $ 40b ( expected to be 10% growth)
Growing @ 4% 2011-2015 (CAGR)
Industry Sub-Segments
Fruits & Vegetables
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The prominent processed items in this segment are fruit pulps and juices, fruit based ready-to-serve beverages, canned fruits and vegetables, jams, squashes, pickles, chutneys and dehydrated vegetables. Some recent products introduced in this segment include vegetable curries in retortable pouches, canned mushroom and mushroom products, dried fruits and vegetables and fruit juice concentrates.
The fruits and vegetable processing industry is highly decentralized, and a large number of units are in the cottage / household and small scale sector, having small capacities of up to 250 tonnes/annum. Since 2000, the industry has seen significant growth in ready-to-serve beverages, fruit juices and pulps, dehydrated and frozen fruits and vegetable products, pickles, processed mushrooms and curried vegetables, and units engaged in these segments are export oriented
Milk and Milk Products
India has one of the highest livestock population in the world, accounting for 50% of the buffaloes and 20% of the world’s cattle population, most of which are milch cows and milch buffaloes. India’s dairy industry is considered as one of the most successful development programmes in the post-Independence era. Milk processing in India is around 35%, (with the organized dairy industry accounting for 13% of the milk produced) while the rest of the milk is either consumed at farm level, or sold as fresh, non-pasteurized milk through unorganised channels.
Dairy Cooperatives account for the major share of processed liquid milk marketed in the India. Milk is processed and marketed by 170 Milk Producers’ Cooperative Unions, which federate into 15 State Cooperative Milk Marketing Federations. Over the years, several brands have been created by cooperatives like Amul (GCMMF), Vijaya (AP), Verka (Punjab), Saras (Rajasthan). Nandini (Karnataka), Milma (Kerala) and Gokul (Kolhapur).
The milk surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. The manufacturing of milk products is concentrated in these milk surplus States.
Meat & Poultry
Since 1995, production of meat & meat products has been steadily growing at a rate of 4% p.a.. Currently, the processing level of buffalo meat is estimated at 21%,
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poultry 6% and marine products 8%. Only about 1% of the total meat is converted into value added products like sausages, ham, bacon, kababs, meat balls, etc. Production of meat is governed under local by-laws as slaughtering is a state subject. Processing of meat is licensed under the Meat Food Products Order, 1973.
In 2003 India had a livestock population of 470 mn that included 205 mn cattle and 90 mn buffaloes. The country produces about 450 mn broilers and 30 billion eggs annually. Cattle, buffaloes, sheep and goat, pigs and poultry are the types of animals which are generally used for production of meat. Slaughter rate for cattle as a whole is 20%, for buffaloes it is 41%, pigs 99%, sheep 30% and 40% for goats. The country has 3,600 slaughter houses, 9 modern abattoirs and 171 meat processing units licensed under the meat products order.
The poultry industry is among the faster growing sectors rising at a rate of 8% per year. Vertical integration of poultry production and marketing has lowered costs of production, marketing margins and consumer prices of poultry meat. There are eight integrated poultry processing units in the country, which hold a significant share in the industry. Meat exports have been growing at close to 30% p.a. in quantity terms, largely driven by poultry, buffalo, sheep and goat meat. Exports of value added meat products are insignificant. In the domestic market, the growing number of fast food outlets in the country has had a significant impact on the meat processing industry.
Marine Products
India is the third largest fish producer in the world and ranks second in inland fish production. India’s vast potential for fishes, from both inland and marine resources, is supplemented by the 8,000 km coastline, 3 mn hectares of reservoirs, 1.4 mn hectares of brackish water, 50,600 sq km of continental shelf area and 2.2 mn sq km of exclusive economic zone.
Processing of marine produce into canned and frozen forms is carried out almost entirely for the export market. Infrastructure facilities for processing of marine products include 372 freezing units with a daily processing capacity of 10,320 tonnes and 504 frozen storage facilities with a capacity of 138,229.10 tonnes. Apart from these, there are 11 surimi units, 473 pre-processing centres and 236 other storages.
Processed fish products for export include conventional block frozen products, individual quick frozen products (IQF), minced fish products like fish sausage, cakes, cutlets, pastes, surimi, texturised products and dry fish etc. Exports of marine products have been erratic and on a declining trend which can be owed to the adverse market conditions prevailing in the EU and US markets. The anti-dumping procedure initiated by the US Government has affected India’s shrimp exports to the US.
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Beer & Alcoholic Beverages
India is the third largest market for alcoholic beverages in the world, and the domestic market is largely dominated by United Breweries, Mohan Meakins and Radico Khaitan. The demand for beer and spirits is estimated to be around 373 mn cases per year. There are 12 joint venture companies having a licensed capacity of 33,919 kilo-litres p.a. for production of grain based alcoholic beverages. Around 56 units are manufacturing beer under license from the Government of India.
The two segments in the liquor segment, country liquor and Indian Made Foreign Liquor, both cater to different sections of society. The former is consumed in rural areas and by low-income groups, while the latter is consumed by the middle and high income groups.
There are approximately 23,000 licensed liquor outlets in India, with another 10,000 outlets in the form of bars and restaurants. Regulations in this sector differ state-wise. In Tamil Nadu, Kerala and Andhra Pradesh, the distribution is controlled by the state government, and any change XVIII in the ruling party has a direct impact on the availability of alcohol. In Uttar Pradesh, liquor distribution licenses were earlier based on bidding, and the highest bidder was given the license. This has not changed to the lottery allotment system. Gujarat Government has banned the sale and distribution of liquor in the state.
The wine industry in India has come into prominence lately and has been receiving support from the Government as well. The market for this industry has been estimated to be growing at around 25% annually. Maharashtra has emerged as an important state for the manufacture of wines. There are more than 35 wineries in Maharashtra, and around 1,500 acres of grapes are under cultivation for wine production in the state. The Maharashtra Government has declared wine-making business as small-scale industry and has also offered excise concession.
Grain Processing
Grain processing includes milling of rice, wheat and pulses. As of 1999-00, there were over 91,000 rice hullers and 2,60,000 small flour mills engaged in primary milling. Also, there are about 43,000 modernised rice mills/huller-cum-shellers. Around 820 large flour mills in the country convert about 10.5 mn tonnes of wheat into wheat products. Also there are 10,000 pulse mills milling about 75% of pulse production of 14 mn tonnes in the country.
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Primary milling of grains is the most important activity in the grain processing segment of the industry. However, primary milling adds little to shelf life, wastage control and value addition. Around 65% of rice production is milled, mostly in modern rice mills. However, the sheller-cum-huller mills operating give low recovery. Wheat is processed for flour, refined wheat flour, semolina and grits. Apart from the 820 large flour mills, there are over 3 lakh small units operating in this segment in the unorganised sector. Dal milling is the third largest in the grain processing industry, and has approximately 11,000 mechanised mills in the organised segment. Oilseed processing is another major segment, an activity largely concentrated in the cottage industry. According to estimates, there are approximately 2.5 lakh ghanis and kolus (animal operated oil expellers), 50,000 mechanical oil expellers, 15,500 oil mills, 725 solvent extraction plants, 300 oil refineries and over 175 hydrogenated vegetable oil plants.
Indian rice, especially Basmati rice, has gained international recognition, and is a premium export product. Branded grains as well as grain processing is now gaining popularity.
MAJOR PLAYERS IN THE MARKET
I.T.C LTD DABUR INDIA COMPANY BRITANIA COMPANY CADBURY COMPANY GODREJ COMPANY MTR LTD.
Whole Food processing industry is divided mainly in six sectors and food product cover in these sectors.
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India is the world's 2nd largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector. With India's food production likely to double in the next decade, there is an opportunity for large investments in food and food processing technologies, skills and equipment, especially in areas of Canning, Dairy and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo Processing. Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods, Alcoholic Beverages & Soft Drinks and Grains are important sub-sectors of the food processing industry. Health food and health food supplements are other rapidly rising segments of this industry.
India is the 2nd largest vegetable and 3rd largest fruit producer in the world.India will register the highest increase in rice production in the world over the next 10 years, as per the US Department of Agriculture. India ranks second only to Japan in inland sector fish production. India produces about 6.57 million metric tonne fish every year.
Spices exports will cross US$ 1 billion in the current financial year and touch US$ 10 billion by 2017, according to V J Kurien, chairman, Spices Board. Of the world's total annual spice trade of 850,000 tonnes, India accounts for 44 per cent in quantity and 36 per cent in value.
India aims at doubling marine exports including that of tuna fish to US$ 4 billion by 2012; 53 per cent of the marine exports comprise of shrimps.Food processing. The growth of food processing sector has nearly doubled to 13.7 per cent during the last four years.
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RELIANCE FRESH
COMPANY PROFILE
Reliance Fresh is the convenience store format which forms part of the retail business of of Reliance Industries of India which is headed by Mukesh Ambani. Reliance plans to invest in excess of Rs 25000 crores in the next 4 years in their retail division. The company already has in excess of 560 reliance fresh outlets across the country. These stores sell fresh fruits and vegetables, staples, groceries, fresh juice bars and dairy products .A typical Reliance Fresh store is approximately 3000-4000 square. feet and caters to catchment area of 1-2 km.
Headquarters Mumbai,India Key people Mukesh Ambani,CEO Industry Retail
Reliance is gearing to be a major player in the Indian Retail Revolution. They are aggressively working on a pan-India network of retail outlets in various formats. State-of-the-art technology, a seamless supply chain infrastructure and unmatched customer experience, is what the initiative is all about.
Reliance Retail, the 100% subsidiary of Reliance Industries, entered the retail foray involving a minimum investment of Rs 25,000 crores , Reliance retail, has renamed “Ranger Farm” to Reliance Fresh Ltd, having hived the name of their most popular format. The company’s name will sound familiar to the investors once the company plans to tap the capital markets by facilitating brand recall.
The first of their format is Reliance Fresh, a convenience store. These stores, range from 2,000 to 5,000 sq feet, provide customers with a variety of fresh fruits, vegetables, staple foods and other products in a world-class ambience. They aggressively partnered farmers by following a farm-to- folk strategy to ensure fresh fruits and vegetables at affordable prices. They chose Hyderabad to test waters, as the city offers real estate at a price that does not quite pinch. They selected the cream crowd from pioneers in organized retailers to head the organization. With such a strong foothold, they ventured and their cash counters clicked Rs 3.5 to Rs 6.5 lakh per day and some outlets at prime locations are averaging Rs 5 lakh per day.
Increasing economic disparities among regions are emerging as a political risk capable of provoking serious socio-political tensions that could lead to localized violence from time to time. The states likely to be advancing economically are: Gujarat, Haryana, Kerala, Maharashtra, Punjab and Tamil Nadu. Those likely to be lagging economically are: Assam, Bihar, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh. Although this is essentially an internal situation it can, at times, interrupt the flow of imports and negatively affect the solvency of Indian importers.
• External Political/Economic Events
India has major disputes with Pakistan and China. India disputes Pakistan's claim to Kashmir and questions its claim to have stopped sponsoring terrorism in Kashmir. Relations with China are strained by its claim to Arunachal Pradesh and a portion of land adjacent to Jammu and Kashmir. Any outbreak of hostilities between India and its neighbours could disrupt trade and negatively affect the solvency of some importers.
Policies
A number of policy initiatives have been taken from time to time to promote growth of the processed food sector in the country. Some of these are:
a) Most of the processed food items have been exempted from the purview of licensing under the Industries (Development & Regulation) Act, 1951, except items reserved for small-scale sector and alcoholic beverages.
b) Food processing industries were included in the list of priority sector for bank lending in 1999.
c) Automatic approval for foreign equity upto 100% is available for most of the processed food items excepting alcohol and beer and those reserved for small scalesector subject to certain conditions.d) Excise duty on processed fruit and
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vegetables has been brought down from 16%to zero level in the Budget, 2001-02.e) In the budget of 2004-05 income tax holiday and other concessions announced for certain FPI sectors.f) Delegation of powers to regional offices under Fruit Products Order 1973 has beenrecently done.
• Developmental
a) Assistance under various plan schemes.
b) Widening the R&D base in food processing by involvement of various R&D institutes and support to various R&D activities.
c) Human Resource Development to meet the growing requirement of managers, entrepreneurs and skilled workers in the food processing industry.
d) Assistance for setting up analytical and testing laboratories, active participation in the laying down of food standards and their harmonization with the international standards.
• Promotional
In order to create awareness about the potential and prospect of food processing industries in the country, this Ministry provides,
a) Assistance for organizing workshops, seminars, exhibitions and fairs.
b) Assistance for studies/surveys etc.
c) Publications and films
•Regulatory
Implementation of Fruit Products Order (FPO), 1955.
ii) Implementation of Meat Food Product Order, 1973
Legal Impact
In addition to the general legal requirements, there are a few legal requirements that are specific to Food Processing Industries.
• Legal Requirements
a). Prevention of Food Adulteration Act (1954): which is the basic statute to protect consumers against supply of adulterated food. The Central Committee for Food Standards ‘under the Directorate General & Health Services Ministry of Health and Family Welfare has specified the standards.
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b). Milk and Milk Products Order (MMPO): regulates milk and milk products production in the country. The order requires no permission for units handling less than10,000 litres of liquid milk per day or milk solids upto 500 tap.
c.) Fruit Products Order (1955): regulates manufacture and distribution of all fruit and vegetable products, sweetened aerated waters, vinegar and synthetic syrups. The license is issued by Regional Director of MoFPI located at Mumbai, Delhi, Kolkatta, Chennai and Guwahati based on the satisfaction of the concerned officer with regard to quality of production, sanitation and hygiene, machinery and equipment and work area standards.
d). Standard of Weights and Measures (Packaged Commodities) Rules, 1977: lay down certain obligations for all commodities in packed form with respect to their quality declaration. The Directorate of Weights and Measures under the Ministry of Food and Civil Supplies operates these rules.
e.) Export (Quality Control and Inspection) Act, 1963: is operated by the Export Inspection Council and under this act many exportable commodities have been notified for compulsory pre-shipment inspection unless specifically requested by the importer not to do so.
f). Voluntary Standards: are regulated by organisations involved with voluntary standardisation and certificates systems concerning quality parameters in food. They are the Bureau of Indian Standards (BIS) and Directorate of Marketing and Inspection(DMI). The food processing industries sector as a whole involves other legislations.
g). Oils, Deoiled Meal and Edible Flour Control Order 1967 and Vegetables Products Control Order, 1976: control the production and distribution of solvent extracted oils, deoiled meals, edible oil seed flours and hydrogenated vegetable oils (vanaspati).
h). Meat Food Products Control Order, 1973: regulates manufacture, quality, and sale of all meat products and is operated by the Directorate of Marketing and Inspection.
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Environment Impact
There is need for working out synergy between business and environment for sustainable development. The Govt. will bring together environmentalists, industrialists, policymakers and NGOs at State. National and International level to debate and discuss the best possible alternative to encourage development that is both economically productive and environmentally friendly. The Govt. will prepare action plan for management of green technologies to reconcile the growth of industry with that of sustaining the environment. The Govt. will strive to energize business as a sustainable partner in preserving the environment instead of viewing business as a destroyer of the environment. The Govt.will further encourage the use of green technologies and shall focus on speeding up innovation in industry and to institutionalize this. The Govt. will compliment the efforts of various other Govt. departments, Public Sector,Private Sector, Industry associations, Cooperatives, Consumer action groups, NGO etc. to provide a healthy, and enabling environment. The Govt. recognizes the need to achieve these objectives by way of removal of restrictions, private sector participation, enhanced Market opportunities, rationalization of tax structure and positive interface with the industry. A policy environment that actively welcomes large-scale investment in food will do much to stimulate this vital area of the economy.
Social Impact
Rapid transformation in the lifestyle of Indians, particularly those living in urban India, has resulted in dramatic increase in the demand for processed food. The main reason why processed food is increasing in the urban Indians because of Growth in working women's population and prevalence of nuclear families with double income are other trends causing this change in the lifestyle of Indians. Amount of money spent by Indian on foods outside home has been assessed to have more than doubled over the last ten years to nearly $5Billion a year. Also, it's likely to double in the five years to come. These trends entail significant growth potential for the food processing industry in future and, as a result, add to the attractiveness of investment in this sector.
"During the past five years, average monthly income has increased and disposable income of individuals has also increased. This growth in income will help the India
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processed food industry to boost further. But, in the present day, due to scarcity of time, working parents prefer to spend as much time as possible with their children and this includes their shopping hours also. As the organization retail sector offers the option of entertainment along with shopping, the younger couples opt for these retail outlets for shopping Speaking at KSA Retail Summit, 2000, Peter Lau, Chairman of Giordano International, Hong Kong, said, "It is the format of consumer expectation that changes,not the goods or services they want.
Technology Impact
Technology is probably the most dynamic change agent in food processing industry The computerization of the various operations in a retail store, including inventory management, billing and payments as well as database (of customers) management, widespread use of bar coding, point -of-sale terminals and Management Information System has changed the face of retailing drastically. Apart from providing the retailers with better and timelier information about their operations, the technology also does the job of preventing theft, promoting the store's goods and creating a better shopping atmosphere. These can be done with the help of closed circuit televisions, video walls, in-store video networks, kiosks and other forms of interactive applications ranging from CD-ROMs to virtual reality to let customers select and buy products. They make the customer's life a lot easier by facilitating the use of developments like credit cards. Toll free 800 numbers have brought about a revolution in consumer's ordering and feedback mechanisms. These also pave way for tele-shopping and net-shopping. Emerging technologies will also facilitate just-in-time management of certain products within the store. These trends are already visible in the music and greeting card industries.
Advancement in food technology can play an important role in not only harmonizing quality norms, but also by developing good manufacturing practices, including conformity to traceability norms hazard analysis at critical control points (HACCP). Th area where the technology can help is the fixation of the rational maximum residue limit(MRL) for pesticides and veterinary drugs in food, which can be acceptable for implementation by member countries of Codex. Codex has also corporate HACCP system for identifying risk and their control. HACCP also covers pathogenic bacteria also. Though the quality norms of these global bodies are accepted as base for reference ,countries are allowed to set more stringent norms. The developed countries, who are technologically advanced are in a more advantageous position to set stringent norms, which many feel, could act as non-tariff barriers in trade.
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Comparison between Reliance Fresh and FOOD BAZAAR
PARAMETERS RELIANCE FRESH Food bazaar
VISION “TO GENERATE INCLUSIVE GROWTH AND PROSPERITY FOR FARMERS, VENDOR PARTNERS, SMALL SHOPKEEPERS AND CONSUMERS “
"Deliver Everything , everywhere, every time for every Indian Consumer in the most profitable manner”
NO OF STORE 1000 1200
REVENUE INR 2368 CR INR 6000CR
PRODUCT RANGE 9500 10000
TAG LINE AAPKA FRESH APKE PADOS ME
"Is se sasta aur accha kahin nahin”
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AREA (sq.ft) 2000-4000 6000-7500
CONTRACT FARMING YES YES
FARM TO FORK MODEL YES NO
EMPLOYEE LESS TRAINED TRAINED
LOYALITY PROGRAMME YES YES
STORE AVAILIBILITY 3- 4 KM 3-4 KM
VRIO
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The VRIO framework, in a wider scope, is part of a much larger strategic scheme of a firm. The basic strategic process that any firm goes through begins with a vision statement, and continues on through objectives, internal & external analysis, strategic choices (both business-level and corporate-level), and strategic implementation. The firm will hope that this process results in a competitive advantage in the marketplace they operate in. VRIO falls into the internal analysis step of these procedures, but is used as a framework in evaluating just about all resources and capabilities of a firm, regardless of what phase of the strategic model it falls under. VRIO is an acronym for the four question framework you ask about a resource or capability to determine its competitive potential: the question of Value, the question of Rarity, the question of Imitability (Ease/Difficulty to Imitate), and the question of Organization (ability to exploit the resource or capability).
Question of Value ; The basic question asked by the V in the VRIO framework for internal analysis is “Is this resource or capability valuable to the focal firm?” In this case, the definition of value is whether or not the resource or capability works to exploit an opportunity or mitigate a threat in the marketplace. If it does do one of those two things, it can be considered a strength of the company. However if it does not work to exploit an opportunity or mitigate a threat, it is a weakness. Occasionally, some resources or capabilities could be considered strengths in one industry and weaknesses in a different one. (Strategic Management Journal, 5, pp. 171-180. Barney, J.B. (1991)). Six common examples of opportunities firms could attempt to exploit are technological change, demographic change, cultural change, economic climate, specific international events, and legal and political conditions. Furthermore, five threats that a resource or capability could mitigate are the threat of buyers, threat of suppliers, threat of entry, threat of rivalry, and threat of substitutes.
Question of Rarity; Having rarity in a firm can lead to competitive advantage. Rarity is when a firm has a valuable resource or capability that is absolutely unique among a set of current and potential competitors. How to determine if your resource is rare and creates competitive advantage? A firm’s resources and capabilities must be both short in supply and persist over time to be a source of sustained competitive advantage. If both elements (short supply and persistence over time) aren’t met, then the resources and capabilities a firm has can’t be a sustained competitive advantage. If a resource is not rare, then perfect competition dynamics are likely to be observed. Example of Rarity - A janitor who defines his/her job as helping the firm make and sell better products instead of just referring to their job as simply cleaning up facilities is quite unusual. Most individuals would agree that this firm has a source of competitive advantage over other firms in their industry because their objectives and strategies are transparent throughout
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the entire firm; unlike many other firms where only top tier management is the only group that believes in their objectives and strategies (Barney & Hesterly, 2011).
Question of Imitability; The primary question of “imitability” asked in the VRIO framework in internal analysis is that “ Do firms without a resource or capability face a cost disadvantage in obtaining or developing it compared to firms that already possess it?” Firms with valuable and rare resources, which are hard to imitate by other firms, can gain the first-mover advantages in the market and can hence gain competitive advantage.
Question of Organization; Once you have realized the value, rarity and imitability of your company’s resources and capabilities, the next step is to organize your company in a way to exploit these resources. If done successfully, your company can enjoy a period of sustained competitive advantage. There are many components to this question of organization. They include, but are not limited to, the company’s formal reporting structure, management control systems and compensation policies. Formal reporting structures are simply a description of who in the firm reports to whom. Management control systems include both formal and informal means to make sure that managers’ decisions align with a firm’s strategies. Formal control systems can consist of budgeting and reporting activities that keep top management informed of decisions made by employee’s lower down in the firm. Informal controls can include a company’s culture and encouraging employees to monitor each other. Firms incentivize their employees to behave a desired way through compensation policies. These policies can include bonuses, stocks or salary increases but can also include non-monetary incentives such as additional vacation days or a larger office. These components of organization are known at complementary capabilities and resources because alone they do not provide much value. However, in combination with a firm’s other resources and capabilities, it can result in sustained competitive advantage. Without the correct organization, even firms with valuable, rare and costly to imitate resources and capabilities can suffer competitive disadvantage (Barney & Hesterly, 2011).
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VRIO Model for Reliance Fresh
Valuable?
No
Rare?
No
Costly to Imitate?
No
Non substitutable?
No
Competitive
Consequences?
Competitive
Disadvantage
Performance
Implication?
Below Average
Returns
Yes No No Yes Competitive
Parity
Average Returns
yes No No Yes Temporary Com-
petitive Advantage
Above Average to Average Returns
No No No No Sustainable Com-
petitive Advantage
Above AverageReturns
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SWOT ANALYSIS OF RELIANCE FRESH
Strengths:
Reliance is the first into enter into this unorganized sector of vegetables and fruits. According to them its intentions to have100% farm fresh foods in their new retail stores. It is also adding shortly a juice bar, and even a large counter for puja flowers.
In fact, over 60 per cent of the floor space has been dedicated to fresh fruits and vegetables, the rest to other food products like staples, spices, bakery, etc.
But reliance has decided not to add any bar soap or toothpaste and detergent in its shelves. So by using this strategy they are positioning themselves different from other players of the industries like Food world, Big Bazaar and Nilgiris.
But over come the short comings of these specialized stores
They are also introducing new Reliance full-fledged supermarket called Shakhari Bhandar which offers each and everything from the staple to soap. Most of the staples are under its own private label brand — ‘Reliance Select’.
There is a 500g channa dal pack priced at Rs 28, a 500g urad dal pack for Rs 39, all under Reliance’s own brand. Excepting a few packets of Nestle’s Maggi, or MTR’s masalas or Pepsi’s Lays chips, there is very little shelf space given to the big brand owners in the country. Reason: private labels offer far better profit margin to the retailer than branded products of FMCG companies. Most of these outlets will need only 2,000-5,000 sq. ft. A supermarket may need as much as 8,00010,000 sq. ft.
Weakness:
This is definitely an interesting business venture but it may miss out on the opportunity to capture a greater share of the customer’s wallet. For customers, too, this could be irksome, as they would have to visit another store to pick up essentials. Reliance could easily fix this problem by adding a few small counters for some basic non-food products. According to their official this format is not final one they are accepting the new changes which are required to attract the large number of customers.
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Opportunities;
Reliance wants to build a high-profitability business and food is, perhaps, the best venture to start. That is because the Indian food supply chain is grossly inefficient. There are several intermediaries, each of whom adds his own profit margin to the cost. Besides, there is huge wastage in transit. This offers potential for savings and profits. To reduce the cost and increase the profit it has been sourcing out its requirements from the farmers. For example, the leafy vegetables, brinjals, tomatoes and green chilies in the Banjara Hills outlet were sourced directly from farmers in Vantimamdi, Chevella and nearby mandals in Ranga Reddy district of Andhra Pradesh. The supply chain already has been backed by few hundred farmers the number is estimated to touch million in next five years. The main aim of the reliance is to eliminate the intermediaries in the sector and reduce the cost. Smaller stores have two advantages. They bring down the cost of real estate (and increase profits). It is easier to find space for small convenience stores in a quiet neighborhood than for supermarkets in high streets.
Threats:
This model is engineered to clock a faster turnover of inventory — Reliance expects consumers to visit the store at least twice a week for their top-up groceries. Each store will have an investment of Rs 50 lakh to Rs 60 lakh. Unlike global retailers who operate on thin margins, Reliance Retail is looking at a fairly high-margin business model. Deliberately stopped short of being a full-fledged supermarket rather, it has limited itself to a food and grocery convenience store. They also have a threat from the existing supermarkets which provides all the services to its customers. For Example Food world and Nilgiris also provides food and beverages with other personal care products. These convince are not existed in the present Reliance retail stores.
CONCLUSION
Over the last few years, retail has become one of the fastest growing sectors in the Indian economy. The organized retail however is at a very nascent stage though attempts are being made to increase to 15-25% by the year 2011bringing in a huge opportunity for prospective players . The sector is the largest source of employment after agriculture, and has started to penetration into rural India generating more than 10% of India's GDP
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What is porter’s Model
THREAT OF ENTRY - Create barriers to entry - Absolute cost advantages - Proprietary learning curve - Access to inputs - Government policy - Economies of scale - Capital requirements - Brand identity - Switching costs - Access to distribution - Expected retaliation - Proprietary products
SUPPLIER POWER - Supplier concentration - Importance of sales tosupplier - Differentiation of inputs - Switching costs for firmsin the industry - Presence of alternate inputs - Threat of forward integration - Cost relative to total purchases by industry
DEGREE OF RIVALRY - Exit barriers - Industry concentration - Fixed costs/Value added - Industry growth - Overcapacity - Product differences - Switching costs - Brand identity - Wealth of rivals - Corporate interest
BUYER POWER - Bargaining leverage - Buyer volume - Buyer knowledge - Brand identity - Price sensitivity - Threat of backward integration - Product differentiation - Buyer concentration vs. industry - Substitutes available - Buyers' incentives
THREAT OFSUBSTITUTES - Switching costs - Buyer inclined tosubstitute - Price-performancetrade-off of substitutes - Industry profits
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There is always the possibility that new firms may enter an industry. This is called the threat of entry in Porter's model. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be average. In reality, however, some industries possess characteristics that protect the high profit levels of firms currently in the market and make it difficult for additional firms to enter the market. These characteristics are barriers to entry.
When industry profits increase, one expects additional firms to enter the market to take advantage of the high profit levels, over time driving down profits for all firms in the industry. When profits decrease, one would expect some firms to exit the market thus restoring market equilibrium. Falling prices, or the expectation that future prices will fall, deters rivals from entering a market.
It is easy to enter an Industry if there is:
Common technology Limited brand strength Access to distribution channels A low production scale threshold It is difficult to enter if there is: Patented or proprietary know-how Difficulty in brand switching Restricted distribution channels A high production scale threshold It is easy to exit an Industry if there are: Salable assets Low exit costs Independent business units It is difficult to exit if there are: Specialized assets High exit costs Interrelated businesses
In Porter's model, substitute products refer to products in other industries that meet the same/similar need. To an economist, a threat of substitutes exists when a product's demand is affected by the price change of a substitute product.
The power of buyers is the impact that customers have on a producing industry. In general, when buyer power is strong, the relationship to the producing industry is near to what an economist terms a monopsony - a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few
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pure monopsonies exist, but frequently there is some asymmetry between a producing industry and buyers.
Suppliers can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry's profits. This describes supplier power.
If rivalry among firms in an industry is low, the industry is considered to be disciplined. This discipline may result from the industry's history of competition, the role of a leading firm, or informal compliance with a generally understood code of conduct. Explicit collusion generally is illegal and not an option; in low-rivalry industries competitive moves must be constrained informally. However, a maverick firm seeking a competitive advantage can displace the otherwise disciplined market.
In pursuing an advantage over its rivals, a firm can choose from several competitive moves:
Changing prices - raising or lowering prices to gain a temporary advantage. Improving product differentiation - improving features, implementing innovations
in the manufacturing process and in the product itself. Creatively using channels of distribution - using vertical integration or using a
distribution channel that is novel to the industry. Exploiting relationships with suppliers.
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Porter Five Forces Analysis for Indian Food Processing Analysis:
The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful because it helps you understand both the strength of your current competitive position, and the strength of a position you're looking to move into. With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit. Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations too.
The threat of new entry is quite high: if anyone looks as if they’re making a sustained profit, new competitors can come into the industry easily; reducing profits Profitable markets that yield high returns will draw firms. The result is many new entrants, which will effectively decrease profitability. Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards a competitive level (Perfect competition).
Capital Requirements (low)
The capital costs of getting established in an industry can be reducing because of the government subsidies provided to food processing sector. Financial disaster for most participants is that the initial setup costs of new ventures were typically very low. Startup costs are so low that individual, self-financing entrepreneurs can enter. For example, in mineral water pouch business, costs for a company are around Rs350,000 and remaining Rs750, 000 is subsidies by Government.
Economies of Scale (low)
In industries that are capital or research or advertising intensive, efficiency requires large-scale operation. The problem for new entrants is that they are faced with the choice of either entering on a small scale and accepting high unit costs, or entering on a large scale and running the risk of underutilized capacity while they build up sales volume. These economies of scale have deterred entry into the industry so that the only new entrants in recent decades have been state-supported companies the main reason or source to achieve scale economies is new product development costs. Thus, developing and launching a new product is very costly. Segment of the market for food processing Industry is very narrowly define so potential customer are very few that’s why companies are not able to achieve economies of scales.
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Absolute Cost Advantages (high)
Apart from economies of scale, established firms may have a cost advantage over entrants simply because they entered earlier. Absolute cost advantages often result from the acquisition or alliances of lowcost sources of raw materials. Absolute costadvantagesmay also result from economies of learning. Amul cost advantage in Pasteurization milk results from its early entry into this market and its ability to move down the learning curve faster than local player and then making alliances with they produce milk but marketed by the brand name of Amul. So new enter company alliance with well establish large firm can easily enter in the company.
Product Differentiation (high)
In an industry where products are differentiated, established firms possess the advantages of brand recognition and customer loyalty. New entrants to such markets must spenddisproportionately heavily on advertising and promotion to gain levels of brandawareness and brand goodwill similar to that of established companies. One study found that, compared to early entrants, late entrants into consumer goods markets incurred additional advertising and promotional costs amounting to 2.12 percent of sales revenue. Alternatively, the new entrant can accept a niche position in the market or can seek to compete by cutting price. And in food processing industry there are many untapped market are available, so there are good opportunity for niche marketing in food processing industry e.g. sugar free is product that only targeting diabetic person and health conscious person only and it having 11% growth rate annually.
Access to Channels of Distribution (low)
Whereas lack of brand awareness among consumers acts as a barrier to entry to new suppliers of consumer goods, a more immediate barrier for the new company is likely to be gaining distribution. Limited capacity within distribution channels (e.g., shelf space), risk aversion by retailers, and the fixed costs associated with carrying an
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additional product result in retailers being reluctant to carry a new manufacturer’s product. The battle for supermarket shelf space between the major food processors (typically involving lump-sum payments to retail chains in order to reserve shelf space) means that new entrants scarcely get a look in.
Governmental and Legal Barriers (high)
Some economists (Amitabha Sen) claim that the only effective barriers to entry are those created by government. In taxicabs, banking, telecommunications, and broadcasting, entry usually requires the granting of a license by a public authority. From medievaltimes to the present day, companies and favored individuals have benefited fromgovernments granting them an exclusive right to ply a particular trade or offer a particular service. In knowledge-intensive industries, patents, copyrights, and other legally protected forms of intellectual property are major barriers to entry. Regulatoryrequirements and environmental and safety standards often put new entrants at adisadvantage to established firms, because compliance costs tend to weigh more heavily on newcomers .e.g. Prevention of Food Adulteration laws is not only stringent one but time consuming also. It is considered as an archaic and no industry friendly food law. It substantial varies from Codex standard. Harmonization of multiple food laws is an urgent necessity.
Retaliation (low)
Barriers to entry also depend on the entrants’ expectations as to possible retaliation by established firms. Retaliation against a new entrant may take the form of aggressive price-cutting, increased advertising, sales promotion, or litigation. The major food processing company has a long history of retaliation against low-cost entrants. Parle and other budget food processing have alleged that selective price cuts by MNC and other major food processing like Britannia amounted to predatory pricing designed to prevent its entry into new routes.8 To avoid retaliation by incumbents, new entrants may seek initial small scale entry into less visible market segments. New entered company market and targeted the small segments partly because this segment had big opportunity and large profit (niche marketing).
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Rivalry between Established Competitors (low)
For most industries, this is the major determinant of the competitiveness of the industry.Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc. For most industries, the major determinant of the overall state of competition and the general level of profitability is competition among the firms within the industry. In some industries, firms’ compete aggressively – sometimes to the extent that prices are pushed below the level of costs and industry-wide losses are incurred. In others, price competition is muted and rivalryfocuses on advertising, innovation, and other non-price dimensions. Six factors play an important role in determining the nature and intensity of competition between established firms: concentration, the diversity of competitors, product differentiation, excesscapacity, exit barriers, and cost conditions.
Concentration (high)
Seller concentration refers to the number and size distribution of firms competing within a market. It is most commonly measured by the concentration ratio: the combined market share of the leading producers. Where a market is dominated by a small group of leading companies (an oligopoly), price competition may also be restrained, either by outright collusion, or more commonly through “parallelism” of pricing decisions. Thus, in markets dominated by two companies, such as soft drinks (Coke and Pepsi), prices tend to be similar and competition focuses on advertising, promotion, and productdevelopment.Economists measure rivalry by indicators of industry concentration. The Concentration Ratio (CR) is one such measure. The Bureau of Census periodically reports the CR for major Standard Industrial Classifications (SIC's). The CR indicates the percent of market share held by the four largest firms (CR's for the largest 8, 25, and 50 firms in an industry also are available). A high concentration ratio indicates that a high concentration of market share is held by the largest firms - the industry is concentrated. With only a few firms holding a large market share, the competitive landscape is less competitive (closer to a monopoly). A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share. These fragmented markets are said to be competitive. The concentration ratio is not the only available measure; the trend is to define industries in terms that convey more information than distribution of market share.
In food processing industry concentration ratio is high that indicate high concentration of market share is held by the largest firms like ITC (tobacco), Cadbury (chocolates) etc. As the number of firms supplying a market increases, coordination of prices becomesmore difficult, and the likelihood that one firm will initiate price-cutting increases.However, despite the common observation that the elimination of a competitor typically reduces price competition, while the entry of a new competitor typically stimulates it, systematic evidence of the impact of seller concentration on profitability is surprisinglyweak. Richard Schmalensee concluded that: “The relation, if any, between seller concentration and profitability is weak statistically and the estimated effect is usually small.”
In pursuing an advantage over its rivals, a firm can choose from several competitive moves:
Changing prices - raising or lowering prices to gain a temporary advantage.
Improving product differentiation - improving features, implementing innovations in the manufacturing process and in the product itself.
Creatively using channels of distribution – using vertical integration or using a distribution channel that is novel to the industry.
Exploiting relationships with suppliers - set high quality standards and required suppliers to meet its demands for product specifications and price.
Diversity of Competitors (low)
The extent to which a group of firms can avoid price competition in favor of collusive pricing practices depends upon how similar they are in terms of origins, objectives, costs, and strategies. In food processing industry it is very low here firm always try to compete rival strategies and there product prices e.g. coke and Pepsi, magi and top Ramon ,Amul ice cream and have more ice cream etc.
Product Differentiation
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The more similar the offerings among rival firms, the more willing customers are to substitute and the greater the incentive for firms to cut prices to increase sales. Where the products of rival firms are virtually indistinguishable, the product is a commodity and price is the sole basis for competition. Commodity industries such as food processing agriculture, mining, and petrochemicals tend to be plagued by price wars and low profits.By contrast, in industries where products are highly differentiated (perfumes, pharmaceuticals, restaurants, management consulting services), price competition tends to be weak, even though there may be many firms competing. Food processing industry it is very low here firm always try to compete rival strategies and there product prices because they have more or similar offering and there product are virtually indistinguishable e.g. coke and Pepsi, magi and top Ramon ,Amul ice cream and have more ice cream etc.
Excess Capacity and Exit Barriers
Why does industry profitability tend to fall so drastically during periods of recession? The key is the balance between demand and capacity. Unused capacity encourages firms to offer price cuts to attract new business in order to spread fixed costs over a greater sales volume. Excess capacity may be cyclical (e.g. the boom–bust cycle in thesemiconductor industry); it may also be part of a structural problem resulting fromoverinvestment and declining demand. In these latter situations, the key issue is whether excess capacity will leave the industry. Barriers to exit are costs associated with capacity leaving an industry. Where resources are durable and specialized and where employeesare entitled to job protection, barriers to exit may be substantial. Conversely, rapiddemand growth creates capacity shortages that boost margins. On average, companies in growing industries earn higher profits than companies in slow growing or declining industries. In food processing industry it will not effect because food demand is always increase or maintain because it is directly related to population growth, and in this industry some exit barrier are working because of Government policies.
Bargaining Power of Buyers (low)
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Also described as the market of outputs. The ability of customers to put the firm under pressure and it also affects the customer's sensitivity to price changes. “Customer has enough option to switch so they have less bargaining power. The firms in an industry operate in two types of markets: in the markets for inputs and the markets for outputs. In input markets firms purchase raw materials, components, and financial and labor services. In the markets for outputs firms sell their goods and services to customers (who may be distributors, consumers, or other manufacturers). In both markets the transactions create value for both buyers and sellers. How this value is shared between them in terms of profitability depends on their relative economic power. Let us deal first with output markets. The strength of buying power that firms face from their customers depends on two sets of factors: buyers’ price sensitivity and relative bargaining power.
Buyers’ Price Sensitivity (low)
The extent to which buyers are sensitive to the prices charged by the firms in an industry depends on four main factors:
The greater the importance of an item as a proportion of total cost, the more sensitive buyers will be about the price they pay. Beverage manufacturers are highly sensitive to the costs of metal cans because this is one of their largest single cost items. Conversely, most companies are not sensitive to the fees charged by their auditors, since auditing costs are such a small proportion of overall company expenses.
The less differentiated the products of the supplying industry, the more willing the buyer is to switch suppliers on the basis of price.
The more intense the competition among buyers, the greater their eagerness for price reductions from their sellers. As competition in the world food processing industry has intensified, so component suppliers are subject to greater pressures for lower prices, higher quality, and faster delivery.
The greater the importance of the industry’s product to the quality of the buyer’s product or service, the less sensitive are buyers to the prices they are charged. The buying
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power of necessary processed food product like sugar salt etc. is limited by the critical importance of these components to the functionality of their product.
Relative Bargaining Power (high)
Bargaining power rests, ultimately, on refusal to deal with the other party. The balance of power between the two parties to a transaction depends on the credibility and effectiveness with which each makes this threat. The key issue is the relative cost that each party sustains as a result of the transaction not being consummated. A second issue is each party’s expertise in leveraging its position through gamesmanship. Several factors influence the bargaining power of buyers relative to that of sellers:
Size and concentration of buyers relative to suppliers. The smaller the number of buyers and the bigger their purchases, the greater the cost of losing one.
Buyers’ information. The better informed buyers are about suppliers and their prices and costs, the better they are able to bargain. Keeping customers ignorant of relative prices is an effective constraint on their buying power. But knowing prices is of little value if the quality of the product is unknown. It always works in food processing industry because people are not having full information about the product like special of Kellogg which reduces the cholesterol of the consumer.
Ability to integrate vertically. In refusing to deal with the other party, the alternative to finding another supplier or buyer is to do it yourself. Large food processing companies such as Heinz and Campbell Soup have reduced their dependence on the manufacturers of metal cans by manufacturing their own. The leading retail chains have increasingly displaced their suppliers’ brands with their own-brand products. Backward integration need not necessarily occur – a credible threat may suffice.
Buyers are Powerful in food processing industry
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Buyers are concentrated - there are a few buyers with significant market share Buyers purchase a significant proportion of output - distribution of purchases or if the product is standardized Buyers possess a credible backward integration threat - can threaten to buy producing firm or rival Buyers are Weak in food processing industry
Producers threaten forward integration - producer can take over own distribution/retailing Significant buyer switching costs - products not standardized and buyer cannot easily switch to another product. Buyers are fragmented (many, different) - no buyer has any particular influence on product or price Producers supply critical portions of buyers' input - distribution of purchases.
Bargaining Power of Suppliers (low)
Also described as market of inputs. Suppliers of raw materials, components, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources. Analysis of the determinants of relative power between the producers in an industry and their suppliers is precisely analogous to analysis of the relationship between producers and their buyers. The only difference is that it is now the firms in the industry that are the buyers and the producers of inputs that are the suppliers. The key issues are the ease with which the firms in the industry can switch between different input suppliers and the relative bargaining power of each party. Because rawmaterials, semi-finished products, and components are often commodities supplied bysmall companies to large manufacturing companies, their suppliers usually lack bargaining power.
Suppliers are not Powerful in food processing industry
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Credible forward integration threat by suppliers. Suppliers concentrated significant cost to switch suppliers Customers Powerful
Suppliers are Weak because in food processing industry
Many competitive suppliers - product is standardized Purchase commodity products Credible backward integration threat by purchasers concentrated purchasers Customers Weak
Threat of Substitutes (high)
In Porter's model, substitute products refer to products in other industries. To theeconomist, a threat of substitutes exists when a product's demand is affected by the pricechange of a substitute product. A product's price elasticity is affected by substitute products - as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices. The competition engendered by a Threat of Substitute comes from products outside the industry. The price of aluminum beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. These containers are substitutes, yet they are not rivals in the aluminum can industry. The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (high elasticity of demand).
buyer propensity to substitute (low) relative price performance of substitutes (low) buyer switching costs (high)
Pressure from Substitutes Emerges Mainly From Two Factors
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1. Switching costs for customers to the substitute.
2. Buyer willingness to search out for substitutes. Also the threat of substitution may take four different forms, each of which we shall now discuss with reference to above factors.
Substitution of need
We take switching from one product (e.g. natural drink of Dabur) to another (fresh juice from local vendor or prepared at home). In this case, the buyers might be looking out for freshness and might not mind the nominal switching costs Food processing Industry will definitely remain, in one form or the other, as long as the manufacturers manufacture and consumers consume. Food processing industry does not seem to become extinct even in the future. The issue that remains to be addressed is just - what forms it keeps evolving into. Here the Substitutes of food processing industry are fresh fruits and vegetables and food as a raw material , but they are yet very well developed in India, so their threat are comparatively very high but food processing industry break the boundaries of food product availability in certainseason and area that is why food industry will sustain for longer term. While the treat of substitutes typically impacts an industry through price competition, there can be other concerns in assessing the threat of substitutes.
Strategic Implications of the Five Competitive Forces
Competitive environment is unattractive from the standpoint of earning good profits when
Rivalry is vigorous Entry barriers are low and entry is likely Competition from substitutes is strong Suppliers and customers have considerable bargaining power Competitive
environment is ideal from a profit-making standpoint when Rivalry is moderate Entry barriers are high and no firm is likely to enter Good substitutes do not exist Suppliers and customers are in a weak bargaining position. But food processing
industry is little bit attractive but not ideal, it gives considerable profit Because of the following point
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Rivalry is moderate Entry barriers are low and firm is likely to enter
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The 4 P'S of Marketing
1. Product - The product aspects of marketing deal with the specifications of the actual goods or services, plus how it relates to the end users needs and wants. The range of a product normally includes supporting elements such as warranties, guarantees, and support.
2. Pricing -This refers to the process of setting a price for a product, together with discounts. The price need not be monetary; it can plainly be what is exchanged for the product or services, e.g. time, energy, or attention. Methods of setting prices optimally are in the domain of pricing art
3. Placement - (or distribution ): refers to how the product gets to the buyer; for instance, point-of-sale assignment or retailing. This third P has furthermore at times been called Place, referring to the channel by which a product or service is sold (e.g. online vs. retail), which geographic region or industry, to which division (young adults, families, business citizens), etc. also referring to how the surroundings in which the product is sold in can influence sales.
4. Promotion - This includes advertising, sales promotion, including promotional education, publicity, and individual selling. Branding refers to the assorted strategies of promoting the product, brand, or company.
All the 4 marketing p's are also known as "the marketing mix" furthermore are frequently used by a marketer to plot a plan, and place the foundations of fresh projects/campaigns, it is a astonishingly useful strategy that has been used ever since the early 1960's, and will be constant for as long as new-found projects/campaigns are being produced.
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THE FOUR P’S (RELIANCE FRESH)
PRODUCT
Vegetables and fruits House hold items Food and beverages Dairy products Non veg food items Ready to eat items
PLACE
Low cost locations Targets semi urban population Designed to look Crowded All cities in India
PRICE
Low cost model Discount pricing Value pricing Low margin , high sales volume Factors for low pricing Bulk purchasing Central warehousing Transportation
PROMOTION
Discount scheme days – Saturday and Sunday
Reliance fresh membership card Through media especially newspapers. Package carry bag Directories Bill boards Audio materials Point of purchase displays
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ANALYSING INDUSTRY ATTRACTIVENESS
The profitability of different Indian industries. Some industries (such as tobacco, food processing, pharmaceuticals, and medical equipment) consistently earn high rates of profit; others (such as iron and steel, nonferrous metals, airlines, and basic building materials) have failed to cover their cost of capital. The basic premise that underlies industry analysis is that the level of industry profitability is neither random nor the result of entirely industry-specific influences – it is determined by the systematic influences of the industry’s structure. The Indian pharmaceutical industry and the Indian steel industry not only supply very different products, they also have very different structures, which make one highly profitable and the other a nightmare of price competition and weak margins The food processing industry produces a commodity product with inclining demand, strong substitute competition, massive overcapacity, and is squeezed on one side by powerful customers.
Segment-wise Attractiveness of Processed Foods
India presents several potential growth areas in the food processing sector. Based on our assessment of the potential growth opportunities and the enabling environment in terms of policy support, three key segments have been identified that indicate high attractiveness. These are discussed below:
Mass market basic foods – Fruits & Vegetables , Poultry, Meat and Fisheries Fruits and Vegetables Segment
Several factors make the fruits and vegetables sector in India attractive from a market size and growth perspective. As mentioned, India is a significant producer of fruits in the world, contributing to10 per cent of global production. The fruits and vegetables sector is growing rapidly at a healthy rate of 20 per cent per annum. It is however nascent, with penetration level of about 10 per cent. These factors indicate the high growth potential in the sector. This is also highly unorganized at present, with the unorganised sector at 48 per cent share, indicating the scope for organised players to make an impact.
Several policy measures have been undertaken by the Government to create the right stimulus for growth in this sector. Some of the key initiatives include:
Foreign equity participation up to 51 per cent allowed. Initiatives like post-harvest management, logistics given priority in attracting FDI
Complete exemption from excise duty
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Income tax rebate of nearly 100 per cent of profits for new industries in fruits and vegetables sector
Many fruits and vegetables processing industries eligible for automatic approval of technology upgradation
Meat, Poultry and Fisheries Segment
The meat, poultry and fisheries segment is another high potential area that has the advantage of several favorable factor conditions. In terms of raw material, India has the best supply of livestock in the world, accounting for 50 percent of buffaloes and 16 per cent of the goat population. India also ranks third in the world in production of fisheries. There is a large potential for setting up modern slaughter facilities and development of cold chains in meat and poultry processing sector. In the fisheries segment also, India’s long coastline and network of inland waterways and lakes, offers plentiful availability of different types of fishes. Fishery resources in India are seriously under-utilised. The Government has also taken up several initiatives to encourage investment and growth in this segment. These include:
• Foreign Equity participation allowed in the fisheries sector subject to approval. Foreign investment proposals on nearly US$ 210 million have been approved in the sector
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• Financial assistance given for setting up of processing infrastructure like IQF plants, refrigerating transport equipment, freezing plants
• Excise duty on meat poultry and fisheries reduced from 16 per cent to 8 per cent.
Mass Market Value-Added Products- Dairy, Bakery
India is the world’s largest milk producer and dairy is the one of the most promising segments of food processing.Demand for dairy products is expected to grow at a healthy rate of 15 to 20 per cent over the next five years. The segment offers a high potential for value add – the level of processing value add, at 37 per cent, is amongst the highest in the food processing industry. At the same time the share of organised players is still small, at 15 per cent, indicating the potential for growth for organised players. Bakery products is a related segment that has also been growing strongly, at about 7.5 per cent. The segment is still highly fragmented, though organized players have nearly55 per cent share of output. Both these segments, while indicating attractive growth potential, have also been focus areas for policy support by the government
.• Foreign equity participation permitted to the extent of 51 per cent in dairy processing sector
• De-reservation of many segments like ice-cream and ghee from small-scale industries
• Excise duty of 16 per cent on dairy processing machinery fully waived for promotion of dairy processing
• Subsequent to decanalisation, exports of some milk based products are freely allowed provided these units comply with the compulsory inspection requirements of concerned agencies like the National Dairy Development Board, Export Inspection Council, etc.
This business is characterised by high volumes and low margins. Penetration levels are yet quite low in this segment, with product acceptance largely restricted to the urban population. Product innovation and branding play a key role in success of these products. As such, this segment could be an attractive option for multinational companies with established brands and strengths in innovation, to enter and get established in India. The Government has been supporting this segment through policy initiatives such as:
• Automatic approval of foreign equity participation up to 51 per cent.
• Income tax rebate of 100 per cent of profit for five years and 25 per cent of profits for the next year for packaging of Foods
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SUGGESTION
Reliance fresh retail stores should introduce more variety of goods.
Reliance fresh operates in four verticals — fruits and vegetables,pharmaceuticals, FMCG and telecom.they will have to introduce more sectorslike..garments,shoes,kitchen,furniture etc.
Some customers want credit facilities.
Home delievery should be starts if a customer purchase goods worth Rs. 500/-with in the city.
Reliance fresh can provided giving 14-20 % of discount on every segment ;oncein a month.it will increases the sale of Reliance fresh
