Paradigm, Vol. VII, No.

1, January-June, 2003 46

Indian Alcoholic Beverages Industry:

A Strategic Analysis

Seema Gupta*

Abstract
The Indian Alcoholic Beverages Industry is under the
process ofphased liberalization and hence is going through
turbulent transformation. The changing environment
demands fresh thinking and a re-look at the strategy to gain
the cutting edge. This paper attempts to look at the various
macro and micro environmental factors operating in the
industry to gain a holistic understanding ofit. The paper uses
the model ofstrategic analysis by George Day to analyze the
bargaining power of buyers and suppliers, the threat of new
entrants, threat of substitutes, intensity of rivalry, impact of
technological changes, growth & volatility ofthe market and
the influence of government and regulatory interventions.
These variables affecting the industry have been categorized
as favourable or adverse which accordingly influence the
profitability of the industry. The paper also identifies some
strategic initiatives, which can be adopted to leverage the
favourable forces and protect themselves from the adverse
ones. A good understanding of the industry enables
management to detect opportunities early and exploit them
forcefully.

Liquor industry in India has always remained under strict government

control in terms of capacity creation, distribution, and taxation. The industry
poses a dilemma to the state, borne by the temptation of large revenues, on
the one hand, and the embarrassment in giving encouragement to drinking,
on the other. The industry is under the process of phased liberalization and
hence is going through turbulent transformation. Various organizational
bodies like FICCI and CII have carried out extensive researches in the
regulatory framework and the manufacturers are also lobbying hard with the
authorities for policy regime. However, most of these reports are for private
circulation and are highly diffused. This paper attempts to look at the various
macro and micro environmental factors operating in the industry in order to
gain a holistic understanding ofit (Sinha G. and Jena S. ).

•Assistant Professor, Mudra Institute of Communications (MICA), Ahmedabad.

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Indian Alcoholic Beverages .... 47

INDUSTRY OVERVIEW

Before analyzing the industry, an understanding of the constituents of the

industry is important. Alcoholic beverages industry consists of four
segments- Beer, Wine, Indian Made Foreign Liquor (IMFL) and Country
Liquor. IMFL further can be subdivided into four categories-Whisky,
Brandy, Rum and White spirits. White spirits include Gin, Rum and Vodka.
Presently some 36 units are manufacturing beer in India with an estimated
output of 500 mn litres. The market for beer in India was about 65 mn cases
of 12 bottles each and is slated to touch 80 mn cases in 2001-01, a growth of
23% in a year. In consumption, India holds the 29th position with the annual
consumption growing by a little less than 30% in the last five years. Per capita
consumption of beer is as low as half-a-litre as against 128 litres in Germany,
129 litres in New Zealand and 116 litres in Denmark. The Indian beer
industry has shifted towards the strong beer segment. The ratio in mild-strong
beer has shifted from 66:34 in 1993-94 to 46:54 in 1999-2000. The wine
market in the country is estimated at 150,000 cases per annum excluding the
very low priced products like port wine, which is very popular in markets
such as Goa. The Rs. 240 bn liquor industry sells around 3 70 mn cases
annually. A large peg of this-65% is whisky, followed by brandy and gin at
13%, rum at 17% while the white spirits account for 3% of the market share.
Of this the Indian-made foreign liquor (IMFL) accounts for Rs. 65 bn (72 mn
cases) with whisky alone constituting for 95%. Besides, there is a large 200
mn cases market of low-priced country liquor. Indian spirit market also
consumes branded country liquor worth Rs 120 bn and unbranded country
liquor worth Rs 48 bn. India has a small market for wines too, about Rs 400
mn a year. Compound annual growth rate for rum is 20%. Whisky has a
CAGR of 10%. Around 70,000 cases of champagne are also sold annually in
the Indian market. (cier)
The demand for whisky has risen from 30 mn cases in 1990-91 to 45 mn
cases in 1995-96 to 70.60 mn cases in 2001-02 and is projected to be 100.50
mn cases in 2005-06. The growth rate of the market was 8.3 % between 1990-
91 1996-97, but the market is expected to grow at the rate of9.3% between
2001-02 2006-07 (cier). Total sales of wines, spirits and liquors was Rs.
3473 crores in 1995-96 which increased all the years and reached Rs. 6760
crores in 1999-00, but decreased to Rs. 6407 crore in 2000-01. In the year
2000-01 Mc Dowell & Co. had the highest market share of 12.05%, followed
by Balaji Distilleries with 8.41 % and Shaw Wallace & Co. with 7 .85%.
Domestic sales account for 99 .41 % of the market share whereas imports
account for 0.59% market share. The Herfindahl Index of concentration is
0.044, which means that the market share is dispersed and there is low
concentration. Hence the industry is characterized by many rivals none of
which has a significant market share. (The index takes values between 0 and
1, where 0 indicates no concentration at all and 1 indicates monopoly) (CMIE
market size & shares).
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Paradigm48

INDUSTRY PERFORMANCE

The performance of the Indian Alcohol & Beer industry has been
analyzed from 1997 to 2001. Important performance indices such as Debt-
Equity ratio (D/E), Return on Net Worth (RONW) (Post tax), Net Sales/Total
Assets and Operating Profit/Net Sales are as depicted in Exhibit 2. Chart 1
depicts the rising trend of D/E, showing that the industry is shouldering an
increasing debt burden and becoming more leveraged. RONW (Post tax) as
depicted inchart2, has plummeted from a +3%return in 1997-98 to 10.4% in
2000-01. This indicates that the industry, in general, is eroding its networth,
losing money and thus becoming unattractive to equity investors. In chart 3,
the ratio of Operating profit/Net Sales exhibits the decreasing profit levels,
from 8% in 1997-98 to 4.1 % in 2000-01. This indicates increasing pressure
on bottom line due to heightened competition. Chart 4 shows a decline in Net
Sales/ Total Assets (Asset Turnover ratio) from 0.98 in 1998-99 to 0.93 in
2000-01. This indicates that there is relatively inefficient utilization of assets
or the industry is acquiring more assets. Chart 5 shows that the CARG of
Gross Sales for Beer &Alcohol has been decreasing from 14.2% in 1997-98
to 5 .5% in 2000-01 ( CMIE financial aggregates, CMIE corporate sector).
These five indices taken together show that the alcoholic beverages
industry is passing through a difficult phase characterized by increasing debt,
erosion of net worth, declining profits and low asset utilization. The industry
is undergoing partial liberalization & changes in regulatory framework.
Given the turbulence in the environment there is a need for an in-depth
analysis to decipher the impact ofvarious factors.

INDUSTRY ANALYSIS

Industry analysis is one of the most useful forms of strategic analysis. It

illuminates the competitive landscape in a way that aids the formulation of
effective strategies (Collis). Michael Porter's Five Forces Model provides a
robust and time-tested framework for analyzing any industry, reflected in the
strength of the five forces (industry competitors, potential entrants, threat of
substitutes, power of buyers and power of suppliers). The collective strength
of the five forces determines the ultimate profit potential in an industry,
where as profit is measured in terms oflong term returns on capital invested
(Porter). They also shape the competition and the industry structure by
determining prices, costs and investment required by firms in an industry and
thereby laying down the outlines of return on investment. Each force is a
summation of many sub-forces and elements. The elements of each of the
above forces and the extent and /or effect of each element in the context of the
Alcoholic Beverages industry, have been analyzed and enumerated below.

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Indian Alcoholic Beverages .... 49

Porter's framework, however, does not address three important variables

separately- government and regulatory interventions, technological changes,
and growth and volatility of market demand. These variables have been
included in the model proposed by George Day (Day), which evolved from
Porter's model (Exhibit 3). These three macro-environmental factors, which
do not directly affect the industry profitability but dampen or accentuate the
impact of the five forces, have also been taken into account in this study.

DEGREE OF RIVALRY

Degree of Rivalry denotes the intensity of competition within the

industry. Greater rivalry dissipates the value created by the producers
through lower prices and discounts, thereby lowering the industry
profitability; while a lower degree of rivalry contributes towards greater
profitability for the industry. Several factors- industry growth, concentration
and balance, corporate stakes, fixed cost, and product differences influence
rivalry between the existing players.

Industry Growth
The whisky industry has a growth rate of 10% whereas rum has a CAGR
of 20%. With the increasing disposable income, upgradation is also
happening within the liquor industry and also from beer drinking to whisky
drinking. Moreover shift is also taking place from non-branded to branded
products. These trends with a healthy growth rate reduce the intensity of
rivalry (CIER).

Concentration and Balance

The Herfindahl Index of Concentration is 0.044, which indicates that the
industry is fragmented and none of the players has significant market share.
This means that the industry is not disciplined and has high degree of rivalry
(CIER).

Corporate Stakes
In the year 2000-01, the Gross Fixed Assets of the Alcoholic Beverages
including beer were Rs. 1862.3 er, Net Worth Rs. 1070.9 er and Capital
Employed Rs. 2449 .3 er. An inference can be drawn only when these
aggregates are compared with figures in other industries. Gross fixed asset in
2000-01 in tobacco products is Rs. 2823.1 er and in sugar Rs. 6117 er. Net
Worth in year 2000-01 in Tea & Coffee is Rs 3184 er and tobacco products is
Rs. 3894 er. Capital employed in 2000-01 in Chemicals & Plastics is Rs.
79744 er., cement Rs. 14028 er., consumer electronics Rs. 5822 er and paper
products Rs. 9331 er. Thus, as compared to other industries corporate stakes
in the Indian alcoholic beverages industry are low.

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Paradigm50

Fixed Cost and Value Added

Alcoholic Beverages industry is considered capital-intensive due to the
requirement to maintain high level of inventories on account of the process of
fermentation. The fixed cost as a proportion of value added is quite
significant and has gone up from 37% in 1998-99 to 45% in 2000-01 (Exhibit
4). For the purpose of analysis, Fixed Charges have been taken as (Employee
Cost+ Interest+ Depreciation). Value Added has been defined as (Net Sales-
Cost of Material- Cost of Power & Fuel). The value addition is slowly being
squeezed under pressure from rising costs of input material and lower sales
realization, due to surplus capacity and cheap imports. Hence, capacity
increases are important success drivers.

Product Differences & Brand Identity

On the basis of taste, ingredients and smoothness the brands get
categorized in the various price segments of Super premium, Premium,
Prestige and Regular. Besides this there are a lot of restrictions which can
restrict the choice of the ingredients and the cost that are associated with it.
For instance, MNCs were allowed to use only grain as ingredients, which is
very costly than the ingredients that were open for the local industries.
Alcoholic beverages as a category command a lot of imagery richness
amongst the consumer base that it serves to. In a competitive environment
brand building is crucial. Marketing expenditures on communications are
huge and are generally around a particular theme, which gives credence to its
positioning. Any company that wants to garner large market share has to field
brands in all segments, otherwise it will only be a niche player & will miss
out on volumes and thus revenues and profitability.

THREAT OF ENTRY

Threat of entry is determined by the entry barriers, which act to prevent

new firms from entering the industry. A lower entry barrier makes it difficult
for the existing producers to remain profitable for long. When profits
increase, additional firms will enter the market to take advantage of the high
profit levels and over time drive down profits of all firms in the industry.
When profits decrease, some firms will exit the market, thus restoring the
market equilibrium. Barriers to entry arise from several sources:

Government Regulations
Although the government on April 1, 2001 lifted the import restrictions
on alcohol, but import duty ranging from 464- 710 per cent was levied which
in the year 2002 was reduced to 413 per cent from 710 per cent and 340 per
cent from 464 per cent. This means that though imported alcohol is available
in the Indian market its prices are beyond the reach of the most. The

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Indian Alcoholic Beverages .... 51

government is slowly on course to curb import tariffs on bottled-in-origin

(BIO) liquor to the WTO bound rate of 150% by March 2004. Hence, the
domestic players who are enjoying protection from international competition
will very soon be competing with imported brands (Bo by).

Access to Distribution Channels

Availability is a key factor influencing purchase. Certain states prohibit
the transfer of products to other states. To circumvent these restrictions, the
leading players are trying to set up manufacturing units in a number of states.
United Breweries and Shaw Wallace have significant presence all across the
country. Massive retail presence ensures instore promotion and point-of-
purchase displays, which are very essential, when there is ban on advertising.
Liquor distribution is controlled in most states. The controls are established
by way of auctions and government controlled markets. These practices lead
to considerable red tape and corruption. Hence, companies have to break
hold of the intermediaries by building brands. There are some 30,000
(project) licensed retail distributors in the country which take control over
specific areas. The companies are therefore at the mercy of the agents
because ifthe agent does not favour a particular brand then the manufacturer
may lose a potential market.

Brand Salience
With little product differentiation and parity products, it is imperative
that distinct images are created in the minds of consumers through
positioning and brand building. Only when the consumer is reinforced about
his brand selection that regular and frequent purchases would be there and
volumes would flow. Hence brands that relate to the lifestyle of consumers
will succeed.

THREAT OF SUBSTITUTES

In Porter's model, substitute products refer to products in other industries.

Alcoholic beverages offer unique consumption benefits to consumers and
cannot be substituted by any other product. There may be shift in
consumption patterns within the industry, from unbranded to branded,
domestic to imported as the sector opens up, from brown spirits to white
spirits and from beer to hard drinks.

Buyer Power
The power of buyers is the impact that consumers can have on a
producing industry. Buyer power influences the prices that a firm can charge.
The alcoholic beverages market can be broadly segmented into two
categories:

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Paradigm52

• Price-sensitive buyers are primarily concerned with cost. The

products can be broadly put into various categories ranging from
Super premium, Premium, Prestige and Regular touching various
price points.
• Image-driven buyers want to make statement about self, through the
brand they choose. The brand personality and how it associates with
their lifestyle influence them.

Buyer Concentration
The industry is akin to FMCG whose end users are fragmented. Hence,
buyers do not have any specific influence on producers.

Buyer Switching Cost

The cost incurred by consumer in switching from one alcohol brand to
another is practically zero. Brand loyalty is low. Hence, the companies
cannot rest on their laurels and have to be on their tenterhooks to retain the
customers.

Price Sensitivity
Market is highly price conscious. Cheap whisky brands from domestic
stable are ruling the market with 88% market share and scotch brands even
after spending tonnes of money on brand building have been able to sell only
100,000 cases. Foreign liqour majors have been able to comer less than 2% of
the Indian whisky segment. Cheap and medium segment whisky with a brand
like Haywards sold 2.0 mn cases at a whopping growth of 46% over the
previous year, while the regular segment brands like Diplomat, Bagpiper,
Officer's Choice sold 2.6 mn cases at a negative growth of 3%. The prestige
segment comprising McDowell's No. 1, Royal Stag registered a positive
growth of 11 % and sold 660,000 cases, while the premium segment
witnessed a downfall with a negative growth rate of 18%. The segment
comprised brands like Royal Challenge, which sold 860,000 cases. The
deluxe segment with brands like Antiquity, Signature had an amazing growth
rate of 65%. Hence it is seen that it is primarily the lower & the upper
segment of the market which is growing (CIER).

SUPPLIER POWER

Supplier's bargaining power influences the cost and quality of input

material. Higher supplier power raises the input cost, thereby reducing the
industry profitability. Supplier's power depends on the following variables:

Differentiation oflnputs
The main raw material is molasses, a by-product of sugar. The input

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Indian Alcoholic Beverages .... 53

material being a commodity with no differentiation prevents suppliers from

charging a premium on their supplies.

Supplier Concentration
The proportion of raw material to net sales has been increasing over the
last five years from 55.9% in 1997-98 to 58.2% in 2000-01(Exhibit5). Raw
material forms a major cost head. Prior to 1993, the supply and prices of
molasses were under the control of the state governments. During 1993,
molasses were decontrolled by certain states thereby eliminating the role of
government in the supplies. Consequent to decontrol, the prices increased
significantly from Rs. 240/MT to Rs. 2400/MT (Project). Molasses however
continues to remain under control in some states. As the supply of molasses is
dependent on monsoons, cost of molasses fluctuates significantly and it also
varies from state to state. The suppliers are dispersed and the availability of
molasses continues to depend on factors like government policies and
monsoons.

Threat of Forward Integration

The suppliers are primarily farmers with little acumen of brand building
and marketing and the scale of operations being very different, there is no
threat of forward integration by suppliers.

GOVERNM:ENT AND REGULATORY INTERVENTIONS

The role of the government as the supra-environment for business,

creating the rules for competition is crucial. It creates boundaries within
which the industry must operate. Historically, central laws have hamstrung
the Indian alcoholic beverages industry. Since 1997 no capacity additions
have been allowed. This blocks national marketing from a really efficient
plant. Till recently the industry could not approach the banks for financing.
Liquor being a state subject, laws varies from state to state resulting in a
dynamic environment for the industry. These have resulted in the industry
using its own or contract facilities for manufacture across states thereby
losing out on economies of scale. States have shown tendency to increase
taxes in recent years to generate revenues for exchequer. In the year 2000-01,
Rs. 41.7 crore were paid as taxes (cmie financial aggregates). The interstate
movement of the product is also subject to taxation. The manufacturer has to
pay an export pass fee to the state where the plant is located and an import
pass fee to the state where he intends to sell. In addition, the labels stuck on
the bottles have to be prepared in compliance with certain strict guidelines,
which vary from state to state. Expenses incurred on these count increases
the cost of product by approximately 50% in other states as compared to the
state of manufacture (Project).

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Paradigm54

TECHNOLOGICAL CHANGES

Sustainable growth is dependent on cost leadership. This is so because of

the exceptionally high costs that are incurred in procuring raw materials,
manufacturing process and suppliers. Companies like McDowell are
realigning their sources and supplies and identifying areas of improvement.
Investment programmes at the distillery go towards modernization,
upgradation and yields improvement to ensure that companies meet demand
at all times. A number of technological advances are being used to reduce
energy consumption and thereby reduce cost of production. Companies are
utilizing methane gas, generated in anaerobic digester, in boiler along with
furnace oil. There is also increasing installation of automatic blowdown
system and oxymiser in boiler and of steam turbine to produce electricity.
Investments are being made in information technology. McDowell has
commenced implementation of SAP R/3, which is considered to be the
world's most sophisticated Enterprise Resource Planning packages available
to improve systems.

GROWTH AND VOLATILITY OF MARKET

The entire market consists of various sub segments, which are very
complex. The consumer behaviour in different segments such as premium,
regular and prestige is very volatile. Different segments are growing at
different rates. Since the players have brands in all segments the portfolio
becomes cumbersome. Critical success factor would be to manage the brand
portfolio. Focusing resources on selected brands can lead to better
performance. UB has selected 12 brands, which are contributing more than
70% to their total revenue.

STRATEGIC RELEVANCE OF THE FIVE FORCES

The variables affecting the industry with regard to each of the five forces
have been categorised as favourable or adverse (Exhibit 6). Favourable
variables have the potential to improve profitability, while adverse variables
reduce profitability of the industry.
Some strategic initiatives, which could be adopted to leverage the
favourable forces and protect themselves from the adverse ones, are as
follows :

• The industry has a number of small players and with lifting of

quantitative restrictions on imports the fragmentation has intensified.
Mergers and acquisitions will be the key to future. Foreign players
are looking for collaboration with Indian counterparts wherein

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Indian Alcoholic Beverages .... 55

MNC's have the financial muscle & the domestic partner has the
distribution strength. From growth perspective these bigger .players
like United Breweries group, Shaw Wallace, Balaji Distilleries may
make forays into the neighbouring markets. McDowell is infact-
planning forays into the neighboring markets of Sri Lanka and
Bangladesh.
• In line with WTO commitments, import duties on spirits will be
reduced to 150% by 2004. This would open floodgates for foreign
players, but the impact would be limited as most of them cater to the
premium segment and would not be able to match the marketing and
distribution strength of domestic players. Brand building will be
important, as the category is imagery driven. Companies can bolster
their brand identity by making forays into lifestyle products, like
Wills Lifestyle stores. United Breweries is planning to import a range
oflifestyle products into the country and market them through luxury
retail outlets under the McDowell brand name. New categories or
segments could also be identified to create niche segments.
McDowell plans to launch a whisky brand in the regular plus
segment, a category which is between prestige and regular segment
where they have identified a new price point which is till now
unrepresented in that segment. Focus would be on providing value
for money to the consumer, with more brands in the economy
segment. Companies may even relaunch some of their brands in
terms of packaging and positioning to give them a contemporary
look.
Buyers are easily swayed by costs, which is also verified by the presence of
large number of product offerings. Besides catering to the cost conscious
segment, marketers need to segment the market on the basis of
psychographics, which will help in inducing brand loyalty through lifestyle
and experiential marketing.

CONCLUSION

This analysis helps the management of alcoholic beverages companies to

understand the dynamic nature of the forces operating in the industry and
their impact. This can provide a framework based on which companies can
craft strategies, which have a cutting ·edge. Managers can get insights for
turnaround strategies perhaps by increasing differentiation, ra1smg
switching cost of consumers or building barriers for new entrants. A good
understanding of the industry also enables management to detect
opportunities early and exploit them forcefully. The profitable alcoholic
beverages company of the future will continue to find new ways of building
relationship with customers. The companies' response will also determine

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Paradigm56

the future of the Indian alcoholic beverages industry, which plays an

important part in the economy of the nation. The industry is passing through
turbulent times due to opening up of the sector. Threats do exist but the
opportunities that are present are also lucrative with some judicious thinking
at the industry and national levels.

References :

• Kurian Boby (2002), "Spirit of Contention", Business Line, August 1

• Centre for Industrial and Economic Research (CIER) and INTECOS
(2002), "Market Forecast and Indicators: emerging market in India"
2002-2012, New Delhi: Industrial Techno-Economic Services P Ltd,
pp798
• Centre for Monitoring Indian Economy (CMIE), (May 2002),
Corporate sector
• Centre for Monitoring Indian Economy (CMIE), (June 2002),
"Industry: Financial Aggregates and Ratios"
• Centre for Monitoring Indian Economy (CMIE), (August 2002),
"Industry: Market size and shares"
• Collis, D. and P. Ghemawat, (1990), "Industry Analysis:
Understanding Industry Structure and Dynamics", Portable MBA,
Harvard University Press, pp 171
• Day, G.S. (1990), "Market Driven Strategy: Process for Creating
Value", TheFreePress:NY,pp 110-123
• Porter, M.E. (1980), "Competitive Strategy: Techniques for
Analyzing Industries and Competitors", The free Press: NY, pp
129-130
• Sinha, G. and Jena S., (September 2002), Indian Steel Industry at the
Crossroads: A Strategic Perspective, Management Review, pp 46-58

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Indian Alcoholic Beverages .... 57

Constituents of Alcoholic Beverages Industry

Alcoholic Beverages

Beer Wine IMFL Country Liquor

Whisky Brandy ~---wru_·_te_s_p_m_·t__~I

Exhibit 1

Industry Performance
Chart 1: Debt/ Equity Chart 2: PAT/Net worth

f:ll ··:'!:::ST i +.-_:::=:;::::==.-...,___.,.-!:.,...~

~ 5 ..----,,--:-~~-~~~--~......,--,

0
i -5 +,!.ll&<.....:......_.. . . . .......:;. . . . .~o.alll-.i'-..:.j
~ -10 t-------"-~--::::,,--"""...,..,.

97-98 98-99 99-00 00-01 f -15 .J..-~~""-""'-~~~~~~~~-.J

Years Years

Chart 4 :Net Sales/ Total Assets

Chart 3: Operating Profit/ Net Sales

~ 0.95 +---:7~~=~~~~~~~
~ 0.9 +-~ll'Vdll---------""""...--t
0.85 +----------~----~
97-98 98-99 99-00 00-01 97-98 98-99 99-00 00-01
Years Years

Chart 5: Gross sales growth rate

97-98 98-99 99-00 00-01

Years

Exhibit 2

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Paradigm58

Industry Analysis Model

Threat of

n
New entrants

Technological
Inter-firm ¢:::::l Changes
rivalry

Bargaining power
of buyers

Threat of substitutes

Growth & Volatility of Market

Source: Day, G S, 1990, Market Driven Strategy: Process for creating Value, Free Press: NY
Exhibit 3

Cost Structure of Alcoholic Beverages Industry (Rs Crore)

1997-98 1998-99 1999-00 2000-01
Net Sales 3950.8 4540.8 4552.5 4095.6
Raw Material 2207.2 2590.9 2571.8 2383.2
& Stores
Power& Fuel 148.9 162.9 181.3 175.1
Wages& 245.6 280.6 289.1 277.l
Salaries
Interest 289.0 286.1 283.l 325.6
Depreciation 91.8 98.3 98.5 93.3
Value added 1594.7 1787.0 1799.4 1537.3
Fixed Chare:es 626.4 665 670.7 696.0
FCNA 0.39 0.37' 0.37 0.45
Source: CMIE Industry: Financial Aggregates & Ratios Jun 2002
Exhibit 4

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Indian Alcoholic Beverages .... 59

Raw material/ Net sales

1997-98 1998-99 1999-00 2000-01

Raw material 2207.2 2590.9 2571.8 2383.2
& stores (in
crore)
Net sales (in 3950.8 4540.8 4552.5 4095.6
crores)
Raw material/ 55.9 57. l 56.5 58.2
Net sales(%)
Source: CMIE Industry: Financial Aggregates & Ratios

Exhibit 5

Forces actin2 on Industry Favourable Adverse

Degree of Rivalry • Healthy growth rate • Fragmented industry
• High brand identity • High fixed cost/ value
• Low corporate stakes added
Threat of Entry • High import duty Limited access to
• Brand salience distribution channels
1 •

• Removal of import
restrictions
• Lowering of customs
duty
Threat of Substitutes • Unique need satisfaction • Health consciousness
Buyer Power • Fragmented buyers • Low switching cost
• High price sensitivity
Supplier Power • Lack of significant • Price variation from
differentiation of inputs stat~ to state

• Low supplier • High fluctuation due to

concentration factors beyond control
• No threat of forward
integration

Exhibit 6

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