2012-2013

Case Analysis

Dr. Shaphali Gupta

CARGILL INDIA PVT. LTD.

12th July 2016
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Objectives of the case

To introduce you all to :
How a large global corporation manages the
transition from B2B to B2Cmarketing in one of its
subsidiaries
Understanding the impact of macro and micro
environments on business.
Handling strategic and operational dilemmas.
Dr. Shaphali Gupta

Context

Cargill India was considering a new strategic

direction B2C, beginning with edible oils.

Its expertise lay in B2B markets.

Selling directly to consumers, they believe, is not

part of their DNA.

Cargill India had ventured into the B2C space in

2000 and had quickly moved out of it.
Dr. Shaphali Gupta

Benefits of launching the B2C Initiative

Would enable the company to tap into the popular

end of the domestic edible oils markets.

Will improve the contribution of Cargill India

(currently at 1%) to global revenues of Cargill Inc.

Dr. Shaphali Gupta

Benefits of launching the B2C Initiative

If it worked in India, the B2C model could be

replicated in different geographies within the

Cargill organization particularly in emerging

markets.

Better plant capacity utilization, reduction of costs.

Dr. Shaphali Gupta

Benefits of launching the B2C Initiative

Better margins, because brands, even when

targeted at the popular end of the market,

command their own price.

B2C brands reduce the volatility in terms of price,

demand and cyclicality of a commodity.

Dr. Shaphali Gupta

Problem
Chaudhrys issue :
How to develop a B2C roadmap for Cargill India?
Our immediate focus :

The environmental factors that would impact this

roadmap
Dr. Shaphali Gupta

Marketing Environment
All the actors and forces influencing the companys
ability to transact business effectively with its target
market.

Microenvironment
Marketing
Environment
includes

Forces close to the company that affects

its ability to serve customers

Macro environment
larger societal forces that affect the whole
microenvironment
Dr. Shaphali Gupta

Macro-Environmental Forces.
Demographic
Technological

Economic
Forces that Shape
Opportunities
and Pose Threats
to a Company

Political-Legal

Socio-Cultural

Natural
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Demographics

35% of the Indians were less than 15 years of age,

and 70% less than 35 years of age.

India was on the cusp of the demographic dividend.

As the young had a higher propensity to consume,

India was a promising market for companies
manufacturing and marketing food products.
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Economic Environment

The Indian economy was one of the fastest growing

in the world, with GDP growth rate between 6% to
8% annually

Port based factories were affected by foreign

exchange movements

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Socio - Cultural

A large part of food consumption in India happened

within homes

Indians ate out 2.5 times per month in 2003, Thais 44

times, Indonesians 15 times

The country was divided into 28 provinces and seven

federally administered territories. Each was a mini India
with its own distinctive cuisine. Different cooking oils
were preferred in different markets
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Socio - Cultural

The power brands typical of global corporations

would not work in India brands were local or
regional rather than national

Shopping for basic household requirements was

done in small quantities normally day to day

Indian consumers always scoured and hunted for

the best combination, mix of quality and price
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Natural

The industry was vulnerable to erratic harvests.

Notwithstanding India was the fifth largest

producer of oilseeds in the world, the country was
import dependent. (Cargill had been importing

refined edible oils into India since 1990.

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Politico - Legal

The Indian food industry was regulated by the

government.

The edible oil segment was particularly regulated

because domestic production was short of demand

The government used import tariff to subdue

prices
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Politico - Legal

Liberalization of imports of edible oils in 1994.

private traders could freely import edible oils

In 1998, tariffs for soy oil reduced to 15% from 45%

Differential duty on crude oils and refined oils to

the extent of 30% to encourage value addition
within the country and prompt modernization and
capacity addition in the processing industry
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Politico - Legal

In April 2003, the differential duty between crude

and refined oil was reduced to 5% making local
refining progressively unviable for those who had
planned investments in domestic refining capacities

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Technological

The solvent extraction plants had low capital needs

and involved low technical knowhow.

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Micro - Environmental Factors

Company
Publics

Competitors
Forces Affecting a
Companys Ability to
Serve Customers

Suppliers

Market
Marketing
Intermediaries
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Company

Cargill had already ventured into B2C marketing in

2000 and had quickly moved out of it.

The company has been targeting institutional

buyers as customers for decades. But selling

directly to consumers was not Cargills DNA as a
global corporation.
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Company

However, Cargill had global competencies in

providing supply chain solutions, pricing options,

quality insurance and risk management

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Company

Cargill India had developed reasonable backward

integration it had set up 85 saathis serving

250,000 individual farmers. Their number was

growing every year.

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Company

The company had expanded its operations to

include processing and refining a wide range of

indigenous and imported edible vegetable oils, fats

and blends for the food industry internationally

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Company

Operations managers were anxious about ensuring

utilization of plant capacity, reducing costs and

securing brand profitability

The marketing managers were skeptical about the

companys ability to attract and retain brand
management professionals
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Competitors

The industry had low entry barriers due to low

capital needs and low technical requirements

Competition was price based and margins were thin

Six leading players in packaged edible oils, some with

JVs with overseas partners

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Competitors

The capacity utilization averaged 30% to 40%

But, there was ongoing capacity expansion in the

industry in order to gain scale

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Competitors

Some of these leading players had undertaken

backward integration to strengthen their overall

business model

Ruchi Soya, for example, had access to 175,000

hectares of agricultural land with palm plantations

across different Indian provinces
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Markets

India was the second most populous country with a

population of 1.08 billion

The total market size in 2005 was Rs 600 billion

($12.5 billion)

The market size by volume in 2014 was 10.9 m

tonnes of which 4.3 m tonnes was imported

The industry was growing at a CAGR of 4.43%

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Markets

The packaged oil market accounted for about 25%

of the domestic consumption

This percentage was likely to go up due to the

uptrend in urbanization and growing quality

consciousness among consumers

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Markets

Domestic demand for edible oils for the consumer

markets was being met largely through imports

While prices of commodities were volatile, the prices of

packaged goods remained flat, thereby driving down
margins

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Suppliers

The commodity market was dominated by

intermediaries, arhatiyas, who bought from

farmers at prices the latter could not negotiate,

and sold to wholesalers. Semi-wholesalers would
buy them from the wholesalers and sell to retailers
who in turn delivered them in loose form to end
users
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In the light of these

environmental factors,
should Cargill India still
consider entering the B2C
space in India?
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Issues to be discussed
Should Cargill India enter the B2C segment or stay away from it?
Why?
What are the factors Chaudhary should bear in mind while
developing a B2C strategy in India?

What do you recommend must be articulated in the B2C

marketing plan for Cargill India? How will fit with the existing
marketing plan for B2B?
What are the likely bases of complexity that could be a source of
competitive advantage for Cargill India?

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Should Cargill India enter the B2C segment or stay

away from it? Why?
Chaudhari cites two reasons both related to ensuring
predictability of business forecasts.
To deal with volatility not only in commodity price
movements but also in official regulations related to
the dibble oils business.
He finds B2C is a way of dealing with them

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Should Cargill India enter the B2C segment or stay

away from it? Why?
At the subsidiary level:
B2C offers a route to
increase the contribution
of Cargill India towards
global revenues and
enhance its profile with in
Cargill group

It enables the company move into the popular

end of the edible oils market, the popular end
generates volumes and in turn, addresses the
manufacturing concerns over low capacity
utilization at the refineries and rising costs of
operations

It provides an opportunity to get closer to the

end users, as opposed to customers, and gain
insights into their needs

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Should Cargill India enter the B2C segment or stay

away from it? Why?
At Macro level:
Cargill India has traditionally focused on the early stages in the value chain of
the Indian foods business- farming, procurement and processing. The real
value addition, -consumption. B2C is a step in that direction
The Indian packaged foods business is valued at about $10 billion in 2005,
growing at about 6% per annum. The pie is large, providing an incentive for
Cargill India to aim for a share.
Having been in the foods business for over two decades, Cargill India is well
positioned to move to the next level of growth in terms of revenues and
margins. B2c is a logical step forward.

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Cargill should however be wary of entering the B2C

segment.A few reasons

B2C is not part of the

companys DNA

The co. has had an unsuccessful record in the past

with B2C itself

Chaudhary will have a tough time on four fronts:

- Securing buy-in from the head office in the US

- Securing buy-in from the Cos own managers in India
- Attracting brand management professionals into a company perceived in the
job market as a B2B enterprise
- The packaged foods segment in India is so competitive (with regional players
having a stronghold in regional markets), that is none too easy for an
essentially national players to enter in
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2. What are the factors Chaudhary should bear in mind

while developing a B2C strategy in India?
Three factors Chaudhary should keep in mind
Value for Money- provide the mix of attributes price, quality,
convenience, experience and service. Single focus would derail the foray
into B2C

Perceived as national brand- vulnerable to competition from

private labels- often facilitated by retailers themselves.

Expanding business in India means coping with uncertainties in

areas such as infrastructure

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What do you recommend must be articulated in the B2C

marketing plan for Cargill India? How will fit with the existing
marketing plan for B2B?
A study of packaged food and beverage companies has found that winners are
committed to a strategy that attacks several fronts in parallel, not in sequence.
Cargill India should address all market expansion initiatives- for e.g. cost
position, marketing effectiveness, innovation and growth in new channels..

Instead of taking plunge into the B2C segment headlong. Test the platform with
its existing B2B customers in the business in the business of food ingredients in
which it can also elicit help from othe global subsidiaries of the parent company,
Cargill Inc.
Cargill India should appeal to young Indians right from the start with a focus on
health. The young (less than 35 years of age) comprise 70% of the countrys
population, generating current demand. Cargill India can catch them young,
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Gupta
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generating
future
demand.

What are the likely bases of complexity that could be a source

of competitive advantage for Cargill India?

Networks
Numbers of brands
Technology
Services
Product portfolio
Cover all price points
Build customer pull rather than trade push

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THATS ALL FOR

TODAY!!!
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