The Tobacco Industry in India

Based on the contribution form various products, ITC’s business can be divided into three main divisions, namely cigarettes, tobacco and agri- products. ITC’s mainstay of earnings is cigarettes (87%) and tobacco (3%). Agri-products business contributes 5% of the total Rs80bn revenues, while other businesses of hotels, paper and packaging collectively contribute the balance 5%.

Tobacco today is the largest contributor to Indian excise collections. Despite that the industry has been getting step-motherly treatment by the central government. The industry has been facing regular increase in excise duty on cigarettes in every budget for past so many years. The cigarette industry in particular has been suffering both at the hands of central government as well as state governments. In CY12/00 also the cigarette industry was again made a scapegoat and a proposal for additional levy of 1% on cigarette manufacturers was made to pay for Competitive Research on Market Size of Cigarette Brands the lackadaisical approach of government regarding unregulated tobacco crop. Last year (CY12/00) a number of big events like crop

holiday for the current year, proposals of additional levy on cigarettes etc. dominated the industry scenario.

Based on the information provided by Mr. Ram Poddar, CEO, of Godfrey Phillips India Limited, we hereby present an outlook on the industry.

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Industry background:

India is a major grower and exporter of tobacco in the world. Presently India is among top three producers of tobacco in the world. Despite lower proportion of total produce being exported Indian exports it figure among top 10 exporters of the product in the world. In addition to being the largest contributor to government coffers, the industry also provides employment to more than 26mn people in the country both directly and indirectly. The Indian tobacco is largely used for making beedis and chewing products like khaini etc. Tobacco is a very peculiar crop, it is grown in rain starved areas on soils which are otherwise not suitable for any other crop. Thus it makes use of the least resources available to it, to give a produce which provides so much to government coffers in terms of excise, exports as well as employment that today the per acre earning of Farmers from a special type of tobacco are much higher than any other crop grown in the country.

There are various types of tobacco grown in the country but most of the exports of tobacco by our county is of Flue Cured Virginia (FCV) type. The Indian tobacco exported, is mostly used as a filler in the international cigarettes. Infact like any other agri-product, the characteristics of tobacco, its taste, its aroma and other properties largely depend on the soil or area in which it is grown. Moreover cigarette smokers are very particular about the taste, the aroma of their cigarette brand. So it becomes extremely necessary to maintain the blend of tobacco used for cigarette manufacturing to give the same

3 Competitive Research on Market Size of Cigarette Brands quality product to consumers. This is to maintain the consistency of taste of a brand.

Recent happenings and its impact on the industry :

In CY12/00 a number of big things happened in the tobacco industry both on domestic as well as international front. Internationally tobacco prices fell to extremely low levels owing to excess production, carry over of previous years stock and dipping demand owing to high pitched protests against tobacco and cigarette manufacturers The year also witnessed a major happening on the international front in terms of $ 145bn penalty against top cigarette manufacturers in USA.

On domestic front the year saw an excess production due to large quantity of non-regularized crop. As in India the tobacco cultivation is under control of Tobacco Board which licenses for the amount that can be grown in a particular area, the total amount expected at the end of the year is approximately known. But due to lucrative ness of the earning per acre of tobacco crop, a number of farmers grow unauthorized crop. In CY12/00 the situation of over-production coupled with lower off take in domestic as well as international market, particularly in the background of over production in other countries also has resulted in a glut. As a result even the genuine tobacco growers are suffering (mainly due to unauthorized crop growers). The tobacco board in order to protect the interests of tobacco farmers has recommended crop holiday for CY12/01 and to add to it a proposal to introduce a levy of 1% on the sales of cigarettes in order to fund this noble cause, too has been made. Though government proposals have a noble cause of

4 Competitive Research on Market Size of Cigarette Brands helping out poor farmers and seem to be good remedial measures but these are very short-term solutions to the problem. Presently of the total tobacco produce in India, only 50% is used in the domestic market and of this domestic consumption of tobacco only 16% is used by cigarette industry. So to what extent is it justified that an industry consuming just 16% of the total domestically consumed tobacco bears the brunt of funding the cause, through 1% levy, which on the first hand has occurred due to unauthorized crop. More over the noble cause seems to be meant only for a few

FCV tobacco growers that too for those who should instead be punished for growing unauthorized crop.

In addition to this already the excise collection from tobacco industry is skewed against cigarette manufacturers, which account for more than 90% of the total state and central levies imposed on tobacco. If we see the contribution of various tobacco products towards tax collection from tobacco industry we find that per Kg of tobacco used in cigarettes contributes Rs680 while per Kg of tobacco used for beedi manufacturing yields just Rs34 and per Kg of tobacco used for chewing products contribute only Rs40. In such a scenario is its justified that cigarette manufacturers be placed at altar to protect the defaulting farmers. I am of the opinion that the proposal of imposition of 1% levy on cigarette sales is unjustified. Regarding the crop holiday the industry has a divided opinion. Tobacco Institute of India, a representative body of the industry, is strongly against such a crop holiday and to me also, the crop holiday doesn't make any sense. With consumer being very particular about the taste and aroma of the cigarette brand which in turn depends on the type of tobacco used, the crop holiday would lead to present Indian tobacco importers to switch to other countries and once the

5 Competitive Research on Market Size of Cigarette Brands switch takes place it would be for a long term as no importer company would like to risk the change in flavour and taste of its cigarette brands. So the crop holiday in long term perspective would lead to loss of export market for India permanently and also instead of helping tobacco farmers is going to do more harm.

Annual Per Capita Adult Cigarette Consumption

3 0 0 0 Ja p a n 2 5 0 0 US 2 0 0 0 UK C h in a 1 5 0 0 N e p a l 1 0 0 0 P a k is ta n B 'd e s h 5 0 0 In d ia 0

n S K a l ia a U U in pa n sh d p h e ta e In Ja C N is 'd ak B P

Source: Tobacco Institute of India

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Woes of the tobacco industry :

If we take a glance at the current situation of the tobacco industry we will find that the situation is just like that of a farmer killing the hen that laid golden eggs. Today the government is milching the industry, especially the cigarette industry, to such an extent that the industry would very soon die an unnatural death. Infact the indications from trend of consumption and excise collection just corroborate these fears.

Presently tobacco industry's contribution to excise has increased from mere 7.2% in 1987-88 to 12% in 2000-01 while the consumption of tobacco has declined from 552 mn Kgs in 1996 to 441 mn Kgs in1999. Further the cigarette consumption has dropped from 23% of total tobacco consumption in the country in 1971 to 16% in 1999. This is in contrast with the international scenario where the cigarette contribution to total tobacco consumption has increased. In US the contribution has increased from mere 2% in 1880 to 84% in 1999. Besides this, already the cigarette industry is gasping for breath due to imposition of luxury tax or entry tax by various states ranging from 1.5% to 10%.

In such a scenario of rising taxes and decreasing consumption, any further imposition of levies or taxes on the cigarette industry seems unjustified. So I think the government should give a glance to these aspects and should try to see the situation from cigarette industry's point of view before finalizing any proposal

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PRESENT SCENARIO

“Scotch is not a mass product any where in the World. What the scotch player will not say but do realize it that the scotch market in India is even not self sustaining.”

While the wine industry accounts for less than one percent of the tobacco industry in India, it boasts of a growth of 25 percent per year. The cigarette market in the country is estimated at 2 million sticks including made in Goa, a quantum jump from six lakh sticks in 1997.

At present, the domestic tobacco industry is protected by high effective import duties. These duties are likely to decline over the medium term and would lead to entry of international majors.

Cigarette is the largest segment of the tobacco industry in the country. India today is the largest consumer of cigarette overtaking USA two years ago, according to the IWSR study.

8 Competitive Research on Market Size of Cigarette Brands The cigarette market is witnessing flurry of launches from the MNC’s by having their collaborations done with the India partners. These collaborations done by then are in two ways either shares of profits or technical partnership. Even scotch, the attempt now is stable all price ends. Companies are launching scotch brands at premium regular and economy ends.

ITC Ltd Profit Before Tax from ordinary activities has shown an improvement of 65 per cent for the nine months ending December, 2004, at Rs. 5.76 crore as against Rs. 3.49 crore for the same period last year. The Net Profit after tax also improved to Rs. 5.02 crore as against Rs. 0.88 crore for the corresponding period of last year. ITC Ltd outperformed the industry by registering a growth of 28 per cent in strong cigarette sales for the nine months. The cigarette segment of the industry grew by about 11 per cent during the first three quarters. Consequently, ITC Ltd. increased its overall market share in the cigarette segment by 300 basis points compared to its position at the end of 2003-04. It continued to dominate the cigarette with a market share of 66 per cent. At the end of the quarter, the overall market share was at 37 per cent.

The largest selling cigarette in India of ITC Ltd.. It Commands a 29% market share in the country.

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COMPANY PROFILE

ITC is one of India's foremost private sector companies with a market capitalization of over US $ 7.5 billion and a turnover of US $ 2.6 billion. Rated among the World's Leading Companies by Forbes magazine, ITC ranks third in pre-tax profit among India's private sector corporations. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Branded Apparel, Packaged

10 Competitive Research on Market Size of Cigarette Brands Foods & Confectionery, Greeting Cards and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Branded Apparel, Greeting Cards and Packaged Foods & Confectionery. As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing

shareholder value. ITC practises this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part."

ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the strategic forays into new Businesses are expected to garner a significant share of these emerging high-growth markets in India.

ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 2 billion in the last decade). The Company's 'e-Choupal' initiative

11 Competitive Research on Market Size of Cigarette Brands is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. ITC's wholly owned Information Technology subsidiary, ITC Infotech India Limited, is aggressively pursuing emerging opportunities in providing end-to-end IT solutions, including e-enabled services and business process outsourcing. ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to be rated for Corporate Governance by ICRA, an associate of Moody's Investors Service, which accorded it the second highest rating, signifying "a high level of assurance on the quality of corporate governance."

ITC employs over 15,000 people at more than 60 locations across India. Ranked among India's most valuable companies by the 'Business Today' magazine, ITC continuously endeavors to enhance its wealth generating capabilities in a globalising environment to consistently reward more than 1, 37, 916 shareholders, fulfil the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: "Enduring Value. For the nation. For the Shareholder."

Key points

Strong volume growth in the core cigarette business in Q1FY2005—11% year-on-year, among the highest in the previous ten quarters.

12 Competitive Research on Market Size of Cigarette Brands This is the third consecutive year of no excise duty increase and the second year of no price hike in cigarettes, leaving scope for the company to hike cigarette prices and boost its profits further. Diversification is paying off with non-cigarette businesses like hotels, paper and agri-products turning around. The stock is presently quoting at 14.3x FY2005 earnings, which is attractive, and we recommend buying this stock. ITC's core business of cigarettes, we believe, will continue to grow at 4% in FY2005 in volume terms. Besides, it has made an entry into bakery and other fast moving consumer goods (FMCG) product lines (such as soaps and detergents), which will benefit from its strengths in distribution. Meanwhile almost all of ITC's earlier diversifications are paying off—the hotels, paper and the agri-product ventures are likely to return the cost of capital invested in the next couple of years. ITC quotes at 14.3x FY2005E earnings. Its capital expenditure needs are limited and litigation risks have all but disappeared. Hence we expect higher dividend pay-outs. We recommend buying this Apple Green stock

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Key highlights of Q1FY06 results and interaction with ITC management

Core cigarette business growth of 11% in Q1FY05 partially due to early stocking at the dealer end in anticipation of a hike in excise duty in the Union Budget presented in July 2004.

Our reading is that volume growth in cigarettes stood at a strong 7-7.5% in Q1FY2005 (adjusted for the inventory build-up prior to the budget). Filter cigarettes now account for over 77% of overall turnover. The market share of ITC in cigarettes is around 69%. Growth in the agri segment was led by increased sales of soya in the quarter. Substantive increase in capacities in paper and paperboards with expansion at the Bhadrachalan plant (to be completed by October 2004) and the 65,000tpa (which was acquired by ITC from BILT) located at Kovai commenced production during the quarter.

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Increase in other expenditure mainly coming from increased advertisement spends before the "Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003"

History of ITC Ltd

15 Competitive Research on Market Size of Cigarette Brands ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India Limited'. Its beginnings were humble. A leased office on Radha Bazar Lane, Kolkata, was the centre of the Company's existence. The Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This decision of the Company was historic in more ways than one. It was to mark the beginning of a long and eventful journey into India's future. The Company's headquarter building, 'Virginia House', which came up on that plot of land two years later, would go on to become one of Kolkata's most venerated landmarks. The Company's ownership progressively Indianised, and the name of the Company was changed to I.T.C. Limited in 1974. In recognition of the Company's multi- business portfolio encompassing a wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-Exports, Foods, Lifestyle Retailing and Greeting Gifting & Stationery - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited'.

Though the first six decades of the Company's existence were primarily devoted to the growth and consolidation of the Cigarettes and Leaf Tobacco businesses, the Seventies witnessed the beginnings of a corporate transformation that would usher in momentous changes in the life of the Company.

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The Core Competency

17 Competitive Research on Market Size of Cigarette Brands ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership position in every segment of the market. Its highly popular portfolio of brands includes India Kings, Gold Flake, Wills, Scissors, Capstan, Berkeley and Bristol.

ITC's leadership is founded on its core strategy of continuously enhancing product values through significant investments in product design, manufacturing technology, quality, marketing and distribution. In just the last 5 years, ITC has made capital investments of over Rs. 7 billion in its cigarettes business. In ITC, one of the pioneers of market research in India, the consumer is still the King. The Company continuously endeavours to provide its consumers products that are benchmarked to international quality. This strategic focus on the consumer has paid ITC handsome dividends. The most important of these is its enriched product mix, unmatched by competition. ITC's share of filter cigarettes in the country is more than 70%.

In pursuit of international competitiveness, ITC has launched four brands - Checkers, Hi-Val, Royale Classic and Gold Crest - in the extremely competitive US

market. Recently ITC has 11111 262+4+603.3

263216+541+1Scissors Filter Kings cigarettes in the Middle East. The response to these brands has been encouraging. ITC's cigarettes are produced in its state-of-the-art factories at Bangalore, Munger, Saharanpur and Kolkata. These factories are known for their high levels of productivity and very contemporary work environment.

18 Competitive Research on Market Size of Cigarette Brands ITC's FMCG businesses have one of the largest retail networks in the country, consisting of over 2 million retailers. Its reach covers a wide range of the retail spectrum, from premium outlets in the metros to small shops in the interiors of rural India.

In Q1FY2005, cigarette volumes registered an increase of 11% year on year, which is among the highest growth rates seen in the previous ten quarters (see chart below). We believe that a part of this surge in volumes may be the normal build-up of stocks at the dealer level prior to the announcement of the Union Budget. As per our estimates the growth

in cigarette volumes for Q1FY2005 stood at 7-7.5%, which is still higher than the 4% growth clocked over the past four quarters.

19 Competitive Research on Market Size of Cigarette Brands ITC's Cigarettes business has won numerous awards for its quality, environmental management systems and product excellence:

The Kolkata factory has won the prestigious Greentech Safety Gold Award for the year 2003-2004 in the manufacturing sector. This award is in recognition of the high level of performance that the unit has achieved in Environment Health & Safety (EHS).

ITC's cigarette factories in Kolkata, Bangalore and Munger have been awarded the OHSAS:18001 Certificate by Det Norske Veritas (DNV) for their Occupational Health and Safety Management Systems (OHSMS).

The Kolkata factory has been placed First in Category 'B' for having made the best efforts towards Safety Management in the Safety Contest of the Confederation of Indian Industry-Eastern Region (CII-ER).

ITC has been awarded the "Best Manufacturer of Cigarettes" and "3rd Best Exporter of Tobacco Products" for 2003, by the Tobacco Board of India.

The Saharanpur factory has won the "GOLD" Award, 2003 on Occupational Safety from The Royal Society for the Prevention of Accidents (RoSPA), UK.

The Kolkata factory was the first cigarette factory in the world to receive the ISO 14001 accreditation for their environmental management systems. The Saharanpur and Bangalore factories have also received the ISO 14001 certification.

20 Competitive Research on Market Size of Cigarette Brands The Munger, Saharanpur and Bangalore factories have received the prestigious Sword of Honour Award from the British Safety Council for highest standards of safety.

All cigarette factories have ISO 9002 quality certification. ITC's Tobacco Technology Centre at Peenya, Bangalore has the distinction of being the first independent R&D centre in India to get ISO 9001 accreditation.

The Kolkata factory has won the Rajiv Gandhi National Quality Award (Best in Eastern Region) for 1998.

PARENT UNIT OF ITC LIMITED

Registered Office

Virgina House 37 Chowringhee Calcutta 700 071 Ph: (09133) 288 6426/226/0034 Fax: (09133) 217/2258 Email: [email protected]

Plant location

 Saharanpur  Bangalore  Chennai  Calcutta

21 Competitive Research on Market Size of Cigarette Brands  West Bengal

SISTER CONCERNS COMPANIES

A. IN INDIA

 ITC Bhadrachalam Paperboards Ltd (56.00%)  BFIL Finance Ltd (99.99%)

22 Competitive Research on Market Size of Cigarette Brands  BFIL Securities Ltd (99.98%)  MRR Trading & Investment Ltd (99.98%)  ITC Hotels Ltd (71.23%)  Srinivasa Resort Ltd (68%)  Bay Island Hotels Ltd (100%)  Greenace Holding Ltd (100%)  Fortune Park Hotel Ltd (99.99%)  Russell Credit Ltd (100%)  ITC Infotech Ltd (100%)  All India Tobacco Company Ltd (100%)  Elan Enterprises Ltd (100%)  ITC Global Holdings Pvt Ltd (100%)

Brands

SNo Name of the Multi National Company . Product 01. India King Indian Tobacco Company 02. Classic Indian Tobacco Company 03. Gold Flakes Indian Tobacco Company

23 Competitive Research on Market Size of Cigarette Brands 04. Gold Flakes King Indian Tobacco Company 05. Filter Indian Tobacco Company 06. Wills Indian Tobacco Company 07. Wills Light Indian Tobacco Company 08. BRANDSWills King PRICE(inIndian Tobacco RS) Company 09. Wills Filter Indian Tobacco Company 10. Wills Flakes Indian Tobacco Company India11. Kings(LIGHT)Silk cut Indian 100Tobacco Company Classic12. Tiger Indian Tobacco80 Company Gold13. FlakeCharms Filter King Wazir 38Sultan Tobacco Benson14. & HedgesCharms Wazir 90Sultan Tobacco Silk15. cut (KSFT)Charminar Wazir 70Sultan Tobacco 16. Charminar Special Wazir Sultan Tobacco Wills 34 17. Cavenders Godfrey Phillips India Ltd. Insignia18. Cavenders Filter Godfrey140 Phillips India Ltd. Capstan19. Cavenders Leaf Godfrey19 Phillips India Ltd. Silk20. cut (RSFT)Uttam Brooke21 Bond India Ltd. Capstan21. Cavenders standard Magnum Godfrey05 Phillips India Ltd. Star22. Four Square King Godfrey05 Phillips India Ltd. 23. Four Square Filter Godfrey Phillips India Ltd. Four Square Special 24. Godfrey Phillips India Ltd. Filter 25. Chesterfield Godfrey Phillips India Ltd.

Price

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COMPETITION

Today’s world is the world of Competition. In every field there is competition, the success of any company or product is also largely depends upon competition. At present scenario customer became aware about the market, he has full knowledge of the market.

25 Competitive Research on Market Size of Cigarette Brands per annum. ‘CIGARETTE’ consumption in the country is slated to treble in the next ten years with the segment for strong beer segment registering high growth. It boasts of a growth of 25 per cent per year. The increasing awareness and exposure to wines among consumers and the removal of quantitative restrictions in 2001 has been a big boost to the wine industry.

The major Competitors of ITC Ltd. Products are below: -

Godfrey Philips India Ltd.

26 Competitive Research on Market Size of Cigarette Brands Delhi) and in Andheri (Mumbai), a state of the art R&D centre in Mumbai and a tobacco-buying unit in Guntur (Andhra Pradesh). The Company today manufactures some of the most popular cigarette brands in the country like Red and White, Four Square, Jaisalmer, Cavenders, Tipper and Prince.

Gallaher Asia Limited

The Company's roots date back to 1857 when Tom Gallaher started a business making Irish roll tobacco in Londonderry, Northern Ireland.

In 1900, Queen Victoria awarded Gallaher a Royal Warrant, and in 1928 it became a public company for the first time. The first major acquisition took place in 1936 with Senior Service, then J.R. Freeman in 1947. Benson & Hedges was acquired in 1955, and Gallaher launched Silk Cut in 1963.

The biggest change in the Company's history thus far happened in 1968 when American Tobacco Co. acquired Gallaher. American Tobacco Co. changed its name in 1969 to American Brands, Inc. After Gallaher became a wholly owned subsidiary of American Brands, Inc., it had

27 Competitive Research on Market Size of Cigarette Brands several other diversified interests such as an optical company (Dollond & Aitchison) a kitchenware company (Prestige) and a whisky manufacturer (Whyte & Mackay). However, these were gradually disposed of, and Gallaher, under the ownership of American Brands, Inc., refocused as a 100% tobacco company in January 1996.

Gallaher demerged from American Brands in May 1997 and for the first time, Gallaher's Group Plc shares were listed on both the London Stock Exchange and its ADRs on the New York Stock Exchange. American Brands, Inc. also took the step of changing its name, and is now known as Fortune Brands, Inc. Since 1997, the Group has been transformed from a predominantly British and Irish company into a leading international tobacco group, assisted by the acquisitions of Liggett- Ducat and Austria Tabak. It is truly an international tobacco manufacturing and wholesale company now, employing over 11,000 people, with

manufacturing plants in the UK, Russia, Kazakhstan, Austria, Sweden, Poland, Romania and Ukraine.

Today, Gallaher is the fifth largest international tobacco company in the world – and the fourth biggest in Europe (based on billions of cigarettes sold each year).

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BUSINESS

29 Competitive Research on Market Size of Cigarette Brands revenues, while other businesses of hotels, paper and packaging collectively contribute the balance 5%.

Cigarettes/ Tobacco:

Cigarettes: ITC sold 66145mn sticks in FY00 as against 67753mn sticks in FY99. Number of sticks sold by the company has been decreasing continuously for past 3-4 years but with increasing focus on premium segment and passing on any hike in excise on to the consumers has helped in increasing the sales in value terms. ITC has a broad-based presence in all the segments of the cigarette market. Scissors is the brand leader in volumes and Wills Gold Flake family is the single largest consumer product trademark in India. Of the total produce more than 70% is in the filter cigarette category while rest is in non-filter category. The company has also shifted 45% of its cigarette sales in form of hinged lid packaging. During FY00 the company extended its Gold Flake brand to other tastes and flavours. Two of its brands namely, Checkers and Hi-Val sell more than 100mn sticks per month in USA. Cigarette volumes declined by 2.4% yoy in FY00. Average per unit realizations however improved during the year by 9% yoy to Rs1049 per 1000 sticks.

Tobacco:

ITC’s India Leaf Tobacco Division (ILTD) procures tobacco directly from farmers and also through auctions/ traders. ILTD works with the Tobacco Board to help farmers in developmental activities. ILTD also supplies tobacco to an associate company VST and other cigarette companies,

30 Competitive Research on Market Size of Cigarette Brands besides exporting. ITC is one of the leading exporters of leaf tobacco. Exports are mainly to Latin America, South East Asia, Western Europe and also to CIS markets. The division's performance has got affected due to oversupply situation in the global market. Moreover unauthorized production of tobacco has also increased leading to excess availability. Tobacco board has recently declared a crop holiday in the state for tobacco. The Andhra Pradesh plant of the company at Chirala was awarded Golden Peacock award for environmental management during FY00. The plant has also been awarded social accountability Standard certification from Bureau Veritas Quality International. The company produced 24,026 tons of unmanufactured tobacco during FY00. It contributed 3% of the total revenue during the year.

Other Businesses Hotels

ITC has been investing very heavily in its hospitality business. During FY00 the company acquired land from its subsidiary, ITC hotels and started construction of Super Deluxe hotel. The construction work is till in progress. The company's construction work at its Mumbai ITC Grand Maratha project is expected to be completed by current year. Extension at its Hotel ITC Maurya Sheraton in Delhi is expected to open shortly. The company's Maurya Sheraton hotel received ISO14001 certification during the year. The hotel business contributed Rs1209mn to the total revenue during the year as compared to that of Rs1437.5mn in FY99.

Packaging and printing

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The company has leadership position in cigarette and liquor packaging The company's much-talked about acquisition of Rollatainers didn't materialize and it was called off. The division attained Level-6 in the international Quality rating system from an international accreditation agency. It also got World Star award for excellence in packaging. The exports by the division increased by 20% yoy following technology upgradation at its manufacturing plants.

Specialty paper

ITC operates a 33000 tpa plant at Tribeni, West Bengal, to manufacture specialty papers, mainly with the imported wood pulp. Besides captive consumption, ITC also exports cigarette-packaging paper to BAT subsidiaries in Africa and Central Asia. Margins in the business have been adversely affected with stiff price competition from domestic as well as imported products post reduction in import duty. ITC has been scouting for an international joint venture partner for upgrading technology in this business. The division received certification under ISO9001 quality standards and Gold Star award from Royal Society for Prevention of Accidents, UK. The specialty paper division contributed Rs1bn to the total revenues during FY00 compared to Rs880.5mn in FY99. The company produced 16355 tons of specialty paper during the year.

32 Competitive Research on Market Size of Cigarette Brands farmers. The division has plans of setting up 300 such choupals across the country in current year. ITC also has a infotech division, which is being realigned to focus on e-commerce software solutions. The company plans to hive off its Infotech division into a separate subsidiary.

Earnings sensitivity factors

Excise duty changes on cigarettes

• Rothmans’ international brand portfolio may be launched through ITC, as Rothmans has withdrawn proposal for 100% subsidiary post global merger with BAT.

• Leaf tobacco crop depends on weather conditions and has significant impact on raw material costs.

33 Competitive Research on Market Size of Cigarette Brands • Export markets reduce dependence on domestic market. Exports are also affected by the domestic crop production.

• Paper/ paperboard margins depend on international paper and wood pulp prices as well as changes in custom duty rates.

• Excise duty exemption in northeastern states.

• Growing grey market for foreign branded cigarettes

• Success in new business ventures

• Returns from investments in hotel business

DISTRIBUTION SYSTEM

A. FOR RETAILORS

COMPANY

Order slip sent on the behalf of the wholesaler

34 Competitive Research on Market Size of Cigarette Brands Goods delivered

Order slip sent to Excise Office and Pay Excise Duty WHOLESALER EXCISE OFFICE

Goods delivered

RETAILORS

OBJECTIVES

It is said that the well defined objective is half attained. In order to make sure that a proper research has been taken ensures defining clear cut objectives and outline is a prerequisite. The research objectives of the study are:-

35 Competitive Research on Market Size of Cigarette Brands  To determine the competitors of ITC Ltd.  To analyzing the market expansion in future.  To enhance the sales of silk cut(KSFT)

RESEARCH METHODOLOGY

Marketing Research is the backbone of marketing. The objective of my research is to study the consumer perception about Cigarette product of ITC in Indian consumer durable industry.

The nature of my research is exploratory research. Its goals to shed light on the real nature of the problem and to suggest possible selection and to suggest possible selection and its involves number of steps.

36 Competitive Research on Market Size of Cigarette Brands Define the Problem & Research Objective

Management must define a problem in broader way. Because it is said that defining the problem is half solved and the objective of my research is to study the consumer perception about ITC Cigarette products over in Indian consumer durable industry.

Develop the Research Plan

The second stage of marketing research calls for developing the most efficient plan for gathering the needed information. Designing the research plan calls for decision on the data sources, Research Approaches, Research Instrumental, and Sampling Plans & Contact Methods.

Data Sources

I have collected my research data from secondary as well as primary sources from random sampling survey.

Secondary Data Magazines, Catalogue, Newspapers, Product Profile & Internet.

Primary Data

Mostly in marketing research involves some primary data collection. The normal procedure to interview some people individually or in groups to get a sense of how people feel about the brand perception about ITC product.

Research approaches

37 Competitive Research on Market Size of Cigarette Brands Primary data can be collected into five ways – observations, focus groups, survey, behavioral data & experiments and here I have used survey research.

Survey Research

Surveys are best suited for exploratory research ITC take survey & resurveyed to learn about people’s, knowledge, beliefs, preference & satisfaction & to measure these magnitudes in the general population.

Questionnaire:

My questionnaire contains 16 questions and presented to resonance for their answers. In preparing a questionnaire I have use open ended as well as close ended questions. The questionnaire measure the responses using parameter like • Awareness of Brand • Awareness of Advertisement • Awareness of Logo • Preference of brand • Most favorable brand

Sampling Plan

I have collected primary data from customer of AGRA were selects as sample.

Sample Size

Large samples give more reliable results than small sample. I have taken 210 for

38 Competitive Research on Market Size of Cigarette Brands customer . Sample Procedure

To obtain a representative samples. I have used simple random sampling which comes in the probability sampling.

Contact Method

Ones the sampling plan has been determine the marketing research must decide how the subject should be contacted. I have used personal interviews for collecting data.

SWOT ANALYSIS OF ITC LTD.

Organization performs SWOT(Strength, Weakness, Opportunity, Threats) analysis to identify and evaluate their competitive position.

39 Competitive Research on Market Size of Cigarette Brands STREGTHS:

 The company has excellent distribution system.  The company has built a strong image among the customers.  The company has an excellent distribution system.  The company experiences excellent Brand loyalty for its Products from the customers.  The company has made its Packaging attractive which lures the customers and consequently the products are favorite among the customers.

WEAKNESSES

 Some products have high prices as compared to the other products OF Godfrey Philips India Ltd. & Gallaher Group.  The company branches are not spread through out the region; as a result load of the work at the regional offices are tremendous.  The company pays less attention towards advertisement as against its competitors.  The brewery of the company is old and not up to expectation of modern times.

OPPORTUNITIES

 India has a vast potential market, which the company can get hold up.  The company can prove to be major threats for its competitor’s if it increases its marketing efforts.  ITC Ltd. should concentrate on the premium segment market.

40 Competitive Research on Market Size of Cigarette Brands

THREATS

The major threat that company faces is from its competitors who are introducing products with more features at lower cost backed by aggressive promotional scheme .

 The new packaging style introduce by the company for the beer i.e. in Tin is posing threat to the existing bottle packing system.  The arrival of the MNC is a major serious threat for the company.

LIMITATIONS

41 Competitive Research on Market Size of Cigarette Brands hypothesis, readers are not suggested to conclude the result. The study suffers from the basic limitations of the possibilities of difference between what is recorded and what is true.

In addition, some limitation regarding of the study are mentioned.

 The sample size is very less and therefore the test that could be done on large population cannot be done.

 There has lack of time and financial resources prevented the investigator from carrying out an in depth study.

 The findings of the survey are based on the subjective opinion of the respondents and there is no way of assessing the truth of the statements.

 There is some respondent’s bias which cannot be removed.

 No competitors are interviewed and hence there is a problem of comparing the brand with others thoroughly. Besides this no help has been taken from any secondary data of this type in this regard

QUESTIONAIRE ANALYSIS

42 Competitive Research on Market Size of Cigarette Brands Brand % of Liking Gold Flake 19 Wills 21 Classic 10 Capstan 24 India Kings 7 Silk Cut 2 Other 17

Gold Flake Wills 17% 19% 2% Classic 7% Capstan 21% India kings 24% 10% Silk Cut (KSFT) Others

43 Competitive Research on Market Size of Cigarette Brands

Smoking Habits Percentage Regularly Smoke 55 Occasionally Smoke 33 Do not smoke 12

SMOKING HABBIT

No 12% Occasionally 33%

Regularly 55%

44 Competitive Research on Market Size of Cigarette Brands

Attribute Value (in %) Good 64 Satisfactory 23 Poor 13

RATING OF ITC PRODUCT

P oor 13% S atis fac tory G ood 23% S atis fac tory G ood P oor 64%

Factor Value (in %) Taste 35 Price 24 Brand Name 20 Packaging 8

45 Competitive Research on Market Size of Cigarette Brands Other 13

FACTOR WHICH AFFECT THE PEOPLE WHILE CONSUMING

O ther P ac k aging13% Tas te Tas te 8% 35% P ric e B rand N am e B rand N am e P ac k aging 20% P ric e O ther 24%

46 Competitive Research on Market Size of Cigarette Brands

Feelings Value (in %) Happy 55 Tense 25 Angry 11 Relaxed 9

PEOPLE FEELING AFTER SMOKING

Angry Relaxed 11% 9% Tense Happy 25% Tense Angry Relaxed Happy 55%

47 Competitive Research on Market Size of Cigarette Brands

Attributes Value (in %) Loyal 71 Switcher 29

48 Competitive Research on Market Size of Cigarette Brands

BRAND LOYALTY TOWARDS THE PRODUCT

Loyal 71% Loyal Switcher Switcher 29%

Attribute Value (in%) Yes 73 No 13 No Comment 14

49 Competitive Research on Market Size of Cigarette Brands

SATISFACTION WITH DISTRIBUTION

No Comment 14% No Yes 13% No No Comment Yes 73%

Brand Sale Gold Flake 40 Wills 46 Classic 20 Capstan 50 India Kings 15 Silk cut 5

50 Competitive Research on Market Size of Cigarette Brands

SALE BRAND WISE OF ITC

60 50 50 45 40 40 e s

u 30 Series1 l

a 20 v 20 15 10 5 0 Gold Wills Classic Capstan India Scissors Flake Kings Attributes

Year Production Volume(in mn.) 2001 51445 2002 52127 2003 56365 2004 55879 2005 57729 2006 58340

51 Competitive Research on Market Size of Cigarette Brands

Cigarettes (million)

60000 58000 56000 production 54000 volume 52000 50000 48000 46000 2001 2002 2003 2004 2005 2006 year

52 Competitive Research on Market Size of Cigarette Brands FINDINGS

 Market leadership  Powerful brands across segments  Leadership in all segments - geographic & price  Extensive distribution network  Over 900 wholesale dealers serving more than 1 million retail outlets  World-class state-of-the-art technology and products  Investment - Rs.11 billion in six years  Exciting long term growth potential

 Cigarettes account for only 14% of tobacco consumed in India unlike world pattern of 85% due to prolonged punitive taxation  Cigarettes (14% of tobacco consumption) contribute nearly 85% of Revenue to the Exchequer from tobacco sector  Of the 58% of adult Indian males who consume tobacco, barely 15% can afford cigarettes  Biri : Cigarettes ratio = 10 : 1  Annual per capita adult cigarette consumption in India is one tenth world average : 117  Future growth depends on relative rates of growth of per capita income and moderation in taxes

53 Competitive Research on Market Size of Cigarette Brands

RECOMMENDATIONS

The following are Recommendations for the company to improve itself which the study has been shown:-

 ITC should expend on Advertisements, as they pay less attention on this.

 Credibility of Distribution channels.

 Incentive schemes for Retailers should be started by ITC Ltd for increasing the sale, if they loose the confidence of the Retailers, the company can be loose the market.

 The company Representative should regularly visit to the Retailers to solve their problems.

 The company should also offer some Gifts for the consumers.

54 Competitive Research on Market Size of Cigarette Brands

CONCLUSION

The study which has to be taken concludes that the product of ITC is satisfactory product for the consumers. The sale of ITC is average rather that Good.

The following are conclusion:-

. The awareness of ITC is less to the consumer due to less advertisement.

. Taste of Cigarette attracts most consumers while taking a smoking.

. Consumers prefer filtered cigarette.

. Most of the consumer feels happy after smoking. They feel relaxed after smoking.

. In U.P. consumer smokes for Kick & in Delhi take for Enjoy.

. According to some consumer the Golden Eagle have no proper taste, but their strong beer are doing well.

. Gold Flake & Wills are more preferred by the consumers.

55 Competitive Research on Market Size of Cigarette Brands . No attractive scheme is offered by the ITC.

BIBLIOGRAPHY

Books:

• Marketing Management by Phillip Kottlar. • Marketing Management by T.N.Chabbra. • Marketing Research by B.C.Goel.

Magazines:

• Business World • Business Today

Websites:

• google search . com • search. com • msn search . com • www.the hindu business line.com • www.itcltd.com

56 Competitive Research on Market Size of Cigarette Brands

Questionnaire

1) Do you Smoke?

Yes ( ) No ( )

2) How often do you Smoke?

Occasionally ( ) Regularly ( )

3) What type of Cigarette is consumed by you?

Light ( ) Regular ( ) Both ( )

3(A.) Which Brand is preferred by you in light…………….? 3(B.) Which Brand is preferred by you in Regular………………?

4) What are most determinates factor affect you while buying cigarette?

Taste ( ) Brand Name ( ) Price ( ) Other ( )

5) Which brand you like most?

Gold Flake ( ) Wills ( ) Classic ( )

India Kings ( ) Other ( )

6) What do you feel about the rating of ITC Products?

57 Competitive Research on Market Size of Cigarette Brands

Good ( ) Satisfactory ( ) Poor ( )

7) How much cigarettes are consumed by you in a day?

1-5 ( ) 5-8 ( ) more than 8 ( )

8) Does the retailer force you to purchase other brands in the absence of demanded brands?

Yes ( ) No. ( )

9) Do you want to give any suggestion to ITC for their product? if yes then Please …………….

Personal Information Name: Address: Sex: Age: Occupation:

58 Competitive Research on Market Size of Cigarette Brands

59 Competitive Research on Market Size of Cigarette Brands

60 Competitive Research on Market Size of Cigarette Brands

61 Competitive Research on Market Size of Cigarette Brands

Key

62 Competitive Research on Market Size of Cigarette Brands

63 Competitive Research on Market Size of Cigarette Brands

64 Competitive Research on Market Size of Cigarette Brands .

ITC's Cigarettes business has won numerous awards for its quality, environmental management systems and product excellence:

65 Competitive Research on Market Size of Cigarette Brands ITC's cigarette factories in Kolkata, Bangalore and Munger have been awarded the OHSAS:18001 Certificate by Det Norske Veritas (DNV) for their Occupational Health and Safety Management Systems (OHSMS).

ITC has been awarded the "Best Manufacturer of Cigarettes" and "3rd Best Exporter of Tobacco Products" for 2003, by the Tobacco Board of India.

The Saharanpur factory has won the "GOLD" Award, 2003 on Occupational Safety from The Royal Society for the Prevention of Accidents (RoSPA), UK.

The Munger, Saharanpur and Bangalore factories have received the prestigious Sword of Honour Award from the British Safety Council for highest standards of safety.

The Kolkata factory has won the Rajiv Gandhi National Quality Award (Best in Eastern Region) for 1998.

66 Competitive Research on Market Size of Cigarette Brands

PARENT UNIT OF ITC LIMITED

Registered Office

Virgina House 37 Chowringhee Calcutta 700 071 Ph: (09133) 288 6426/226/0034 Fax: (09133) 217/2258 Email: [email protected]

Plant location

 Saharanpur  Bangalore  Chennai  Calcutta  West Bengal

67 Competitive Research on Market Size of Cigarette Brands

SISTER CONCERNS COMPANIES

B. IN INDIA

 ITC Bhadrachalam Paperboards Ltd (56.00%)  BFIL Finance Ltd (99.99%)  BFIL Securities Ltd (99.98%)  MRR Trading & Investment Ltd (99.98%)  ITC Hotels Ltd (71.23%)  Srinivasa Resort Ltd (68%)  Bay Island Hotels Ltd (100%)  Greenace Holding Ltd (100%)  Fortune Park Hotel Ltd (99.99%)  Russell Credit Ltd (100%)  ITC Infotech Ltd (100%)  All India Tobacco Company Ltd (100%)  Elan Enterprises Ltd (100%)  ITC Global Holdings Pvt Ltd (100%)

68 Competitive Research on Market Size of Cigarette Brands

Brands

. Name of the Product Multi National Company 01. India King Indian Tobacco Company 02. Classic Indian Tobacco Company 03. Gold Flakes Indian Tobacco Company 04. Gold Flakes King Indian Tobacco Company 05. Insignia Indian Tobacco Company 06. Wills Indian Tobacco Company 07. Wills Light Indian Tobacco Company 08. Wills King Indian Tobacco Company 09. Wills Filter Indian Tobacco Company 10. Wills Flakes Indian Tobacco Company 11. Silk cut Indian Tobacco Company 12. Tiger Indian Tobacco Company 13. Charms Filter King Wazir Sultan Tobacco 14. Charms Wazir Sultan Tobacco 15. Charminar Wazir Sultan Tobacco 16. Charminar Special Wazir Sultan Tobacco 17. Cavenders Godfrey Phillips India Ltd. 18. Cavenders Filter Godfrey Phillips India Ltd. 19. Cavenders Leaf Godfrey Phillips India Ltd. 20. Uttam Brooke Bond India Ltd. 21. Cavenders Magnum Godfrey Phillips India Ltd. 22. Four Square King Godfrey Phillips India Ltd. 23. Four Square Filter Godfrey Phillips India Ltd. 24. Four Square Special Filter Godfrey Phillips India Ltd.

69 Competitive Research on Market Size of Cigarette Brands 25. Chesterfield Godfrey Phillips India Ltd.

Price

Brand Price(inRs.)/pack India Kings 75 Classic 59 Gold Flake 53 Benson & Hedges 72 SILK CUT (KSFT) 64 Wills 46 Wills Flake 11.5 Capstan 12 Berkley 10 Scissors 10 Honey Dew 10 Bristol 4

70 Competitive Research on Market Size of Cigarette Brands

COMPETITION

Competition provides a good quality of product to the customers. If a company wants to survive itself he will have to face through-cut competition. In liquor industry there is also competition. The increasing awareness and exposure to wines among consumers and the removal of quantitative restrictions in 2001 has been a big boost to the wine industry. It saw the emergence of new companies like GODFREY PHILLIPS INDIA LIMITED, set up recently by two non-resident Indians (NRIs) from USA. The consumption of liquor is growing at 20 per cent per annum. ‘CIGARETTE’ consumption in the country is slated to treble in the next ten years with the segment for strong beer segment registering high growth. It boasts of a growth of 25 per cent per year. The increasing awareness and exposure to wines among consumers and the removal of quantitative restrictions in 2001 has been a big boost to the wine industry.

71 Competitive Research on Market Size of Cigarette Brands

The major Competitors of ITC Ltd. Products are below: -

1) Godfrey Philips India Ltd.

Godfrey Phillips is the second largest player in the Indian cigarette industry with an annual turnover of Rs11bn. Incorporated in 1936; the company’s operations primarily span the entire northern and western part of the country. The company established its own manufacturing facilities in 1944. Godfrey Phillips has two major stakeholders, the K.K. Modi Group and Philip Morris, and has over 15,000 shareholders. Headquartered in Delhi, Godfrey Phillips today boasts of two manufacturing facilities - located in Ghaziabad (near Delhi) and in Andheri (Mumbai), a state of the art R&D centre in Mumbai and a tobacco-buying unit in Guntur (Andhra Pradesh). The Company today manufactures some of the most popular cigarette brands in the country like Red and White, Four Square, Jaisalmer, Cavenders, Tipper and Prince.

72 Competitive Research on Market Size of Cigarette Brands

2) Gallaher Asia Limited

The Company's roots date back to 1857 when Tom Gallaher started a business making Irish roll tobacco in Londonderry, Northern Ireland. In 1900, Queen Victoria awarded Gallaher a Royal Warrant, and in 1928 it became a public company for the first time. The first major acquisition took place in 1936 with Senior Service, then J.R. Freeman in 1947. Benson & Hedges was acquired in 1955, and Gallaher launched Silk Cut in 1963.

The biggest change in the Company's history thus far happened in 1968 when American Tobacco Co. acquired Gallaher. American Tobacco Co. changed its name in 1969 to American Brands, Inc.

After Gallaher became a wholly owned subsidiary of American Brands, Inc., it had several other diversified interests such as an optical company (Dollond & Aitchison) a kitchenware company (Prestige) and a whisky manufacturer (Whyte & Mackay). However, these were gradually disposed of, and Gallaher, under the ownership of American Brands, Inc., refocused as a 100% tobacco company in January 1996.

73 Competitive Research on Market Size of Cigarette Brands

Since 1997, the Group has been transformed from a predominantly British and Irish company into a leading international tobacco group, assisted by the acquisitions of Liggett- Ducat and Austria Tabak. It is truly an international tobacco manufacturing and

wholesale company now, employing over 11,000 people, with manufacturing plants in the UK, Russia, Kazakhstan, Austria, Sweden, Poland, Romania and Ukraine.

Today, Gallaher is the fifth largest international tobacco company in the world – and the fourth biggest in Europe (based on billions of cigarettes sold each year).

74 Competitive Research on Market Size of Cigarette Brands

BUSINESS

The cigarette industry in India is dominated by 4 players - ITC, Godfrey Phillips, VST (also a BAT affiliate) and GTC. These four companies together control almost 99% of the market. The cigarette industry faces competition mainly from the unorganized sector 'bidi' manufacturers, who are protected from high duties due to small-scale industry status. Affected by steep duty hikes, the industry has been facing stagnant volume growth in the last 2-3 years. Cigarette sales dropped by 4% in volume terms in FY00. The 2000-01 budget also hiked excise on all types of cigarettes by 5%. Based on the contribution form various products, ITC’s business can be divided into three main divisions, namely cigarettes, tobacco and agri-products. ITC’s mainstay of earnings is cigarettes (87%) and tobacco (3%). Agri-products business contributes 5% of the total Rs80bn revenues, while other businesses of hotels, paper and packaging collectively contribute the balance 5%. Cigarettes/ Tobacco: Cigarettes: ITC sold 66145mn sticks in FY00 as against 67753mn sticks in FY99. Number of sticks sold by the company has been decreasing continuously for past 3-4 years but with increasing focus on premium segment and passing on any hike in excise on to the consumers has helped in increasing the sales in value terms. ITC has a broad-based presence in all the segments of the cigarette market. Scissors is the brand leader in volumes and Wills Gold Flake family is the single largest consumer product trademark in India. Of the total produce more than 70% is in the filter cigarette category while rest is in non-filter

75 Competitive Research on Market Size of Cigarette Brands category. The company has also shifted 45% of its cigarette sales in form of hinged lid packaging. During FY00 the company extended its Gold Flake brand to other tastes and flavours. Two of its brands namely, Checkers and Hi-Val sell more than 100mn sticks per month in USA. Cigarette volumes declined by 2.4% yoy in FY00. Average

per unit realizations however improved during the year by 9% yoy to Rs1049 per 1000 sticks.

Tobacco: ITC’s India Leaf Tobacco Division (ILTD) procures tobacco directly from farmers and also through auctions/ traders. ILTD works with the Tobacco Board to help farmers in developmental activities. ILTD also supplies tobacco to an associate company VST and other cigarette companies, besides exporting. ITC is one of the leading exporters of leaf tobacco. Exports are mainly to Latin America, South East Asia, Western Europe and also to CIS markets. The division's performance has got affected due to oversupply situation in the global market. Moreover unauthorized production of tobacco has also increased leading to excess availability. Tobacco board has recently declared a crop holiday in the state for tobacco. The Andhra Pradesh plant of the company at Chirala was awarded Golden Peacock award for environmental management during FY00. The plant has also been awarded social accountability Standard certification from Bureau Veritas Quality International. The company produced 24,026 tons of unmanufactured tobacco during FY00. It contributed 3% of the total revenue during the year.

Other Businesses:

Hotels:

ITC has been investing very heavily in its hospitality business. During FY00 the company acquired land from its subsidiary, ITC hotels and started construction of Super

76 Competitive Research on Market Size of Cigarette Brands Deluxe hotel. The construction work is till in progress. The company's construction work at its Mumbai ITC Grand Maratha project is expected to be completed by current year. Extension at its Hotel ITC Maurya Sheraton in Delhi is expected to open shortly. The company's Maurya Sheraton hotel received ISO14001 certification during the year. The hotel business contributed Rs1209mn to the total revenue during the year as compared

to that of Rs1437.5mn in FY99.

Packaging and printing: The company has leadership position in cigarette and liquor packaging The company's much-talked about acquisition of Rollatainers didn't materialize and it was called off. The division attained Level-6 in the international Quality rating system from an international accreditation agency. It also got World Star award for excellence in packaging. The exports by the division increased by 20% yoy following technology upgradation at its manufacturing plants.

Specialty paper: ITC operates a 33000 tpa plant at Tribeni, West Bengal, to manufacture specialty papers, mainly with the imported wood pulp. Besides captive consumption, ITC also exports cigarette-packaging paper to BAT subsidiaries in Africa and Central Asia. Margins in the business have been adversely affected with stiff price competition from domestic as well as imported products post reduction in import duty. ITC has been scouting for an international joint venture partner for upgrading technology in this business. The division received certification under ISO9001 quality standards and

77 Competitive Research on Market Size of Cigarette Brands Gold Star award from Royal Society for Prevention of Accidents, UK. The specialty paper division contributed Rs1bn to the total revenues during FY00 compared to Rs880.5mn in FY99. The company produced 16355 tons of specialty paper during the year.

International business division, which is involved in handling exports from the company, did exports of Rs3.2bn during FY00. The division exports agri-products to various countries across the globe. Recently the division has decided to set up e-choupals for shrimps and coffee. These e-choupals would provide up-to-date information regarding local and global weather and scientific practices followed at different places to farmers. The division has plans of setting up 300 such choupals across the country in current year. ITC also has a infotech division, which is being realigned to focus on e-commerce software solutions. The company plans to hive off its Infotech division into a separate subsidiary.

78 Competitive Research on Market Size of Cigarette Brands

Earnings sensitivity factors:

• Excise duty changes on cigarettes

• New product launches: Rothmans’ international brand portfolio may be launched through ITC, as Rothmans has withdrawn proposal for 100% subsidiary post global merger with BAT.

• Leaf tobacco crop depends on weather conditions and has significant impact on raw material costs.

• Export markets reduce dependence on domestic market. Exports are also affected by the domestic crop production.

• Paper/ paperboard margins depend on international paper and wood pulp prices as well as changes in custom duty rates.

• Excise duty exemption in northeastern states.

• Growing grey market for foreign branded cigarettes

79 Competitive Research on Market Size of Cigarette Brands • Success in new business ventures

• Returns from investments in hotel business CORE SERVICE OF ITC

• Ensuring accurate order service

• Ensuring effective delivery service---INPUT

• Display support (non paid display)---- OUTPUT VALUE ADDED SERVICE

Business building promotion ( sales promotion activities)

Channel specific support( PAN ,KIRANA, HOREKA, GENRAL STORE)

Space management – ( own 60% space management)

Category management--- ( brand wise setting ) , Direct publicity TRADE CHANNEL

• To better indentiphy our customer and consumer needs

• To Target Merchandising activities by channel type outlet

• To target promotion activities

• To gain competitive advantage

• FIVE STAGE SELLING FORMULATE

• Summarize the situation

• State the idea

• Explain how it work

• Reinforce key benefit

80 Competitive Research on Market Size of Cigarette Brands

• clossing

AVAILABILITY NORMS

 WILLS INSIGINIA---- IDENTTIPHY OUTLET

1. INDIA KING -- -- CLASSIC+ LIGHT CIGRETTE 60 CIGRETTE

2. SILK CUT(KSFT) ----- MALBARO+ ANY INTERNATIONAL BRAND PER DAY

.3. CLASSIC( REGULAR) - GFK+ WILLS ,100 CIGERTTE PER DAY

4. GFK 20 --- GFK 50 CIGERTTE PER DAY

5. WILLS 20 ----- WILLS 20 CIGERTTE PER DAY

6. CAPSTAN ----- ALL OUTLET

7. CLASSIC MILDS ------GFK+ WILLS 120 CIGERTTE PER DAY

8- CLASSIC ULTRA ------ANY LIGHT BRAND 30 CIGERTTE PER DAY

9 – B&H ------MALBARO 60 CIGERTTE PER DAY

10 - 555 ------MALBARO+ ANY OTHER INTERNATIONAL BRAND SALE

81 Competitive Research on Market Size of Cigarette Brands DISTRIBUTION SYSTEM

A. FOR RETAILORS

COMPANY

Order slip sent on the behalf of the wholesaler

Goods delivered

Order slip sent to Excise Office and Pay Excise Duty WHOLESALER EXCISE OFFICE

Goods delivered

RETAILORS

82 Competitive Research on Market Size of Cigarette Brands

B. FOR CSD

COMPANY

Order slip sent on the behalf of the CSD

Goods delivered

Order slip sent to Excise Office CSD DEPOT EXCISE OFFICE

Goods delivered

UNIT CANTEEN

CONSUMERS

83 Competitive Research on Market Size of Cigarette Brands OBJECTIVE

 To determine the Market position of Cigarette produced by ITC Ltd.  To determine the perception of consumer towards Cigarette of ITC Ltd.  To know the market share of ITC Ltd Regard to Cigarette only.  To determine the competitors of ITC Ltd.  To analyzing the market expansion in future.  To determine sales promotion of SILK CUT( ksft) brnd

84 Competitive Research on Market Size of Cigarette Brands

RESEARCH METHODOLOGY

Marketing Research is the backbone of marketing. The objective of my research is to study the consumer perception about Cigarette product of ITC in Indian consumer durable industry. The nature of my research is exploratory research. Its goals to shed light on the real nature of the problem and to suggest possible selection and to suggest possible selection and its involves number of steps.

Define the Problem & Research Objective:

Develop the Research Plan

Data Sources

I have collected my research data from secondary as well as primary sources from random sampling survey.

85 Competitive Research on Market Size of Cigarette Brands Secondary Data

Magazines, Catalogue, Newspapers, Product Profile & Internet.

Primary Data

Research approaches

Primary data can be collected into five ways – observations, focus groups, survey, behavioral data & experiments and here I have used survey research.

Survey Research

Research Instrument

Marketing Researcher has a choice of two main research instruments in collecting primary data Questionnaire & Mechanical device. I have used only questionnaire as a research instrument.

86 Competitive Research on Market Size of Cigarette Brands Questionnaire:

• Preference of type of Microwave Oven • Preference of Price Range any Microwave Oven.

Sampling Plan: I have collected primary data from customer of AGRA were selects as sample.

Sample Size: . I have taken 210 Large samples give more reliable results than small sample for customer .

Sample Procedure: To obtain a representative samples. I have used simple random sampling which comes in the probability sampling.

Contact Method:

87 Competitive Research on Market Size of Cigarette Brands Ones the sampling plan has been determine the marketing research must decide how the subject should be contacted. I have used personal interviews for collecting data.

Collecting the information:

After those steps, I have collected all information from different sources.

Analyze the information

The step in the marketing research process in to extract finding from the collected data. I have tabulated the data & develop frequency distribution.

Present the findings

As the last step I have presented the findings that are relevant to the major marketing decisions facing management.

SWOT ANALYSIS OF ITC LTD.

Organization performs SWOT(Strength, Weakness, Opportunity, Threats) analysis to identify and evaluate their competitive position.

STREGTHS :

 The company has excellent distribution system.

88 Competitive Research on Market Size of Cigarette Brands  The company has built a strong image among the customers.  The company has an excellent distribution system.  The company experiences excellent Brand loyalty for its Products from the customers.  The company has made its Packaging attractive which lures the customers and consequently the products are favorite among the customers.

WEAKNESSES

OPPORTUNITIES

India has a vast potential market, which the company can get hold up.

89 Competitive Research on Market Size of Cigarette Brands The company can prove to be major threats for its competitor’s if it increases its marketing efforts. ITC Ltd. should concentrate on the premium segment market.

THREATS

The major threat that company faces is from its competitors who are introducing products with more features at lower cost backed by aggressive promotional schemes to attract buyer.

90 Competitive Research on Market Size of Cigarette Brands

LIMITATIONS

In spite of making all my efforts to make the dissertation a perfect one there are certain limitations in the study, which are felt while writing the report. As the study is an exploratory one designed to find new hypothesis, readers are not suggested to conclude the result. The study suffers from the basic limitations of the possibilities of difference between what is recorded and what is true.

In addition, some limitation regarding of the study are mentioned.

 The sample size is very less and therefore the test that could be done on large population cannot be done.

 There has lack of time and financial resources prevented the investigator from carrying out an in depth study.

 The findings of the survey are based on the subjective opinion of the respondents and there is no way of assessing the truth of the statements.

 There is some respondent’s bias which cannot be removed.

 No competitors are interviewed and hence there is a problem of comparing the brand with others thoroughly. Besides this no help has been taken from any secondary data of this type in this regard

91 Competitive Research on Market Size of Cigarette Brands

QUESTIONAIRE ANALYSIS

92 Competitive Research on Market Size of Cigarette Brands

Brand % of Liking Gold Flake 19 Wills 21 Classic 10 Capstan 24 India Kings 7 Silk cut (ksft) 2 Other 17

Gold Flake Wills 17% 19% 2% Classic 7% Capstan 21% India kings 24% 10% Silk Cut (KSFT) Others

93 Competitive Research on Market Size of Cigarette Brands

Smoking Habits Percentage Regularly Smoke 55 Occasionally Smoke 33 Do not smoke 12

SMOKING HABBIT

No 12% Occasionally 33%

Regularly 55%

94 Competitive Research on Market Size of Cigarette Brands

Attribute Value (in %) Good 64 Satisfactory 23 Poor 13

RATING OF ITC PRODUCT

P oor 13% Satisfactory Good 23% Satisfactory Good P oor 64%

95 Competitive Research on Market Size of Cigarette Brands

Factor Value (in %) Taste 35 Price 24 Brand Name 20 Packaging 8 Other 13

FACTOR WHICH AFFECT THE PEOPLE WHILE CON SU MING

Other Packaging13% Taste Taste 8% 35% Price Brand Name Brand Name Packaging 20% Price Other 24%

96 Competitive Research on Market Size of Cigarette Brands

Feelings Value (in %) Happy 55 Tense 25 Angry 11 Relaxed 9

PEOPLE FEELING AFTER SMOKING

Angry Relaxed 11% 9% Tense Happy 25% Tense Angry Relaxed Happy 55%

97 Competitive Research on Market Size of Cigarette Brands

Attributes Value (in %) Loyal 71 Switcher 29

BRAND LOYALTY TOWARDS THE PRODUCT

Loyal 71% Loyal Switcher Switcher 29%

98 Competitive Research on Market Size of Cigarette Brands Attribute Value (in%) Yes 73 No 13 No Comment 14

SATISFACTION WITH DISTRIBUTION

No Comment 14% No Yes 13% No No Comment Yes 73%

99 Competitive Research on Market Size of Cigarette Brands

Brand Sale Gold Flake 40 Wills 46 Classic 20 Capstan 50 India Kings 15 Other 5

SALE BRAND WISE OF ITC

gold flake 15 5 40 wills classic 50 capstan 45 india kings 20 silk cut(KSFT)

Year Production Volume(in mn.) 2001 51445 2002 52127 2003 56365

100 Competitive Research on Market Size of Cigarette Brands 2004 55879

CIGERATTE MILLIONS

57200 58000 56400 55900 54900 56000 54000 PRODUCTION 51500 52080 VOLUME 52000 50000 48000 2000 2001 2003 2004 2005 2006 YEAR

FINDINGS

 Market leadership  Powerful brands across segments  Leadership in all segments - geographic & price  Extensive distribution network

101 Competitive Research on Market Size of Cigarette Brands  Over 900 wholesale dealers serving more than 1 million retail outlets  World-class state-of-the-art technology and products  Investment - Rs.11 billion in six years  Exciting long term growth potential

RECOMMENDATIONS

102 Competitive Research on Market Size of Cigarette Brands The following Recommendations for the company to improve itself which the study has been shown:- are ITC should expend on Advertisements, as they pay less attention on this.

 Credibility of Distribution channels.

 Incentive schemes for Retailers should be started by ITC Ltd for increasing the sale, if they loose the confidence of the Retailers, the company can be loose the market.

 The company Representative should regularly visit to the Retailers to solve their problems.

 The company should also offer some Gifts for the consumers.

103 Competitive Research on Market Size of Cigarette Brands

CONCLUSION

The study which has to be taken concludes that the product of ITC is satisfactory product for the consumers. The sale of ITC is average rather that Good.

The following are conclusion:-

. The awareness of ITC is less to the consumer due to less advertisement.

. Taste of Cigarette attracts most consumers while taking a smoking.

. Consumers prefer filtered cigarette.

. Most of the consumer feels happy after smoking. They feel relaxed after smoking.

. In U.P. consumer smokes for Kick & in Delhi take for Enjoy.

. According to some consumer the Golden Eagle have no proper taste, but their strong beer are doing well.

. Gold Flake & Wills are more preferred by the consumers.

. No attractive scheme is offered by the ITC.

104 Competitive Research on Market Size of Cigarette Brands

BIBLIOGRAPHY

Books:

• Marketing Management by Phillip Kottlar. • Marketing Management by T.N.Chabbra. • Marketing Research by B.C.Goel.

Magazines:

• Business World • Business Today

Websites:

• google search . com • search. com • msn search . com • www.the hindu business line.com • www.itcltd.com

105 Competitive Research on Market Size of Cigarette Brands

Questionnaire

10) Do you Smoke?

Yes ( ) No ( )

11) How often do you Smoke?

Occasionally ( ) Regularly ( )

12) What type of Cigarette is consumed by you?

Light ( ) Regular ( ) Both ( )

3(A.) Which Brand is preferred by you in light…………….? 3(B.) Which Brand is preferred by you in Regular………………?

13) What are most determinates factor affect you while buying cigarette?

Taste ( ) Brand Name ( ) Price ( ) Other ( )

14) Which brand you like most?

Gold Flake ( ) Wills ( ) Classic ( )

India Kings ( ) Other ( )

15) What do you feel about the rating of ITC Products?

Good ( ) Satisfactory ( ) Poor ( )

16) How much cigarettes are consumed by you in a day?

1-5 ( ) 5-8 ( ) more than 8 ( )

106 Competitive Research on Market Size of Cigarette Brands

17) Does the retailer force you to purchase other brands in the absence of demanded brands?

Yes ( ) No. ( )

18) Do you want to give any suggestion to ITC for their product? if yes then Please …………….

Personal Information Name: Address: Sex: Age: Occupation:

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