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When Sunil D'souza took charge of the just-born Tata Consumer Products (TCPL) in April 2020, a strong sense of déjà vu was unavoidable. Similarities between his previous employer—American home appliances major Whirlpool—and the new organisation were plenty. Whirlpool had strong brand recall and trust among local consumers. So did TCPL's brands such as Tata Tea and Tata Salt. However, both Whirlpool and TCPL (and its earlier avatar Tata Global Beverages or TGBL) were lacklustre in their approach towards market dynamics, were averse to rapid change and had made minimum investments in brand building. At a time when their competitors were aggressively expanding, they mostly remained on the sidelines.
In mid-2015, when D'Souza joined Whirlpool as the managing director for its India unit, the mandate from its global management was clear—to grow the business to a $1-billion company and capture 20 per cent share of the market by 2020. While it already had the advantage of having a strong brand, it needed to accelerate the innovation pipeline and ramp up distribution. At TCPL, D'Souza found a similar task cut out for him and received the unconditional backing of the management here, too.
"Whirlpool's global CEO was actively encouraging us. Here, the ambition stems from the Chairman [N. Chandrasekaran] and the board of Tata Consumer. We have the biggest brand called Tata, but why are we not counted among the big boys in the FMCG space? What is it that we lack?" D'Souza recalls the initial discussions, adding that TCPL's board is now willing to offer every resource that is at its disposal to achieve its dream of transforming into an FMCG giant. "Whether it's the resources or tough decisions, the board has stood behind us," he says.
After one and a half years, the results have begun to show. With concerted efforts by an ambitious management and a focussed CEO, TCPL's fortunes have begun to turn. Despite major disruptions throughout the year, its net sales and net profit grew by over 20 per cent in FY2020-21. Gross margins improved by over 150 basis points from pre-consolidation days. As a result, the TCPL stock has become more attractive, rising to unprecedented levels. Between October 2020 and September 2021, its average market capitalisation doubled to over Rs 60,500 crore from the corresponding period previous year. Market analysts attribute this rally to the Tata group's consolidation bid to bring all FMCG businesses under one roof.
Admittedly, TCPL is currently well short of some other FMCG players in revenue and distribution, but it is growing fast, and is also targeting acquisitions to bulk up.
Before TCPL came into being, most of the Tatas' consumer products were with TGBL, which had a strong presence in markets such as the US, the UK and Canada, but had nothing much to show in India. But with growth rates in such saturated consumer markets being typically low, its capability to perform financially was limited, say experts.
All that changed in February 2020, when the consumer businesses of Tata Chemicals (such as Tata Salt) were merged with TGBL and Tata Consumer Products was formed. Other FMCG businesses such as Tata Sampann, Tata Soulfull and NourishCo Beverages were brought under TCPL, and a new acquisition—Kottayam Agro Foods—was also brought under the new entity. "Bringing key businesses like salt, pulses, spices and branded water together and merging them with Tata Global Beverages was a much awaited move," says Abhijeet Kundu, Vice President at Antique Stock Broking, adding that TCPL's focus on brand building and expansion of its distribution network helped boost its presence. "The Tatas already had the distribution might from their salt and tea business, which TCPL is now leveraging. While TGBL's Ebitda margin used to hover around 8-10 per cent, the new entity's margin has reached 13-14 per cent in a short span of time."
The results are there to see. TCPL's consolidated revenue jumped 20.2 per cent in FY2020-21 to Rs 11,723 crore, and the importance of the India market grew manifold. At the end of the September 2021 quarter, the company's local food and beverages segment's share of total sales stood at 66 per cent. During the April-September period, while sales in its international businesses dwindled, its India F&B business grew by 21 per cent. TCPL's management claims a market share gain of 169 basis points in tea and 440 basis points in salt in the July-September quarter. Its tea business is second only to Hindustan Unilever's (HUL) Brooke Bond. In comparison, its US coffee business shrunk by 8 per cent, international tea business led by Tetley de-grew by 5 per cent, and Tata Coffee recorded a meagre 3 per cent growth (all in constant currency terms).
The Tatas may have shifted their focus towards the India market late but TCPL's presence in several categories now offers it much headroom for growth, say experts. Out of the Rs 9 lakh crore domestic F&B market, Rs 6 lakh crore still comes from in-kitchen items, dominated by unorganised players. TCPL's existing businesses in salt, tea, pulses, spices and condiments, thus, give it an edge over competitors, says Kaustubh Pawaskar, Deputy Vice President of fundamental research at Sharekhan. "Since the merger, TCPL's growth potential has immensely increased. From a beverages player, it has become a complete F&B company with a strong portfolio," says Pawaskar. "Bringing all the brands under one roof will help in simplifying the structure. All brands will be under one distribution network and sales team. So, the scope of cost synergies grows, too."
A brand such as tata sampann, which houses TCPL's pulses, spices and condiments portfolio, has been in existence for years, but is yet to make a significant mark. To capture a larger chunk of young consumers' move towards branded agri-commodities, TCPL has upped its advertisement spend—in the September quarter, its A&P spend surged over 75 per cent—and has begun pushing Sampann through a larger network, beefing up procurement, and gearing up to launch regional variants and new products.
The distribution network is also being beefed up. Between October 2020 and September 2021, TCPL's reach has grown by 30 per cent to 2.6 million outlets from 2 million at the end of September 2020, while sales through the institutional channel have more than doubled. It is now targeting to grow its direct distribution reach to 1.3 million outlets by March 2022 from 1.1 million in end-September. That, however, is still small compared to, say, HUL, which has a presence in 8 million outlets across India.
"We are behind companies like HUL, Britannia, Marico or Dabur in distribution reach," admits D'Souza. "We have a strong presence in urban markets, but despite having a strong brand recall in rural areas, our distribution network is weak there. So, we are building rural distributors and aim to take the number to 5,000 by March (2022) from a little over 4,000 currently. Even that number is not enough; probably we need to multiply that number many times over. But we have to ensure that both the company and the partners are profitable. Thus, we are taking one step at a time." D'Souza's plan to create a strong rural foothold is not without rationale. Rural's contribution to TCPL's domestic sales is less than 20 per cent compared with over 35 per cent for most leading industry players.
Another channel that TCPL is planning to invest in heavily is e-commerce. Since March 2020, online channels' contribution to sales has grown to 7 per cent from 2.5 per cent but it's still far from the double digits that D'Souza expects. "There is significant headroom for growth in the e-commerce space and I believe the local market has the potential to be on a par with markets like Brazil or China." While others are focussing on online consumers, TCPL plans to capture the segment through niche D2C brands such as Tata Tea 1868 and Tata Coffee Sonnets. The e-commerce analytics will help these brands reach consumers using limited resources. Along with Amazon, Flipkart, Grofers and bigbasket, it is testing the waters with Tata NutriKorner—an in-house online grocery store that is being piloted in Mumbai and Delhi.
Having bigbasket inside the Tata universe is an added advantage. Currently, the company is working to derive synergies in logistics and procurement with bigbasket. "The kind of product range, including niche products, which bigbasket has is unmatched," says Kundu from Antique Stock Broking. "Moreover, TCPL can use its insights and develop new products." This opens up an opportunity for D'Souza to differentiate TCPL from its competitors.
It has one advantage over most other players. While other FMCG biggies are more diversified in terms of portfolio and distribution, TCPL's portfolio is devoid of any major unhealthy categories. "In a post-Covid-19 world, when consumers are seeking healthier food options, its presence in premium agri-commodities through Sampann or healthy lifestyle brands like Soulfull will be helpful. It is also dominant in categories like salt and tea, which have 100 per cent penetration. As a result, they have presence in every corner of the country, which TCPL is strengthening further. In the long run, despite having a smaller portfolio, it has the potential to grow into a major FMCG player," says K.S. Narayanan, an FMCG industry veteran and former MD of McCain Foods India.
Tata Starbucks, TCPL's joint venture with the US coffee chain major, is a crown jewel for the firm. During the September quarter, it added 14 stores and recovered same store sales to 94 per cent of 2019 levels. Currently, the 233 Starbucks outlets are spread across 19 cities. It is now planning to lure consumers in Tier II markets.
Acquisitions are a big part of TCPL's growth strategy in India for which it has already identified 30 categories, says D'Souza. "We would like to make multiple acquisitions, but finding the right value proposition is a time-consuming process. In the long run, we will look at the whole FMCG market [for acquisitions]," he says.
A much bigger TCPL appears to be round the bend.
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