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ITC‚ principally known for its tobacco business for most part of its corporate life‚ has quietly turned into an FMCG major that has seen sustained growth in its foods segment with other categories also kicking in
By: Krishna Gopalan
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Not for a moment does Sanjiv Puri take his eyes off you. “Do you like the mishti doi?” he asks in a tone that is quietly confident. Once you reply in the affirmative, he smiles and offers you something more to eat. In his tastefully done up office in Kolkata, the Chairman & MD of ITC is the quintessential curious mind on consumer tastes and wants to put that to sound marketing use by launching the right product.

Quality is paramount and in two decades, the company, once synonymous with cigarettes, has become a large player in India’s high-growth fast-moving consumer goods (FMCG) business. Now, it has got to revenues of Rs 16,000 crore in FY22 spread across four segments—branded packaged foods, personal care, education and stationery, and matches and agarbattis. With a tinge of pride, Puri says the company has created over 25 “mother brands”. He makes it clear that ITC aims to become India’s largest FMCG company. Only the recently-listed Adani Wilmar (Rs 54,386 crore) and Hindustan Unilever (Rs 52,704 crore) are ahead of it.

Sanjiv Puri
Chairman and MD

Not for a moment does Sanjiv Puri take his eyes off you. “Do you like the mishti doi?” he asks in a tone that is quietly confident. Once you reply in the affirmative, he smiles and offers you something more to eat. In his tastefully done up office in Kolkata, the Chairman & MD of ITC is the quintessential curious mind on consumer tastes and wants to put that to sound marketing use by launching the right product.

Just to go back in time, ITC, about a decade ago, said its vision was to be an FMCG company with a turnover of Rs 1 lakh crore by 2030. That is some distance away but in his usual understated manner, Puri says they will get there. Meanwhile, the share of non-cigarette FMCG and agri business combined is now touching 50 per cent of ITC’s consolidated revenues, while the share of cigarettes has fallen from 49 per cent in FY18 to 39 per cent in FY22. (See graphic ‘The Big Shift’.) Obviously, Puri is looking to sustain the growth momentum that took off from nothing since its foray in 2001 to where it is today.

At the core of ITC’s FMCG business are its strategic pillars. Over a long meeting, Puri outlines why those make his business model unique (see interview). Be it the thrust on insights, innovation and quality or the synergy that exists within businesses, the M&A story or an efficient supply chain, ITC has managed to get to the top position in product categories such as branded atta (by creating a new, organised market) and cream biscuits (replacing Britannia), apart from being a serious No. 2 in noodles, agarbattis and floor cleaners; the leaders happen to be Maggi (from Nestlé) in noodles, Cycle (from the NR Group) in agarbattis and Lizol (from Reckitt Benckiser) in floor cleaners.

The market has taken cognisance of this strategy working for ITC, with the stock gaining 46 per cent over the past one year, when the benchmark S&P BSE Sensex rose 8 per cent. “If you set yourself a vision the way we did through ambitious targets, it forces you to think in a certain manner,” says Hemant Malik, Divisional CEO of the foods business. He says the company invested well in advance in building its own factories and then figured out a way to use the capacity. “It was in some ways a reverse mindset.” With that, it was able to look at multiple product categories, with the company’s strong wheat value chain being the anchor. “Then, businesses like atta, biscuits and noodles started to look a lot more attractive and meaningful. Now, it is like a playbook,” he explains. Much as the company was (and still is) dominant in the tobacco business, in FMCG, “we were still starting from zero”.

The bulk of the FMCG play is from foods and not without reason. At the time of drawing up the business plan, the total FMCG business in India was Rs 2.5 lakh crore, of which foods accounted for Rs 1 lakh crore, or 40 per cent. Take the case of the biscuits industry, whose turnover was Rs 8,000 crore and is now at Rs 40,000 crore. Here, ITC’s Sunfeast (the management wanted a brand name starting with “sun”) decided to focus on cream biscuits, a segment that threw open many opportunities. The choco-fills foray has been a runaway success and as Malik explains, “it was a bridge product with the liquid inside a biscuit”. Competition led by Britannia did follow but an array of flavours and the creation of the Dark Fantasy brand worked out well—so much so that adding it to the Sunfeast name on its bourbon biscuits (apart from some tinkering on price and grammage) helped the brand take off. “The whole idea of Dark Fantasy is to connote indulgence,” he adds.  


Looking for the slots

In the case of noodles, a market overwhelmingly dominated by Maggi, which has been around since 1983, consumer research threw up an interesting finding—the product did get a little lumpy and sticky. Building on that, ITC’s Yippee noodles launched a non-sticky version. The agri business sourcing advantage helped bring in wheat and the challenger, which hit the market in 2010, now has a 21-22 per cent share with Maggi at around 55-60 per cent; at the time of Yippee’s launch, Maggi had over 85 per cent market share.

According to Shubhajit Sen, Founding Partner, A Priori Consultants, ITC seeks out large categories such as biscuits, snacking, spices and dairy, with preferably a large unorganised/local segment. “They use their inherent sourcing strength to develop good value products and then apply significant pressure both in marketing and distribution to gain share. In more mature categories, they innovate with the intention of driving upgrades to more premium offerings. Overall, this playbook has served them well in many categories.”

With all that is a sound understanding of what the consumer wants. B. Sumant, ITC’s Executive Director, is succinct when he says: “Our relationship with the consumer is the Holy Grail”. That will inevitably depend on the ability to possess first-party data. “Our own D2C store platform, ITC e-store, enables us to engage with the customer directly. Through this, we sell over 700 products,” he says.

The entire process of identifying consumer insights has changed and digital allows you to get very focussed insights and make our communication even more effective.

Executive Director

E-commerce, now an indispensable part of any FMCG company’s toolkit, has seen ITC’s revenue from this segment move from 2-3 per cent to 7-8 per cent today, with Sumant, also a Director on ITC’s board, pointing out how it is in the double digits for personal care. “The entire process of identifying consumer insights has changed and digital allows you to get very focussed insights and make our communication even more effective,” he says.

Not surprisingly, foods drives ITC’s FMCG business, contributing 83 per cent of the FMCG turnover and in line with how the overall industry is moving—the total FMCG pie in India is over Rs 7.5 lakh crore with at least 40 per cent being the share of foods even now. Across players, innovation in foods is an obsession since that brings in disproportionate consumer mindshare and eventually higher margins. ITC’s Farmlite range of biscuits is sold in little packets inside a large one. “You can eat it when you want to. Also, we realised the slightly older consumer may prefer it in limited quantities,” says Malik, who is quick to add that in foods, the product experience is critical. “Yet, that is difficult for the consumer to articulate and as a challenger, it is an opportunity if we get it right.” Bingo, a key player in branded snacks, launched a ‘Hashtags’ version in 2019 (where the snacks are designed as hashtags) and it turned out to be a big draw among the youth. The agri value chain brings in the potato for Bingo as also fruit pulp, spices and milk for ITC’s other brands. Sumant speaks of how farmers grow wheat close to where ITC has its factories. “In a business like ours, every element of the cost structure needs to be optimised and improved on a continuous basis. It is a relentless exercise.” In that context, the efficiency of the supply chain is a big piece. “Scale is important to get the best out of it. By putting in place integrated consumer goods manufacturing and logistics (ICML) hubs, (there are 10 such across India), our supply chain gets only more agile and robust.”  

Shirish Pardeshi, who tracks FMCG at Centrum Broking, points out that ITC began pushing the backend story from 2012. “In FMCG, the quality of raw materials is important since it leads to product consistency. If you get it right there, you will not lose the consumer.” He gives credit to the company’s premiumisation strategy, especially in the ability to give value-added products. “The organised atta market is less than Rs 20,000 crore in size. It [ITC]has a premium offering like Aashirvaad Sharbati atta [positioned as made from 100 per cent MP Sharbati wheat]. Premiumisation gives you a superior brand perception and also high levels of consumer pull.”

‘Our ambition is to be the No. 1 FMCG company in India,’ says ITC boss Sanjiv Puri

ITC Chairman & Managing Director Sanjiv Puri decodes the company’s M&A mantra and explains why its FMCG portfolio is crucial to the business

By Sourav Majumdar and Krishna Gopalan

For a company that entered the FMCG business at the turn of the century, ITC has had quite a run. With brands such as Sunfeast, Aashirvaad, Engage, Kitchens of India and Savlon, not only has it made a mark, it has also managed to create a business cutting across several categories. ITC has made full use of its agri backend, with a strategy that is a combination of organic and inorganic growth. This has helped it snap at the heels of competition, either by expanding an existing market or often creating a new one. In a freewheeling conversation at Virginia House, ITC’s head office in Kolkata, Chairman & MD Sanjiv Puri, 60, outlines how the company has gone about this intensely competitive business and still managed to carve a unique positioning. Edited excerpts:

Why is FMCG such a crucial business for ITC?

For an Indian consumer, it is important to consume Indian products and to have a home-grown FMCG company [and] we aim to offer the best quality of products. In the last five years, we have grown from revenues of Rs 10,000 crore to Rs 16,000 crore in FY22, while margins have expanded by 600 basis points. Our portfolio has over 25 mother brands and a consumer spend of Rs 24,000 crore. The addressable market for us today for the categories that we operate in is to the tune of Rs 5 lakh crore, which is amongst the highest in the Indian FMCG space. Our ambition is to be the No. 1 FMCG company in India and we realise it is a journey that will take time.

We have a lot of “firsts” to our credit. Among them are concepts like choco fills or shower gel. Likewise, we brought the pocket perfume to the market.

You have a big advantage in terms of synergies within businesses…

Yes, that is something unique about ITC. The synergy of ITC’s institutional strengths is indeed unique. The foods business derives competitive advantage from the sourcing strengths of the agri business, the cuisine expertise of ITC Hotels, the innovation capacity of our packaging business as well as our extensive distribution network. The Classmate stationery brand gains from the paperboards and specialty paper business. Our Fabelle chocolates were developed by master chocolatiers from the hotels business. Likewise, the agarbatti brand, Mangaldeep, is also leveraging our plantation expertise.

ITC has made some interesting moves in acquisitions (some examples are Sunrise Foods, Nimyle, B Natural). What is your mantra for M&A?

There are a few boxes that need to be ticked. At the outset is the vision we have for the portfolio and, therefore, what white spaces are relevant. Then, we need to look at a potential acquisition from a consumer trend point of view. Finally, there needs to be a sound understanding of the competitive landscape and our own right to win.

Take the case of Sunrise. Spices is a Rs 50,000-crore industry and it takes a lot of time to develop a brand; inorganic was therefore a good option. A key metric of valuation was the Ebitda multiple and the growth opportunity. An M&A has to be value-accretive to us. Other good examples are what we have done with Savlon and Nimyle. Today, Savlon has innovated and demonstrated brand extensions that work, coupled with the speed of execution. The objective has been to democratise the brand and it has worked well.

It’s not only big-ticket buyouts that you have made

Yes, there are cases like Sparsh [Mother Sparsh Baby Care was acquired in 2021 when ITC picked up a 16 per cent stake in the D2C ayurvedic and natural personal care brand]. Here, if a space is interesting, like mother and child, we will look at it. Then, if the option to acquire small stakes initially seems logical, we will do so and remain invested. Eventually, if there is an opportunity for a complete buyout, we could do it but only if it fits in with our strategy.

Coming back to FMCG, foods is the largest piece of your business, right?

Yes, and that is also how the overall market is moving. Plus, we have a very robust agri sourcing that sits well with it. Over time, we have attained strong leadership positions in key categories—like atta with Aashirvaad, cream biscuits with Sunfeast or Bingo in the bridge segment of snack foods. Our agri expertise has been a huge advantage in the success of atta given our superior sourcing and blending capabilities.

Foods is a business that we started off with [and] are over-indexed. Our USP here is the knowledge of chefs and cuisine. Our Master Chef frozen snacks have been fine-tuned by our chefs.

Incidentally, we are also the largest player in the stationery business and second in agarbattis, but these are relatively smaller segments.

There are a lot of opportunities in FMCG that ITC can possibly look at. Would you, for instance, look at edible oil?

That is unlikely since we don’t think we can create value. The question is what differentiation I bring to the table. Take the case of our atta business, where our blend-making process is unique or salt where natural salt becomes a strong proposition.

A key part about our milk business is the way we process it, which enables us to offer differentiated and value-added products. A case in point is our lactose-free offering that is sold in pouches and not tetrapacks, with the objective being to democratise solutions. Today, in our dairy business, 25 per cent comes from value-added products such as lassi, curd, mishti doi and paneer.

Milk is a game of scale. We are present in Bihar and Kolkata now. If we succeed, we will move into other markets but it is important to create a model that can give us the right economics.

How do you deal with the laggards in the portfolio?

The brand rationalisation is a continuous one. We exited businesses such as Wills Lifestyle, John Players, shampoos and greeting cards. Within the portfolio it is a complete exit or one that is regional.

At what point does a brand extension make sense?

Let me take the case of Aashirvaad, where the brand stands for quality, trust and anything healthy. When the extension fits these criteria, we will go ahead. Fresh dairy is a good fit and it makes sense to be housed here. However, milkshakes will not come under Aashirvaad.

At what point do you decide a large category (like biscuits) is ready to move from a third-party manufacturing arrangement to doing it yourself?

There are three areas that we consider here. One is the unique innovations that we have and then the ability to make the best use of our integrated infrastructure, which gives us efficient unit economics. Finally, we will do it if there is better control on processes and technology.

How much of a transition do you think ITC has made from primarily selling cigarettes?

Without a doubt, it is a very different company today with less than 40 per cent of revenues coming from tobacco. FMCG is a big piece and within that there are several large businesses. I am personally very involved here and devote a considerable amount of time to the businesses. FMCG has a lot of components—new markets, new categories and tremendous scope for innovation. Besides, the width of our portfolio will show there are a lot of kids [brands at an early stage of the growing up process and with potential].

In the medium term, we want to demonstrate industry-leading growth, improve margins, continuously sell high-quality products, focus on sustainability, and scale up categories and adjacencies. There are several opportunities that are interesting and adjacencies is one. Our objective will always be to create a point of difference.

In all this, getting it spot on with communication is also critical. Nitin Karkare, Vice Chairman of FCB Ulka Advertising, the agency that handles a significant chunk of ITC’s FMCG business, picks out Sunfeast (launched in 2003) to outline the strategy. “We were up against established national players like Britannia and Parle, not to forget the multitude of regional names. Given that we were nascent, we took the decision to follow the master brand strategy during the early years to maximise the impact of our limited budgets. Glucose, Marie Light, Dream Cream, etc., were treated as product identifiers and not sub brands,” he says.


Nitin Karkare
FCB Ulka Advertising

Making The Shift

To get to a leadership position in atta, ITC was helped in no small measure by a shift to the organised segment. At a consumer spend level, Aashirvaad is a Rs 7,000-crore brand and the way India is structured, most of the atta market is still unorganised in nature. In many ways, the Aashirvaad brand, which sells salt, vermicelli, spices, ghee and instant meals, is trying to replicate that success in dairy, always a tough segment to crack.

We want to play the entire value chain in the dairy [segment], and the opportunity lies in low penetration of packaged products. Besides, that is the only way to be profitable.

Hemant Malik
Divisional CEO
Foods Business, ITC

With a thrust on quality, it has launched its milk in Bihar and in Kolkata, ITC’s headquarters. Malik says Aashirvaad milk is more expensive than competition by around Rs 4 and he claims leadership in some of Bihar’s smaller centres. “We want to play the entire value chain in dairy, and the opportunity lies in low penetration of packaged products. Besides, that is the only way to be profitable.” Today, Aashirvaad has a play in areas such as paneer, curd and lassi.

There have been a host of international players such as Danone, apart from domestic companies, which faced a gruelling experience in dairy. Even now, many companies choose to have a minimal presence by selling only value-added products such as fruit yoghurt and specialised cheese through third-party manufacturing arrangements. ITC, clearly, has a battle on its hands when it comes to competing with the feisty milk co-operatives and, in that sense, a measured state-by-state approach is easy to understand. R.S. Sodhi, MD, Gujarat Cooperative Milk Marketing Federation (Amul), says the big attraction is that the organised milk market grows at 12-13 per cent per annum and that too on a base of Rs 2.6 lakh crore. “Around half of that comes from just an increase in consumption and the other part comes from a very visible shift from unorganised to organised,” he explains. The other insight is how dairy products are now consumed in more centres. Sodhi points to how a large proportion of the offtake would earlier come from the large centres. “Now, the pandemic is seeing a huge demand from semi-urban to rural areas as well. More players coming in only means the procurement price for farmers will increase, with consumers gaining access to more affordable products.”

Being Acquisitive

“We want to be in high-growth- and high-margin categories. The logic is if you win here, you win big,” avers Sameer Satpathy. As ITC’s Divisional CEO of the personal care products business, he has overseen the success of Savlon, a brand the company acquired in early 2015 along with Shower to Shower from Johnson & Johnson (J&J). With a turnover of just Rs 50 crore, Savlon had already changed hands. HUL had an agreement in the late 1990s with J&J to use the brand to sell antiseptic soaps on a royalty basis, before it was called off in early 2000. The consensus among industry trackers was that it was not an area of focus for J&J and there was a need to divest it quickly.

ITC’s approach has been to identify a category and a platform to build a strong bulwark. “Opportunities are always large and our ability lies in expanding any category,” says Satpathy. At the time of the buyout, Savlon had a presence in soaps, antiseptic liquid and hand washes, with the brand now extending itself in each of them apart from providing a big push in sanitisers. “Hygiene as a platform was hugely attractive and the need for it will only increase.” The peak of the pandemic saw the brand hit a turnover of Rs 1,000 crore, with the primary competitors being Dettol and Lifebuoy.

Vinit Bolinjkar, Head (Research), Ventura Securities, points towards multinationals such as Nestlé and Unilever that have massive portfolios of brands globally. “For over 200 brands they have, Nestlé has launched barely 10 in India. ITC does not have that kind of luxury and needs to launch brands across categories and price points,” he explains. However, he says the cash flow from cigarettes can easily support the FMCG strategy. “There is a certain shrewdness they have demonstrated both on organic and inorganic growth.”

He says what makes ITC unique is that it did not go with a product-wise approach and instead, launched many categories simultaneously. “Nestlé, for instance, will launch one from its international portfolio, wait for it to grow and then bring another. Britannia is more focussed on a few things and getting them right.” The background in cigarettes is, to his mind, invaluable. “They already have the understanding of building big brands and the intricacies of a supply chain [acquiring tobacco leaves] and creating a high-quality distribution network. It also means they were always a part of the consumer’s wallet, and it was only a question of continuing that strategy.”

We want to be in highgrowth- and high-margin categories. The logic is if you win here, you win big... Opportunities are always large and our ability lies in expanding any category.

Sameer Satpathy
Divisional CEO
Personal Care, ITC

The buyout of Nimyle in mid-2018 from Kolkata-based Arpita Agro is another interesting example. A huge player in east India’s floor cleaner market, Nimyle (a neem-based product), says Satpathy, was unique and neem could be easily extended. He points out that there is no natural homecare brand in India and that means, “I own the platform.” Since the acquisition, Nimyle has launched a vegetable and fruit wash. The personal care portfolio, of course, cuts across other brands such as Charmis, Engage, Fiama and Vivel. Again, in soaps, a highly penetrated segment, the Vivel brand has a 12-13 per cent market share in eastern India. Even the largest player, Lifebuoy, has a share of just over 20 per cent at a national level. “It is possible to have leadership in a region and Vivel is an example of that. Large product categories always offer these interesting options.” According to Satpathy, the scope for innovation in his business is unlimited and it is clearly a long-term game.

Puri says the inorganic strategy is a critical growth driver and has to be “value-accretive”. In May 2020, ITC acquired Sunrise Foods, a Kolkata-based spices maker, for Rs 2,150 crore. With Aashirvaad already strong in Telangana and Andhra Pradesh, this opened up a new geography. From a strategic point of view, it sits well with ITC’s knowledge of cuisine, agri sourcing and the rural linkages.

Centrum’s Pardeshi points out that ITC will primarily be a foods company. As he sees it, at a gross margin level, there is not much of a difference compared to its rivals. “Its Ebitda margins from the 9-9.5 per cent range can hit 12-13 per cent by FY24. We expect them to have premiumisation across more categories, increase efficiencies and up it on distribution,” he says. Now, the likes of Britannia and Nestlé “have an advertising-to-sales ratio of 2-3 per cent, while ITC is at 6-7 per cent. A higher Ebitda margin will reduce that percentage for ITC”.

From Puri’s point of view, there is a lot to do in FMCG. “We are already there in the areas that look interesting and now need to look at adjacencies. Since we do rotis, it could be parathas. We just need to look at more ways to grow the business,” he says with a smile. The folks at ITC are surely in no mood to get even remotely complacent.


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