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ITC's Naware: Getting the chemistry
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When
chairman yogi c. Deveshwar declared that ITC's aim was to become
"the most trusted provider of food products in the Indian
market", it was met with polite sniggers. But that was three-and-a-half
years ago (on May 26, 2002, to be precise). ITC had just entered
the packaged and processed foods business and analysts doubted
its prospects in the fiercely competitive sector. That's because
building brands requires humungous amounts of money. And razor-thin
margins ensure that returns often take years to materialise. Three
years later, they are eating their words (with ITC's biscuits
and snacks as accompaniments).
"We entered the business only after
conducting an extensive study on the prospects of the sector and
the value that ITC could bring to the table," says Ravi S.
Naware, Head of ITC Foods, which comprises four divisions-snacks
(biscuits), rte (ready to eat; popularly called the heat-'n'-eat
segment), confectionery (candies and mints) and staples (atta
or flour and salt).
Of these, snacks contribute more than half
of ITC Foods' turnover of Rs 781 crore. This isn't surprising,
considering that snacks account for the single largest chunk of
the Rs 15,000-20,000-crore packaged foods market in India. Within
this, biscuits make up a Rs 4,500-crore sub-set. Therefore, it
was imperative for ITC Foods to stake out a significant presence
here. It was also the most difficult market to break into. That's
because Britannia, Parle and a host of smaller regional brands
had sewed up the market between themselves.
It needed some strategic thinking and nimble
footwork to crack open this market. "We decided not to play
on our competitors' turf; our aim was to create new markets for
ourselves. Thus, we introduced an Orange Marie, a butterscotch
cream biscuit, chilli flakes in a biscuit and even honey flavour,
under the Sunfeast brand," says Hemant Malik, Head of Marketing,
ITC Foods. The company invested Rs 12 crore on setting up an r&d
facility to develop these new products.
Its strategy is paying off. ITC Foods has
a 9 per cent share in the biscuits market, in spite of having
no presence whatsoever in the cookies, crackers, cheeselings and
sweet-n-salt categories. Predictably, forays into these sub-segments
are on the anvil. The competition is, however, putting up a brave
front. "We are focussed on catering to the masses and our
products are available in the smallest markets," says a Parle
spokesperson.
Meanwhile, ITC Foods has launched Sunfeast
Pasta, creating a new market segment in the process, and is believed
to be considering the launch of instant noodles to take on Nestlé's
Maggi.
ITC has also carved out a significant share
for itself in the rte segment. Its hotels division employs some
of the best chefs in the world. ITC Foods packaged some of their
recipes in a ready to eat format and launched the Kitchens of
India range, targeted at the top end of the market; and addressed
the mass market with its umbrella Aashirvaad brand. Their combined
market share: 25 per cent. It helped that there were no national
players in the Rs 80-crore rte market which was dominated by regional
brands like MTR Foods and Tasty Bite.
ITC Foods currently has two brands in the
candies and mint segments of the Rs 1,200-crore confectionery
market. Candyman, a hard-boiled candy available in a number of
flavours, and Mint O, ITC Foods' only acquisition in the packaged
foods segment (it bought the brand from Candico in 2003 for an
undisclosed amount), together give it an 8 per cent market share
in confectioneries. Naware points out that ITC does not yet have
any chewing gums, chocolates and lollipops in its portfolio, a
hint, perhaps, at where future growth will come from.
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"We decided not
to play on our competitors' turf; our aim was to create new
markets"
Hemant Malik
Head Of Marketing/ITC Foods |
The truth is that this is one market that
is proving difficult to prise open. ITC is still a distant number
four (behind Perfetti, Nutrine and Parrys (i.e. Lotte). The grapevine,
however, is buzzing that it is eyeing Nutrine. Says Naware: "I
will not comment on specific acquisition plans; we are always
looking for acquisitions that make business sense. (But that)
depends on a right fit at the right price."
But it is in packaged atta that ITC has really
come into its own. "We purchase wheat directly from the farmers
(using the e-choupal network)," says Naware. The cost advantage
apart, this direct link with the farm "enables us to supply
atta that is superior to that sold by our competitors," he
adds. Rivals will, obviously, not accept such subjective statements
as a given, but the numbers tell their own story. ITC's Aashirvaad
brand is the clear leader in the Rs 600-crore packaged flour market
with a share of around 40 per cent. hll's Annapurna brand is in
second spot with a market share of 18 per cent.
In the Rs 400-crore organised salt market,
Tata Salt is the market leader with a share of 28 per cent. Aashirvaad's
share is less than 5 per cent. "Things will change once we
start distributing it in more markets," says Naware.
ITC Foods has also recently entered the Rs
700-crore branded spices (think powdered chilli, coriander, turmeric,
garam masala) market. There are no national brands in this segment,
which is dominated by regional players. "Aashirvaad is our
umbrella brand for spices as well," he adds.
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"ITC's aim is to become
the most trusted provider of food products in India"
Y C Deveshwar
Chairman/ITC |
The Strategy
ITC's 5,400-strong e-choupal network covering
34,000 villages (the target: 25,000 e-choupals covering one lakh
villages by 2010) gives it unparalleled procurement and distribution
muscle. Says Naware: "Wheat is the primary input in the atta
and biscuits segments, which contribute the bulk of our revenues.
It is also the commodity in which we have the strongest presence.
Our business model revolves around the wheat vertical."
ITC Foods also uses its parent's well-oiled
distribution channel to cut its marketing bill. "We reach
nearly 1.5 million retail outlets," says Malik.
Interestingly, ITC Foods does not have any
manufacturing facilities. All manufacturing is outsourced, and
the company only monitors quality through a system of checks.
This can prove to be its Achilles' heel. Says a competitor on
the condition of anonymity: "Not having its own manufacturing
facilities may have lowered its entry costs, but it leads to quality
problems; look at how ITC had to withdraw Bischips (a flour-based
baked snack) from the market." Counters Malik: "Bischips
wasn't withdrawn because of any quality problems. It was a product
ahead of its time." But ITC is moving to plug this obvious
gap in its value chain. It is setting up a Rs 100-crore biscuit
manufacturing unit in Uttaranchal. "Work is in progress and
the new plant will go on stream within the next six months,"
says Naware.
Meanwhile, ITC Foods is aggressively building
its brand. It has signed on Bollywood superstar Shah Rukh Khan
as the ambassador for its Sunfeast brand. It has also rolled out
a school contact programme to promote its biscuits, pastas and
candies among kids. "We are devoting considerable energy
and expense on building our brand," says Malik. He, however,
declines to reveal any figures.
Competitors complain that ITC Foods is buying
market share by offering unsustainably high margins-15 per cent
plus in some categories-to its channel partners. Malik dismisses
this charge. "We pay at par with the industry leaders or
our nearest competitors," he says.
Even hardnosed business analysts are impressed
by ITC Foods' performance. Says Nikhil Vora, Vice President, Research,
SSKI Securities: "I'm very bullish. Over the next couple
of years, we expect it to turn profitable." Incidentally,
ITC is entering more fast moving consumer goods (FMCG) segments.
It plans to launch soaps and shampoos under the Superia brand
name in February.
What's next on the agenda? Naware laughs.
"Our goal is to emerge as the largest player in the processed
foods segment." That means ITC Foods has just sounded the
bugle. From here on, its competitors are on notice.
-additional reporting by
Rahul Sachitanand
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