Tobacco May Not Be The Future, FMCG Is Where ITC Finds Its Solace

In the City of Joy, where poetry and consumption of cigarettes come together, the huge architecture on Jawaharlal Nehru Road housing ITC executives have been talking more about noodles, atta, hotels, biscuits, wafers and even copy-books for school students. The huge ‘No Smoking’ boards around not only pacify the nicotine urge of the hard-core smokers, those actually speak of a change in ITC. On the advent of spring, ITC sings the song of clocking Rs one lakh crore FMCG business in less than 15 years from now as Executive Editor, Joydeep R Ray and Deputy Editor, Amit Bhanot spend hours together at Virginia House to know ITC plans.  

Think of cigarettes, think ITC—gone those days as the Kolkata-headquartered ITC is now a prominent player in the deodorant to instant noodles market braving the heat of veterans like P&G and HUL. Presently a household name across the length and breadth of the nation, not anymore just because of ‘smoking kills’ tobacco business but may be because of protein-based Aashirvaad Atta serving the nation since last 14 years. ITC has changed in last 12 years faster than the landscape of Jawaharlal Nehru Road where its headquartered and the good news is that ITC has been changing fast. Sitting within the comfort of think carpeted floor and crystal clear glass windows around, senior management of the diversified company while interacting with DSIJ, claims ITC has been eyeing to be a Rs 1 lakh crore FMCG business entity soon.

Despite cornering a commendable market share in various segments and products categories, whenever anybody talks about ITC, he only puts focus on the company’s tobacco business and even bourses give (also take back) valuation to the company on the basis of just cigarette business, unfortunately. Upcoming GST regime raises the doubts even further on the margins of cigarette space and we have noticed huge pressure on the ITC stock during the recent past.

Though the company is quite robust when it comes to its conventional tobacco business, it is the FMCG business that the company is extremely bullish. By 2030, ITC wants to hit a turnover of Rs 1 lakh crore from non-tobacco biz. In fact, ITC's endeavour is to become the numero uno FMCG player in India driven by the existing portfolio as well as its entry into new product categories. For this, the company has conceived a holistic strategy that involves everything form consumer centric approach to strengthening network. “In line with the corporate strategy of creating multiple drivers of growth, the company seeks to rapidly scale up its FMCG businesses leveraging its institutional strengths viz. deep consumer insight, proven brand building capability, a deep and wide distribution network, strong rural linkages and agri-commodity sourcing expertise, packaging knowhow and cuisine knowledge,” says a company spokesperson.

Research to drive growth

To make a big cut in the FMCG pie of the country, ITC has decided to focus on the research and development and has also earmarked significant investments into this space. ITC’s focus is to develop and launch disruptive and breakthrough products in the market place. For this a dedicated ITC Life Sciences and Technology Centre in Bengaluru has been setup that will further strengthen ITC’s innovative capacity. “Our R&D centre has already filed over 400 patents and our endeavour is to become the number one FMCG player in India driven by the existing portfolio as well as entry into new categories,” says a senior manager of the company at its Kolkata office.

Company is following a strategy under which it is trying to grow the topline of each of the categories of FMCG sector at a much faster rate in comparison to the industry. For this better consumer connect and enhanced scale process will be followed to increase the operating profit margins in the medium term. In the matter of entering into new product categories in the FMCG space, though ITC is quite vibrant and proactive in its approach but it is equally vigilant towards the success of the launches it is making as ITC management is quite sensitive towards the markets they are entering into. “If you see the choice of category is guided by its growth prospects, profitability profile and the ability of the company to effectively leverage its institutional strengths with a view to achieving leadership status within a reasonable time frame,” says the spokesperson.

To achieve this, synergies with existing categories in terms of overlap of distribution reach, brand extension possibility and procurement efficiencies are also considered while choosing new categories. Considering this, the company has entered into dairy, tea, coffee and chocolates in the recent time.
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Already a 11000 crore business with vibrant brand portfolio

Though ITC’s FMCG business remains to be the younger sibling of the company, yet it has already crossed the threshold of Rs 11000 crore turnover mark and products like Aashirvaad Atta, Sunfeast brand biscuits, Bingo, Classmate writing solutions etc. are already the market leaders or quite significant players in their own categories. If we go by the portfolio of the FMCG brand, ITC has earned Rs 2000 crore each from Aashirvaad and Sunfeast, while Classmate and Bingo has contributed Rs. 1000 crore each. “Even YiPPee!, Candyman and Vivel have crossed Rs. 500 crores each. ITC is a market leader in the branded Atta segment, a market leader in cream biscuits, the leading player in the notebooks segment, the second largest player in the snacks and instant noodles segment,” informs the beaming spokesperson even as the winter sky over Kolkata this morning looks slightly cloudy.

If we look at ITC’s strategies, then the company wants to have ‘multiple drivers of growth’ that leverages the opportunities of the emerging national economy and Indian global market. Its diverse but synergistic portfolio of businesses is driven by its strong institutional strengths. The synergies arising out of these institutional strengths lend a unique source of competitive advantage to its businesses

Huge capex to augment capacity

ITC’s strategy for future growth seems quite simple. The company wants to augment its capacity in the coming years in all the segments and for this, it has chalked out a comprehensive investment plan in coming years with a whooping investment of Rs. 25000 crore that will be put in 65 projects across different locations. “ITC is investing in India's future by building world-class assets that will contribute to the country's competitive capacity. This ambitious investment plan, underpinning the company's support to the Make in India vision, envisages an outlay of Rs. 25,000 crores in 65 projects across the country,” says a senior manager of ITC.  “If we go by the progress then currently, over 20 projects of the company are underway and in various stages of development. These include Integrated Consumer Goods Manufacturing and Logistics facilities, which will add substantially to ITC’s capacity and competitive ability,” he adds.

BOX1

Maggi controversy is a boon?

At a time when Sunfeast is growing at a decent pace, Maggi controversy has come as a boon for the company. Company, though has launched its Sunfeast Yippee noodles five years back but only after that controversy, it was able to make some kind of impact in the market. Due to this after four years now Yippee becomes the second largest brand in the segment. Though the company management doesn’t give credit of the success of Yippee to the Maggi controversy, but it is no surprise that ITC is the biggest beneficiary of it and Yippee is all set to enter into Rs. 1000 crore turnover club. On the contrary, the company management feels that due to the controversy, the whole industry has been badly hit. “Yippee was growing at more than 40 per cent before the controversy broke out in May-June, with all the competitors in the market. The controversy and confusion that prevailed adversely affected the whole industry,” shares a company spokesperson. “However with our pro-active inputs and innovative campaigns, we were the fastest to recover and then exceed our old sales levels,” she added.

BOX 2:

THE OTHER FACE OF ITC 

ITC’s corporate strategy hinges around creating multiple drivers of growth anchored on its core competencies, one such business avenues is hotels. With more than 100 hotels in over 70 destinations in the country, ITC Hotels has redefined the fine art of hospitality. ITC’s hotel group operates under four brands: ‘ITC Hotel’ at the luxury end, ‘WelcomHotel’ in the 5-star segment, ‘Fortune’ in the mid-market to upscale segment and ‘WelcomHeritage’ in the heritage leisure segment. ITC Hotels also benefit from leveraging its exclusive tie-up with Starwood Hotels & Resorts in bringing its premium brand, the 'Luxury Collection', to India. Out of the total revenue earned from operations, hotel business contributed 3.8 per cent of the total revenue generated. Hotel business has been growing at a healthy pace of 4.5 per cent driven by improvement in room occupancy and good growth in the food & beverage segment.

ITC Hotels, India's premier chain of luxury hotels is all set to embark upon a new growth trajectory, taking advantage of the growth opportunity lying ahead with the combination of demand growth and a friendly tourism policy initiative approach devised by the government. The hotel business in the coming years will be a big revenue generator for the diversified group. 

(additional reporting by Abhishek Kumar)