The Hindu Business Line : `We understand Indian palate better'

THE foods business of ITC Ltd, launched some three years ago, has already seen an investment of Rs 100 crore, and today straddles the three FMCG consumer segments of staples, biscuits and confectionery.

Helped by the company's ability to create new business and related capabilities, huge distribution network and agri-sourcing capabilities, the foods portfolio now includes some 60 packaged branded products under the Kitchens of India and Aashirvaad brands. A new product is being developed every month for the last 27 months, and this is expected to continue for another 12-14 months.

Unveiling the 3-year vision plan for the packaged branded foods business of the company, Mr Ravi Naware, CEO, Foods Division of ITC Ltd, told Business Line in Bangalore recently that the timing of the company's entry into this segment was quite fortuitous. "The size of the foods business is nearly Rs 5 lakh crore, and only 6-7 per cent of this is branded, hence there is huge potential for growth." Excerpts of the interview:

What was the branded foods business scenario in India like when ITC was planning a full-fledged entry and how is it now?

When the business was conceived three years ago, the chairman had a vision of creating another strong and large FMCG-based business within the ITC portfolio with a view to leveraging some of the inhouse strengths - - our ability to build brands, the huge distribution infrastructure , the tremendous in-house talent pool and our ability to take up huge high quality manufacturing activity. So we combined some of our strengths; the backward linkages of our International Business Division, and on the front end through our understanding of the Indian palate. It was felt that these could be combined well to create a packaged foods business.

The timing of our entry was fortuitous in the sense that the extent of branded packaged foods business was then only around 6.7 per cent. Even today, it is only around 7.5 per cent of the total Indian foods business, said to be in the region of around Rs 5 lakh crore plus. And this threw up a large-sized foods business for ITC to enter.

What is so unique about this business?

Local players seem to understand the local palate, especially flavours, tastes, ingredients, etc, much better than the so-called TNCs or MNCs. And it was observed universally that the local players had nearly 60-70 per cent share of the market, and the MNCs only 30 per cent. ITC, with its own understanding of the Indian palate, felt that it may be able to occupy a significant position within the FMCG arena, as the packaged branded foods business made good business sense.

While the total Indian foods business is around $100 billion plus, only about 30 per cent or perhaps even much less, was in the organised segment, which augured well for the branded products.

The packaged branded foods market is growing steadily, promoting competition. This was the backdrop in which ITC entered the branded packaged foods business, and today we are present in staples, biscuits and confectionery.

We started with "Kitchens of India" at the top end.What about staples?

We launched Aashirvaad Atta in May 2002, and today it is a market leader owing to sustained quality. The emphasis was on creating products, which are different and superior to what was available in the market, and the underlying principle is good quality with a reasonable price. We told ourselves that every product we develop must be seen to be superior in a blind test by consumers. What kind of marketing strategy was adopted?

We successfully adopted an umbrella branding strategy, and an outsourcing model was put in place through the contract manufacturing route.

What kind of investments have been made so far?

Since July 2002, around Rs 100 crore has been invested by the company in the foods business, and the aim is to achieve a turnover of Rs 500 crore by 2007. We have already invested Rs 10 crore plus on our R&D activities for a good product development back-up, which involve atta, biscuits and candy. We plan to put in Rs 5 crore more.

We have been creating two new products in the foods division every month for the last 27 months. We have 60 products in the basket and will continue with this pace for another 12-14 months for sure.

What about price challenges?

We have mass segment products, such as the multi-purpose cooking pastes in our range now, where volumes are important. The key is the ability to craft product and define the process to keep costs down. We strive to do this in a cost-effective manner. We also do umbrella branding, so that when we advertise Aashirvaad atta, we get a rub-off on all Aashirvaad products such as salt and ready-to-eat foods.

What is happening on the confectionery front?

Minto-Fresh is the latest confectionery item. We have 14 different kinds of candies under the Candyman and Minto brands.

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