Financial Daily from THE HINDU group of publications
Thursday, Sep 09, 2004

Catalyst
Features
Stocks
Port Info
Archives

Group Sites

Catalyst - Strategy


ITC's thought for foods

Purvita Chatterjee

ITC Foods is adopting a patient but ambitious approach to grab a chunk of every sector it operates in.


Ravi Naware, Chief Executive, ITC Foods

BEING a late entrant can have its advantages. Having witnessed the mistakes made by others in the still nascent branded foods business, ITC Foods is charting a growth path which is aggressive yet cautious. While buying out established brands might have given it a head start in the confectionery category, it also realises the challenges it faces in the staples and ready-to-eat business and believes it is the quality standards of the products which will be its primary USP in the business.

Not in a hurry to make profits, ITC's foods division is taking its time to draw upon all the possible synergies it has with the group's cigarettes and hotels businesses. While ITC did its homework well in advance when it made a leap into foods nearly two years ago, taking advantage of its extensive cigarette distribution network, its network with farmers and the brand equity of its hotels' restaurants should give its foods business the competitive advantage it has been looking for.

Ravi Naware, Chief Executive, ITC Foods, claims, "Over a period, ITC has built in certain competitive strengths. For instance, our relationship with the farmer community has helped in sourcing the commodities for our brands." While its competitors in the branded staples business may not have this edge, ITC is in a position to control the quality (of the Aashirvaad brand) through its countrywide network in the agri-business.

Today, the Aashirvaad brand stands for atta and salt and is expected to add suji, spices and rice in the staples segment. In the ready-to-eat segment, Aashirvaad has been expanding the range and the latest offering includes its combo packs of rice and gravies. Besides, an all-purpose curry paste has also been included in the range.

To make a success of any foods business, Naware feels that apart from understanding the palate, it would be procurement and sourcing which have to deliver on two fronts: mainly that of quality and efficiency. Of course, brand and distribution would also matter.

However, industry observers are not too sure whether ITC can make a success of all the categories that it enters. According to a consultant at Quadra Advisory, apart from the ready-to-eat category which is not too crowded, ITC is likely to face hurdles in every other food category, especially that of biscuits and confectionery (due to low margins and price points). Besides, in the ready-to-eat segment, pioneer brand Tasty Bite had been struggling till Aashirvaad and MTR came along. The segment could grow for a while till a shake-out occurs. However, in staples, brands such as Nature Fresh and Annapurna are still struggling and ITC is bound to face a tough time as well.

Agrees Ravi Nigam, President, Tasty Bite Eatables Ltd, "Unlike in the ready-to-eat segment which is still small and the onus is more on growing the category than getting share, in the other categories ITC has to contend with entrenched competition. Success will depend on how much patience it has to drive growth over a period of time."

Keeping low overheads, ITC Foods has also decided not to make heavy investments in manufacturing unless volumes pick up and sub-contracting the products makes sense for business right now. While there may be opportunities lurking in almost every segment of branded foods, constant innovations are required on an ongoing basis, keeping ITC Foods on its toes.

With ambitious turnover targets (Rs 500 crore turnover by 2007), ITC Foods has also faced certain hurdles. In its two years of existence, it had to withdraw its snack brand, Bischips, within almost eight months of launch. "There were supply chain issues since it was sub-contracted to a firm in Calcutta," says Naware. Now there are plans to re-launch it on the back of its still-increasing biscuit distribution network. Bischips was a flour-based baked snack and distribution hurdles posed a problem for the brand which should hopefully make a comeback soon in ITC's portfolio.

Its biscuits brand, Sunfeast, has been aggressive, giving stalwarts Britannia and Parle competition in the category with its high-decibel advertising. Considering biscuits is one of the segments which has bucked the slowdown in the FMCG industry, ITC Foods has been quick to extend its range to unique offerings such as the Sunfeast Orange Marie apart from the usual fare of glucose and Marie Light variants.

In fact, having a cigarette distribution network has helped ITC Foods in selling certain food categories such as confectionery. In the case of the other categories, new distribution inroads were made, and deepening it remains an ongoing task. From the one million paan, bidi shops it reached out to, ITC has added another half-a-million outlets to sell its other products. Today it has a retail network of 1.5 million outlets across the country and continues to expand this network.

While the challenge to grow homegrown brands remain, ITC Foods believes it made the right choice by acquiring a readymade brand such as Mint O and successfully filled the lacuna in the mint candy market. "There was a latent demand in the market for compressed mint tablets and it was an opportunity for us," says Naware, "in spite of the presence of Nestle's Polo brand in the same segment." Claiming to grow this particular segment, Mint O is supposed to have bagged a nearly 40 per cent share in the compressed mint category.

Meanwhile, there is intense competition perpetually in the low-margin confectionery business. In the case of its regular sugar confectionery, Candyman, ITC has been unable to repeat the success of Mint O. Admits Naware, "Almost everyone is there in the regular sugar-based segment and there is intense competition. It has been more difficult to get shares for Candyman than Mint O."

The success of Minto O led ITC Foods to launch two more flavours — mint orange and lemon - while Candyman has also been extended to flavours such as Mango Delight and Wild Banana. There also exist Candyman éclairs in chocolate and caramel flavours.

Leveraging the strong equity of its restaurants such as Dakshin (South Indian), Dum Pukht (Lucknowi), Bukhara (Northwest Frontier) and Gharana, ITC Foods took its first leap into the foods business with its ready-to-eat Kitchens of India range. The offerings carried its restaurant names to specify the type of cuisine. Today the Kitchens of India brand has been extended and is poised for a relaunch in pouches to bring down the prices. Besides, there are also plans to export the brand to countries where Indian cuisine is already popular, such as the UK, US and Canada.

Having invested Rs 12 crore in R&D to make the right innovative products to crack the Indian foods business, ITC also realises that it will not be easy to bring its foods business on par with that of cigarettes. It will take time to reap profits in the low-margin food venture but for the moment it is all about hedging its risks to take care of its core businesses.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
High five


In pursuit of youth
ITC's thought for foods
Money in action
Getting back on track
The return of the East India Company?
The devil's new suit
AAAI update
Name of the game is naming from nowhere
Hardsell
Pretty picture
Knead & push
Gum chum
Gloss over
Diary delight
Ice, baby
Wicked treats
Nifty panel


The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | The Hindu eBooks | Home |

Copyright © 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line