Can ITC race to the top?

The number three player in the foods business is beefing up its product portfolio and distribution muscle to take on Parle and Britannia

A Nielsen overview for the year ended June 2016 has put ITC at number three, following Parle and Britannia. That's a notch up from last year, but going by the pace of launches, ITC could well end up achieving its target of being the top player in the food market in India.

Consider the figures: in 2015-16, ITC's foods business launched 28 products, including variants. This year, till August, 22 products including variants have been launched. The major launches in the last one and a half years were: Aashirvaad Svasti ghee, Fabelle chocolates, Sunbean coffee, Sunfresh dairy whitener, Sunfeast Farmlite Digestive, Aashirvaad Sugar Release Control Atta. A lot more is in the offing. "Last month, I spent two days in Bengaluru, reviewing the products in the pipeline," says B Sumant, president, FMCG businesses, ITC.

At present, ITC's foods business is represented by staples, spices, ready-to-eat foods, snack foods, bakery and confectionery, juices and beverages. That's a mouthful given that the business is relatively new when compared to the top two players, Parle and Britannia. In 2001, ITC stepped into the market with a ready-to-dine range, Kitchens of India, and there has been steady addition of categories since, with Aashirvaad (atta) in 2002, Sunfeast (cookies, biscuits and pie cakes) and Bingo! (snacks) in 2007. A slew of product launches are expected in the health and wellness food segment over the next two years. The first was the launch of Aashirvaad Sugar Release Control Atta that has a low glycaemic index. "We are very bullish on the portfolio of products in the pipeline. We have pilot plants that have kitchen scale and commercial scale," Sumant explains.

The plan, as it endeavours to achieve revenues of Rs 1,00,000 crore from its non-cigarettes FMCG businesses (or FMCG-Others), is to grow within the existing categories while adding new ones along the path. And foods will play a key role in the broader goal of growing the non-cigarettes FMCG business.

"ITC's 'Other FMCG' business, which includes branded packaged foods, lifestyle retailing, education and stationery products, personal care products, and safety matches and incense sticks, has been the fastest growing segment for ITC over the past few years (CAGR of 18 per cent during the period FY2008-FY2016), and has witnessed many category, brand and product launches, notwithstanding some deceleration in growth witnessed from FY 2014. The segment achieved break-even at the PBIT in FY2014, and has been recording a gradual increase in profitability since. The branded packaged foods business is the largest contributor to revenues within the 'Other FMCG' segment, accounting for around 70 per cent of segment revenue in FY2016," says Jayanta Roy, senior vice-president, ICRA.

Can ITC sustain its growth momentum? More importantly, will it be able to dislodge entrenched players in the category?

Abneesh Roy, senior vice-president, Institutional Equities, Edelweiss Securities, believes it is possible for Britannia or ITC to displace Parle as the top player. "The main growth driver for Parle is its glucose biscuit brand, Parle-G, but the glucose biscuit segment is not growing much," he says.

In 2013, Parle-G crossed retail sales of Rs 5,000 crore. According to the Nielsen report, Parle's sales stand at Rs 8,500 crore which means that a major chunk of its sales comes from Parle-G.

Britannia, on the other hand, has said that it wants to be a complete food company. "They could increase their presence in the dairy segment which accounts for mid single digit as a percentage of sales. They could also increase offerings in the premium biscuits segment. Snacks, cake and rusk are other areas that offer opportunities," Roy says.

But ITC has some inherent advantages as pointed out by ICRA's Roy. "On the procurement side, it can leverage its agri business and e-choupal network; on consumer preferences, it can get an insight from its hotels business," he explains.

ITC's Sumant says the foods division works closely with ITC Hotel chefs on formulations and recipes that cater to the palate of the Indian consumer. "We have a 450,000 square feet ITC Life Sciences and Technology Centre with 350 scientists. Every category has a dedicated pilot plant where there is constant testing. There is a chefs' panel which works very closely with the product development team," he adds.

Plus, there is constant expansion on the distribution side. In 2013, ITC introduced a category split model. Sumant says when a salesman goes to a store, the owner typically spends 15-20 minutes. "So in some cities, we send three salesmen to one store and in some cities two salesmen (who would pitch different products/ brands at the shop owner). That way we can maximise sales," he illustrates with an example.

For rural markets, ITC has 1,000 vans that go into the interiors where the salespeople capture orders and vans go and deliver stocks. Rural sales account for about a third of its FMCG sales. Above all, says Roy, ITC has the cash from its traditional businesses to drive new initiatives.

That should worry competitors. More so, since the focus of ITC at the moment is to grow the topline.