ITC brews a premium play

With its gourmet coffee Sunbean, the company is looking to expand its portfolio of premium brands

From hotels to chocolates and now coffee, that seems to be the positioning and consumer recall that ITC is aiming for, as it launches Sunbean, a premium coffee close on the heels of Fabelle chocolates that was launched in May this year. For both, the company is using its chain of luxury hotels as an exclusive retail channel before taking the brands to retailers outside the fold. But experts caution that the market for premium coffee in the country is a thin one and; price still plays a big role in determining the brands people pick.

However ITC is confident that opportunity does lie at the high end of the price-value spectrum for coffee and chocolates and it is keen to tap into it. In this the multi-business conglomerate has its task cut out, since its reputation in the foods category has thus far been built on its large portfolio of budget and mid-range products. The mass market was the focus as the company was keen to grow the non-cigarettes FMCG annual business to Rs 1,00,000 crore by 2030. Now with the premium chocolate and coffee brands, ITC seems to be opening up a new front.

Experienced hand
According to V L Rajesh, divisional chief executive of ITC's foods division, the launch of Sunbean gourmet coffee is an outcome of key institutional strengths - agri-sourcing, blending knowledge and culinary expertise working in tandem. He says that the company decided to get into packaged coffee when it saw that it could leverage its strong ties to the sector.

The company's agri division has been sourcing and exporting coffee beans for over 25 years and claims to be one of the largest coffee bean exporters today. "Whilst the agri business is focussed on the B2B (business to business) segment, Sunbean marks ITC's entry into the luxury consumer market in India," Rajesh said.

The entry of ITC in the gourmet coffee segment and its positioning has been under consideration for a decade. It was waiting for the right time, Rajesh said.

For a premium brand to find a slice of the market, however thin it may be, consumption patterns must mature. It is only then that consumers look beyond price as a brand differentiator. "We believe that the market for premium gourmet coffee experiences is only just opening up, driven by globalisation and the rapidly growing cafe culture," Rajesh said.

Measured steps
ITC is a dominant player in the mass foods category, but as a premium brand, its mettle is still unproven in the foods category. Thus the company is treading cautiously. "At this point in time we are completely focused on building a premium gourmet brand for the connoisseur. This consumer segment may be small today but we believe there is a large unmet need for world class coffees which Sunbean is ideally positioned to fulfil," Rajesh said.

According to data from Nielsen, the branded Indian coffee market is valued at Rs 1,700 crore for the year ending June 2016. While instant coffee accounts for 81 per cent of the total market, conventional coffee takes up the rest. "Increasingly Indian consumers are shifting towards instant coffee. This segment has grown at seven per cent over the last year compared to overall coffee growth at 5.4 per cent," Vijay Udasi, senior vice president at Nielsen India said.

What this implies is that the consumer is looking for convenience without having to give up on the premium experience of a fresh home brewed coffee and perhaps, therein rests an opportunity for brands such as Sunbean.

Exclusive outlets, limited reach
Abneesh Roy, senior vice president of institutional equities at Edelweiss Securities believes that ITC is playing it safe and economical by piloting the brand in its luxury hotels. Eventually the brand will move out to retail chains across the country, but the company wants to be sure about its reach and acceptability before doing that.

"ITC is creating a brand image of its coffee now and testing the coffee in a mass market is an expensive affair. In comparison, piloting it in its own hotels is a safer proposition," he said. The other advantage of using the luxury chains as retail channels is that there is a continuity in the positioning of the brands - the luxury hotels help establish the premium positioning of the brands, Fabelle and Sunbean.

To further drive home the premium association, ITC has positioned the coffee as one that will appeal to people seeking a 'coffee experience' and not just seeking to drain a cup. The company believes that this kind of experience, for the time being, can be best offered through its hotels. To market the new coffee, the company will use digital media and curated events.

While Sunbean is expected to primarily compete with Nestle's Nescafe Gold and Bru's Exotica range, ITC's decision to initially keep its brand out of regular retail shelves may make it hard to grab a share from any of the existing players. According to an analyst, the coffee segment is already dominated by Nescafe and Bru, and ITC, with its initial narrow scope, may find it tough to break in.

It may also find it tough to build brand recall in the Indian market where the premium coffee segment is too small. "The premium coffee category in India hardly exists and foreign players coming to India had to adjust their prices as well in the past," Rajat Wahi, head of consumer market at KPMG India said.