Time for ITC to go premium

As segments of food and personal care glimpse profits, ITC capitalises on them

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It is said that ITC can notch up around 5 per cent of market share for any product it debuts by dint of its distribution. It is present in categories such as personal care and food as are other FMCG behemoths like HUL.

However, the breadth of its distribution and its foray in these segments since 2001 were fuelled by its tobacco business that helped fund the long-drawn gestation of these categories. But the personal care portfolio recently, and foods earlier, have shown signs of coming into their own. As a result, ITC has begun to reinforce premiumisation across both of these categories to capture the trend of upgrading.

Be it packaged food, which has foxed companies in India, or soaps in personal care, ITC is ready to move its most popular brands up the value chain. New products in food and a repositioning of its mid-segment soap brand have set the process in motion. ITC's non-tobacco FMCG play also includes education and stationery, lifestyle retailing, safety matches and incense sticks but food and personal care comprise around 80 per cent of the segment.

Vivel, which is one of the four personal care brands it had launched between 2005 and 2007 is the biggest brand in personal care for the Kolkata-based company, worth Rs 500 crore. With a full-fledged campaign underway, featuring the brand ambassador Kareena Kapoor, Vivel is being repositioned as a nourishment product, rather than its earlier singular promise of skin-softening, according to the personal care CEO Sandeep Kaul. Of course, the soap brand will continue to straddle different price-points.

"We would have products for all price-brackets but in terms of sheer number of introductions, we will be larger in the premium segment than in others," says Kaul. Essenza Di Wills was originally its premium offering of fragrances, bath and body care products for both men and women, launched in mid-2005. ITC also labels its Vivel Ultrapro anti-dandruff shampoo as premium. Mass-market product launches in the near future are ruled out by Kaul.

He claims the recent entry into the crowded deodorant market has gained significant share. Engage, a deo for both the sexes, was launched in May and will take two-three months for a national roll-out. "If I look at markets it is already present in, we already have 5-6 per cent share. We are present in most markets except for parts of south India," says Kaul. Given the low per capita consumption of deos and a market estimated to be about Rs 2,500 crore, Kaul expects a growth of 15-20 per cent. An analyst at Sharekhan cautions that one has to be patient to taste success in the fragmented deodorant segment.

ITC's overall non-cigarette FMCG business is expected to break even sometime this year. It was briefly in the black in the final quarter of last fiscal, before slipping into the red.

Analysts point out that rather than any weakness in gross margins, it is the heavy advertising that ITC does to further its FMCG business that forms a drag on the portfolio's finances. In FY-13, ITC had spent Rs 806.65 crore (up from Rs 682.69 crore, the year before). "If not for the heavy A&P spends, ITC is already profitable in non-tobacco FMCG. But the ad spends are necessary to complete the gestation. But the question is for how long can it sustain the negative impact," says an analyst, who declined to be quoted but recommends a 'buy' on the stock.

But the analyst also highlights that Superia, ITC's budget soap brand and its Fiama Di Wills which has shampoos and soaps, have not been able to make much headway, despite being launched a few years back.

He says their less-than-2-per-cent shares are meagre compared to Vivel's 6-7 per cent.

But of the non-tobacco FMCG play, foods, which was worth Rs 3,700 crore in FY-13, is taking up premiumisation in no uncertain terms. The CEO of foods, Chitranjan Dar, who drove his division to be the first segment to turn profitable and remain there, says, "The packaging for one of our first super-premium brands, the Choco Meltz, is a departure from our usual packaging, to reflect the richness of the chocolate-enrobed cookies. The graphics, cartonisation, the taste profile and the texture (presence of both molten and crisp chocolate) are all geared to convey the premium feel." Having achieved uptrading in premium cookies, catching Britannia, the biscuits-leader unaware, Dar is now moving on to a category unlikely to be thought of as premium - confectionery.

"We have noticed that in confectionery, there is a pronounced movement away from basic products to value-added ones. So, Jellicious delivers on texture beyond a jelly logenze, with a fruit and candy combination. Similarly, we have pulled out of the regular 50-paise lacto candy and concentrate on the Re 1 lacto with more cream inside and out. We have launched a mint for adults (mint-o Ultra mintz) that have an evolved taste palette." In confectionery too, ITC is betting on underpenetration of the category to drive growth.