ITC Foods has become a Rs 5,000-crore company in a decade, Business Today

3/6/2014 ITC Foods has become a Rs 5,000-crore company in a decade, : Business Today

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ITC Foods has become a Rs 5,000-crorecompany in a decade,Ajita Shashidhar May 20, 2014

Chitranjan Dar has every reason to smile. ITC Foods, the company he leads as Divisional

Chief Executive, has revenues of Rs 5,000 crore - despite being a late entrant into the $25-

billion Indian food industry. Last year, ITC Foods overtook the food business of India's largest

consumer goods company, Hindustan Unilever, in terms of revenue. It leads in the Rs 4,500-

crore branded atta category - its Aashirvaad brand has a 26 per cent market share. It is the

third largest player in the Rs 21,000-crore biscuit industry, giving stalwarts such as Parle

Products and Britannia Industries stiff competition. It leads in the cream biscuits category

with a 26 per cent market share.

Seated in his office on the sprawling premises of ITC's old tobacco factory in Bangalore, Dar

can barely contain his excitement about his company's newest product, Farmlite biscuits, a

premium oats-and-almond cookie. "One of our early learnings was that in India, taste is

paramount in anything that one does," he says, biting into a Farmlite biscuit. "Nobody is going

to sacrifice taste for the reason of health. It took us a while to develop something which will

give us this combination." The biscuit, he says, is the first of a range of Farmlite healthy

snacks.

Dar, who never misses an opportunity to indulge in Kashmiri cuisine at the Royal Afghan

restaurant at Windsor Manor (an ITC Welcomgroup hotel) in Bangalore, jokes that the ITC

board probably got him to head their food business because of his size. As CEO of the food

business, his favourite pastime is to shoot the breeze with Welcomgroup chefs, about

recipes that could be converted into a sub-brand under the biscuit brand Sunfeast.

The company has been able

to innovate in a cluttered

market, and come up with

differentiated products in the

mass and premium

segments. Its deep pockets

and willingness to pump

money into the foods

business helped, but Dar

says it hasn't quite been a

cakewalk. The company's

first biscuit, called iBisc,

bombed. Dar says iBisc

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was ahead of its time. "We

realised that though we

wanted to be different, it was

also important to be strong

in conventional categories,"

he says.

That is why the company

invested in conventional

categories, such as glucose

and cream biscuits, and

chips. But breaching the

strongholds of Parle and

PepsiCo is not easy. ITC's

distribution strength, built

over decades, came to its

rescue. Its distribution

channels, which directly

reach more than two million

outlets nationwide and more

than 4.5 million stores

through wholesalers, would

be the envy of any

consumer goods company,

says Raghu Vishwanath,

Managing Director of

Vertebrand Management

Consulting. "ITC cleverly

realised it has a starting-

point advantage in

distribution, and knew

exactly how to reach big and

small outlets across the

country," he adds.

Although there was some

scepticism about stocking

ITC's food products in the early years, the trust and credibility the company created through

its distribution practice helped it break the ice. Sanjiv Puri, ITC's Divisional Chief Executive

for trade, marketing and distribution of fast-moving consumer goods (FMCGs), says: "It has

helped us drive penetration of FMCG products across channels, outlets and markets."

While the launch and distribution of mass products gave the company much-needed scale, it

wasn't a game changer, given that rival brands such as Parle and Britannia had a combined

share of 70 per cent of the biscuits market. In noodles, ITC was pitted against Maggi, which

had more than 75 per cent of the market. The only way for the company to make a dent was

to innovate. "Getting into conventional categories was always part of the plan, but we were up



against traditional hot rivals," says Dar. "We realised that... we need to understand the

consumer and make the experience better. But consumer preference may not be the only

driver. Therefore the need for innovation - for having something differentiated in terms of

packaging, communication or product - would be very important for Sunfeast to become a

strong brand."

The gap that the company could take advantage of was at the premium end. It would also

improve profitability, as margins were considerably higher than for basic biscuits and atta.

What followed was months of effort, with Welcomgroup chefs trying to perfect recipes that

could become successful brands. Dar says the chefs created as many as 40 or 50 options,

and some became successful premium brands such as Dark Fantasy, Chocofills, Choco

Melts, Delicious and, most recently, Farmlite.

Devendra Chawla, CEO of the Future Group's Food Bazaar, says ITC Foods succeeded in

the market because it went above the value chain and developed a market for value-added

categories above the basic level.

The strategy was timed well, as India was moving up the consumption curve, and even

consumers in small towns wanted premium products. For example, Dark Fantasy, priced at

Rs 30 for a 75g pack sells in 450,000 outlets nationwide, out of which 100,000 outlets are

rural.

Regional Preferences

Few customers are aware that the Aashirvaad atta in Delhi or Lucknow is not the same as in

Bangalore or Chennai. Dar says that special blends and granulations for different markets

has been key to ITC's success in a category where rivals have gone horribly wrong. He says:

"We realised that the blend that people like in the North may not be the same in the South. In

the South, which is not an atta-consuming market, atta has entered homes because it is

considered a healthy option. In the North, atta is consumed daily, and the look and

granulation required there are different." He says it took ITC three years of research before

the atta finally hit the market.

Future Foods' Chawla agrees that customising food for regional preferences is important.

"Preferences change every 200 km," he says. "The dal in Maharashtra tastes different in

Pune and in Kolhapur. Similarly, the paratha in North India is made of wheat flour, but the one

in Kerala is made of maida."



ITC realised it has a starting-point advantage in distribution, and knew how to reach big and small outlets: Raghu

Vishwanath MD, Vertebrand

Brand specialist Harish Bijoor, CEO of Harish Bijoor Consults, says: "India needs and

demands possibly 40 types of attas. ITC needs to invest in this through their R&D efforts.

Catering to the commonality-run market will dry up as an opportunity, as consumers flock to

brands that offer differentiations that they possibly don't even know they could crave."

The company has the advantage of a strong link with agriculture. It sources more than 80 per

cent of its wheat directly from 110 mandis. "There are 400 people sourcing wheat for us.

This not only enables us to source the correct material at the right price, but it also leads on

to development of materials," says Dar.

Next up is regionalisation of spices. The company sells basic spices such as red chilli and

turmeric powder in the South, under the Aashirvaad brand, and is planning spice blends for

northern markets. "We want to master newer formulations of blended masalas to create

differentiation," says Dar. "But we are not in a hurry." Here again, ITC's hotel business will

play a role. "Our chefs are sitting on loads of interesting recipes," he says.

Chip Challenge

ITC has done well in the atta and biscuits markets - atta contributes 30 per cent to overall

revenues, and biscuits, 40 per cent. But the snacks and noodles businesses are still in



investment mode. The Rs 5,700 crore snack (potato chips and namkeen) market is

dominated by PepsiCo and regional players. ITC's Bingo brand has a 14.3 per cent market

share in potato chips, compared to more than 50 per cent for PepsiCo.

{blurb}Vertebrand's Vishwanath says ITC should have focused more on finger snacks, a Rs

2,100-crore market where it has a 24.5 per cent share with innovative products such as Mad

Angles and Tangles. "They have wasted a lot of time taking on Lays, which has become a

habit among Indian consumers. Nobody wants to accept a me-too," he says.

Dar agrees that potato chips could do with more differentiation, which is in the works.

"However, finger snacks is something we are extremely proud of," he says, reaching for a

bowl of Tangles, his personal favourite.

In noodles, where ITC's Yippee is pitted against Nestle's Maggi, Dar is happy that his

company has a 16 per cent market share four years after launch, and confident it will grow.

"We took three years to develop something to counter the competition," he says. They

learned that many customers wanted a colour other than yellow, that most children add

ketchup to noodles for the colour rather than taste, and that children find longer noodles more

fun. "We came out with 30-40 recipes," he says, and adds that they were tested on

consumers to pick the best one.

Creating Product Categories

The last decade has been good for ITC Foods. Sunil Alagh, brand specialist and former

managing director of Britannia Industries, says: "ITC has to do new things to sustain growth,

else they will take 10 to 20 years to overtake Britannia and Parle, which together have a

market share of over 70 per cent in biscuits." Vishwanath of Vertebrand says ITC should look

beyond existing categories. "They have the resources to invest in category creation, and they

should look at it, or they may lose their head start."

Dar sees his company's innovations somewhat differently. "Isn't Mad Angles a category

creator? Isn't Tangles a category creator?" he asks. ITC Foods's next big offering, he says,

will be dairy. "Our initial products should be rolled out in less than a year from now," he says.

He says he is keen to venture into frozen foods as well. "We also have interesting concepts

around sauces and marinades, which will become large in India," he says. So far, ITC's

Kitchens of India brand of ready-to-eat foods has fared better abroad than at home.

Dar hopes that, having overtaken HUL in the foods business, his company will become the

country's largest food company. Bijoor cautions: "ITC needs to look at every vertical of the

food and beverage segment in order to sustain its success."

{blurb}

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ITC Foods has become a Rs 5,000-crore company in a decade, Business Today

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