ITC to launch new categories to spice up its food business

MUMBAI/ BENGALURU: ITC is overhauling its foods portfolio to invigorate its market share in categories that have been showing signs of fatigue more than a decade after the cigarette maker challenged the dominance of most packaged food companies in the country.
While the maker of Sunfeast biscuits and Bingo chips is now the third largest player in the packaged foods market, trailing Nestle and Britannia, its market share in two large categories - biscuits and snacks - has been almost stagnant for the past three years.

Unusual for the cigarette-to-cookies conglomerate that quickly captured about 10% share in biscuits and more than 6% in salty snacks within five years of launch and threatened leadership position of PepsiCo and Britannia in several sub-segments then.

"The market is not looking at your share. It is looking at your turnover and profit. Our focus clearly is on premium-ising the portfolio and we are also looking at refurbishing the portfolio with focus on larger value," said Hemant Malik, who was elevated as ITC's foods division CEO seven months ago.

To be fair, the company is growing by about 15-18% in the past five years on an average. But as it shifted focus on profitability, some of the lower margin yet high volume products slipped. For instance, in the Rs 25,000 crore biscuit market some of ITC's early share gains came from glucose segment, which isn't a key priority now.

The overall share remained static even as ITC gained in cream and cookies segments. In bridge snack products, a category between ethnic namkeen and western snacks, ITC has been narrowing the gap with 30% share against market leader PepsiCo that has 34%. Yet, the overall share in snacks remained unchanged as their potato chips business was restricted to southern markets.

"By next year, you should see a growth trajectory in market shares. There are clear strategies at play," said Malik, who has spent 29 years at ITC across divisions, joking he isn't quizzed anymore on whether consumers will buy food products from a tobacco company.

Since its entry in 2002, ITC went on to be the market leader in atta and cream-biscuit segment, second largest in noodles, savoury snacks and confectionary and number three in the overall biscuit segment.

That said, the competition isn't sitting pretty. ITC's market share skid, despite growing ahead of the industry on an average, was partially due to sudden aggression by rivals, especially Britannia that struggled more than five years ago. Britannia consistently stepped up on new launches and increased investment in manufacturing and distribution.

A single percentage point in the biscuits category translates into Rs250 crore. ITC is trying hard with plans to open manufacturing units in West Bengal, Assam and Punjab to help get tax-benefits and savings in freight costs.

Also, in the super-premium segment in biscuits, ITC has a major foothold with no major competition though Britannia is likely to enter the segment. It has also relaunched its potato chips, taking it across India to increase the overall snacks share.

For juice division that sells B-Natural, ITC has a 7% share and is targeting double-digit numbers by next year on the back on new launches, especially from region specific fruits such as Kinnow from Punjab.

Malik was instrumental in creating and developing brands like Aashirvaad, Sunfeast, Candyman and Bingo as the marketing head for the foods business a decade ago. He is also changing brand creation strategy - ITC will not launch any new food brand. Instead, it will piggyback on existing ones for new launches and claims it has nearly 5-6 new categories in its innovation funnel .

"This is a good strategy. Britannia under Varun Berry had done the same - consolidating brands - which resulted in a huge turnover. ITC will also do the same and relook at the laggards and clean up the portfolio to focus on performing brands," said a top official of a rival company which will competes with ITC in multiple categories.

"This will help them get back their growth rate."

ITC has made public its interest to enter categories including chocolates - launched premium chocolates under Fabelle brand few months ago, dairy through ghee and milk powder, tea and coffee.

ITC's packaged food segment contributes more than 70% revenue for its FMCG (ex-tobacco) division compared to about 60% in 2012.

"ITC’s strong rural linkages, wide distribution reach of 2 million direct outlets, agri-commodity sourcing, packaging know-how and cuisine knowledge provide significant synergies for this vertical," Latika Chopra, analyst at JP Morgan wrote in a recent report.