ITC looks to ac­cel­er­ate growth in non-cig­a­rette busi­nesses

Firm lines up Rs25,000 crore in 65 projects, in­clud­ing 20 fac­to­ries for con­sumer goods with lo­gis­tics fa­cil­i­ties

Mint Asia ST - - Inside - BSY OUNAK M ITRA

ITC Ltd, the cig­a­rettes-to-sham­poo com­pany, is work­ing on an eight-point strat­egy to rein­vent it­self and ac­cel­er­ate growth in its non-cig­a­rette busi­nesses, es­pe­cially branded pack­aged foods, a seg­ment it en­tered 15 years ago, chief ex­ec­u­tive San­jiv Puri said.

The “cre­ate the new ITC” strat­egy is part of the Kolkata-based com­pany’s plan to reach Rs1 tril­lion in rev­enue from its non-cig­a­rette pack­aged goods busi­ness by 2030.

The growth in the branded pack­aged food busi­ness will be fu­elled by the com­pany’s en­try into fruit, veg­eta­bles and sea food, adding one new prod­uct every quar­ter.

The com­pany has also lined up an in­vest­ment of Rs25,000 crore in 65 projects, in­clud­ing 20 in­te­grated fac­to­ries for con­sumer goods with lo­gis­tics fa­cil­i­ties, cov­er­ing an area of 28 mil­lion sq. ft across the coun­try. Of these, three units will be op­er­a­tional this year, and four more over the next one year.

“Given the fact that the cap­i­tal em­ployed, and peo­ple, is dis­pro­por­tion­ately higher in new busi­ness ar­eas, es­sen­tially fast mov­ing con­sumer goods, we’ll grow there faster. We also hope to see the economy get into a new growth tra­jec­tory (lead­ing to higher con­sump­tion), and we’ll have a faster growth, es­sen­tially the non-to­bacco seg­ment,” Puri told re­porters.

To be sure, about 80% of ITC’S cap­i­tal ex­pen­di­ture at present is in the non-cig­a­rette busi­ness that em­ploys around 88% of the com­pany’s to­tal head­count, ac­cord­ing to a com­pany state­ment. In the year to March, cig­a­rettes ac­counted for more than 60% of the com­pany’s to­tal rev­enue of Rs55,002 crore, ac­cord­ing to com­pany reg­u­la­tory fil­ings. ITC has no plans to shift fo­cus from its tra­di­tional to­bacco busi­ness, Puri said.

Un­der the eight-point strat­egy, ITC wants to bring in prod­ucts and ser­vices for con­sumers that are “su­pe­rior, very dis­tinct or dif­fer­en­ti­ated or new in the mar­ket to ad­dress fu­ture needs of con­sumers, backed by sig­nif­i­cant in­vest­ments in re­search and de­vel­op­ment, make strate­gic in­vest­ments in cre­at­ing phys­i­cal in­fra­struc­ture and ca­pac­ity build­ing that would help the com­pany stay closer to the retail mar­ket, said Puri. Be­sides, the com­pany will re­in­force its in­vest­ments in agri­cul­tural back-end that it has been build­ing for the past 20 years or so.

ITC also plans to scale up its ex­ist­ing and newer cat­e­gories in an in­te­grated fash­ion, boost its last-mile dis­tri­bu­tion mech­a­nism. At present, ITC prod­ucts reach about 4.3 mil­lion of the es­ti­mated 9 mil­lion retail out­lets in India.

Of this, about 2 mil­lion are un­der ITC’S di­rect dis­tri­bu­tion net­work. In the past few years, ITC has been work­ing on de­vel­op­ing a strat­egy for fac­tory-to-retail point dis­tri­bu­tion within a day.

ITC’S aim is to cre­ate In­dian brands that it can take to over­seas mar­kets, stay more com­pet­i­tive in the do­mes­tic mar­ket and, out­dis­tance com­pe­ti­tion. “There’s a cost to it now, and there will be de­pre­ci­a­tion and chal­lenges. But, in our India First strat­egy, we want to cre­ate value, cap­ture value and re­tain value in India,” Puri said.

ITC wants to cre­ate brands that will bring roy­al­ties to India, rather than pay roy­al­ties to multi­na­tion­als for sell­ing brands owned by them. “At every oc­ca­sion of con­sump­tion, why can’t India have its own brands that are pow­er­ful? We should be able to fund our over­seas ex­pan­sions and bring back roy­al­ties,” he added.

ITC’S im­me­di­ate fo­cus is on its pack­aged foods busi­ness, which crossed Rs8,000 crore last fis­cal, mak­ing ITC the third largest pack­aged food com­pany in the coun­try. “We want to be­come the largest food com­pany in India,” Puri said, but de­clined to give a time­line.

ITC’S in­ter­nal tar­get is to achieve this within the next three years.

“The mar­ket op­por­tu­ni­ties are tremen­dous, as the pen­e­tra­tion is low and per capita con­sump­tion is very low. Food par­tic­u­larly is a very big op­por­tu­nity for us. This is a seg­ment where our en­ter­prise strengths best match the op­por­tu­ni­ties in mar­ket. We have a very strong agri-back­end, the ex­per­tise of the ho­tels that are known for the qual­ity of cuisines, so the ex­per­tise on food, and we have very strong trade mar­ket­ing and dis­tri­bu­tion ap­pa­ra­tus from our tra­di­tional busi­ness that we can lever­age. The ad­van­tage is we can in­te­grate all com­pe­ten­cies to sup­port our new busi­ness like food,” Puri said, adding that a team of 350 sci­en­tists at ITC’S re­search and de­vel­op­ment cen­tre at Bengaluru is work­ing on “prod­ucts for to­mor­row and day af­ter” that are linked to health and well­ness.

To do this, ITC wants to launch one new prod­uct each quar­ter, mainly fruits and veg­eta­bles. “We are go­ing to bring in many of these items to the con­sumer ei­ther in fresh form, or in a shelf-life en­hanced form which could be ei­ther frozen, de­hy­drated or puree,” said Puri.

In June, the com­pany launched prawns un­der the ITC Masterchef brand. “Next month, we’ll launch potato in fresh form in— low-sugar, and anti-ox­i­dant rich. We are also work­ing on de­hy­drated onions that will be in mar­ket by end of the year. Every few months, we’ll bring a new com­mod­ity in mar­ket,” added Puri.

For pota­toes, the firm may cre­ate a new brand and fruits may be sold un­der the B Nat­u­ral brand.

Among ITC’S port­fo­lio of pack­aged food prod­ucts, Ashir­vaad atta (wheat flour) is the high­est rev­enue earner at Rs3,500 crore, fol­lowed by bis­cuits brand Sun­feast, which crossed Rs3,000 crore.

Ac­cord­ing to Puri, ITC would gain from cross-lever­ag­ing trade-mar­ket­ing and dis­tri­bu­tion strengths from its tra­di­tional cig­a­rettes busi­ness to reach more con­sumers with its pack­aged food prod­ucts, a highly un­der-pen­e­trated seg­ment. Cig­a­rettes, how­ever, will re­main one of ITC’S key busi­nesses. “The idea to in­vest in new busi­nesses is not to di­vest the core busi­nesses. Di­vest­ment does not make sense. It will be ex­tremely neg­a­tive for the coun­try and that would end up with il­licit trade grow­ing up,” Puri said.

He how­ever ex­pressed con­cern over the rapid in­crease in tax­a­tion on cig­a­rettes in re­cent years and said reg­u­la­tions should not dis­crim­i­nate against the cig­a­rette in­dus­try.

ITC has also started ex­per­i­ment­ing with cul­ti­va­tion of medic­i­nal plants in a 110-acre plot near Bhopal in Mad­hya Pradesh. The com­pany is work­ing on health and well­ness prod­ucts—in both the food and per­sonal care seg­ments—which can be termed ther­a­peu­tic.

Shift­ing gears: ITC CEO San­jiv Puri. The growth in the pack­aged food busi­ness will be fu­elled by ITC’S en­try into fruit, veg­eta­bles and sea food.

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