INSIDE THE REVAMP OF TATA’S FMCG PLAYBOOK
Tata Consumer Products, known for its salt and tea, is busy building a larger business
vinced the chairman to either sell the stake or go for a buy out of PepsiCo’s share. Tata Group chose the second option. “We have now removed the constraints for operating that business and provided fuel,” D’Souza said. The business ended 2022-23 with revenue of ₹621 crore, up threefold from ₹180 crore in 2019-20.
Another move in synergising the business was to acquire 100% equity shares of SmartFoodz from Tata Industries in 2021, for ₹395 crore.
D’Souza said that the company has a great product portfolio (such as ready-toeat pasta, noodles, biryani and combo meals) but lacked the distribution and marketing muscle.
TCPL is now scaling the business with strategic partnerships in the US market and an association with the group’s catering business, TajSats.
The same year, the company decided to transfer its tea cafe format, the Tata Cha chain, to Qmin-Shops operated by a subsidiary of Indian Hotels Company to better focus on its core FMCG business. TCPL, however, continues to be the local partner for international coffee chain Starbucks. Tata Starbucks, with net sales of ₹1,087 crore in 2022-23, now has 392 stores in India and is targeting 1,000 by 2028.
Then last year, TCPL announced the merger of all businesses of Tata Coffee with itself as part of a reorganization plan. Tata Coffee, is one of the largest integrated coffee cultivation and processing companies in the world and the largest corporate producer of Indian origin pepper.
D’Souza said the idea behind all this re-organization is to trim the number of subsidiaries and legal entities, which also reduces compliance.
“We are moving from 40 to about 25 legal entities—that’s the first step. Ideally, we should not have more than 10 entities,” he said. “But that’s still work in progress.”
DRY FRUITS AND NOODLES
Indian households spent ₹5.4 trillion in 2023 on FMCG products such as biscuits, soaps, shampoos, toothpaste, jams and floor cleaners. These expenditures have surged nearly 45% since 2019, according to an analysis by the Boston Consulting Group. Major companies such as Nestle, Mondelez, ITC, HUL, Dabur India and Marico have all stepped up investments in their packaged
foods business.
Clearly, TCPL, with a large beverages and salt business, did not wish to be left behind.
In 2020, soon after D’Souza took over, TCPL engaged consulting firm McKinsey & Company to conduct a comprehensive analysis of the packaged foods market. The idea was to shortlist high-potential categories for TCPL to enter.
A few conditions were laid out. The company, for instance, wanted to avoid categories dominated by established players. Carbonated beverages, where Pepsi and Coca-Cola rule, or biscuits, where Britannia and Parle products dominate, were two of them.
McKinsey narrowed TCPL’s focus to five categories. These categories cover tea, coffee, salt; pantry (pulses, spices, staples, ready-to-cook, dry fruits); liquids (water, ready-to-drink); mini meals (breakfast cereals, ready-to-eat, snacks); protein platform (plant-based meat, plant protein powder).
There is no national player in the dry fruits category today. The Tata brand can help TCPL gain the first-movers advantage here, D’Souza said. “It is also a high value and high growth category; there is money to be made in value added products such as roasted and flavoured nuts where the margin profile improves,” he added.
In fact, the same is true for some other products it has expanded to—breakfast mixes, fox nuts, vermicelli, dalia and blended spice mixes.
Abneesh Roy of Nuvama said that Sampaan, TCPL’s brand selling spices, dals, besan and poha, can be a big name to contend with given that pulses lack a pan-India brand. “Tata Sampann has a first mover advantage,” he added. The brand reported a 29% growth year-onyear in 2022-23.
Under D’Souza’s leadership, the company has significantly accelerated its innovation pipeline. The number of new product launches has jumped from 14 per year in 2020-21 to 34 per year currently.
Organic launches aside, the company hasn’t shied away from chasing aggressive acquisition targets. Earlier this year, the company announced the acquisition of Capital Foods and Organic India. TCPL agreed to pay an enterprise value of ₹5,100 crore for 100% stake in Capital Foods while for the 100% stake in Organic India, TCPL will pay ₹1,900 crore.
These takeovers will add 9% and 14% to TCPL’s 2025-26 revenue and earnings before interest, taxes, depreciation, and amortization (ebitda), respectively, Roy estimated.
Meanwhile, the management has reiterated that it is open to more acquisitions. “We are looking for growth and am making sure that we do not leave any opportunity unexplored,” the CEO said.
LEFT TO BE DONE
For now, the company is focusing on integrating the two acquisitions, Capital Foods and Organic India. Both the deals open up new markets, even international markets. For instance, Organic India can help TCPL enter the market for supplements and nutrition while Capital’s strengths are in the pantry market.
TCPL already draws 26% of its revenue from overseas markets, mostly on the back of Tetley. In 2000, the Tata Group acquired Tetley, a UK-based tea brand, for $450 million, making it India’s first major cross-border acquisition.
With new brands in its portfolio, TCPL also needs to step up distribution. FMCG, after all, is a distribution game. In the last few years, the company has overhauled distribution to equip sales beyond the more commodity-led salt and tea categories.
It has started to recruit direct distributors in towns with over 50,000 people. But, TCPL is way behind rival HUL.
HUL, which sells soaps, shampoos and detergents, reaches nine million outlets in India. TCPL ended 2022-23 with an overall reach of 3.8 million outlets. Its direct reach, however, has grown three fold from 0.5 million outlets in 2020 to 1.5 million in 2022-23.
D’Souza, meanwhile, routinely visits two markets a month to understand local nuances—also, one of the ways he can spot the company’s distribution gaps first hand. He wants to plug these gaps fast, at the pace of a startup.
“If we don’t work like one (startups), we will not fulfil the ambitions the group has set for us,” he said.