.

ITC: Enduring Value

Sab Saath Baadhein

Media Centre


ITC's premium gallery 14 Oct 2014

The Financial Express

Instead of locking horns with established consumer goods players in the mass market, ITC has preferred to take the top-down approach, focussing on the higher end of the market. And that strategy has paid off

Just ahead of the festive season, cigarette-to-consumer goods conglomerate ITC has launched a new cookie brand, Mom's Magic, under the Sunfeast range of biscuits and cookies. This comes just a few months after it entered premium health biscuits category with Sunfeast Farmlite. ITC Foods, the division under which the company's foods business is housed, is already the market leader in the Rs. 4500 crore cream biscuit segment with about 25% market share, while long-time players Parle Products and Britannia Industries have 20% share each. What's more, Sunfeast Yippee!, its instant noodles brand, is giving tough competition to Nestle's Maggi. Sunfeast Yippee has secured 15% market share in the Rs. 4000-crore noodles market where Maggi continues to be the market leader with 50% market share. Its atta brand Aashirvaad has a commanding 70% market share in the Rs. 3000 crore branded atta market. In the personal care products category, last summer the company entered the highly competitive deodorant market with the launch of Engage. Within a year, Engage has emerged as the second largest player with 8.1% market share toppling HUL's Axe which now shares the third position with 6.9% market share with Wild Stone. Even in something as mundane as the school notebooks segment, ITC's notebook brand Classmate has managed to capture 20% market share, three times more than its nearest competitor Navneet.

The common thread that runs through all these successful launches is the premium positioning of its products. Kurush N. Grant, executive director, ITC, says premiumisation has been the cornerstone of the company's diversification strategy. “Enter the premium segment and then gradually spread the reach with the launch of mass products,” is how he puts it. He says it is important is to first find out what works at the top of the market for different categories. “By proving to consumers that we make good products at the top of the category the likelihood of success in the mass market improves dramatically. And this is exactly what we do. So we do the difficult thing first,” he says.

The strategy seems to have paid off. Today, ITC generates nearly 60% of its net segment revenue from non-cigarettes businesses. With about 50 brands under its kitty reaching 140 million households, ITC reported net segment revenue of Rs. 10,969 crore for the quarter ended June 2014. While cigarettes sales raked in Rs. 4,201 crore, other consumer products such as apparels, personal care and food products contributed Rs. 1,935 crore. Additionally, the agriculture business pulled in Rs. 3,296 crore. The paperboards, paper and packaging business accounted for Rs. 1,288 crore, while the hotels business pulled in Rs. 249 crore. “To be successful in business, a company needs to have areas of strength. For instance, at ITC, we choose those businesses where we are strong, or at least have the competency in-house,” says Grant. Foods was one category that the company was familiar with, given its agricultural base, so that was the first step.

“We also run a slew of hotels so our recipe management skills are outstanding. In personal care, our brand building, manufacturing and research and development skills come into play and cutting across all FMCG business comes distribution, logistics, and supply chain,” he added.

Harish Bijoor, CEO of Harish Bijoor Consults, a consulting firm that specialises in brand and business strategy, calls ITC the classic Indian multinational that has used local intelligence to crack the very difficult consumer market. “The company, over the last decade, has unleashed its FMCG and hospitality play with gusto and every one of its calculated forays has met with success. Some with more success, and some with less,” he says.

It wasn't, though, a cakewalk for ITC. Each category it entered, well-entrenched rivals such as Hindustan Unilever Ltd (HUL), Proctor and Gamble (P&G) or Britannia held sway.

These companies with their deep pockets and formidable distribution networks across the country had a range of brands that catered to every consumer segment, leaving little room for ITC to manouvre. Ramanujam Sridhar, CEO, Brand-Comm, a brand-consultancy firm, says it was only after the company found it difficult to enter the mass segment that the top management was forced to go back to the drawing board. “It was difficult for ITC to dislodge companies such as Parle or HUL or P&G from the leadership position their brands enjoyed. Hence, ITC opted for a top-down approach, as per which the company first created a place in the premium segment and then entered the mass market,” said Sridhar.

Agrees Grant who says that the company first entered the biscuits category in 2003 with the launch of glucose biscuits. “It was a mistake. So very quickly we moved out of the category. We then created a different strategy and launched a whole range of premium biscuits.” So Sunfeast Dark Fantasy was then launched in 2005. At the time of its launch, the brand was positioned as a premium biscuit with the tagline that said, 'Pure indulgence'. The tagline was later changed to 'escape into one'. Soon, a new variant called Dark Fantasy Choco Fills was launched. The company further expanded its offering by launching the Dream Cream range of biscuits in the dual cream format. Over the years ITC has consolidated its position in the biscuits business by entering other sub-categories with the launch of Sunfeast Marie, Sunfeast Nice, Sunfeast Sweet and Salt, Sunfeast Bounce crème biscuits, etc. “Ultimately the trick resides in creating products which are new and different and are liked by consumers. The reality is nobody in India thought about launching Sunfeast Dark Fantasy. We created the segment,” says Grant.

It was the same when the company launched pasta variants under the Sunfeast brand in 2005. Sunfeast Treat was the first instant pasta brand in a market where consumers saw pasta as something exotic and premium. In 2010, the company launched instant noodles under the Sunfeast Yippee! brand, marking its entry into a more mass segment. “There will always be some people who would prefer one brand over another and vice-versa. The trick lies in finding the niche in the market first and then finding a market in that niche. In this case, we found the niche in pasta and that I think made a big difference,” added Grant.

Going premium has also worked for its personal care products business. ITC entered the personal care business in the middle of 2005 with the launch of premium fragrance range Essenza Di Wills. It later expanded its portfolio with the launch of its premium range of skin care and hair care products under the Fiama Di Wills brand name, followed by the launch of Vivel, Superia and Engage umbrella brands. The Vivel range of products straddles the mass to premium market. While a 125 gm bar of Fiama Di Wills is priced at Rs. 58, a 100 gm Vivel soap bar is priced at Rs. 25. ITC's soaps portfolio has added 23 million users in FY 2013-14 in addition to grabbing an annualised consumer spend of R500 crore. “In every business we have entered we have had huge and powerful competitors and personal care is no different. For example, in case of deodorants and soaps we have competitors ranging from 100% Indian companies to 100% foreign companies. So we have to had fight our battle in each business. While we have had certain advantages in the foods business and less in personal care, yet we have been able to carve out our own niche,” said Grant.

Even as ITC has consolidated its position as a premium brand in different categories, it is playing on the idea of different pack sizes or stock keeping units (SKUs) to drive trial of its premium products as it helps the company attract consumers who may otherwise shy away from purchasing products seen as expensive. “Different SKUs allow us to woo different sets of consumers as everyone can afford an ITC brand depending on how much they would want to spend,” said Grant. For the financial year 2013-14 the company spent R38 crore on design and product development. “In any category, particularly in India, you need to have an entire range of pack sizes,” said Grant.

The insight ITC has been working on is that the number of pack sizes depends on the level of impulsiveness associated with a category. Grant says that in certain categories as in biscuits, if the purchase habit is regular with certain pre-determined frequency, then fewer SKUs are required. In case of categories where purchase habit is not regular and the degree of occasional purchase is high, then more SKUs are needed. “The more premium category tends to be a more impulse category. So we create impulse by having smaller pack sizes which makes a big difference. For example, a mass product such as Marie requires fewer SKUs while a Dark Fantasy which is a premium biscuit requires more number of SKUs,” he added.

The company followed the same strategy when it entered the retail paper products business. It already had a strong backward linkage through its paperboards and specialty paper division. ITC first made its entry into the education and stationery business with its Paperkraft brand in the premium segment in 2002; and later expanded into the popular segment with its Classmate brand in 2003. Early this year the company entered the tier-II cities with a new mass brand, Saathi. ITC is currently testing the product in eight states and plans to expand to the rest of the country in 12-18 months. The Saathi notebooks are priced 10-15% lower than Classmate. “The objective is to have products at every price point even in case of the stationary business. While there is Papercraft at the top of the pyramid, in between we have Classmate and then we have recently launched Saathi. Our paper manufacturing business gives us a big advantage as no one in India can match our quality,” added Grant.

Ankur Bisen, senior vice-president, retail, Technopak says that packaging plays a big role in the success of a brand. “At the point of sale, packaging plays a crucial role in attracting a consumer. For example, biscuits are now sold with a plastic tray inside the actual pack to prevent breakage,” said Bisen. “In the beverage category, one of the reasons that Paperboat from Hector Beverages was able to break the clutter was its unique packaging,” he added.

For a company which has a strong distribution network thanks to its cigarette business, reaching out to consumers was not a big challenge for ITC. Its FMCG products are available in over 2 million outlets in the country and the company plans to grow its direct outlet reach by 15-20% per annum. “At ITC, we have never believed that there is a rural and an urban consumer. We believe that there are consumers in this country who live in various markets. While some markets require a single level distribution system, there are markets which require multi-level distribution network,” said Grant. The company, which plans to prioritise its target markets based on the density of consumption rather than population, also intends to expand its reach in the top 16,000 markets based on potential for consumption of its products.

If reach is one part of the game, then shelf-life is the other when it comes to the game of distribution. ITC claims that with the help of its information technology division, ITC Infotech, it has been able to overcome one of the biggest challenges in distribution. “Firstly, shelf life of a product can be extended through better packaging. Secondly, freshness of a product can be ensured by increasing frequency of manufacture in addition to re-shuffling the stock regularly. So the use of information technology becomes very important. We have a big advantage as we have our own IT company and it certainly helps in designing better products, packaging and finding various solutions which further help in increasing shelf life of our products,” added Grant.

The world of FMCG is a cluttered one, with consumers being bombarded with various new products and offers almost every other day. It is here that clever advertising and marketing helps in breaking the clutter. ITC spent Rs. 780 crore on advertising and promotion of its products for the financial year 2013-14. Advertising created for its brands such as Bingo, Dark Fantasy and Classmate managed to catch consumer fancy because of their smart creative ideas. Grant said advertising agencies are able to execute a brief better if they are treated as partners and are given detailed brief on a brand's positioning, the market space, the rivals, etc.

Having created a niche for itself in the categories it entered, ITC is now looking at entering new segments. It plans to launch fruit juices, tea and coffee products, apart from launching dairy products. Work has already begun with its first dairy plant in Munger district in Bihar ready to take off. “We are following a similar approach which we followed for our agriculture produce business when we created the e-choupal. We are now trying to replicate the model in the dairy business so that sourcing of raw material becomes easier,” said Grant. Portfolio expansion through the launch of new products is also in the pipeline. “There are two ways to expand the product portfolio. One can enter new categories through the parent brand as some of home-grown Indian brands have done. The other option is to enter various segments through different brands. For instance, many European brands have begun to extend their brands by launching sub-brands. At ITC, we follow a mix of both,” added Grant.

© ITC Limited