'India is under-indexed in the food segment' - The Hindu Business Line
Feb 02, 2012
ITC Foods' Chitranjan Dar thinks that despite being a Rs 50,000-crore market, the branded foods segment in India has huge room for growth.
Cigarettes-to-paper-to-hotels company ITC made its entry into the foods business barely twelve years ago. And yet, today, growing at a CAGR of 25 per cent, and with brands such as Sunfeast and Aashirvaad valued at Rs 1,000 crore, Bingo almost there, the division is estimated to be larger than most FMCG companies in the country.
Despite achieving such scale and building big brands, Chitranjan Dar, Divisional Chief Executive, Foods Division, ITC Ltd, believes it's still only the tip of the iceberg. "India is under-indexed in the food segment and I see a huge opportunity staring at us," he told BrandLine. Excerpts from a wide-ranging interview moving from consumer preference, packaging innovations and price challenges to where brands such as Yippee and Sunfeast are going:
Are consumers, with their demands of health, nutrition and indulgence all at the same time, confusing FMCG companies? While they seek health and nutrition, they are also looking for taste and indulgence. How are you balancing these factors within the same product range?
The situation is a bit confusing if you look at it from outside. Therefore, yes, we are also confused about what health means to an Indian. Our earlier dipstick studies showed that what we traditionally consider unhealthy, such as ghee and cashew, is considered healthy amongst some consumers in small towns. Immersion studies have also shown that in Uttar Pradesh and Tamil Nadu, the concept of healthy is different from what consumers from other regions consider as healthy.
Biscuit as a category is seen as something that enables children to grow, cures 'mind hunger' and think better. Ghee and cashew are good for the mind and body. This is one perception of health, though it turns other concepts topsy-turvy.
The consumer pool in India is a huge, diffused mass. As a responsible company, we cannot, of course, go with all the preferences. We are spending a lot of money to know what the health concerns of consumers are and try to use material relevant to the consumer. Of course, we want to go as natural as possible. This is a portfolio that will take time to build.
The Indian consumer is also addicted to the local unbranded snack, such as samosas or potato chips from local bakeries. Do local brands pose bigger competition than branded products?
The branded food space in India is estimated to be about Rs 50,000 crore. The global size is about Rs 2 lakh crore. India is under-indexed and the reason for this is because unbranded and loose thrives in India. It, of course, serves a different class of customers and people.
We believe unbranded or semi-branded is not always bad. You do have iconic foods from different regions and organised will not get into it as shelf life is a problem. The co-existence of branded and unbranded will be there. There are some Indian foods that are difficult to pack and brand and we have no reason to worry about those.
On the other hand, ready-to-eat and frozen foods have hardly scraped the surface in India. I see a huge opportunity staring in our faces there.
What about private labels of large retail chains? Are they eating into your sales?
Food is a large driver of any retail chain. Organised retail in India is still in its infancy. Therefore it will grow and 8-10 per cent will be private labels. Internationally, in the food space, the margins that a manufacturer realises are very large. In India, margins are still very small. Even if retailers do a private label and compete with me, it is very unlikely they will get a huge cost advantage. We have a huge volume advantage and we are not even charging a premium.
On the other hand, we have also learnt to live with low margins and thrive. We have the advantages of size, scale and research. In the Indian context that should hold us in good stead for many years. I don't believe that food gives private labels huge margins to thrive. Therefore, they can only do local kind of products.
How large is the Aashirvaad brand today and what are the plans?
The brand is now worth over Rs 1,000 crore. For Aashirvaad, we used the value chain that e-choupal had created with farmers. We have the ability to source from them and make a strong win-win-win (for farmers, consumers and the company) value chain. We were able to do it with atta, which is well established now. We are looking at what we can do there, although there are not too many other staple commodities.
Therefore, unless we have the advantage like we had in wheat, we will not take it up for branding.
Are you happy with the way brand Sunfeast has grown? How large is the brand now? Are there too many product categories under the brand that is cluttering the personality of the brand: biscuits, pasta, noodles?
Sunfeast is also a Rs 1,000-crore brand. Biscuits offer a huge opportunity and you can expect some exciting products from us soon. We are also looking at bakery products such as cakes.
On the Yippee front, I think the brand is better known now. Yippee Noodles, with a 10 per cent market share, is now No 2. Some time soon, we will have pasta and noodles under the same brand umbrella ... maybe ... Yippee would take over as the more important brand and Sunfeast would concentrate on biscuits.
While biscuits are a Rs 12,000-crore opportunity, how are you handling the pain points in the segment, such as increasing costs and reducing grammage and the consequent impact on popular price points such as Rs 3 or Rs 5?
Packaging has become important in biscuits. Right now, the Government has mandated standard sizes which will make it difficult for us to sell it at Rs 5 and Rs 10. But it's also difficult to shift the price away from Rs 5 and Rs 10. This will become difficult for consumers and retailers as well from the coinage point of view. They are used to Rs 5 or Rs 10 and would find it difficult to buy or sell at Rs 6.50 or Rs 7.50. The retail trade will reject it totally because of the inconvenience it causes. This is going to cause the most havoc in the industry.
What about increasing costs and likely price increases this year?
Oil is going to be expensive because of the dollar impact. Commodity prices will increase because of the MSP increase in most of the grains, although sugar will not rock the boat because of the bumper crop this year.
We have concerns about oil and maida. There will be a 7-8 per cent impact on prices, across products. We are reworking our strategy. All these years, we were cushioning it with production efficiency. I think there too we have scraped the bottom and there's very little we can pull by way of efficiency.
How is Kitchens of India doing? What are the plans for the brand?
The domestic market has been slow to adopt. I don't think pricing is such a big barrier, at least, it's not barrier enough for the category not to be Rs 50-60 crore. As long as the country offers the convenience of ordering out and there's availability of help at home, Indians would go slow on ready-to-eat. Outside India, the brand is at least 2-3 times bigger than what it is here. Export is supporting the brand today.
