ITC had decided of food business after evaluating the consumer environment and has seen opportunities of growth in branded packaged food business
The food division of conglomerate ITC Ltd, ITC Foods, says it would have become profitable for the first time this fiscal year since its inception five years ago but for the expenses related to the launch of new snack brand Bingo. The company is present in four categories—ready-to-eat foods, staples, confectionery and snacks under seven brands.
With around 600 employees and more than 200 products, ITC reaches to more than two million outlets and aspires to be the No. 1 player in India’s packaged food industry that, according to a Credit Suisse report, is worth Rs56,000 crore. Ravi Naware, chief executive, spoke to Mint on the company’s plans for the business. Edited excerpts:
It’s been some time since you got into this business. How would you describe your progress ?
A long journey: ITC Foods chief executive Ravi Naware with his line of Bingo snacks.
Our business is moving ahead steadily. Six years back, ITC had decided of food business after evaluating the consumer environment and has seen opportunities of growth in branded packaged food business. ITC, as a brand, had some inherent strength that could be leveraged for this business—such as financial strength. Our understanding of the customer behaviour is very strong. There were doubts whether we had the strength to get into a new field and make progress, but fortunately everything seems to have come together well.
Where do you see ITC Foods today compared with the competition?
Looking six years back, I would not say we have reached where we wanted to be. But we are well on our way. The business is shaping up in the way we had wanted it to. If ITC enters a business, it has to be No. 1 in it, but we are not there yet. It’s a goal we have to achieve and we are moving in that direction. There are signals indicating that we would be there. We have been No. 1 in atta (flour) business for the last two years. Our Mint-o brand (mint tablets and candies) is No. 1 this year.
We were able to launch a completely new category of pasta as a snack which is easy to make. Our Sunfeast biscuits range is doing good and for the first time in many years, a credible third player in the biscuits market (Britannia and Parle being the other) has emerged in us. Bingo range, which we launched in 2007, is doing extremely well. If you ask me are we No. 1, my answer is no. But I can safely say we are likely to be the No. 1 packaged food company in the country.
There have been reports that ITC Foods plans to get into packaged water, tea, bread...
There are many product lines or segments that ITC foods could get into and would like to get into. There are several food products that the market consumes. We ought to be present in every category. Democratically, I would not rule out any particular segment. Before we enter any product line, we ask ourselves whether we have the confidence of making a go with the given product and whether we can achieve a position of significance. Some of the food products have very peculiar infrastructure requirements or peculiar sourcing needs, such as packaged water, bread and tea.
We will not enter into a segment just to expand our portfolio... If we look at it from a business point, we will have to settle the whole infrastructure, organize mill runners, get people for making and collecting bigger bottles. Wherever such peculiarities, it will be difficult to enter if there is no synergy with what we are doing. Besides this, entry into a new segment means additional investment for the company.
ITC Foods has been said to be interested in taking over at least three food companies...
ITC Foods is not reluctant to acquire, but we would like to use sound economics or sound business plan to acquire a company. In the Indian food business scenario, the so-called acquisition targets are small players and most of them have private ownership. Most of these owners are first-generation owners, who started the business from scratch to where ever it has reached. For them, their company is like a baby, a huge emotional attachment and it’s difficult for them to let go of it. The minimum they expect is a huge valuation...
Some of the targets we saw in the past were fortunate to get the kind of valuation they got. Valuation remains a key issue for us when it comes to buying another company. We cannot have a company with same products lines that we already have. For the time being, we would not acquire, say, a snack company as we already have Bingo. We cannot have two brands in the same space.
How are the company’s various segments doing?
Staples: The business line is doing extremely well. Ashirwad atta has been No. 1 for the last two years. We have a market share of 53% in the branded atta segment. We will branch out—it could be anything: rice, quite possible. Our salt brand is also doing good. We have captured a market share of 15% with it. Currently, we offer only spice powders and cumin seeds. We are not into blended spices segment yet, such as chana masala and chicken masala, but we will get into this soon.
Ready-to-eat category: Internationally, our business of ready-to-eat meals category is growing faster than domestic. The market is about Rs80-100 crore in India, but it is not growing at a fabulous rate.
Pricing is not an issue, it’s the consumer behaviour. There are mental blocks that hinder the growth. For example, people do not accept that food can be stored for months without using any preservatives. ITC Foods has a market share of 40-45% in this category.
Snacks: We are No. 3...and have a market share of 11-12%. Both Britannia and Parle have lost some of their market share. We have introduced new ranges of biscuits, such as Golden bakery and Dark Fantasy, to take on traditional players. Our range now varies from premium biscuits to marie and cream biscuits as well as glucose biscuits.
Confectionery: Our confectionary segment is doing well with a business of more than Rs100 crore.
How much has ITC Foods invested in manufacturing facilities so far?
In the last six years, we have invested Rs1,000 crore in our own manufacturing facilities and also in installation of equipment at our contractors’ premises.
When will the company be able to break even?
The time has come for this, but there is a combination of factors that go into it. If our appetite for growth of investment in new fields is alive—it requires huge money. While established businesses may make profit, a new product will take away the money. Our businesses that have a gestation period of four-five years, they are making money.
If you ask me is the total business earning money, it depends on what we are doing. If next year, we launch another Bingo, it drains away resources. We would not enter a segment and look for a 1% or 2% growth. We want to be a significant player in that field and it needs huge amount of money.
Would you have broken even if not for Bingo?
For Bingo, we created merchandising racks. More than three lakh, and each rack costs a lot of money. We are still investing and next year we will again spend money. We are still surviving in (the) ITC (system), otherwise we would have been asked to shut shop or go easy. That means things are going right.