Govindkrishna Seshan
Mumbai

How ITC got around its late entrydisadvantage to chew off a chunk of the biscuits market.

Biscuits and tea in the morning were aroutine. So were the key market players and their favourite products.

The two major players Britannia and Parlewere busy biting of chunks of the national market among themselves, with a host of smallerbrands in various regions.

While the business was still verycompetitive, there wasn’t anything groundbreaking. In 2003, with ITC foraying intothe segment, a lot of that changed.

At that time, Britannia and Parle held,between them over 82 per cent of the market in value terms. The rest too was firmly heldby smaller players like Priya Gold which had a strong presence in the north. So, inessence, the market already had strong well entrenched players. So how could a lateentrant like ITC make its mark?

Three years down the line, however, thingshave changed a lot. It is a classic story of the hare and the tortoise. While it is farfrom winning the race, slowly and steadily, the tortoise is gaining ground.

The late entrant is already on the podiumin the third place with as much as 7 per cent of the market in terms of value. “ITCmade hay when the sun wasn’t shining,” says a consultant who’s beentracking the industry for a long time. But first, why did ITC train its eye on biscuits?Ravi Naware, chief executive, ITC Foods, makes it sound simple.

“We decided to enter the foods segmentbecause it’s a Rs 550,000 crore market in India. But only 6 per cent of this isbranded and packaged. In developed markets, nearly 95 per cent of the food market isbranded and packaged. So there was lot of scope for a branded player.”

In foods, biscuits was tempting. The Rs4,000-crore Indian biscuits market has grown at 12-14 per cent year-on-year. Then, therewas a business synergy. ITC was already value-adding to wheat with its branded attapresence. By entering the biscuits segment, it could also improve its bottomline further.

But despite the fast growth rates, thebiscuits industry was not all rosy. Over the years, even giants like Hindustan Lever hadfailed.

For instance, HLL which had flirted withbiscuits under the Max brand exited in 2005. But ITC’s Sunfeast has a different storyto tell so far. the strategist looks at the gameplan of a late entrant and how thebiscuits industry has responded.

New recipe
Before entering the segment, ITC dug into market research. Research revealed that thecategory had gaps which ITC could settle into. Findings revealed that consumers wished totaste new and innovative products. That was precisely what the competition had not done ina big way.

Says Naware, “The biscuits industryhad witnessed little innovation; Glucose was Glucose and Marie was still Marie.” Thecompany decided that this could be its biggest point of attack. In 2003, ITC launchedSunfeast with six ranges. But it was a calculated risk. ITC stuck to category favouriteslike Glucose, Marie and Bourbon cream.

Along with that, it also launchedinnovations such as orange-flavoured Marie, Marie light and butterscotch-flavoured creambiscuits. In 2004, Sunfeast followed this up with the launch of Sunfeast Milky Magic. Morerecently, it also has launched the Sunfeast Snacky and Sunfeast Golden Bakes.

Analysts believe that just because Sunfeastwas a new brand, helped matters. Says a consultant, “The biscuits industry had notwitnessed any major product innovation in years. Consumers were just waiting for somethingnew, something fresh, when Sunfeast happened.”

Even the competition had not made thingsbetter. Between 2000 and 2005 neither Parle nor Britannia launched any major new product.Yes, Britannia did re-launch its Tiger brand in 2005.

But Britannia claims that it is looking atmore than just products. Richa Arora, general manager and head of marketing andinnovations, Britannia Industries, says, “We are not just looking at new products,but tapping newer opportunities — such as different occasions as well as out-of-homeconsumptions.”

In 2005, before Diwali, Britannia launchedOccasions — boxes of assorted biscuits priced between Rs 50 and Rs 200 — whichthe company claims has been very successful.

In 2006, however, the industry has seen aflurry of innovations from the big two. Digestive Marie — was launched by Parle inearly February 2006. Britannia launched its new double-flavoured Mariegold and 50-50Chakkar. And Parle is all set to launch at least two new products before the end of thisyear.

Distribution maze
It’s common knowledge, that for FMCG products, distribution channels are veryimportant.

Says Pravin Kulkarni, general manager,marketing, Parle Products, “For biscuits, distribution and visibility are extremelyimportant as it’s partly a impulse purchase product.” And in biscuits, settingup a distribution channel is anything but easy.

Consider this. Priya Gold, which enteredthe western region in 2000, is struggling to find its feet even five years later.

However, in this regard, Sunfeast has beenfortunate: thanks to its tobacco business, ITC already had a good understanding ofdistribution channels.

The company used its existing network ofconvenience stores — the company’s name for the hole-in-the-wall pan-beedi shops— for Sunfeast. Not content with the existing resources, the company also looked atgrocery stores and other retail formats.

The company says the brand is now availablein nearly 1.8 million outlets. Britannia claims it has a superior distribution clout withits presence in nearly 3.3 million outlets. Parle, the seasoned player itself, says it isavailable in 1.5 million outlets. Sunfeast’s next step was to step up its brandingand promotion.

Ad thrust
In August 2003, a month after its launch, the company undertook a major sampling exerciseto promote the product. For two years then, the brand did all the usual rounds —riding behind buses, blocking television spots, booking that corner space in yourfavourite newspaper and so on.

Well differentiated advertisements, somewhich showed a complete cream world with cream rivers, cream mountains and cream trees,were targeted at kids watching cartoon channels.

At the same time, on general entertainmentchannels, mothers received information on the importance of glucose, the wholeness ofwheat and so on. Also, the company tied up with Bey Blades, the popular television seriesthat was a rage among children, to promote itself.

In April 2005, Sunfeast launched its majorcampaign. It signed on Hindi film actor, Shah Rukh Khan as its brand ambassador.

In the same year, as the official sponsorof the WTA tennis championship — titled the Sunfeast Open — the company hadteenage sensations Sania Mirza and Mahesh Bhupathi campaigning for it. But that’s notall. For promotions in southern states, Sunfeast has signed Tamil super star Surya as abrand ambassador.

Analysts say that ITC’s deep pocketshave helped Sunfeast in many ways.

The company claims that it has beenspending 35-40 per cent of its turnover from the biscuits segment on advertising andpromotions. Going by that number, ITCs annual marketing spends are estimated to be in theregion of about Rs 115-120 crore.

Until last year, Priya Gold spent close toRs 45-50 crore, nearly 10 per cent of its turnover on marketing. Even market leaderBritannia with spends of Rs 100 crore (2004-05) spends about 10 per cent of sales onmarketing.

But Arora says that the figure willincrease substantially in 2006-07. ITC is clearly among the largest spender on ads andpromotions in the biscuits category.

Analysts predict that these figures are allset to rise this year. But industry experts aren’t impressed.

Says a consultant, “AlthoughSunfeast’s Shah Rukh Khan association is interesting, it is yet to do somethinggroundbreaking, like Britannia khao world cup jhao or the Lagaan promotion for thatmatter.”

Pricing models
The biscuits industry now has two clear models. Parle products plays the low price game atall varieties of biscuits from glucose to cream.

Essentially, Parle plays a high volume, lowmargin game. But Britannia and Sunfeast look at a two-pronged strategy. High margins incream variants and volumes from the Marie and Glucose segments.

For instance, cream biscuits from bothBritannia and Sunfeast cost Rs 10 for 100 grams. Parle, however, only charges Rs 5 for itscream variants. Except for Hide & Seek, all of Parle’s products lie in the pricerange between Rs 4 and Rs 6 for 100 gram packs.

To be fair, in Glucose and Marie, thecompanies have little choice. As there is little differentiation, consumers are extremelyprice sensitive. But these segments are important. Marie and the popular glucose varietiesmake up for nearly 55 per cent of the Rs 4,000 crore biscuits segment — a significantRs 2,200 crore.

Says Sunil Alagh, chairman, SKA Advisors,and former CEO of Britannia Industries, “the biscuit consumer is willing to pay moreonly when he sees a clearly differentiated product. Hence companies have little choice interms of pricing.” No wonder all the Glucose and Marie variants straddle price pointsof Rs 4-6 (for 100 grams).

Key challenges
Back in 2003, nobody thought Sunfeast would have consumers eating out of its hands. SaysNaware, “Seven per cent in less than three years is something that we could have onlydreamt about.”

Importantly, industry barometer AC Nielsenhas indicated that both Parle and Britannia are losing market shares. According to the ACNielsen retail sales audit in March 2006, both Britannia and Parle have lost volumes.Britannia’s shares have dropped from 35.8 per cent in 2004-05 to 30.5 per cent in May2006 (volumes). Parle’s shares have also dropped from 42.2 to 38.4 per cent in thesame period.

Even Priya Gold has seen a minor dip from6.4 per cent to 5 per cent. ITC’s Sunfeast has been a big gainer with its shareincreasing from 2.7 to 6.7 per cent.

In terms of value, Britannia leads themarket with 37 per cent market share, followed by Parle’s 31.3 per cent andITC’s 6.3 per cent. Nevertheless, the gap is still wide. Sunfeast still has a longway to go.

But what can the bigger players do? Alaghhas an interesting observation. Says he, “Biscuits have always been a low margin,high volume game. Both Britannia and Parle have very high volumes and can easily afford tolower their margins.”

A potential after-effect? Sunfeast too mayhave to drop its prices to be in the reckoning and this will squeeze its margin evenlower. While the full game is yet to be played out, for the moment the sun seems to beshining on Sunfeast.

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