THE Rs 6,170 crore ITC Limited’s cigarette business is under threat from various sides. Growing awareness on the ill effects of smoking and the government-imposed ban on tobacco advertising are leading to a stagnation in sales. But with a cash generation of close to Rs 1,600 crore a year, the company has diversified into newer areas like readymade garments, greeting cards and foods. While many analysts are sceptical on whether any of these businesses will ever make money, some feel that they could be abandoned like a few earlier ventures that failed in the past. But at the moment the company is upbeat on its new businesses. To understand the plans of the foods business which is slated to grow to Rs 500 crore in next three years, Deccan Herald’s Dilip Maitra met up with ITC’s Food Division chief Ravi Naware at his headquarters in Bangalore.

Deccan Herald: ITC has diversified into non-tobacco businesses, including foods, but the return from non-tobacco is meager and much lower than its cigarette business. Is it not a case of throwing good money after bad business?

Ravi Naware: I cannot comment on company’s overall diversification strategy and segment wise profitability. I look after food business and can tell you the logic why we diversified into food. Besides, I think it is too early to look for large profits in these new businesses.

DH: Please tell us why food?

RN: As you know that ITC is a cash rich company generating large surpluses that can be used for new businesses that will widen the overall business portfolio. Food was chosen as one such area that has a huge growth potential.

First let us look at the external reasons. Firstly, the market for food is simply huge and estimated to be Rs 500,000 crore annually. It is also growing for two main reasons: population growth and improvement in consumers’ spending ability.

Consumers, more and more, are looking for packaged food because of hygiene, nutrition and convenience.

DH: Is there a linkage between economic development and growth in packaged food sales?

RN: Certainly, there is a close linkage. As the disposable income goes up, standard of life improves and consumers become more and more discerning in terms of quality and hygiene. They start looking for packed food that are reliable and of good quality.

Another factor is that the packed food market in India is still at a very nascent stage as only 5 per cent of the food market is packed and branded. So we have a mind boggling 95 per cent of the food market as our playing field.

DH: OK, but what is the synergy between cigarettes and food? What is ITC's strength in food?

RN: ITC has four major strengths that we thought can be leveraged to build a big food business. First is our close link with Indian agriculture and farmers. We have a large and deep network, manned by our own people, for procuring tobacco, rice, wheat, etc directly from the "Mandis" (grain markets).

Last year ITC was the largest exporter of rice from the country. Secondly, because of our cigarette business we have the largest distribution reach in all cities, towns and villages all across the country. Third we have the resources — cash and managerial inputs — to develop a big business that will need strong support in the initial years.

The next factor is that we have tremendous expertise and experience in process-manufacturing from cigarette that can be used in food.

DH: Having decided to get into packaged food, what's your thrust area?

RN: Our strategy is not to enter narrow and niche areas and stick to broad-based categories like staple, confectionery, snacks and ready-to-eat. The market for these categories being big the growth potential is large.

Secondly, we also observed that in all these categories share of branded players is small, so there is scope for better and more value added products. In Atta, for example, just 2 per cent of the market is branded and even they do not maintain consistent quality.

Here is an example of how good quality can win consumers. We launched our Atta under Aashirvaad brand about 12 months ago. It is now selling about 4,000 tonnes a month capturing nearly 10 per cent of the market.

Aashirvaad is now our umbrella brand for all staple products. We have already launched salt and will add maida, suji, spices and rice under this brand.

DH: You have taken over a confectionery brand, what are your plans?

RN: Yes the brand we acquired is "Minto". It is a mint mouth freshner primarily used by adults. Though this market is small (about Rs 100 crore) we have already captured a third of it by re-launching minto in three flavours - orange, lemon and regular. For the children we have hard-boiled candies sold under the "Candy Man" brand.

DH: Which other areas have you entered so far?

RN: I believe that ready-to-eat foods is going to be a major category with tremendous growth potential. Already there are quite a few companies offering a wide variety of pre-cooked Indian gourmet at various price ranges. ITC under the Kitchens of India has already introduced eight products — veg and non-veg — at various price range. We are now working on eight new products that will be made available soon.

We have also entered into the snacks category with "Bischips" which are thin baked wafers made from wheat. It’s now available in three flavours. We will also launch "Namkeens" salted snacks for small eats.

DH: With the backing ITC’s huge kitty of cash every one expected that foods division to splurge money in advertising and promotion. But, so far, you are very quiet at the market place.

RN: Even though ITC has large surplus it does not mean that we can spend as much we want. In fact, each of ITC’s diversification, including foods, works on a SBU (separate business unit) concept and will have to start making money within the targeted time frame.

So we too work on a very tight budget and try to get the best from every rupee we spend. Which means our marketing and promotional expenses are for defined targets and we make right noise through right media for the right class of consumers.