Puri says the group is likely to announce its entry into the fruits and vegetables segment soon
ITC Ltd will be exploring the foods business, including fruits and vegetables and seafood, said Sanjiv Puri, chief operating officer. Food is an area where ITC’s enterprise strengths can be leveraged the most, he said. “We have the advantage of a very strong agri backend and we have the advantage of the culinary expertise from the hotels,” Puri said in an interview.
1986 is when you joined ITC; you have pretty much worked across each of the divisions. As you look forward today at the of calendar year 2016, what is the kind of visibility you have?
I think ITC has a very robust portfolio of businesses, each one of them has a potential to grow in the future whether we look at fast-moving consumer goods (FMCG) where you know we have a very bold aspiration to achieve Rs1,00,000 crore.
Can you give me a more immediate term target?
We don’t give guidance, but certainly if you look at the growth rates that we have seen in the past, we continue to grow ahead of what the industry is achieving and we continue to reinforce our market standing. We continue to launch new products. This year we have 25 products in the market; it could have been more, if you are able to do it in this quarter and we have some categories that we have got into in the recent past.
In the recent past, we have entered juices with B Natural, we have entered dairy with Aashirvaad Svasti Ghee, then we have gone into chocolates with Fabelle a luxury chocolate offering and then we have Sunbean coffee-clearly, we are, in fact, focussing on strengthening our presence in existing categories and also getting into newer ones which we are incubating right now I would say and would-be engines of growth in the future for sure. And our strategy from a focus on leadership in products where we create winning products for which we set up a very significant innovation engine in the form of our life sciences and technology centre at Bangalore which has over 350 scientists and close to 500 patents as of now.
The other piece of the strategy was always superior consumer engagement which we have always been advocating in the past and now we are moving into a phase where we want to set up the physical infrastructure to get a very efficient supply chain in place. So, we have about 20 projects in the pipeline and these are in various stages of construction. One has already begun this year in Kolkata and in 6-9 months, two more will start. These are going to give us the physical infrastructure for growth as well brings in a lot of cost efficiencies.
What will integrated plants really mean as far as margins are concerned, what will this mean in terms of logistics costs, distribution costs for a company like yours? I am not talking you about for the next 12 months or 24 months, but over the next 3 years what kind of margin expansion can we expect because of these integrated facilities that you are talking about?
Food products specifically are fairly freight intensive and they are products in a range of moderate margin when you compare the gamut of FMCG products, so cost efficiency is very important there. So, what we are achieving to do there is certainly bring ourselves closer to the market, so logistics costs come down, we are able to service the market faster, we are able to supply fresher stuff to the market and our philosophy is to create integrated value chains. So, what we are also going to do and of course is subject to the limitation of the agro climatic conditions in the catchment area, our endeavour is also to work with the farmers in each one of these areas to develop an integrated value chain from farm to fork.
Fruits and vegetables as well?
Fruits and vegetables is something that is a segment we are not into at the moment, but as you know in the last annual general meeting (AGM) chairman, Mr Y.C. Deveshwar actually said that this is an area we will be actively exploring.
Is there is a possibility that soon we will hear an announcement on that front?
You should hopefully hear announcement soon on that and not only fruits and vegetables, but maybe also seafood.
That means the cold chain infrastructure will be part of these backend facilities?
It will be part of it. However, what we are looking at is not just supply them in fresh form but what is more important is to add value by preserving shelf life, so it could be processed, it could be quick frozen, it could be dehydrated, whatever is appropriate for that commodity. So we will start with some commodities, hopefully, in the near future.
When you say near future-what do you mean, over the next year perhaps?
Within a year for sure.
What kind of investments are we talking about? I know that in your annual report you list out a number of about Rs65,000 crore.
The total investment, I think the figure I have with me is that for 65 projects that we have in place and I must say these 65 span across many segments of our business. We have an approved expenditure of Rs25,000 crore. A substantial chunk is actually in the area of food and food processing, so that is where the bulk of the investment will be.
Given what you are saying, would it be fair to say that food is going to be the game changer; food is going to be the big growth engine as far as ITC is concerned going forward?
Food offers us the biggest area because that is the area where our enterprise strengths can be leveraged to the most. We have the advantage of a very strong agri backend and we have the advantage of the culinary expertise from the hotels. And we, of course, have strengths of trade-marketing distribution and skills of consumer insight and brand building. So this is certainly the area that offers us a maximum leverage of our enterprise strength. So it will remain a significant portion of our FMCG play and a driver of our growth.
But it also then gets a larger proportion of the investments as well, doesn’t it?
It does get, and that is where the bulk of the investments are. But having said that, let me also state that in other businesses, for example if you look at education and stationary, Classmate is a market leader today and that is another example where enterprise strengths have come together because with our paper business, we understand what it takes to provide a good quality notebook, what quality of paper is required for writing. So we are market leaders there. There are other segments like agarbattis and dhoop batti where we are number two. So while food is our largest segment but we are making good progress in most of the segments that we are into today.
I know you don’t give out guidance and you have a very ambitious target for 2030, but let me ask you, because this has been publicly spoken that you had a target of about Rs10,000 crore over the next three years for your food business, my understanding is that you would probably get there sooner.
Sooner or later we should get there. As you know, I cannot give you a guidance in line with policy, but sooner or later we will get there for sure.
What is the outlook now for the cigarette business?
Let me break it into two-I will talk about the industry per se and demonetisation because it is a specific event separately. So in the last few years, taxes on cigarettes have more than doubled and it is not just that taxes in cigarettes have doubled, I think the equally important issue is that the gap between cigarettes and the other forms of tobacco consumption have expanded. So any industry that is subject to such a severe increase in taxation and that too somewhat discriminatory will succumb to those pressures and that is what we have seen overtime, illegal cigarettes have been growing in fact, the recent FICCI report says that seizures this year are up 78 percent and then we have had this new pictorial warning.
Where do things now stand as far as pictorial warnings are concerned?
The notification stands, so all the manufactures have implemented it, but also there is this case that is currently underway at the Karnataka High Court as directed by the Honourable Supreme Court. So, on one hand there is a case and on the other hand we have complied with the regulation and the impact of that is that this is also putting pressure on the legal industry.
Click here to know more about the FMCG Business