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'Foods can't afford large overheads'
The Economic Times - 29 Jul 2004

ET Interactive - Ravi Naware

Ravi Naware, chief executive of ITC's foods division, started the foods business two-and-a-half years ago. Today, it is present in four segments: ready-to-eat meals, staples, confectionery and snack foods with brands like Aashirvaad, Kitchens of India, Mint-O, Candyman and Sunfeast. Mr. Naware spoke to Asha Rai on issues related to ITC's food foray.

Did ITC get into foods because its surplus cash had to be deployed profitably, or because it intrinsically believes food is a great business story?

ITC is without doubt a cash rich company. It could either return the money to the shareholders or deploy it in other businesses with the shareholders' approval assuming it would give a good return on capital. The question then is which business to get into. India is a large country, so food potentially is a big, profitable business to be in.

Food is a low margin business. How competitive will large companies like ITC be with their huge in-built overheads against small, regional players?

It depends on how the business is structured, how the overheads are managed. Every business has its own dynamics. Some can afford large overheads while some cannot. Foods cannot afford large overheads on a small base. The issue is one of attaining scale as quickly as possible to distribute the overheads on a large base.

What is your strategy to keep the overheads down?

We are tackling this in a couple of ways. We do not have a large asset base - like factories. At the moment in the branded food business there is a lot of idle capacity. We will use this to build the initial size of the business. On the management side we have tried to keep the overheads down. Also we have tried to market in such a way as to economise on marketing spends by adopting umbrella brands like Aashirvaad, under which come the staples, multipurpose cooking paste, ready to eat meals. We might expand this range to include spices, rice, pulses in the future. The Kitchens of India brand has the mandate to put within consumers' reach the best of packaged Indian cuisine.

What does it take to build a profitable food business, given that the forays of many of large companies into this sector hasn't been too bright?

Money alone cannot build this business. It requires a deep understanding of the food business, of the Indian palate. Second, would be procurement/sourcing which has to deliver on two fronts: quality and efficiency. Of course, brand and distribution also matter.

When will the food business start making money?

As per the plan, we will break even in year four. While I cannot give out business numbers, I can tell you that we have totally invested Rs 12 crore in our R&D facility so far, and will invest another Rs 4-5 crore this year on this as we believe this is critical for our success.

What are your future plans?

We are thinking of re-launching Kitchens of India range. For many consumers this is an aspirational brand but the price tag of Rs 150 is something of an entry barrier. We are thinking of re-launching in pouches, in an affordable, approachable format, which would reduce the price by at least 10-20%. This will happen over the next couple of months, and with the re-launch we might introduce new products too under this range.

You have set a target to be a Rs 500 crore by year 2007?

The mandate for the business is to achieve scale quickly. We are growing at over 200% yearly; of course, our base at the moment is small. In many of the segments like ready to eat meals and cooking pastes we have to play the pioneering role and develop and expand the market.

How important will acquisitions be in your game plan?

We will definitely look at it. We bought Mint-O from Candico. We did look at 6/7 other brands for acquisition but nothing worked out. We would be more interested in acquiring a brand in a category which we haven't yet entered. It doesn't make sense to buy a biscuit brand, for example.