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One Against All
Economic Times - 12 May 2010

ITC has risen like the proverbial sleeping giant with a lethal combination of size and deep pockets of a well-entrenched player and with the speed and aggression of a newcomer. Brand Equity gets you a ringside seat to one of the most exciting brand battles in living memory — ITC v/s the rest of the Indian FMCG world.

SPEAK to any analyst tracking ITC and the first reaction is ‘it’s a very quiet company’. And Virginia house in Kolkata is comfortable with the label of inertness the company supposedly exhibits. Indeed to complete the story, it took several mails and telephonic conversations over months before the honchos at ITC gave their consent for participation. Perhaps the mask of immobility works well for ITC, for below it lies a storm, an aggression that’s only evident when one ventures out in the market. No, we are not talking about ITC’s cigarettes business, for that’s a story that’s been written about ad nauseum. It’s the Rs 3,000 crore non-cigarette business of ITC, which has grown 10 times in the last six years from Rs 300 crore in FY04. And the Rs 3000 crore muscle has been acquired in a scenario unknown and unseen in the Indian marketplace — one company battling multiple heavyweights across categories at the same time.

Sample this — in the personal care space, ITC is battling with HUL and P&G; in the snacking space, the competition is against Frito Lays and several smaller players in the segment. In confectioneries, ITC is pitted against the likes of Wrigley’s and Perfetti to name a few and in biscuits, it is squaring off against Britannia and Parle G. In this fight to create a niche for its brands across categories, there have been skirmishes, wins and losses for ITC.

The broad contours of the non-cigarettes business have come into shape on the back of the inherent strengths that ITC built over years from its core business. Kurush Grant, ED, ITC says that the company decided to create multiple drivers of growth by investing in the products and services of tomorrow (Read Smoking Hot). “We have leveraged our capabilities in brand building, trade marketing, distribution, hospitality, packaging and agri sourcing to build these new categories.” It all began in 2002, when ITC formed the new business development cell as part of its objectives to evaluate hitherto untested opportunities. ITC foods division chief executive, Chitranjan Dar says the decision to enter categories in foods was based on existing competencies the company could leverage. “Yes, the categories were large and challenging, but were ripe for a change. So one could look at development of profitable niches,” he states. Ditto for Sandeep Kaul, CEO, personal care products, ITC, who was also involved in the new business development cell. “Growth for India and Indian consumers was at an exciting phase. Per capita consumption, penetration was low and by all measures the opportunities for growth was enormous.” But leveraging the opportunities in the Rs 3,000 crore branded confectioneries market or Rs 11,000 crore biscuits market meant a face off with entrenched incumbents.

Lock, Stock & SMOKING Barrels

Indeed when ITC entered the new categories, the company relied not on merely its competencies but on an aggressive spend in both communication and trade marketing, say market observers and former ITC officials. “It was a question of acquiring market share and ITC did that via an aggressive incentive scheme particularly in the tough North and West markets,” remarks a former ITC official, adding that the trade incentives hovered between 3% and 10%. Kaul however says that there was never any fear of the retail trade not accepting ITC’s portfolio of products. “So even before we got into new products, it was not that ITC was unknown among the trade. Even people who were not dealing with us still knew ITC as a company, as owners of fine brands,” he counters. However ITC officials close to the action admit that the company initially chased market share aggressively through schemes and promotions. “Now the emphasis has moved from discounting to building consumer equity for the portfolio of brands.”

When ITC got into the non-cigarette FMCG space, the reaction was one of disbelief. The logic behind the move was questioned at every turn. The head of a confectionery major in India says there was palpable nervousness in the market: “On one hand there was nervousness, but there was also a question on ‘why confectioneries’?” Indeed the tremors of ITC’s entry are validated by senior officials at the company, who say that competition fast-forwarded their marketing programmes with changes in the promotions and distribution. “One saw fresh SKUs replacing the old stocks that were on the shelves for quite sometime.” However on entries into new categories, V L Rajesh, GM - marketing & exports, food division, ITC, who handles the confectioneries business says the aim was not to eat into a static pie. “Nine tenth of the iceberg is below the water. We realised we could target the unorganised market through sales and distribution as confectioneries is a fragmented market,” says Rajesh. Similarly in the snacking space, Dar says even as there were existing major players, there was a scope for Indian flavours. “If local snacks can be hybridised and introduced into the market, it will be a unique proposition,” he states. So segments like confectioneries and snacking seem fragmented, market observers says it’s these categories that are witnessing high octane growth.

“Biscuits and salty snacks are clocking double digit growth consistently for the last five years. The game is all about commodity to branding,” says Radhika Chandok, ED, Nielsen. She adds that entries into new categories by companies depend on taking short term hits while keeping the long term threshold levels in mind.

And there have been some bumps on the way particularly in the branded packaged foods and personal care business, which form a sizeable chunk of the non cigarettes FMCG portfolio. Market observers say by opening multiple fronts, ITC has stretched itself thin. Dar however refutes this, saying focus on one category is not at the cost of the other. “The units operate independently. Communication or marketing efforts doesn’t mean only above the line. At any point of time, there’s work happening on all fronts — from design to distribution,” he says. In the biscuits segment, a senior official from a rival confectionery brand says Sunfeast started off very well in the biscuits and today has acquired a commendable position in both cookies as well as the Rs 5 packs in the economy segment. “But in other products like Glucose they have been losing share,” the official states. On the road ahead particularly in the biscuits segment, officials at ITC say more than the bottom of the pyramid, the emphasis will be on premium, value driven products. “So Glucose may not be part of the stable in the time to come.” On brands like Superia in the personal care space, Kaul says the objective is to go deeper and deeper into the market now. “Our first objective was to ensure distribution in larger markets and towns of the country. As the brand has bloomed and matured, we are taking it forward to smaller markets and towns,” says Kaul. However Damodar Mall, group customer director of Future group says despite the successful multi-category launches, ITC has not been able to sustain the momentum. “Particularly in personal care, one doesn’t witness any level of significant trial and adopt for ITC,” observes Mall. Kaul however counters saying that even within Mumbai, there are markets within markets. So Superia may not be in trade channels frequented by the upwardly mobile. In many outlets, it may not be stocked at all, whereas in some other market it is a key brand.” He adds that’s the advantage of portfolio strategy, deploy your brands to meet the needs in a differentiated manner and minimise overlap within your portfolio. “So you serve different consumers with different brands.”

Considering the gestation one requires in categories ITC has made forays into, the jury is still out on the non-cigarettes FMCG business. For despite being in the red, market observers say the company has deep pockets to keep investing in the new areas of growth. As Dar puts it, both biscuits and snacking are challenging, but there’s ample scope for growth for ITC. Mall of Future group calls ITC a challenger brand with “all the basic brand metrices and the willingness to invest in place. It will be interesting to see how the scenario unfolds.” Interesting indeed, for the clash of titans has only begun.