New Delhi, Nov 18 Powered by mega brands such as Aashirvaad, Sunfeast, Bingo!, Classmate, and Savlon, ITC is set to drive into a commanding position in what some analysts have estimated to be a Rs 5 lakh crore addressable FMCG industry market segment by 2035, with Chairman Sanjiv Puri putting in motion a carefully crafted ‘ITC Next’ strategy.
This re-crafted strategy, built around portfolio revitalisation, rapid platform-based innovation, aggressive digitisation, deeper synergies with other group businesses, structural leverages and a sharper focus on margins.
As an FMCG major, ITC is the only company that is dominant across a range of product categories from branded atta to biscuits; snacks to spices; noodles to dairy; chocolates to coffee; juices to frozen snacks and vegetables; deodorants to hand and body wash; sanitizers and masks to floor cleaners; and from notebooks to agarbatti, that none of the other Indian or multinational brands can claim to be present in.
Puri’s ‘ITC Next’ strategy pivots around a multi-pronged approach to revitalize the company’s current FMCG portfolio by fortifying and scaling up its proven megabrands, leveraging adjacencies through horizontal brand extensions, and nurturing new platforms with innovative products that will scale up to be leaders in their respective categories.
Mega brands and adjacencies
ITC has a plethora of megabrands such as Aashirvaad, Sunfeast, Bingo! and Classmate that already command leadership positions in the market.
The strategy of creating value added adjacencies could be best illustrated by the new Aashirvaad portfolio including Aashirvaad Nature’s Super Foods range comprising ragi flour, multi-millet mix, gluten free flour, organic atta and pulses as well as chapatis, instant meals and the Aashirvaad Svasti dairy range.
ITC is also fostering new platforms and strengthening its new brands including Fabelle chocolates, Sunbean coffee, B Natural juices, Nimyle home cleaners, Savlon hygiene products and so on. The overarching strategy for new platforms of innovative products is to first validate the concept and business model in select beachheads. Having gained a dominant market penetration, these new lines of products and brands will gain strength to occupy adjacent markets with different opportunities, building a larger brand with each new product, creating new and steady vectors of growth for the future.
ITC under Puri is unwavering in its resolve to build a formidable FMCG business. With innovation as the new lifeblood, the company today is one of the largest incubators of world-class Indian brands.
The Company’s wide range of FMCG portfolio has demonstrable headroom to expand rapidly in the FMCG industry overall addressable market segment of Rs 5 lakh crore.
For instance, the total size of the packaged snacksmarket for the overall industry is set to vault 4.5 times from about Rs 32,000 crore to an estimated Rs 1.43 lakh crore by 2035. The market for overall spices industry is projected to grow from about Rs 22,000 crore currently to Rs 1.1 lakh crore in 15 years, a growth of five times. Similar industry growths are expected in other categories such as biscuits, branded atta, noodles, deodorants, personal care products and the cleaners categories.
Most of ITC’s FMCG products occupy the first or the second positions in their respective categories giving them unique opportunity to corner most of these segment growths.
Aashirvaad, India’s number one branded packaged atta, itself has a consumer spend of over Rs 6,000 crore.
Digital, consumer-centric and future-ready
Puri’s strategy to make ITC future-ready manifests in his focus on driving the three megatrends emerging out of the pandemic – innovation, digitalisation and sustainability. The Company’s R& D Centre, the ITC Life Sciences and Technology Centre (LSTC) in Bengaluru helped ITC to launch 120 differentiated products amid the pandemic to meet emerging preferences. To further support this goal, the company has set up 9 state-of-the-art integrated consumer goods manufacturing facilities (ICML) to create structural advantages.
Digitalisation is being accelerated pan-ITC through the use of new technologies such as Industry 4.0, Artificial Intelligence, Machine Learning, Big Data, Industrial Internet of Things (IoT), etc. These technologies are also being deployed across the entire supply chain spanning sourcing, manufacturing, trade engagements and e-commerce, including its own ordering platform the ITC e-store. The FMCG business has further driven enhanced competitiveness through a multi-channel distribution strategy which have been strengthened by-customised apps.
Power of Synergies
The ‘ITC Next’ FMCG strategy has also been bolstered by synergies flowing in from the company’s other businesses.
A good example of synergies is ITC’s foods business deriving a significant competitive advantage from agribusiness’s sourcing capabilities. The culinary expertise of ITC’s Hotels business has also enabled ITC to craft differentiated food offerings.
Stronger growth, better margins
The robustness of Puri’s strategy for FMCG is evident from the segment EBIDTA (earnings before interest, taxes, depreciation and amortisation) increasing by by 82 per cent this Q2 from Q2 FY 20, as outlined in ITC’s second quarter financial results.
The FMCG businesses have been posting steady growth ahead of industry peers. During the last four years, ITC’s revenue from FMCG increased from around Rs 10,500 crore to nearly Rs 15,000 crore.
ITC’s FMCG business during 2020-21 grew 16 per cent versus the industry average of 8.5 per cent.
There has also been a steady improvement in profitability in the FMCG segment, with EBITDA margins having improved by more than 640 basis points between 2016-17 and 2020-21.
‘ITC Next’ strategy for other businesses
In August, at the company’s annual general meeting, Puri unveiled the extensive ‘ITC Next’ strategy to architect the structural drivers that will power ITC’s next horizon of growth and ensure that the enterprise remains future-oriented, consumer-centric and nimble.
ITC’s other businesses too have pivoted to create new frontiers for the future, with enhanced competitiveness as well as sharper focus on cost management to strengthen leadership or rapidly attain the top positions in the case of newer segments.
Some of the key drivers of growth, as identified by Puri, for ITC’s other businesses include an asset right strategy for Hotels powered by a repositioned WelcomHotel brand as well as newly launched brands such as The Storii and Mementos done with management contracts. Two management contracts have already been signed under the Mementos brand.
Similarly, in the Paperboards business, the company is concentrating on sustainable packaging and value-added paper, while in agriusiness, the emphasis is on Next Generation agriculture driven by the ‘super app’ ITC MAARS and value-added agriculture.
Special strategic thrust is also being provided to ITC Infotech, the wholly owned subsidiary which is on a strong growth and profitability trajectory over the last few years.