It has been nearly 23 years since India’s largest cigarette maker, which is now 113 years old, started its diversification drive. By raising revenue from Rs 108 crore in 2003 to Rs 19,123 crore in 2023, ITC’s pivot to fast moving consumer goods (FMCG) has helped the company to not just diversify and reduce dependence on its traditional tobacco business, but to also give a clear road map on its next stage of growth.
A look at ITC’s top line shows the revenue share of its tobacco business has nearly halved—from 62% in FY14 to 37% in FY23. This change can’t come about unless you understand the Indian consumer. Sanjiv Puri, chairman and managing director of ITC, is among the few executives who has a finger on their pulse. In an exclusive interaction with ET, Puri talks about how the FMCG behemoth came to be.
For ITC, it has been a tale of where there is a consumer, there is a way. “We want to be present in every sphere where a consumer is consuming products,” says Puri. Much of ITC’s turn towards FMCG has been about creating the “right to win”, he adds.
Puri, 61, has been working with ITC since January 1986 and was handed the top spot in May 2019. He’s been around long enough to gauge the needs of Indian consumers. Under him, the company seeks to double down on its emphasis on consumer goods under ITC Next, which began in 2017.
BEGINNINGS OF FMCG
In some way, this journey began in 1991. Foreign players were set to enter the Indian market in a big way. Doors were opening up, and ITC took note of the change in the air. ITC, which began as the Imperial Tobacco Company in Kolkata, has had a presence in the tobacco industry for over a century. It later realised the limited legroom for growth in it, given the changing attitudes towards cigarettes, and found a new route to thrive long term.
“When we started exploring this diversification, the Indian marketplace was becoming global. We realised that in a growing economy like that of India, there were going to be many opportunities,” recalls Puri. “In a competitive, globalised market, you need to bring something unique and powerful to the table. Without that, it will be difficult to succeed or it will be very expensive to succeed.”
ITC also had its foot in agribusiness, paperboards, paper & packaging and hotels. Heading a company with fingers in multiple pies, Puri is big on synergies. And that has been crucial to the success of ITC’s FMCG endeavours.
In a bid to marry enterprise strengths with Indian consumers’ demands, plans were drawn for the big pivot from the traditional business, which is ITC lingo for tobacco business. ITC was in it for the long haul. “When I say long, I am not talking 5, 10 years. I am talking of 50 years,” says Puri.
“We decided early on that we are not here to create a small business, we wanted to create a large business, a large economic engine for ITC.”
To build a large FMCG business, brand building is an important, and the most expensive, aspect. But there was a dearth of talent then. “We did not have hardcore FMCG talent, but we had people who had worked in consumer space in our traditional business. There was very little talent in the market who had created brands and products ground up,” says Puri. ITC may have had a plan in place, but it had to go through a lot of trial and error before tasting success. In 2000, it entered the stationery products business with greeting cards under ITC Expressions. Things did not go as planned. “We went into greeting cards because of the synergy with the paperboard business. And then quickly realised that greeting cards are not a growth business because everything is becoming digital. We pivoted that business to education and stationery,” says Puri.
In 2001, ITC entered the foods business with the Kitchens of India brand, and in 2002 came Aashirvaad, its foray into branded atta. ITC was a latecomer in the branded atta space. It was dominated by the unorganised sector. But ITC soon grabbed market share from players like Annapurna and Pillsbury.
Today , Aashirvaad Atta has cornered nearly half the market. Behind this success, like for most of its food business, has been the company’s understanding of the Indian palate.
“We understood that the type of Indian rotis or paranthas you eat in various parts of the country is not the same,” says Puri. For ITC, it was about getting the right wheat varietals to create the right kind of taste. With its presence in agribusiness and R&D prowess, ITC had the tools to undertake a process that other players in the market could not afford at the time. “We worked with farmers to grow the varieties that were required, and also on work practices because, despite some shifts in weather, you like to keep the crop similar, even if it is not 100% possible,” he says.
Its R&D centre worked on churning out atta that turned into soft rotis, and remained soft even in lunch boxes, says Puri. Another task for ITC was to convince people who were used to rushing to the local chakki mills to opt for convenience. “The belief was that over a period of time, people will switch because of convenience and will go for packaged atta. We saw the same in the West. So we decided to develop that market,” says Puri. ET calculations show that the company’s “other-FMCG” (which means non-cigarette consumer products) business contributed 25% to the overall revenue in FY23, up from 17% in FY14. ITC’s non-cigarette businesses have grown over 31 times and currently form over two-thirds of its net segmental revenues. The other-FMCG business started giving consistent profits only from FY14.
ITC’s Ebitda (earnings before interest, taxes, depreciation, and amortisation) from cigarettes business went up from Rs 10,419 crore in FY14 to Rs 17,927 crore in FY23 while Ebitda from other-FMCG business rose from around Rs 12 crore to Rs 1,374 crore in that period. In percentage terms, cigarette business’ contribution to Ebitda fell from 84.23% in FY14 to 76.40% in FY23, while the consumer business’ share rose from 0.10% to 5.86%.
Meanwhile, ITC has overtaken Adani Wilmar, Britannia and Parle Products to become India’s largest FMCG manufacturer in the food space by domestic sales in January-September 2023, according to an ET report quoting Nielsen IQ data. ITC’s food FMCG sales was Rs 17,100 crore for the period, while Britannia’s was Rs 16,700 crore and Adani Wilmar’s Rs 15,900 crore.
LEARNINGS FROM TOBACCO
In his long tenure with ITC, Puri has been the divisional chief executive of the tobacco division since 2009. He says his learnings on positioning the company’s consumer goods in the most efficient way have come from this stint.
“This whole idea about trade, marketing and distribution, the whole culture of intensive market visits, going outlet by outlet, really rolling up your sleeves and engaging with the customer, seeing what is happening, making sure your products are visible—all of these came from our traditional business,” says Puri. ITC has developed a culture of wanting to develop a superior yet differentiated product with sophisticated systems in place to check quality by leveraging technology. These traits have been picked up from its traditional business, Puri says.
Through its presence in the tobacco business, ITC realised that the easiest place to penetrate was the convenience channel, the paanwallahs. “They have become mini-kiranas. It’s an evolution,” says Puri. It is through this channel, among others, that the company realised its potential in the biscuits segment. “Dark Fantasy at the time was a super-premium offering, when we charged Rs 5 per individual biscuit (`30 per pack). When we launched this and put up a 100-tonne capacity plant, people questioned it,” says Puri. Today, the company has 3000 tonnes of capacity for biscuits, including for cookies other than Dark Fantasy.
WILLS & WON’T
The pivot to FMCG came with failures and learnings. The diversification drive took time, and there were multiple troubles in the beginning. In 2003, ITC sold its sunflower oil refinery to Adani Wilmar and moved out of its first, expensive, foray into edible oils, a business that its subsidiary Agro Tech decided not to run.
The company later experimented with apparel retail, with Wills Lifestyle, but then exited it due to dismal performance and offtake. Analysts noted that the company could not break even in the business. The company’s mass-market soap and shampoo brand Superia, too, was “shrunk” as it could not meet the expected performance level.
“There are categories we decided to move out from, after a thorough review. We exited shampoos as we found we were not succeeding in it. We have to redo the whole thing. So we will, whenever we do, come back afresh. The Wills brand was closed post an internal review of its performance and future potential,” says Puri, adding, “It is a constant review. You look at what you have achieved. Have you created a brand? Have you created a unique supply chain solution or some innovative product? Once you take stock of that, then you take stock of what you can do further.
And when you find it has limitations on what you are doing, then you get out of it. Financial performance of a particular brand or business leads to a review. But the decision to exit is more strategic than purely based on what we have achieved so far,” says Puri.
COOKIE FOR THE ASPIRATIONAL INDIAN
Justifying the premium pricing for Sunfeast biscuits, Puri says India has always been an aspirational society. “At that time, people were looking for good quality products. There are a lot of people in India who, when they go abroad, buy cookies, chocolates, shirts,” says Puri.
For ITC, the question was simple. Why should India make cheap “glucose biscuits” and rely on super-premium biscuits from abroad? This outlook guides Puri’s ITC Next strategy. “ITC Next was also born out of an understanding of certain undercurrents and dynamics that were emerging in the economy and the world. Ultimately, the Indian market is going to be influenced by what happens globally,” he says.
Today ITC has 25 “mother brands” in its portfolio. Puri’s team is assessing if some of these can be spun off as independent brands. “Our core brands such as Aashirvaad Atta, Sunfeast Biscuits and Bingo have headroom to grow and we will scale them up. I am assessing how I can sweat these assets, and if there are any adjacencies these can get into,” he says.
ITC Next also banks on premiumisation. Its millet programme is built on health and nutritional premiumisation, which forms one of the many aspects on ITC’s road map. Puri encapsulates ITC’s pivot to the FMCG business thus: “It is not just today’s bottom line. We’ve had a plan for today, tomorrow and the day after.”