ITC, one of India's largest private sector companies, was originally a tobacco company, but in recent years has diversified into other areas. One area where it has had success so far is its food business, which includes the convenience food brand 'Kitchens of India', and the company plans further expansion in the packaged food market, as Debasish Ganguly reports.

With a market capitalisation of close to INR320bn (US$7.3bn) and a turnover of INR120bn, ITC Ltd. is among India's foremost private sector companies. It has a diversified presence in cigarettes, hotels, paper board and speciality paper, packaging, agribusiness which is now being extended to branded apparel, greetings cards and stationery, matchboxes, incense sticks, packaged and convenience foods, biscuits and confectionery.

Over the years the company has established a strong foothold in its traditional businesses like cigarettes, paperboards and packaging while it is gaining its popularity in its newer market segments. A closer look at ITC indicates that the company has always entered a business with some kind of synergy in mind. For example, the company's cigarette business led to it setting up a packaging unit to manufacture speciality cigarette paper. Success at the packaging plant led to the company setting up a paper board manufacturing unit and finally a printing unit. ITC then diversified into stationery and greetings cards. In a similar way, the popularity of its hotel business has led to the company introducing RTE (ready to eat) foods under the brand "Kitchens of India".

Established in Bangalore, ITC's food division is now over three years old. It made its entry into the branded and packaged food segment in 2001 with the launch of the Kitchens of India brand. A more broad-based entry has been made since mid 2002 with products like staples, confectionery and biscuits. The market for these categories has growth potential, with the share of branded products small in each category. This allows scope for better and value-added products. In the Atta wheat flour market, for example, only about 4% of the total market is estimated to be branded.

A greater focus on food

Currently, as a part of its food strategy, ITC plans to launch two new products or variants every month over the next one to two years to strengthen its presence in the packaged food market in India. So far the company has introduced five different brands: Kitchens of India, Aashirwad, Mint-O, Candyman and Sunfeast.

ITC currently has an operating margin close to 40%. The hotel and paper businesses both have operating margins of 20% during good business cycles. The largest greeting card player in India earns a margin close to 23%. Businesses like Atta and confectionery are large volume, low margin businesses, which would take at least a few years to break even. ITC has planned to invest around INR35bn in these businesses over the next five years with its prime focus on the food business. It plans to generate most of this investment cost from its cigarette business. The company aims to achieve 50% of its turnover from its non-tobacco businesses in the next five to seven years. It plans to grow the food division to INR5bn through organic growth and acquisitions. Today, ITC reports its sales of branded packaged products under the heading 'Miscellaneous' that also includes garments, greeting cards and stationery items. For the fiscal year ended 31 March 2004, 'Miscellaneous' sales were INR3.14bn compared to INR1.11bn during 2002/03. Each of ITC's diversified businesses, including foods, works on a SBU (Separate Business Unit) concept that will have to start making money within a targeted frame.

ITC's Food Foray

Brand Product type Year of launch
Kitchens of India Premium gourmet offering (RTE foods) August 2001
Mint-O Mint confectionery - mint flavour and orange flavour March 2002
Aashirwad Atta Staple (wheat flour) May 2002
Mint-O Mint confectionery - lemon flavour Feb 2003
Aashirwad Ready meals Daily consumption RTE foods June 2003
Sunfeast Biscuits (Glucose, Marie and Cream) July 2003
Candyman Confectionery - butterscotch and orange lollipops December 2003
Mint-O Fresh Hardboiled mint candy October 2004

Despite its large and wide distribution and retail spread the company plans to convert the current 'Wills Sports' apparel stores in various cities into multi-branding outlets of ITC that will stock all ITC products including its food products, greeting cards, paper based stationery, incense sticks and cigarettes, as well as its branded garments and apparels.

At present the company's food division is focusing on keeping overheads down. The company does not have a large base of assets such as factories. At the moment the branded food category in India has a lot of capacity for expansion. The company plans to use this to increase the initial size of the business. It has adopted an umbrella branding approach for mass market products. For example the brand 'Aashirwad' at present has two product categories under its umbrella: RTE and Atta (staple-wheat flour). The company plans to extend the brand into other categories like spices, cooking pastes, pulses and other staples like rice in the future.

The company has spent close to INR120m for its food research and development facility so far and will invest another INR40-50m in the next few years.

The expansion of ITC's biscuit brand 'Sunfeast' has been aggressive and is putting pressure on leading Indian players like Parle and Britannia. ITC initially entered the market with the usual mass market variant - Glucose biscuits and the light version Marie, but was quick to introduce an Orange Marie variety. The company's Butterscotch Cream and Orange Marie were introduced for the first time on the Indian market.

The company's cigarette distribution network, largely the 'pan shops' (kiosks selling confectionery, cigarettes, shampoo sachets, soaps and so on) has helped ITC sell its confectionery and biscuit brands, while for other food categories new distribution inroads were made. ITC today operates through around 1.5 million retail outlets across India. The company does not have any plans to add capacity at the moment, as it is keeping tabs on its overheads, but is open for strategic outsourcing tie-ups. Products under the Sunfeast brand are available in more than 150 markets within India, with national rollout expected to be completed by March 2005.

More products planned

The company's future plans include re-launching 'Kitchens of India' in pouches, in an affordable and practical format that will be priced around 15-20% below current pricing. The company also plans to introduce other new variants under this brand during the re-launch.

The company is set to roll out an innovative product under the 'Kitchens of India' brand - a mix of fruit and spice (a spiced jam). This will be ITC's first foray into a segment that does not exist at the moment in India. This product will be targeted at the high end and niche segment. The initial launch will consist of three variants with others lined up for the future. Among those set for launch are green apple and cinnamon flavours. ITC plans to further extend its Sunfeast biscuit brand by adding variants like pineapple cream, 'strawberry cream' and 'Sunfeast coconut'. In the salted category it plans to introduce crackers by March 2005.

ITC withdrew 'Bischips' (a flour-based baked snack) within eight months of its launch in 2002. The brand was withdrawn due to supply chain issues as the company had sub-contracted the job to a Kolkata-based firm. The company is now planning to relaunch the same product on the back of its still increasing biscuit distribution network. Adding to its 'Candyman' and 'Mint-O' brands, ITC plans to introduce 14 different kinds of sugar confectionery products. The company has adopted a protective packaging for 'Mint-O' that has improved the shelf life of the product. The 'Mint-O' brand was bought from Candico Ltd (a confectionery arm of biscuit manufacturer Bakeman's Ltd.).

With its food division clearly finding its way into both upmarket and mass-market products, the company is also drawing up plans to develop milk and soya-based products with a possible foray into the ice cream market as well.