ITC banks on modern trade for future growth

The FMCG giant has set itself a target of Rs 1,00,000-cr revene from its non-cigarettes business over next 15 years

This article has been modified. Please read the clarification at the end 

At a time when fast-moving consumer goods companies are warming up to the concept of online commerce, ITC, the cigarettes to FMCG major, is keeping faith with modern trade to achieve a target of Rs 100,000 crore annual revenue from its non-cigarette business over the next 15 years.

Its net revenue was Rs 32,883 crore in 2013-14. Of this, Rs 8,100 crore came from the non-cigarette business.

“Over the last fiscal year, we added close to 80,000 outlets to our active service fold. Today, our distribution network is capable of serving more than two million retail outlets, while our products are now available across six million retail outlets,” said B Sumant, divisional chief executive in charge of FMCG trade marketing and distribution. Sumant moved into his current portfolio late last year.

Over the years, the Kolkata-based company has been growing its product portfolio in the non-cigarette segment. At present, ITC manages around 20 brands in this segment which comprises some high-recall ones like Engage, Aashirvaad, Sunfeast, Vivel, Bingo!, Classmate and Yippee!

The company is gearing up to ramp up infrastructure in the wake of its foray into the new segments of dairy products and juices. It recently launched juices in South India under a B-Natural brand.

For the dairy products business, it might need to invest more. “We will enable the creation of relevant infrastructure,” Sumant said. The investment would be part of the Rs 25,000 crore programme over the next five years that ITC has outlined. Direct investment apart, much of the Rs  25,000 crore will also ride on ITC’s famed distribution network.

According to an analyst, the company’s policy of investing in the distribution network can compete withchallengers in the sector. “To attain growth across markets, they need to be in rural areas in a big way, too,” said one.

For rural areas, ITC can also tap into its recognised e-Choupal network, which involves working directly with farmers on obtaining materials and delivering products.

FMCG companies have started testing waters in the e-commerce sector. Recently, bakery and diary major Britannia tied up with Amazon to launch Good Day Chunkies, a chocolate chip cookie. Hindustan Unilever chairman Paul Polman has said the company’s e-tail business will be equivalent to its turnover in the next few years.

ITC, though, believes in investing in modern trade. “For the company, modern trade will continue to hold relevance as with the low revenue and margin per unit of a FMCG product, there is some distance to go before the channel becomes sustainable for the sector,” Sumant explained. With tech-savvy consumers, however, ITC is in the process of making its portfolio available on key e-commerce portals.

Clarification

An earlier version of this article had incorrect figures for ITC's net revenue and non-cigarette revenue, which has been rectified. The error is regretted