ITC gets future-ready as FMCG challenges grow

The company is looking to introduce new brands and venture into adjacencies faster than before in consumer goods

Diversified conglomerate ITC has a target to touch Rs 1 lakh crore by 2030 and it hopes to do this by riding the consumption boom in India. While the vision has  long been spelt by the management, challenges in execution remain. The pace of growth of the Rs 3 lakh crore fast moving consumer goods (FMCG) market is key.

A combination of demonetisation in November 2016 and introduction of the goods and services tax (GST) in July has ensured that the rate of growth of the domestic FMCG market has slowed in the last few quarters.

The country’s largest consumer goods company Hindustan Unilever (HUL) said recently in an investor presentation that the overall market had slowed to single-digit growth from double-digit growth five years ago. The company also said that rural markets were lagging urban markets for the first time in this period.

Though HUL’s parent Unilever in its September quarter results past week reiterated that volume growth had improved in the period under review, market experts said a full recovery would take time.

While ITC’s non-cigarette FMCG business has demonstrated resilience to the market slowdown — the unit posted a profit of Rs 5.43 crore in the June quarter versus a loss in the previous year — the conglomerate is aware of the importance of being future-ready. It is now putting a blueprint in place that will see it introduce new brands and venture into adjacencies faster than before in consumer goods. 

ITC’s non-cigarette FMCG business, for the record, has already crossed the Rs 10,000-crore revenue milestone in financial year 2016-17. In the June quarter, this business reported a nine per cent growth in revenue despite destocking of products by trade in the run-up to GST. September quarter results are yet to be declared.

Company executives say that the non-cigarette FMCG unit is looking to launch at least 10 new products in the next six months. The rationale for the launch is that these products will give it incremental growth, a lever it will have to be keep using if it wishes to achieve its turnover target in 13 years.

Packaged foods and personal care, which together give ITC over Rs 9,000 crore of its turnover in the non-cigarette FMCG business, are two areas identified by the group to launch new products in the next two quarters.

Apart from stepping-up its effort in categories such as juices, chocolates, dairy and coffee, all recent forays, ITC’s group head for agri business S Sivakumar said it will get into branded fresh vegetables.

The move comes as ITC looks to tap into the growing demand for fresh produce mainly among urban consumers. Sivakumar says that ITC will leverage its agri-backend, which allows it to source the best produce from farmers across the country.

To begin with the launch, says Sivakumar, will include branded fresh potato and onions. Sources say this may be extended to other categories including fruits, milk and meat.

Besides, the conglomerate is also ramping up other parts of its branded commodity business including its recently introduced Master Chef brand for seafood and blended spices. As things stand now, branded commodities include its Aashirvaad range spanning ghee, staples, spices, instant mixes and ready meals.

In personal care, Sameer Satpathy, chief executive of the business, says the unit will launch at least nine new products going forward as it taps into the grooming needs of people. The unit, which has brands such as Fiama Di Wills and Vivel, will launch a new variant of its Engage range of perfumes for women besides strengthening its deodorant portfolio shortly.

Fiama currently enjoys 17.8 per cent share in the domestic shower gel market, coming in second after Nivea, which holds a fifth of the market, according to Nielsen data sourced from the industry.

Engage too is the second-largest player in deodorants – behind Fogg — with 10.7 per cent share. Its soap brand Vivel holds 5.6 per cent share, while Savlon, which it acquired from Johnson & Johnson two years ago, holds 5.8 per cent share of the handwash market, as per Nielsen data sourced from the industry.

“We need to keep innovating to engage with consumers who have a shorter attention span. This is the most efficient way to grow and helps in reinventing own brands and grow the category. For example, while we entered the premium version of the pocket fragrances segment six to eight months ago — we are again coming up with more products in the same line. We have to plan one or two such interventions for every brand in a year,” says Satpathy.

While experts say that a rush of new products can result in confusion, company executives say that close to 30 per cent in terms of sales growth within personal care comes from new products giving the group confidence to go ahead with the roll-out plan.

Also, premium offerings help improve margins, besides increasing penetration in urban areas, a segment personal care majors prefer targeting.

Nielsen data shows that Engage has been doing well in urban centres such as Kolkata (18.4 per cent market share), Mumbai (16.5 per cent), Bengaluru (16.1 per cent) and Hyderabad (15.2 per cent). As competitive intensity grows, ITC is also planning ahead quickly. The die has been cast for now.