 "The pioneer looks to exit the stage")
Few know Annapurna, Hindustan Unilever's branded commodity business, began as a table salt in 1995. At that point, it was viewed as an answer to Tata Salt, leader in the category. While the Tatas clearly had first-mover advantage in salt, it was in atta or wheat flour that HUL raced ahead.
By coming out with Annapurna in 1998, HUL was early to brand wheat flour, typically consumed in loose form by Indians. Rival General Mills with Pillsbury, stepped into the category at the same time. While the two in many respects were responsible for creating the nascent category, it was the entry of Aashirvaad Atta from ITC in 2002 that changed the game. A two-way face-off made way for a three-way fight, expanding the category in the process. Branded atta is now a Rs 5,000-crore category, with Aashirwad estimated to have a share of over 40 per cent. Pillsbury has significantly shrunk and Annapurna is restricted to select pockets.
The news therefore that the country's largest consumer goods company is now contemplating selling its atta, salt and rice operations - all available under Annapurna - comes as no surprise. But, it could effectively end HUL's tryst with branded commodities, a phenomenon in the making for a while.
Off the flour trail
Many are reading HUL's growing disinterest in atta as a sign of times to come, when the fast-moving consumer goods (FMCG) major refocuses its priorities in the Indian market. The current move, say analysts, is linked to HUL's larger objective of getting out of the commodity businesses altogether.
The challenge with commodity-led businesses, notably, those in the staples category, is the inability to derive a significant premium, analysts said. Margins are typically thin, which is not the case with branded packaged foods, where the price premium is better.
Branded packaged foods: The game changer
Sanjiv Mehta, managing director and chief executive (CEO), HUL, has frequently reiterated how branded packaged foods remains an under-penetrated category in India. A 2015 report by The Boston Consulting Group says India's total food market would touch Rs 42 lakh crore (or $614 billion) from Rs 23 lakh crore (or $335 billion), the current figure. The processed food market, which according to estimates, constitutes about 30-32 per cent of the total food market today, can touch about 40-45 per cent by 2020. It is this growth that most players are eyeing, making branded play critical.
At the company's recent third-quarter results for 2015-16, HUL's Mehta said that brands such as Knorr and Kissan were doing well. For the last two years, packaged foods, which gives HUL about six-seven per cent of its Rs 30,806-crore revenues, consistently grew in double-digits in terms of revenue.
Mehta had also said the firm would continue investing in its packaged food brands. While when combined with beverages and ice-creams, foods as a whole (including packaged foods) gives HUL about 20 per cent of its revenues, as a standalone segment, packaged foods has been a laggard, experts tracking the market said.
ITC, which entered the foods business 15 years ago (it started with ready-to-eat range Kitchens of India), crossed revenue of Rs 6,400 crore (or $1 billion) in 2014-15 and is estimated to cross Rs 7,000 crore in the current financial year. The plan is to cross Rs 12,000 crore (or $2 billion) in annual revenue in the next five years. This even as the FMCG market has faced challenging times in recent quarters.
While value growth in the FMCG market has decelerated, volume growth is about three-four per cent, according to industry estimates, lower than what most companies expected. Against this backdrop, food majors, say experts, will have to up their game, innovating and launching new products to keep the excitment alive. "With strong brands this becomes easier to do because recall factor is high," says N Chandramouli, CEO, TRA, which comes out with the annual Brand Trust Report. "There is also a trust factor attached to them, critical in foods," he adds.
END OF THE ROAD
By coming out with Annapurna in 1998, HUL was early to brand wheat flour, typically consumed in loose form by Indians. Rival General Mills with Pillsbury, stepped into the category at the same time. While the two in many respects were responsible for creating the nascent category, it was the entry of Aashirvaad Atta from ITC in 2002 that changed the game. A two-way face-off made way for a three-way fight, expanding the category in the process. Branded atta is now a Rs 5,000-crore category, with Aashirwad estimated to have a share of over 40 per cent. Pillsbury has significantly shrunk and Annapurna is restricted to select pockets.
The news therefore that the country's largest consumer goods company is now contemplating selling its atta, salt and rice operations - all available under Annapurna - comes as no surprise. But, it could effectively end HUL's tryst with branded commodities, a phenomenon in the making for a while.
Off the flour trail
Many are reading HUL's growing disinterest in atta as a sign of times to come, when the fast-moving consumer goods (FMCG) major refocuses its priorities in the Indian market. The current move, say analysts, is linked to HUL's larger objective of getting out of the commodity businesses altogether.
The challenge with commodity-led businesses, notably, those in the staples category, is the inability to derive a significant premium, analysts said. Margins are typically thin, which is not the case with branded packaged foods, where the price premium is better.
Branded packaged foods: The game changer
Sanjiv Mehta, managing director and chief executive (CEO), HUL, has frequently reiterated how branded packaged foods remains an under-penetrated category in India. A 2015 report by The Boston Consulting Group says India's total food market would touch Rs 42 lakh crore (or $614 billion) from Rs 23 lakh crore (or $335 billion), the current figure. The processed food market, which according to estimates, constitutes about 30-32 per cent of the total food market today, can touch about 40-45 per cent by 2020. It is this growth that most players are eyeing, making branded play critical.
At the company's recent third-quarter results for 2015-16, HUL's Mehta said that brands such as Knorr and Kissan were doing well. For the last two years, packaged foods, which gives HUL about six-seven per cent of its Rs 30,806-crore revenues, consistently grew in double-digits in terms of revenue.
Mehta had also said the firm would continue investing in its packaged food brands. While when combined with beverages and ice-creams, foods as a whole (including packaged foods) gives HUL about 20 per cent of its revenues, as a standalone segment, packaged foods has been a laggard, experts tracking the market said.
ITC, which entered the foods business 15 years ago (it started with ready-to-eat range Kitchens of India), crossed revenue of Rs 6,400 crore (or $1 billion) in 2014-15 and is estimated to cross Rs 7,000 crore in the current financial year. The plan is to cross Rs 12,000 crore (or $2 billion) in annual revenue in the next five years. This even as the FMCG market has faced challenging times in recent quarters.
While value growth in the FMCG market has decelerated, volume growth is about three-four per cent, according to industry estimates, lower than what most companies expected. Against this backdrop, food majors, say experts, will have to up their game, innovating and launching new products to keep the excitment alive. "With strong brands this becomes easier to do because recall factor is high," says N Chandramouli, CEO, TRA, which comes out with the annual Brand Trust Report. "There is also a trust factor attached to them, critical in foods," he adds.
END OF THE ROAD
- Annapurna began life as table salt in 1995
- In 1998, the brand was extended to atta, a market that was largely unorganised and unbranded at that time
- Its main competitor was Pillsbury until 2002, when ITC launched Aashirvaad, which soon raced to the top of the Rs 5,000-crore branded atta market
- Aashirvaad leverages the strong e-choupal network, ITC's extensive rural supply chain, for sourcing
- HUL has considered with relaunching Annapurna with new packaging and new distribution alliances, but time seems to be running out for the brand