‘Food business is a sunrise industry with head space for everyone’

VL RAJESH, Divisional Chief Executive, ITC Foods

ITC Foods is perhaps one of the youngest multi-brand food companies in the domestic FMCG space. ITC as a group expects a major chunk of its 1 lakh crore target from its non-tobacco business to come from its foods’ business by 2030. In an interview with BusinessLine, VL Rajesh, Divisional Chief Executive, shares his growth strategy as well as his views on the controversies surrounding the industry and about Patanjali.

Which products in your portfolio will see maximum growth?

Our growth will come from two places: the bulk of the growth will come from the core. We have 13 different product verticals and 10 brands. We have about 200 products which we plan to increase it to 300 by 2020. The rest will come from the new variants, new products which we are launching now. The last 14 months have seen three new launches. We also have region- specific brands which we will nationalise. Last financial year, we crossed $1-billion-mark though we would have liked to grow at a faster clip. Right now, we are growing at low double digit rate which for us is not good, but for most others in the industry it will be quite acceptable.

Will at some point of time, ITC Foods get into milk and bread categories?

Well, you see we are not going to say no to anything but not in the immediate future. We can get into every food product. We have a responsibility towards our stakeholders. We will get into large categories which has the potential to grow at a later stage.

Patanjali has been making quite a splash in the industry. How big a threat is it for players like you?

See, the impact is not much. We are not present in certain categories they are in like toothpaste and they have a range of ayurvedic products. So, their positioning is different. But like ours, it is a home-grown brand and we will be happy if they grow too. The foods space is a sunrise industry for a long time to come. Everything is getting branded. There is enormous head space for everyone.

It is over a year now since the Maggi Noodles controversy broke out. As a competitor, how have you fared since then?

The controversy hit the industry very hard. The industry actually collapsed. As per certain industry reports, a ₹320-crore per month market fell to ₹56 crore per month. But since then, we have come back fast because of the unique campaign we ran which allowed any consumer to ask any questions regarding the issue and we answered each one of them. Our share, which was at about 15 per cent, is now growing at 25 per cent. But the industry is still to recover. It is as per independent industry reports now at ₹240 crore per month.

Looking back what exactly went wrong?

The interpretation changed but the law did not change. But, since then, there has been a great clarity from the regulatory side and lot of work has been done to streamline the process. We kept ourselves completely open to scrutiny. One must understand that MSG (monosodium glutamate) is there even in mother’s milk. This is what makes the child drink milk. Most do not add MSG. When you do lab tests, it cannot differentiate between naturally occurring MSG and what has been added. It is important to verify the tests and you have to do it repeatedly to get the right results.

If you look at the controversies surrounding the foods business, right from noodles to bread, you wonder whether branding has really helped.

In the food business, unlike any other businesses, we can do all the right stuff, but the moment you put it in your mouth, you get to know whether you want to have another helping or not. It is a very harsh business. As far as our quality is concerned, our research centre is perhaps the best kept secret. We have over 80 PhDs working in the centre, which is over 2.5 lakh sq ft. They deliver cutting edge products as well as test our products. So, what we claim is what you get. We must realise that when a consumer buys a food product, there is implicit assumption that it is safe and that should not be violated because of the unregulated industry. If the branded industry grows, it is good for the consumer and for the government as well as more of them to get into the tax net.

Q4 results: Dabur India hopes to sail in Patanjali’s wake

If Dabur can deliver better sales growth and maintain margins, it may be able to meet the high expectations that investors have set

Squeeze the honey out of Dabur. Now Baba Ramdev did not say this, when he recently said he will take the gate out of Colgate and coined similar fates for other foreign-owned brands. But he may well have. Dabur India Ltd said its health supplements business grew in single digits in the March quarter, as its honey sales were affected by Patanjali honey’s aggressive launch. Patanjali’s 500g honey bottle has a list price of Rs.135 versus Dabur’s Rs.199 (exclusive of discount) on bigbasket.com.

Dabur’s management says it will not compete on price (butbigbasket.com is offering the 500g bottle at a discounted price of Rs.169.15); instead it has launched a “squeezy” honey bottle and will launch value-added variants next month. The initial impact has been harsh but surprisingly, Dabur has only words of praise for its competitor. It sees Patanjali as prising open a huge opportunity for products with a herbal/Ayurvedic tilt.

Chief executive Sunil Duggal said Patanjali may actually help in products such as chyawanprash, which they have struggled to grow in recent years. Warm weather—it sells most in winter—is one reason, but he said the product also lacked the kind of “evangelism” or “disruptive influence” that Ramdev has brought.

Duggal’s logic is Patanjali may initially eat into incumbents’ markets but Ramdev’s efforts can grow the market too. In oral care, for instance, Dabur’s growth has benefited from more demand for Ayurvedic/herbal toothpastes. Though Dabur does not sell ghee, Duggal remarked that Ramdev appears to have added new consumers for this product. As disruptive change goes, there’s no knowing what will happen but Dabur’s view is one possibility, an optimistic one at that.

Dabur’s March quarter results show better sales growth, up by 8.5% in value terms and by 7% in volume. Value sales growth is better than the December quarter’s fall of 2.5%. The end of the blockade on the India-Nepal border has seen its food business come back strongly. That had affected growth in the preceding quarter.

Apart from food and oral care, the home care business did well too. Dabur’s international business saw organic growth (excluding the impact of acquisitions/divestitures) of 19.3% compared with 10.7% growth in the preceding quarter. The recovery in sales growth, some support from price increases, slower increase in costs, all contribute to an increase in its Ebitda (earnings before interest, taxes, depreciation and amortization) margin, both from a year ago and the preceding quarter. A higher tax rate lowered net profit growth to 16.6% compared with a pre-tax profit growth of 20%.

Dabur’s management expects the second half of FY17 to see better sales growth, contingent on a good monsoon. It is still seeing weak rural growth and no significant support from the urban general trade channel (kirana shops). Modern trade is selling well, however. Although some input costs are moving up, the company is not expecting to see significant price increases. It’s a cautious outlook, justifiable considering that past optimism in the sector has not always played out, and what with a hungry competitor on the prowl.

Dabur’s share fell by 1.05% on Thursday. It trades at 38 times the price-to-earnings ratio for the year ended 31 March. FY16 was a tough year but the current fiscal year looks to be a better one, although not if the company’s cautious outlook proves right. If Dabur can deliver better sales growth and maintain margins, it may be able to meet the high expectations that investors have set.

Patanjali Revenue May Touch Rs 10,000 Cr

NEW DELHI: Patanjali Ayurved, promoted by yoga instructor and promoter Ramdev aims to record a turnover of Rs 10,000 crore during the financial year 2016-17, and  will invest over Rs 1,150 crore  to set up six processing units and one R&D centre.

The domestic FMCG firm also challenged the multinational firms like Unilever, Nestle, P&G and Hindustan Unilever the established players in fast moving consumer goods (FMCG) segment in India. The company is confident that its network
of over 4,000 distributors, 10,000 stores and 100 Patanjali mega marts pan India, will help achieve its target.

The company’s ambitious plan includes distributing its products globally in the international market. “Patanjali is an International brand,” Ramdev who promoted Patanjali told reporters on Tuesday.  Patanjali will also enter new categories like dairy, animal feed and khadi garments for yoga. “We will enter dairy segment this year with the launch of milk, cheese, butter milk and paneer.”

When asked about the source of funds, he said: “Banks are more than willing to give loans to us. We have no shortage of funds to expand. We are a debt-free company.”

Sun Capital

Six lessons that Patanjali teaches India's FMCG sector

A decade ago it was modern trade which changed the way Indians shopped. Then came e-commerce and online shopping. And this time around it is Patanjali Ayurveda - the latest force to disrupt the branded consumer goods sector. Its raging popularity and strong brand resonance have some incisive lessons for the Indian fast moving consumer goods (FMCG) sector.


Brand Premium - What's that?
A brand doesn't have to charge a premium to resonate better with its consumers. Patanjali products are cheaper than its peers in the same category. "The whole logic of brands charging premium and using that premium to advertise more has been turned upside down by Patanjali products", says Milind Sarwate, former CFO of Marico and founder of Increate Value Advisors.

Product Efficacy - the ultimate USP
Patanjali has brought the focus back on product efficacy. Rising above the noise of advertising, products have to first deliver value to the consumers. Ghee and tooth paste are the two most popular products of Patanjali - even though both of these have enough local and multinational competitors in the organised sector. According to a recent sector report by Spark Capital, while disruption is painful in the short term, it is slated to bring back a key value proposition of FMCG products - product's efficacy.

A Strong Brand Ambassador
The fact that Baba Ramdev, a yoga guru himself, promoting the herbal and organic Patanjali products - has proved that celebrity endorsements work if there is a high connect between the endorser and the features of the brand. The Maggi ban last year had showed how brand ambassadors can receive flak in case the brand falters.

Consumers have the last laugh
Emergence of Patanjali helps keep the established players on their toes and provides the consumer the benefit of more efficacious products at lower prices. It reminds the FMCG companies that peak margins cannot be sustained at the cost of the consumers.

Scope for Innovation or Disruption
Patanjali has reinforced that there is scope for disruption at any point in the industry. Despite the high clutter & penetration and subdued consumer demand, Patanjali products could make a mark. "This shows that there is always scope for creating new moats - which are not easy to replicate or compete with", says an analyst tracking the FMCG industry.

Formal managements can over-sophisticate
The swift rise of Patanjali in becoming a Rs 5000 crore FMCG business in the past few three years dwarfs the performance of FMCG companies that took several years to reach a similar size. "Formal management structure can at times slow down the growth of the business due to over sophistication

Sun Capital