How Sanjiv Puri-led ITC became the ultimate FMCG store

“Our ambition is to be India’s No. 1 FMCG company,” says ITC chief Sanjiv Puri

ITC Chairman and Managing Director Sanjeev Puri decodes the company’s M&A mantra and explains why its FMCG portfolio is business critical

By Sourav Majumdar and Krishna Gopalan

For a company that entered the FMCG business at the turn of the century, ITC had quite a bit of success. With brands like Sunfeast, Aashirvaad, Engage, Kitchens of India and Savlon, he has not only made a mark but also managed to create a business spanning multiple categories. ITC is leveraging its agricultural backend with a strategy that is a mix of organic and inorganic growth. This helped it to snap at the competition’s heels, either by expanding an existing market or often by creating a new one. In a casual conversation at Virginia House, ITC’s head office in Kolkata, chairman and MD Sanjeev Puri, 60, outlines how the company has tackled this intensely competitive business and yet managed to build a unique positioning. Edited excerpts:

Why is FMCG such an important business for ITC?

It is important for an Indian consumer to consume Indian products and have a local FMCG company [and] we strive to offer the best quality products. In the last five years, we have grown from revenues of Rs 10,000 crore to Rs 16,000 crore in FY22, while margins have expanded by 600 basis points. Our portfolio has over 25 core brands and a consumer spend of Rs 24,000 crore. The addressable market for us today for the categories in which we operate is to the tune of Rs 5 lakh crore, which is among the highest in the Indian FMCG space. Our ambition is to be the number 1 FMCG company in India and we realize that this is a journey that will take time.

We have many “first” credits. Among them are concepts such as chocolate fillings or shower gel. Similarly, we launched the pocket perfume.

You have a great advantage in terms of synergy within the business…

Yes, this is something unique to ITC. The synergy of ITC’s institutional strengths is truly unique. The food business derives competitive advantage from the strengths of the agri business, the culinary expertise of ITC Hotels, the innovation capacity of our packaging business as well as our extensive distribution network. Stationery brand Classmate profits from the cardboard and specialty paper business. Our Fabelle chocolates are developed by master chocolatiers from the hospitality industry. Similarly, the agarbatti brand, Mangaldeep, also leverages our plantation expertise.

ITC has made some interesting acquisition moves (Sunrise Foods, Nimyle, B Natural are some examples). What’s your M&A mantra?

There are a few boxes that need to be ticked. At the beginning is the vision we have for the portfolio and therefore which white spaces are appropriate. Next, we need to look at the potential acquisition from a consumer trend perspective. Finally, there must be a good understanding of the competitive landscape and our own right to win.

Take the case of Sunrise. Spices are a Rs 50,000 crore industry and it takes a long time to develop a brand; Therefore, inorganic is a good option. A key evaluation indicator was the Ebitda ratio and growth opportunity. Mergers and acquisitions must bring value to us. Other good examples are what we did with Savlon and Nimyle. Today, Savlon has innovated and demonstrated brand extensions that work, coupled with speed of execution. The goal was to democratize the brand and it worked well.

You didn’t just buy big-ticket items

Yes, there are cases like Sparsh [Mother Sparsh Baby Care was acquired in 2021 when ITC picked up a 16 per cent stake in the D2C ayurvedic and natural personal care brand]. Here, if a space is interesting, like a mother and child, we’ll look at it. Then, if the option to acquire small shares initially seems logical, we will do it and stay invested. Ultimately, if there is an option for a full buyout, we could do it, but only if it fits into our strategy.

Going back to FMCG, food is the biggest part of your business, right?

Yes, and that’s how the whole market moves. We also have a very stable supply of agricultural products which fits well into it. Over time, we have achieved strong leadership positions in key categories – like atta with Aashirvaad, cream biscuits with Sunfeast or Bingo in the snack bridge segment. Our agricultural expertise is a huge asset in atta’s success given our superior sourcing and blending capabilities.

Food is a business we started with [and] are over-indexed. Our USP here is our knowledge of chefs and cuisine. Our Master Chef frozen snacks are fine-tuned by our chefs.

Incidentally, we are also the largest player in stationery business and second in agarbattis, but these are relatively smaller segments.

There are many opportunities in FMCG that ITC can explore. Would you, for example, look at edible oil?

This is unlikely as we don’t think we can create value. The question is what differentiation do I bring to the table. Take the case of our atta business, where our blending process is unique, or salt, where natural salt becomes a strong proposition.

A key part of our milk business is the way we process it, which allows us to offer differentiated, value-added products. An example of this is our lactose-free offering, which is sold in sachets rather than tetra-packs to democratize decisions. Today in our dairy business, 25 percent comes from value added products like lassi, curd, mishti doi and paneer.

Milk is a game of scale. We are now present in Bihar and Kolkata. If we succeed, we will move to other markets, but it is important to create a model that can give us the right economics.

How do you deal with portfolio laggards?

Brand rationalization is continuous. We went out of businesses like Wills Lifestyle, John Players, shampoos and greeting cards. Within the portfolio, this is a full outlet or one that is regional.

At what point does brand extension make sense?

Let me take the case of Aashirvaad where the brand stands for quality, trust and everything healthy. When the extension meets these criteria, we’ll proceed. Fresh dairy products are appropriate and make sense to be housed here. However, milkshakes will not come under Aashirvaad.

At what point do you decide that a large category (like biscuits) is ready to move from a third-party manufacturing organization to doing it yourself?

There are three areas we are looking at here. One is the unique innovations that we have, and then the ability to make the best use of our integrated infrastructure, which gives us an efficient economy per unit. Finally, we will if there is better control over processes and technologies.

How much of a transition do you think ITC has made from primarily selling cigarettes?

It’s certainly a very different company today, with less than 40 percent of its revenue coming from tobacco. FMCG is a big piece and there are several big businesses in it. I am personally very involved here and devote a significant amount of time to the business. FMCG has many components – new markets, new categories and huge scope for innovation. Also, the breadth of our portfolio will show that there are many children [brands at an early stage of the growing up process and with potential].

In the medium term, we want to demonstrate industry-leading growth, improve margins, continuously sell high-quality products, focus on sustainability and grow categories and adjacencies. There are several options that are interesting and the neighborhoods are one. Our goal will always be to create a point of difference.

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