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December 7, 2023
Sharleen Dsouza, Business Standard
Mumbai, 6 December 2023
Godrej Consumer Products is test marketing its liquid detergent under the brand name ‘Fab’ in South India. While this is not the company’s first move in detergents, the launch is expected to give it a bigger play in the category, especially with a competitive price point of Rs 99 a litre. The company already has Godrej Ezee for winter wear wash.
Some other fast moving consumer goods (FMCG) companies are also entering new categories which are allied to their current businesses. Companies are chasing low-penetrated categories which offer high growth both in terms of revenue and margins, according to analysts.
For instance, Parle Products, known as a biscuits manufacturer, has re-entered the wheat flour (atta) market. Earlier in 1996, it had launched packaged wheat flour but exited the segment as the demand failed to pick up. “Now, the demand is much higher for packaged wheat flour,” Mayank Shah, senior category head at Parle Products, told Business Standard while explaining the re-entry into the category. The company already procures wheat flour in bulk for biscuits and therefore packaging and selling it also makes sense for us, Shah pointed out.
Known for its snacks and namkeens, Bikano Bikanervala Foods has entered the Indian spices category under the sub-brand ‘Swad Anusar’. It came as a natural progression for the company.
“The top masala companies have either established or expanded their position in the sector over the past year, which is believed to account for up to 36 per cent of India’s entire Rs 70,000 crore spice industry,’’ Manish Aggarwal, director, Bikano, Bikanervala Foods, said. The remaining 64 per cent of the market is disorganised. ‘’We believe it’s the right time to invest in the spices category and foresee growth in this dynamic segment,” Aggarwal added.
The brand is already established in people’s mind and these companies already have distribution in place, according to Rajat Wahi, partner at Deloitte India.
“As long as these are adjacent categories, the company can easily leverage the existing distribution and also target new customers. These categories are typically low penetrated categories which offer high growth and are fragmented due to regional brands being present, thus giving them a better opportunity to enter these categories,” Wahi said.
Brand expert Devangshu Dutta, founder at Third Eyesight, also believes that companies can easily use their existing distribution strength while expanding into related categories. “There has been a broad-based consumer growth over the years in these categories. Also, large companies find it difficult to grow after a point when present only in a certain categories,’’ Dutta said while explaining the significance of group synergies in launching new products.
(Published in Business Standard)
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December 4, 2023
Sharleen Dsouza, Mumbai
3 December 2023
Hindustan Unilever (HUL)’s decision to split its beauty and personal care division and place a renewed focus on digital has been driven by its aim to serve the consumer of tomorrow, say analysts and brand experts.
HUL Managing Director and Chief Executive Officer Rohit Jawa is looking to make the company ‘future ready’, and while these bets are not for the short-term, they will eventually pay off as the Indian consumer is young and digital friendly, they add.
“Rohit Jawa comes with digital experience and he is preparing to steer HUL into serving the future consumer who is more digital friendly,” said Sachin Bobade, vice president at brokerage firm Dolat Capital.
On Friday, the consumer major also announced that it had named Arun Neelakantan its chief digital officer effective January 1. Neelakantan, who the company said was brought in to unlock growth opportunities by leveraging India’s digital ecosystem, will also join the company’s management
committee. Neelakantan is the first chief digital officer of the company who will be part of the company’s management committee.
Brand expert Devangshu Dutta, founder of business management consultant Third Eyesight, said that HUL was a traditional company but had never shied away from experimenting with different models of customer engagement.
“The profile of the younger Indian consumer is more digital friendly. This move won’t fundamentally shift the company’s business in the short term, but it is creating a connect with the younger consumer group which will be the mainstay for the future,” said Dutta.
On Friday, Jawa had said: “As we embark on our next phase of growth and transformation, we will combine our scale and discipline with innovation and agility to serve our consumers even better, and build a future-fit business,” adding that beauty and personal care continued to be a source of value creation for the company.
(Published in Business Standard)
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November 4, 2023
Faizan Haidar, Economic Times
4 November 2023
Some of the super-luxury brands that have opened stores at the recently inaugurated luxury mall, Jio World Plaza in Mumbai, have put in a condition that at least four top brands – such as Louis Vuitton, Gucci, Cartier, Burberry, Tiffany, Valentino, Bulgari, Zegna, Giorgio Armani and Bottega Veneta – should be present in the same complex, to ensure the position of their brands is not diluted.
ET has seen copies of the agreements between Reliance Industries, the owner of Jio World Centre, and five brands, accessed through data analytic firm CRE Matrix.
Reliance Industries and the brands did not respond to emails seeking comment till press time on Friday. Brands often have an exclusivity clause with the mall where they don’t want competing brands near their stores. However, in the high-end segment, to ensure a similar buyer profile, they want similar stores nearby. Jio World Plaza already meets the condition with several of these super-luxury brands having opened their outlets there.
“If at least four among the mentioned brands are not open within six months of us starting the operation, we should be entitled to a reduction of the licence fee by 25% for the period that this criteria remains unfulfilled,” Christian Dior Trading, which will operate Dior, has said in the agreement.
Dior will pay ₹21.56 lakh in monthly rent for a 3,317 sq ft space in the complex. Gucci has given a list of six luxury brands – Louis Vuitton, Dior, Cartier, Bulgari, Valentino and Burberry – and demanded that at least four have to be represented in the shopping centre.
Louis Vuitton, Cartier and Bulgari have also put in similar conditions. Most of them have kept the right to terminate the agreement after serving the notice for nine to 12 months.
“In the super-luxury segment, most of the brands complement each other and that is why they want the presence of these brands next to each other. Good mall developers also go with zoning of brands and don’t want to mix the super-luxury brands with the premium or mid to premium brands. As more luxury brands are contemplating India entry, we will see more luxury spaces coming up,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight.
India only has a handful of malls that give space exclusively to super-luxury brands.
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October 26, 2023
Sagar Malviya, Economic Times
26 October 2023
Surging demand for fitness wear and sports equipment for disciplines other than cricket and football helped Decathlon’s India unit expand sales 37% to Rs 3,955 crore in FY23. With more than 100 large, warehouse-like stores selling products catering to 85 sporting disciplines, the French company is bigger than Adidas, Nike and Asics all put together in India.
In FY22, sales were Rs 2,936 crore, according to its latest filings with the Registrar of Companies. The retailer, however, posted a net loss of Rs 18.6 crore during the year ended March 2023 compared to a net profit of Rs 36 crore a year ago.
Experts said a host of factors – from pricing products about 30-40% lower than competing products to selling everything from running shoes, athleisure wear to mountaineering equipment under its own brands – has worked in its favour. “They have an extremely powerful format across different sporting activities and have something for both active and casual wear shoppers. For them, the market is still under penetrated with the kind of comprehensive product range they sell for outdoor sports beyond shoes and clothing,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “Even their front end staff seem to have a strong domain knowledge about products compared to rival brands.”
By selling only private labels, Decathlon, the world’s biggest sporting goods firm, controls almost every bit of operations, from pricing and design to distribution, and keeps costs and selling prices low.
Decathlon uses a combination of in-house manufacturing and outsourcing to stock its shelves. In fact, it sources nearly 15% of its global requirement from India across sporting goods. And nearly all of its cricket merchandise sold globally is designed and made in India.
(Published in Economic Times)
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October 13, 2023
Anand JC, Economic Times
13 October 2023
Once the butt of jokes in Dalal Street circles, 113-year-old ITC has turned a new leaf in recent years, as its strategy to derive higher revenue from its consumer business is bearing fruit, bit by bit.
Registered in Calcutta as the Imperial Tobacco Company, the FMCG major has always relied on its cigarettes and leaf tobacco business for a major chunk of its revenues. ITC’s true diversification move might have begun with the launch of its hotel in Chennai in 1975, including a failed attempt at the financial services business, but it wasn’t until August 2001 that the tale of the FMCG behemoth came to be.
Having relied on its cigarette business since 1910, ITC has increasingly sought to earn more from its ‘cleaner’ consumer goods products. In a 2018 interview, CEO Sanjiv Puri admitted that while the journey to diversify the company started a long time ago, it only got traction around 2008. Under Puri’s first term as the ITC chairman, the company embarked on the ‘ITC Next’ strategy. The first decade was focused on preparing the company for the transition, he said. ITC now can innovate products, create brands and allow “pro-neurs” or professional entrepreneurs to build businesses in FMCG.
The plan has worked
ITC, a darling of dividend-led investing lovers, has always been a long-term growth story in the making. Nearly two decades after entering the food business, the company holds a leadership position across categories.
As per the company’s latest annual report, it holds the leadership spot in the branded Atta market through Aashirvaad, cream biscuits segment via Sunfeast, bridges segment of snack foods via Bingo!, notebooks via Classmate and dhoop segment via Mangaldeep. Its Yippee noodles trails Nestle’s Maggi, as the latter continues to lead in a highly consolidated market. However, Yippee has managed to gobble up Maggi’s share at an enviable pace. Capturing these positions, this quickly is no easy feat either.
One of the things that worked for ITC is their understanding of the distribution of products, stemming from their strength in the tobacco business. ITC started exploring aggressively diversifying away from the tobacco business around the 90s, says Devangshu Dutta, head of retail consultancy Third Eyesight.
ITC’s foray into the food business was supported by its presence in the hotel business. “Some of the marquee products that used to be served in their hotel restaurants, packaged dal and so on, they packaged and sold but it was not a humungous success. It was marginal at best.”
“But they started understanding the distribution aspect because those were sold through traditional distribution channels,” Dutta says.
ITC also put in a lot of financial muscle behind the brand building, given no dearth of resources, Dutta says. This helped them grow rapidly in product categories in which they didn’t have a presence earlier on.
“Starting from scratch, particularly on the foods side, ITC has been one of the most successful companies in the last 15-20 years. Their overall revenue this year has been roughly Rs 19,000 crore, out of which Rs 15,000-16,000 is purely from foods segment,” Amnish Aggarwal, Head of Research, Prabhudas Lilladher told ET Online.
“For a company which started this business, maybe, say, two decades back, this is a very big achievement,” he says.
Unlike its commanding position in its cigarette business, ITC’s ‘other-FMCG’ ambitions faced stiff competition from local and national companies in categories including soaps, shampoos, atta, snacks, biscuits, noodles and confectioneries.
Supporting ITC’s ‘other-FMCG’ ambitions is its core competency, the cigarette business. ITC’s consumer business’ growth has weathered storms, in part, thanks to the cash flows generated by its cigarette business which has helped it create stronger brands, an essential part of any consumer-centric business. Through its cigarette business, ITC also gets unparalleled access to a network of brick-and-mortar stores that have a diverse presence across India.
Also complimenting its growth is ITC’s agri-business, a segment which has also grown in strength over the years. From 10 per cent in FY14, the agri-business in FY23 contributed around 24 per cent to the company’s revenue from operations, as per ET Online’s calculations. ITC over the years has invested in building a competitive agri-commodity sourcing expertise. Some of these structural advantages have facilitated the company’s sourcing of agri raw materials for ITC’s branded packaged foods businesses, be it towards its atta, dairy or spices.
Like its peers, ITC too has given a fair deal of importance to its digital push, with more and more companies launching their D2C platforms. These platforms help customers buy products directly from the company website without the hassle of dealing with channel partners, and at the same time, the companies get their hands on first-party data. Such access can help the company market its offerings better. ITC, like some of its other peers, has also been investing in start-ups to diversify its product portfolio. It recently invested in Yoga Bar and Mother Sparsh.
The numbers behind ITC’s consumer business behemoth
Built to engage in the tobacco business, ITC got into cigarette packaging nearly 100 years ago. Another intent in recent decades has been to focus more on the non-cigarette business.
Puri saw it coming.
Upon being asked about the FMCG business overtaking cigarettes, Puri had said “We do not give guidance. But it will certainly happen because the other businesses are growing faster.”
After contributing nearly 62 per cent to the overall revenue in FY14, the cigarettes business in FY23 contributed only around 37 per cent.
ET Online calculations show that the other-FMCG business contributed 17 per cent to the overall revenue in FY14, which grew to 25 per cent in FY23.
Data confirms the claims made in the above segment. ITC’s non-cigarettes businesses have grown over 31-fold and currently form over two-thirds of its net segmental revenues. The company’s other-FMCG business didn’t start turning consistent profits up until FY14. Since then, it has gone from strength to strength.
ITC’s Other FMCG segment (the second largest contributor to sales) is also witnessing strong earnings and growth momentum, unlike most consumer staples peers.
The segment clocked a revenue of 19 per cent YoY while Nestle and Britannia saw 21 and 11 per cent growth each. FMCG EBITDA performance was even better, with the margin expanding by 430 bps YoY to 13.3 per cent & EBITDA growing 2.1x YoY.
Laughing stock no more
For years, the cigarette business has funded the growth of ITC’s other businesses like non-cigarette FMCG products, sometimes to the ire of shareholders who weren’t happy with the slow growth in financials and scrip value.
A slower growth in scrip value meant that for years ITC was also the laughing stock among social media circles. The stock often remained elusive during market rallies in the previous decade, offering poor returns in comparison to FMCG peers. Between 2014 and July 2022, ITC rose with dividends rose 53 per cent while Nifty50 rose 200 per cent, as per moneydhan.com, a SEBI RIA. ITC’s shares trailed the Sensex for five out of eight years through 2020.
“In the last ten years, HUL has done far, far better than ITC. And if you look at other companies in the same universe, say Dabur, it has also given superior performance. ITC has actually underperformed many of the large consumer names,” Aggarwal said.
But fast forward to 2023, not only is it among the best performers within the benchmark index, ITC has even trumped it. While Nifty50 has gained around 17 per cent in the last year, ITC has grown nearly 40 per cent. The ITC scrip in July crossed a market capitalization of Rs 6 lakh crore, beating HUL to become the largest FMCG company.
Sin stock
Prompting a move away to other segments is the nature of the cigarettes business. Tobacco is toxic, and investors are increasingly recognising it as such. Sin stocks are shares of companies engaged in a business or industry that is considered unethical or immoral.
While Environment, Social, and Governance (ESG) investing may be at a nascent stage in India, it is a serious parameter for global investors. Asia’s largest cigarette maker ITC cannot ignore it.
“The company sustained its ‘AA’ rating by MSCI-ESG –the highest amongst global tobacco companies– and was also included in the Dow Jones Sustainability Emerging Markets Index,” Puri noted in the company’s 2022 sustainability report.
Cigarettes, a bitter but essential overhang
For all the accolades for its gains in its other-FMCG business, ITC is nowhere close to ending its love for cigarettes, not that we are claiming it wants to. The Gold Flake-maker currently controls nearly 80% of the cigarette market.
The numbers in recent years suggest that the segment is flourishing more than ever before.
On an annualized basis, the return on depreciated cigarette assets is approaching a staggering 240%, three times the level two decades ago, as per a Bloomberg report. The entire legal cigarette industry was bleeding in the recent past due to punitive and discriminatory taxation on cigarettes. Taxes on cigarettes in India are multiple times higher than in developed countries viz. 17x of USA, 10x of Japan, 7x of Germany and so on, data shows.
But, companies are now recovering due to stable taxation. ITC’s three four-year cigarette sales CAGR are at their best levels since FY15 despite the company not taking material price increases over the last 13-14 months, as per a Motilal Oswal report.
ITC, which accounts for three out of every four cigarettes sold in the white market in the country, is currently seeing its best growth levels in over a decade, and is far superior to the flattish volumes of the past ten and twenty years.
(Published in Economic Times)
