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How ITC turned biscuits business around
Govindkrishna Seshan | June 28, 2006
Biscuits and tea in the morning were a routine. So were the key market players and their favourite products.
The two major players Britannia and Parle were busy biting of chunks of the national market among themselves, with a host of smaller brands in various regions.
While the business was still very competitive, there wasn't anything groundbreaking. In 2003, with ITC foraying into the segment, a lot of that changed.
At that time, Britannia and Parle held, between them over 82 per cent of the market in value terms. The rest too was firmly held by smaller players like Priya Gold which had a strong presence in the north. So, in essence, the market already had strong well entrenched players. So how could a late entrant like ITC make its mark?
Three years down the line, however, things have changed a lot. It is a classic story of the hare and the tortoise. While it is far from winning the race, slowly and steadily, the tortoise is gaining ground.
The late entrant is already on the podium in the third place with as much as 7 per cent of the market in terms of value. "ITC made hay when the sun wasn't shining," says a consultant who's been tracking the industry for a long time. But first, why did ITC train its eye on biscuits? Ravi Naware, chief executive, ITC Foods, makes it sound simple.
"We decided to enter the foods segment because it's a Rs 550,000 crore (Rs billion) market in India. But only 6 per cent of this is branded and packaged. In developed markets, nearly 95 per cent of the food market is branded and packaged. So there was lot of scope for a branded player."
In foods, biscuits was tempting. The Rs 4,000-crore (Rs billion) Indian biscuits market has grown at 12-14 per cent year-on-year. Then, there was a business synergy. ITC was already value-adding to wheat with its branded atta presence. By entering the biscuits segment, it could also improve its bottomline further.
But despite the fast growth rates, the biscuits industry was not all rosy. Over the years, even giants like Hindustan Lever had failed.
For instance, HLL which had flirted with biscuits under the Max brand exited in 2005. But ITC's Sunfeast has a different story to tell so far. the strategist looks at the gameplan of a late entrant and how the biscuits industry has responded.
Before entering the segment, ITC dug into market research. Research revealed that the category had gaps which ITC could settle into. Findings revealed that consumers wished to taste new and innovative products. That was precisely what the competition had not done in a big way.
Says Naware, "The biscuits industry had witnessed little innovation; Glucose was Glucose and Marie was still Marie." The company decided that this could be its biggest point of attack. In 2003, ITC launched Sunfeast with six ranges. But it was a calculated risk. ITC stuck to category favourites like Glucose, Marie and Bourbon cream.
Along with that, it also launched innovations such as orange-flavoured Marie, Marie light and butterscotch-flavoured cream biscuits. In 2004, Sunfeast followed this up with the launch of Sunfeast Milky Magic. More recently, it also has launched the Sunfeast Snacky and Sunfeast Golden Bakes.
Analysts believe that just because Sunfeast was a new brand, helped matters. Says a consultant, "The biscuits industry had not witnessed any major product innovation in years. Consumers were just waiting for something new, something fresh, when Sunfeast happened."
Even the competition had not made things better. Between 2000 and 2005 neither Parle nor Britannia launched any major new product. Yes, Britannia did re-launch its Tiger brand in 2005.
But Britannia claims that it is looking at more than just products. Richa Arora, general manager and head of marketing and innovations, Britannia Industries, says, "We are not just looking at new products, but tapping newer opportunities -- such as different occasions as well as out-of-home consumptions."
In 2005, before Diwali, Britannia launched Occasions -- boxes of assorted biscuits priced between Rs 50 and Rs 200 -- which the company claims has been very successful.
In 2006, however, the industry has seen a flurry of innovations from the big two. Digestive Marie -- was launched by Parle in early February 2006. Britannia launched its new double-flavoured Mariegold and 50-50 Chakkar. And Parle is all set to launch at least two new products before the end of this year.
It's common knowledge, that for FMCG products, distribution channels are very important.
Says Pravin Kulkarni, general manager, marketing, Parle Products, "For biscuits, distribution and visibility are extremely important as it's partly a impulse purchase product." And in biscuits, setting up a distribution channel is anything but easy.
Consider this. Priya Gold, which entered the western region in 2000, is struggling to find its feet even five years later.
However, in this regard, Sunfeast has been fortunate: thanks to its tobacco business, ITC already had a good understanding of distribution channels.
The company used its existing network of convenience stores -- the company's name for the hole-in-the-wall pan-beedi shops -- for Sunfeast. Not content with the existing resources, the company also looked at grocery stores and other retail formats.
The company says the brand is now available in nearly 1.8 million outlets. Britannia claims it has a superior distribution clout with its presence in nearly 3.3 million outlets. Parle, the seasoned player itself, says it is available in 1.5 million outlets. Sunfeast's next step was to step up its branding and promotion.
In August 2003, a month after its launch, the company undertook a major sampling exercise to promote the product. For two years then, the brand did all the usual rounds -- riding behind buses, blocking television spots, booking that corner space in your favourite newspaper and so on.
Well differentiated advertisements, some which showed a complete cream world with cream rivers, cream mountains and cream trees, were targeted at kids watching cartoon channels.
At the same time, on general entertainment channels, mothers received information on the importance of glucose, the wholeness of wheat and so on. Also, the company tied up with Bey Blades, the popular television series that was a rage among children, to promote itself.
In April 2005, Sunfeast launched its major campaign. It signed on Hindi film actor, Shah Rukh Khan as its brand ambassador.
In the same year, as the official sponsor of the WTA tennis championship -- titled the Sunfeast Open -- the company had teenage sensations Sania Mirza and Mahesh Bhupathi campaigning for it. But that's not all. For promotions in southern states, Sunfeast has signed Tamil super star Surya as a brand ambassador.
Analysts say that ITC's deep pockets have helped Sunfeast in many ways.
The company claims that it has been spending 35-40 per cent of its turnover from the biscuits segment on advertising and promotions. Going by that number, ITCs annual marketing spends are estimated to be in the region of about Rs 115-120 crore (Rs billion).
Until last year, Priya Gold spent close to Rs 45-50 crore (Rs billion), nearly 10 per cent of its turnover on marketing. Even market leader Britannia with spends of Rs 100 crore (Rs billion) (2004-05) spends about 10 per cent of sales on marketing.
But Arora says that the figure will increase substantially in 2006-07. ITC is clearly among the largest spender on ads and promotions in the biscuits category.
Analysts predict that these figures are all set to rise this year. But industry experts aren't impressed.
Says a consultant, "Although Sunfeast's Shah Rukh Khan association is interesting, it is yet to do something groundbreaking, like Britannia khao world cup jhao or the Lagaan promotion for that matter."
The biscuits industry now has two clear models. Parle products plays the low price game at all varieties of biscuits from glucose to cream.
Essentially, Parle plays a high volume, low margin game. But Britannia and Sunfeast look at a two-pronged strategy. High margins in cream variants and volumes from the Marie and Glucose segments.
For instance, cream biscuits from both Britannia and Sunfeast cost Rs 10 for 100 grams. Parle, however, only charges Rs 5 for its cream variants. Except for Hide & Seek, all of Parle's products lie in the price range between Rs 4 and Rs 6 for 100 gram packs.
To be fair, in Glucose and Marie, the companies have little choice. As there is little differentiation, consumers are extremely price sensitive. But these segments are important. Marie and the popular glucose varieties make up for nearly 55 per cent of the Rs 4,000 crore (Rs billion) biscuits segment -- a significant Rs 2,200 crore (Rs billion).
Says Sunil Alagh, chairman, SKA Advisors, and former CEO of Britannia Industries, "the biscuit consumer is willing to pay more only when he sees a clearly differentiated product. Hence companies have little choice in terms of pricing." No wonder all the Glucose and Marie variants straddle price points of Rs 4-6 (for 100 grams).
Back in 2003, nobody thought Sunfeast would have consumers eating out of its hands. Says Naware, "Seven per cent in less than three years is something that we could have only dreamt about."
Importantly, industry barometer AC Nielsen has indicated that both Parle and Britannia are losing market shares. According to the AC Nielsen retail sales audit in March 2006, both Britannia and Parle have lost volumes. Britannia's shares have dropped from 35.8 per cent in 2004-05 to 30.5 per cent in May 2006 (volumes). Parle's shares have also dropped from 42.2 to 38.4 per cent in the same period.
Even Priya Gold has seen a minor dip from 6.4 per cent to 5 per cent. ITC's Sunfeast has been a big gainer with its share increasing from 2.7 to 6.7 per cent.
In terms of value, Britannia leads the market with 37 per cent market share, followed by Parle's 31.3 per cent and ITC's 6.3 per cent. Nevertheless, the gap is still wide. Sunfeast still has a long way to go.
But what can the bigger players do? Alagh has an interesting observation. Says he, "Biscuits have always been a low margin, high volume game. Both Britannia and Parle have very high volumes and can easily afford to lower their margins."
A potential after-effect? Sunfeast too may have to drop its prices to be in the reckoning and this will squeeze its margin even lower. While the full game is yet to be played out, for the moment the sun seems to be shining on Sunfeast.
Creaming the market. . .
. . . needs further embellishments