ICMR Case Collection

ICFAI Center for Management Research

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ITC Foods’ Growth and Future Prospects
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MKTG135

This case was written by Ishani Chakraborty and Sachin Govind, under the direction of S.S. George,
ICFAI Center for Management Research (ICMR). It was compiled from published sources, and is intended
to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a
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management situation.

 2006, The ICFAI Center for Management Research. All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means- -
electronic or mechanical, without permission.

To order copies, call +91-40-2343-0462/63 or write to ICFAI Center for Management Research, Plot # 49,
Nagarjuna Hills, Hyderabad 500 082, India or email icmr@icfai.org. Website: www.icmrindia.org
 MKTG/135

ITC Foods’ Growth and Future Prospects

“There is no other country in the world than India, which has such a wide variety of food. All over
the world people are getting health conscious and India offers them a great choice. Thus, we do
not want to export the brand ‘Kitchens of India’ but want to establish the brand as the brand of the
mainstream consumer in the global market.”1
– Ravi Naware, Chief Executive, Foods Division, ITC Ltd., on April 24, 2006.
“I’m very bullish. Over the next couple of years, we expect it (ITC Foods) to turn profitable.”2

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– Nikhil Vora, Vice President (Research), SSKI Securities, on February 03, 2006.

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“Unlike in the ready-to-eat segment which is still small and the onus is more on growing the
category than getting share, in the other categories ITC has to contend with entrenched
competition. Success will depend on how much patience it has to drive growth over a period of
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time.”3
– Ravi Nigam, President, Tasty Bite Eatables Ltd., in 2004.

INTRODUCTION
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On May 3, 2006, ITC Foods, the foods division of ITC Ltd, a major Indian conglomerate,
announced its plan to set up a biscuit manufacturing unit at Haridwar in Uttaranchal with an
investment of over Rs.700 million. The proposed plant with a manufacturing capacity of 2,000
tons per month was to become operational by March 2007.
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In early 2006, ITC Foods, with a market share of 5.3%, trailed behind Parle Products Ltd. (Parle)
and Britannia Industries Ltd. (Britannia), the market leaders in the Indian biscuits market
(organized sector)4. However, the company was expanding its distribution network aggressively
and was set to introduce new biscuit variants to improve its market share.
The ITC Group had entered the branded and packaged food business in August 2001 with the
launch of ready-to-cook products under the Kitchens of India (KoI) brand. This was followed up
by product launches in the confectionery, staples, and snack food segments within a year. As of
early 2006, it had emerged as a major player in the foods business. Analysts observed that its
heavy investment in manufacturing and infrastructure indicated that ITC was bullish on the
prospects of its foods business.

1
Pritie S. Jadhav “ISA Seminar Day 2: There is more to India than IT,” www.exchange4media.com.
2
Venkatesh Babu, “Hungry for more,” www.business-today.com, February 03, 2006.
3
Purvita Chatterjee, “ITC’s thought for foods,” www.blonnet.com, September 09, 2004.
4
The organized sector refers to companies in the public and private sectors, and cooperatives. In manufacturing,
registered factories covered under Factory Act are considered as part of the organized sector.

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 ITC Foods’ Growth and Future Prospects

ITC developed new product lines in its foods business drawing on its competencies in brand-
building, R&D, packaging, and distribution. However, market analysts were not sure whether ITC
would achieve success in all the food categories that it had entered. According to a consultant at
Quadra Advisory5, apart from the ready-to-eat category, ITC Foods was likely to face hurdles in
every other food category, and especially so in the biscuits and confectionery category, due to
intense competition. However, more recent reports suggested that even in the ready-to-eat
category, the competition was heating up.

BACKGROUND NOTE

ITC was established on August 24, 1910 as the Imperial Tobacco Company of India Limited in
Kolkata. Initially, the company was involved in the trading of imported cigarettes. In 1925, in a
backward integration move, the company started a packaging and printing business.
The name of the company was changed to India Tobacco Company Limited (I.T.C. Ltd.) in 1974.
In 1975, I.T.C. Ltd., through ITC-Welcomgroup, tied up with the US-based Sheraton Corporation6
to enter the hospitality industry. It acquired its first hotel in Madras (later renamed Chennai) in
Tamil Nadu and called it the Welcomgroup Chola Sheraton.

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I.T.C. Ltd established ITC Bhadrachalam Paperboards Ltd. (IBPL) in 1975. The company started
production at its integrated pulp and paper/board manufacturing facility at Bhadrachalam, Andhra
Pradesh, in 19797.
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In 1990, I.T.C. Ltd. set up an International Business Division (IBD) for export of agri-
commodities.
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I.T.C. started a greeting cards business under the brand name Expressions in the year 2000. In the
same year, I.T.C. also entered the fashion retailing business by extending its well known cigarette
brand Wills. The retail outlets were called Wills Lifestyle and offered premium leisure wear for
men and women under the Wills Sport brand.
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In September 2001, the company was renamed ITC Ltd (without full stops, and with no meaning
attributed to the alphabets). In 2001, ITC made an entry into the foods business, and entered the
business of safety matches, where it could use the same distribution network as that of its cigarette
brands, in 2002.
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In 2002, IBPL was amalgamated with ITC to form the Paperboards & Specialty Papers Division of
ITC. This was done to “harness strategic and operational synergies.”
In 2002, the company launched another clothing brand, John Players, which targeted the urban
youth. In 2003, ITC started marketing incense sticks manufactured by small scale and cottage
units.
In 2004, ITC was one of eight Indian companies to make it to the “Forbes ‘A’ List”8 which
featured 400 of “the world’s best big companies”. In March 2005, the board of directors of ITC
approved the company’s five-year business plan (2005-06 to 2009-10) which involved an
investment of Rs. 140 billion. The plan included setting up of new plants and upgrading existing
ones in its tobacco, foods, apparel, paperboards, packaging, and hotels businesses.

5
Quadra Advisory is a strategic marketing consultancy owned by WPP, the world’s leading communications services
group.
6
Sheraton was established in 1937 in Massachusetts. It was acquired by Starwood Hotels and Resorts Worldwide,
Inc., one of the world’s largest hotel and leisure companies, in 1998. The other brands of Starwood include St.
Regis, The Luxury Collection, Westin, and W.
7
www.hdfcsec.com.
8
The other Indian Companies in the Forbes A list in 2004 were Reliance Industries, Bharti Tele Ventures, Infosys,
Wipro, Bharat Petroleum, ONGC, and SBI.

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 ITC Foods’ Growth and Future Prospects

As of early 2006, ITC was one of India’s most valued and respected private sector companies with
a market capitalization of over US$ 7 billion (Refer Exhibit I for ITC’s financials and Exhibit II for
more details on ITC’s businesses).

ITC FOODS: TASTING SUCCESS?

Entering the foods business was a strategic decision for ITC. While ITC’s core business, tobacco,
was under pressure owing to several factors like government bans on advertising cigarettes and on
smoking in public places (from February 2001), hikes in the excise duty for cigarettes, and anti-
tobacco campaigns, the liberalization of the Indian economy had thrown open several
opportunities which the company was eager to exploit. Being a cash-rich company, ITC planned to
deploy its surplus in the packaged food business where it saw huge business potential.
With a population of over one billion, 300 million of whom belonged to the middle class, India
was a large market for food products. By the early 2000s, rapid urbanization, increase in literacy
levels, greater media exposure, and rising per capita incomes resulted in increased demand in most
categories of foods.
ITC was eager to capitalize on the business opportunities in this segment by leveraging the

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strength of the group’s other businesses. It also expected to gain a competitive advantage in

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marketing from its extensive distribution network and advanced procurement system. Other
businesses like paperboards, packaging & printing were to support the foods business by providing
state-of-the-art packaging at cost-effective rates. The hotels business was to help the company in its
ready-to-eat & ready-to-cook business by making available its ‘cuisine expertise.’
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ITC forayed into the branded and packaged foods business in 2001 with the KoI brand of ready-to-
cook products. Subsequently, the company entered other categories like confectionery, staples, and
biscuits.
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READY-TO-EAT
In 2001, ITC launched the KoI brand of ready-to-eat gourmet dishes under sub-brands - Bukhara9,
Dum Pukht10, and Dakshin11 - popular cuisines from specialty restaurants of the same names at
ITC Welcomgroup hotels. With prices ranging from Rs.150 to Rs.200 for a 450g pack, they were
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positioned as premium products for the food connoisseur, with target groups including tourists,
NRIs, etc. Ravi Naware (Naware), CEO, ITC Foods, said, “It’s actually ready-to-eat gourmet
cuisine from ITC’s Bukhara, Dakshin and Dum Pukht restaurants. KoI is a premium range in the
ready-to-eat category targeted at tourists, consumers who order at home, NRIs and women in the
age group 25 plus.”12 The ‘preservatives-free’ products were available in retort pouches13 with a
shelf life of twelve months. In 2003, the product line was extended to include Gharana14 within
the same price range (Refer Exhibit III for the complete range of KoI products).

9
Bukhara style of cooking originated in a small village called Bukhara in Uzbekistan, a transit point in the ancient
‘Silk Route’.
10
Dum or steam-cooking originated in Central India in the 18th century during the time of the Nawabs of Awadh. In
this style of cooking, the vegetable/meat is steam cooked in its juices.
11
Dakshin means south in Hindi. The recipes included delicacies from the southern part of India.
12
Lalitha Srinivasan, “ITC Foods plans online initiatives for Ready-to-Eat snacks,” www.fe.com, February 28, 2003.
13
Retort pouches are flexible pouches made from multi-layered heat-resistant plastic films, with or without aluminum
foil as one of the layers. These are uniquely suitable for heating the food contents at temperatures around 120
degrees Celsius.
14
KoI Gharana products included traditional Indian recipes from various parts of the country in a ready-to-cook form.

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 ITC Foods’ Growth and Future Prospects

In the same year, ITC started an exclusive website for the KoI brand - www.kitchensofindia.com –
to provide product information and to facilitate online buying. Also, ITC entered into tie-ups with
leading web portals like rediff.com for the online advertising of the brand. A toll free number was
put in place for home delivery in metros like Delhi, Mumbai, Kolkata, Chennai, and Hyderabad.
KoI brand sweets were introduced in 2003 (Refer Exhibit IV for a photograph of the product) and
were priced at Rs. 150. To encourage larger take-offs, ITC promoted them as a corporate gift
during festival seasons (Diwali, New Year, etc). It also came up with innovative packs that looked
like treasure chests to attract corporate customers. The chests could be customized with the
customer company’s message and logo. Agents were appointed to promote the KoI sweets as a
better alternative to traditional sweets.
In 2003, ITC also started exporting KoI brand products to the USA, Canada, the UK, Switzerland,
and Australia.15
By 2003, the ready-to-eat category saw a growth rate of 30% due to several factors like
convenience, constantly changing food habits, and the increase in the number of double-income
nuclear families who demanded high-quality, hygienic convenience foods and were willing to pay
more. Jagdeep Kapoor, managing director, Samsika Marketing Consultants16, said, “Four reasons

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for the runaway growth of this (ready-to-eat) market are convenience, taste, health, and aspiration
among the young.”17

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ITC aimed to capture a significant share of the ready-to-eat market. However, owing to its
premium positioning, the KoI brand couldn’t bring in volumes. ITC wanted to expand the market
without diluting the premium image of the KoI brand. Therefore in June 2003, it extended its
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Aashirvaad brand, which had till then been used for ITC’s staples like salt and wheat flour, to the
ready-to-eat category, with the launch of a variety of dishes under the Aashirvaad ReadyMeals
label. “The ready-to-eat segment is just beginning to grow. According to estimates, this is growing
at 30% per annum. We would like to be the leader in the category and aim to achieve all-India
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coverage in the first year (of the launch of Aashirvaad). Aashirvaad will now be the ready-to-eat
solution for the time-pressed family,”18 said Naware. The products were priced Rs. 35-40 for a
285g pack. Analysts felt that the competitive pricing would widen the market by including middle
class buyers as well. Naware said at the launch, “While Aashirvaad will enable Indian women to
nurture a wholesome tasty meal instantly ready, it will be an easy option for bachelors and single
people.”19
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In 2004, the company launched KoI brand fruits and spice conserves and cooking pastes. The fruits
and spice conserves, inspired by the traditional chhunda (combination of fruit and spices) from
Gujarat, were developed jointly with Karen Anand20, a food expert. Priced at Rs. 70, these were
targeted at the premium segment. The KoI cooking pastes, which were priced at Rs.30 for a 100g
pack, also targeted the high-end market. Multi-purpose cooking pastes was also launched under the
Aashirvaad brand and these were priced at Rs. 10 for an 80g pack. The manufacturing of these
products was outsourced to contract manufacturers.

15
While KoI brand ready-to-eat products were sold in the US, Canada, Switzerland, the UK, and Australia, KoI
chutneys were sold only in the US and Australia. Spice pastes were sold in Canada and Australia and Instant rice
snacks were sold in Switzerland. (Source: www.kitchensofindia.com)
16
Samsika is a brand marketing consultancy providing consultation and guidance on advertising, public relations,
market and media research, etc.
17
Kiran Pandya, “Ready-to-Eat meals gaining popularity,” ww1.mid-day.com, November 6, 2003.
18
“ITC launches Aashirvaad ReadyMeals,” www.economictimes.com, July 09, 2003.
19
“ITC launches Aashirvaad ReadyMeals,” www.economictimes.com, July 09, 2003.
20
Karen Anand is a celebrity food expert who has authored several books like Karen Anand’s International Cooking,
Simple Cooking for Smart Men, etc. She has also hosted cookery shows on television like Cook Na Kaho, Good
Food Guide.

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 ITC Foods’ Growth and Future Prospects

In 2004, ITC won the National Excellence Award21 for its ready-to-eat products. It was conferred
the title - ‘King of Ready-To-Eat Products’. ITC entered the branded spices market in 2005 and the
Instant Mix segment in 2006, both under the Aashirvaad brand (Refer Exhibit V for the complete
product list under Aashirvaad).
As of April 2006, the total turnover in the Indian ready-to-eat and ready-to-cook segments was
only around Rs. 700 million, but it continued to post an annual growth of 20%. “Ready-to-eat is
still a niche market in India but changing lifestyles and lack of (culinary) skills are factors that can
increase volumes in this segment,”22 said Naware. By early 2006, though ITC had captured a 35%
market share in the ready-to-eat segment, MTR was the clear market leader with close to 60% in
market share. ITC exported 40-50% of KoI brand products (in terms of volumes)23 to the US,
Canada, the UK, Switzerland, and Australia.
In May 2006, ITC was reportedly planning to introduce ten more varieties under the KoI brand
within a price range of Rs. 35 to Rs. 98. ITC was also very optimistic with regard to its Instant Mix
products. According to company estimates, the size of the instant mix market in India was about
Rs. 1.5 billion with an annual growth of 15%. The company was aiming for a 20% share of the
market in 2006-07.

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CONFECTIONERY
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ITC entered the confectionery market by acquiring Mint-O, a compressed mint tablets brand, from
the Delhi-based Candico India Limited24 in 2002 and re-launching the brand with new packaging
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and improved quality. Mint-Os were available in six and twenty mini roll packs and were priced at
Rs. 2 and Rs. 5 respectively. They came in mint and orange flavors.
At the end of 2003, ITC launched Candyman in the boiled sugar candy segment in banana, mango,
and orange flavors. They were priced at 50 paise per unit. Initially, they were launched in Uttar
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Pradesh and Tamil Nadu.

The Mint-O brand was extended to the hard-boiled candy segment as Mint-O-Fresh in 2004. These
were priced at 50 paise each, targeting the impulse purchase segment. Mint-O was positioned as a
youthful ‘cool’ product, whereas Mint-O-Fresh focused on ‘fresh breath.’ Advertisements for the
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brand appeared on major TV channels.

In 2005, ITC launched Cofitino, a coffee-flavored toffee. Company personnel claimed that
Cofitino contained natural extracts of Robusta coffee beans instead of spray dried instant coffee
which was supposedly used by other companies. Later, other flavors like butterscotch and
pineapple were added.
ITC’s confectionery sales benefited from the company’s cigarette distribution network covering
more than 1.5 million retail outlets across the country. Naware said, “We have achieved a good
growth in the confectionery segment with one of the products (Mint-O) getting a 17 per cent share
within 15 months of its launch.”25

21
The National Excellence Awards are awarded by Mumbai-based Wisitex Foundation. These awards were conferred
at the Maharashtra Agri Food 2004.
22
“ITC adds 10 more items to Kitchens of India,” www.fnbnews.com, May 13, 2006.
23
“ITC adds 10 more items to Kitchens of India,” www.fnbnews.com, May 13, 2006.
24
Candico India Limited, the confectionary division of Bakeman’s Industries Limited (BIL), was established as a
separate confectionary company in April 1997. BIL was incorporated in 1978 as a biscuit manufacturing company.
It launched Mint-O in 1987.
25
“ITC Foods plans own facility to make biscuits,” www.thehindubusinessline.com, March 27, 2006.

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 ITC Foods’ Growth and Future Prospects

As of 2005-06, ITC had an 8-9% market share in the Indian confectionery market. In a market
which was estimated to be worth around Rs. 19 billion, ITC was the fourth largest in terms of
market share, after Perfetti, Nutrine, and Parrys.

STAPLES

ITC entered the staples market in 2002 with wheat flour under the Aashirvaad brand. In the same
year, the Government of India’s (GoI) proposal to remove restrictions on the movement of agri-
commodities across states gave a boost to the trade in wheat flour. In 2003, ITC extended the
Aashirvaad brand to edible salt.
ITC positioned its wheat flour on the health & hygiene and value for money planks. Success in the
staples business, especially in the branded and packaged wheat flour business, depended on two
factors – an effective distribution network and the quality of the product. As Sinchan Banerjee,
procurement and logistic manager, ITC Foods said, “Hygiene is a big issue. You need to keep the
transit times as low as possible. You should not be out of stocks but at the same time the stocks
should remain fresh.”26 Therefore, ITC attempted to ensure that the supply chain was responsive,

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and laid emphasis on making accurate sales forecasts using inputs from distributors, sales
personnel and a well-managed MIS system. The order to remittance cycle was kept at 7-10 days

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and some buffer stocks were also kept at the distributor level. To maintain freshness of the
product, the company strove to minimize the transit time by regulating the shippers to maintain
company-specific transit norms. Non-adherence to the transit norms resulted in penalties for the
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shippers. The physical aspects of the supply chain like warehouses and trucks were closely
monitored to maintain cleanliness.
ITC also enjoyed cost advantages over its competitors owing to its electronic procurement system
called e-Choupal (Refer Table I for more information on e-choupal) and its printing and packaging
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business, which provided the staples business with high-quality, cost-effective, and innovative
packaging. The wheat flour was packed in PET recyclable polypacks, with a Madhubani27 painting
depicting the farming process on the outer cover, making it both aesthetic and environment-
friendly. It introduced carton packaging with vacuum sealing in its 5kg premium pack.
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Table I: E-Choupal
ITC initiated the ‘e-choupal’ project in 2000 in order to establish a strong agricultural product
supply chain. E-choupals were internet kiosks providing real time information to the farmer
regarding weather, commodity prices and better farming practices in local languages. ‘Choupal’
in Hindi means ‘village meeting place’. ‘E-choupal’ was meant to be a virtual meeting place for
the producer and the processor where farmers can transact directly with the processor and can
realize better prices for their produce.
In the conventional value chain, the farmers used to sell their produce to intermediaries who
took them to the processing unit. In this system, the procurement cost for the processor
increased with the increase in the number of intermediaries as profit margins were added at
each level. The farmers received the lowest margin in the whole value chain, in spite of the fact
that they did the most work. Also, the intermediaries blocked the flow of market information to
farmers. E-choupal allowed the farmer to get a larger share of profit by minimizing the number

26
“How ITC ate competition’s lunch,” www.safexpress.com, September 05, 2004.
27
Madhubani painting, also known as Mithila art, originated in the Mithila region of Bihar. It is traditionally done by
women on a mud wall.

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 ITC Foods’ Growth and Future Prospects

of levels of intermediaries and helped them to become ‘market oriented’ by providing

information. For ITC, it was an effective way of strengthening its rural distribution network and
deriving cost benefits through lower purchase rates.
In the ‘e-choupal’ set up, a level of intermediary called sanchalak acts as an interface between
the processor and the farmer. ITC accumulates information regarding weather, modern farming
practices, and market prices from various sources like the Meteorological Department, agri-
universities, mandis (regional markets), etc, and uploads them on the ‘e-choupal’ web site. All
information is customized according to the local farmers’ requirements and provided in the
local language through computers set up by ITC in the sanchalak’s house. The sanchalak
accesses this information and facilitates its dissemination to farmers. The sanchalak works as
the ‘aggregator’ for small farmers’ produce which is then bought by ITC. The e-choupal
initiative also procures farm inputs like seeds, fertilizers, pesticides, etc., at the lowest rates
which are then sold to the farmers.
In August 2004, ITC opened “Chaupal Sagar,” a village shopping complex in Rafiqganj,
Madhya.Pradesh. It served as a retail outlet for a number of products starting from toiletries to

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motorcycles and tractors. Also, ITC used it as a warehouse for storing farm produce that the
company bought through its e-choupals.

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As of early 2006, ITC’s e-choupal network covered Madhya Pradesh, Karnataka, Andhra
Pradesh, Uttar Pradesh, Maharashtra, Rajasthan and Kerela. The e-choupal operation has
reduced the procurement, transit and material handling costs of the company, as farm produce
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can be purchased at the farmer’s doorstep through the sanchalak. In the process, ITC has also
created a better supply chain for its food and agri-business.
Compiled from various sources.
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By early 2006, ITC had a 40% market share in the Rs. 6 billion packaged flour business28. Its
closest competitor HLL’s Annapurna brand was trailing behind with a market share of 18%. The
market was growing at 12%.
In the Rs. 4 billion organized salt market (as of 2006), Tata Salt was the market leader with a 28%
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market share29. Though ITC had only a 5% share of the market, it was optimistic of growth in
future. Other players in this business were HLL (Knorr Annapurna), Nirma (Shudh), Marico
Industries (Saffola), etc.

BISCUITS

ITC entered the biscuits market with Sunfeast in 2003, with three varieties of biscuits - glucose,
marie, and cream. While Sunfeast Glucose targeted children in the age group 4-14 years and their
mothers, Sunfeast Orange Marie and Marie Light were targeted at housewives/families. Sunfeast
Cream (orange, butterscotch, and bourbon) was also targeted at children.30 The Orange Marie and
butterscotch cream variants were introduced after a year long product R&D effort and extensive
sampling covering 14,000 consumers. Gradually, the product line was expanded (Refer Table II for
the product list in 2006).

28
Venkatesh Babu, “Hungry for more,” www.business-today.com, February 03, 2006.
29
Venkatesh Babu, “Hungry for more,” www.business-today.com, February 03, 2006.
30
“ITC launches Sunfeast range of biscuits,” www.itcportal.com, July 30, 2003.

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 ITC Foods’ Growth and Future Prospects

Table II: Sunfeast

Product Weight (grams) Price (Rs.)

Glucose 100, 75, 19 4, 3, 1
Orange Marie 200 13
Marie light 200, 400 13, 19
Butterscotch cream 100 10
Milky magic 100, 150 7, 10
Strawberry cream 100 12
Pineapple cream 100 12
Coconut 100 12
Snacky 75 6

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Golden Bakes 100 10, 12, 13
(butter, cashew, honey)
* The list is not exhaustive
Source: www.itcportal.com.
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Television advertisements for the Sunfeast brand appeared way before the actual launch of the
product. The advertisements, which appeared on both national and regional channels, essentially
focused on product attributes. The production of the biscuits was initially outsourced to contractors
in different states like West Bengal and Maharashtra, to keep costs low.
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According to estimates, the organized segment of the Indian biscuits industry in 2004 was growing
at a rate of 13.5% in terms of value.31 ITC’s strategy was to increase market share by launching
new products, backed by heavy promotion, to fill every product segment. As a part of the strategy,
Sunfeast Milky Magic was launched in 2004. Initially, it was marketed in Tamil Nadu. ITC also
launched three more variants - Sunfeast Strawberry Cream, Sunfeast Pineapple Cream, and
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Sunfeast Coconut - in the same year.

In 2005, ITC signed on the popular Hindi film star Shah Rukh Khan as the brand ambassador for
Sunfeast. It also organized a number of promotional activities in the period. ITC sponsored ‘The
Sunfeast Open 2005’, a women’s tennis event, held in Kolkata. It also launched an environmental
awareness program – ‘Sunfeast Hara Banao Campaign’32 - in Mumbai which attracted a
participation of over 70,000 students from over 100 schools. Under the campaign, ITC also
organized a sapling plantation drive in Khammam, Andhra Pradesh. Overall 300,587 saplings were
planted by 15,907 farmers within 20 minutes. This set a record which found a place in ‘The
Guinness Book of World Records’.33
In 2005, ITC expanded its product line with the launch of Sunfeast Golden Bakes and Sunfeast
Snacky, in the cookies and salted crackers segments - both of which were showing strong growth

31
FICCI ‘Food and beverages survey,’ press release, www.ficci.com, September 2004.
32
The Sunfeast Hara Banao Camapign aimed to sensitize people about environmental problems. The environmental
campaign was extended for a period of six months and involved children between the age group of 11 and 15 years.
33
The earlier record was held by a Canadian organization which had planted 134,083 saplings in one hour.

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 ITC Foods’ Growth and Future Prospects

rates. The cookies segment grew at 30% in 2005 and the total size of the segment was pegged at
Rs. 5 billion.34
The biscuits market was highly competitive with a presence of strong players like Britannia and
Parle. Hence ITC had to create new and differentiated products in each and every segment. “We
decided not to play on our competitors’ turf; our aim was to create new markets for ourselves.
Thus, we introduced an Orange Marie, a butterscotch cream biscuit, chilli flakes in a biscuit and
even honey flavor under the Sunfeast brand,”35 said Hemant Malik, head of marketing, ITC Foods.
Sunfeast had a market share of 5-6% in the biscuits market in 2005-06, which was double its
market share of 2.7% in 2004-05 (Refer Exhibit VI for market shares in the organized biscuits
market).
In March 2005, ITC Foods launched Sunfeast Pasta, a whole wheat based product targeted at
children. It was expected to compete with products like Nestle’s Maggie noodles. Within a few
months of the launch, Sunfeast Pasta had secured a 6% share in the branded noodles and pasta
market (based on volumes). In March 2006, the excise duty on pasta was slashed from 16% to nil.
This was expected to support its growth.

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In 2006, ITC Foods tied up with New York-based Company ‘House of Spices’ to launch Sunfeast
across the US. “To announce Sunfeast’s foray into the US, we are beaming television commercials

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featuring Shah Rukh Khan on Indian channels in the US,”36 said Naware.
In March 2006, ITC had decided to set up its own manufacturing facilities in Karnataka and
Uttaranchal to produce biscuits. The total capacity of these two factories was estimated to be
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around 10,000 tons per month. This decision was part of the March 2005 investment plan. Under
the plan, the foods division was to invest close to Rs. 4.5 billion between 2006 and 2008.

CHALLENGES
No

Traditionally, the foods business has been a low-margin business in India, while building brands
required huge amount of money. As a result it often took several years to earn returns on
investments made in the foods business. However, ITC expected to break even in 2007.
The unorganized sector was a formidable force in the foods business. Unorganized players
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incurred very low marketing and selling costs owing to their limited area coverage. Also, more
often than not, they used low quality ingredients and didn’t always follow regulations, which
helped them to keep their operational costs low. As a result, they could price their products lower
than the players in the organized sector. ITC faced tough competition from the unorganized sector
in the categories of biscuits, staples, and spices.
In the ready-to-eat segment, ITC faced competition from companies like MTR and Tasty Bites
(Refer Exhibit VII for the list of competitors). At the end of 2005, MTR was the market leader in
this segment with around 60% market share. They were also exporting their products to countries
like the USA, Singapore, Japan, and Australia.
The confectionery business was a highly price sensitive market with intense competition from
regional as well as national players (Refer Exhibit VIII for the list of competitors). Hence, profit
margins were low and sales volumes were critically important. But here too, building a brand
entailed huge expenditures on advertising.

34
“ITC Foods forays into cookies segment,” www.sify.com, August 11, 2005.
35
Venkatesh Babu, “Hungry for more,” www.business-today.com, February 03,2006.
36
“Shah Rukh to launch ITC’s Sunfeast in US,” www.fe.com, March 22, 2006.

9
 ITC Foods’ Growth and Future Prospects

The annual per capita consumption of biscuits in India (about 1.52 kg) was much lower than in
developed countries (about 12 kg). However, in the 2000s, more focused advertising, new product
launches targeting age-specific markets and upgraded packaging resulted in healthy growth in the
Indian biscuit industry. Reduction in excise duty from 16% to 8% in the year 2004-05 also boosted
growth. At the end of 2005, the Indian biscuit market recorded a growth of 12%.37 Yet, India had a
long way to go to catch up with industrialized countries. Till then, companies, including ITC, had
to spend heavily to expand the market.
In the biscuits business, Britannia and Parle were the market leaders, far ahead of ITC in market
share. In terms of value, Parle and Britannia had market shares of around 40.3% and 31.6%
respectively. While Britannia catered to the mass market segment with its Tiger brand and
aggressively tapped the rural market, Parle had Parle-G, the largest selling biscuit brand in India.
Parle was planning to launch Parle-G in Russia and Bangladesh as well. “We are focused on
catering to the masses and our products are available in the smallest markets,”38 said a Parle
spokesperson. Unlike Britannia and Parle, ITC did not have a blockbuster mass product. Analysts
felt that to grow in the biscuits business, the mass market was the key.
As of early 2006, the overall biscuit industry was facing the problem of an increase in production

y
costs, mostly due to an increase in wheat prices. “Biscuits industry in the country is facing acute
hardships and heavy losses due to steep increase in the prices of wheat and consequently of wheat

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flour,”39 said B P Agarwal, President, Federation of Biscuit Manufacturers of India (FBMI). The
FBMI requested Sharad Pawar, Union Minister for Agriculture, to allow import of wheat at zero
customs duty. The prices of other inputs like sugar (20-30%), and fuel (30%) had also increased in
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2005-06, contributing to higher production costs.
From April 2004, biscuits were subjected to 8% excise duty40. With the imposition of Value Added
Tax (VAT) from April 2005 at a rate of 12.5%, the biscuits industry was adversely affected.
Despite the ‘VAT Empowered Committee’ recognizing the importance of food processing for
No

agriculture in particular and the economy in general, and suggesting 4% VAT rate for all processed
foods, most states imposed a rate of 12.5%. Moreover, several states imposed local taxes over and
above the VAT.
Although there was a growing demand for branded and packaged wheat flour, the unorganized
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sector accounted for a large proportion of the market. In general, Indian consumers were price
sensitive, especially in the case of daily consumables like wheat flour. Most people preferred to
buy ‘loose atta’41 priced around Rs. 14-15 a kg instead of the branded wheat flour priced at Rs. 20-
21 a kg. ITC and other players in the organized sector also faced tough competition from regional
players like Shakti Bhog atta and Rajdhani atta (Refer Table III for the list of competitors).
Table III
List of Competitors in the Branded Wheat Flour Market
Company Brand USP
HLL Annapurna Fortified with iron and vitamins
Pillsbury Pillsbury Healthy heart

37
FICCI ‘Food and Beverages Survey’ February 2006’, www.ficci.com.
38
“Shah Rukh to launch ITC’s Sunfeast in US”, www.fe.com, March 22, 2006.
39
Sabyasachi Samajdar, “Biscuit makers seek relief,” www.fnbnews.com, Feb 04, 2006.
40
“Union budget 2003-04,” www.indiainfoline.com.
41
Loose atta refers to unbranded wheat flour. Usually, shop keepers in India buy wheat and convert it into flour. This
is either packed in plastic packs or in tins and sold.

10
 ITC Foods’ Growth and Future Prospects

Agrotech Healthy world High protein and vitamin contents, sugar control atta for diabetes
Cargill Nature fresh Purity
Compiled from various sources.

THE ROAD AHEAD

The foods industry was considered the next “sunrise industry” in India. In terms of total output
addition (value), foods industry surpassed IT and pharmaceuticals in the period 1993-200042. The
government’s high priority on commercialization and value addition to agricultural produce led to
liberal reforms and tax benefits in the late 1990s which had a positive impact on the growth of the
industry. At the end of 2005, the overall growth rate of the foods industry was estimated to be
between 10 and 15%.
The reduction of excise duty on packaged food from 16% to 8% and the exemption of excise duty
on instant food mixes in budget 2006 were expected to boost ITC’s cost competitiveness,
considering that it already enjoyed cost advantages in packaging and logistics.

y
According to food and beverage industry reports in 2006, the GoI was planning to set up “Food
Parks” across the country to attract foreign direct investment (FDI) in the food processing sector. It

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declared a total assistance of around Rs. 1 billion to implement the “Food Parks” scheme and so
far 50 food parks were approved for assistance.43 In addition to pro-active measures, the GoI was
expected to pass legislation to allow large scale farming and contract farming which were expected
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to encourage growth in the food processing industry. However, this was expected to attract foreign
companies as well, intensifying the competition in the segment.

ITC’S PROSPECTS
No

ITC was planning to expand its reach over the rural market with the planned opening of over 30
Chaupal Sagars, its rural hypermarket. Fifteen Chaupal Sagars were to be set up by the end of
2006. This was expected to generate revenues of around Rs. 200-300 million annually. Within a
span of 10 years, ITC planned to set up 700 Chaupal Sagars. It also intended to extend its e-
choupal network to 5,200 installations which would eventually serve 31,000 villages and 3 million
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farmers. These initiatives were expected to strengthen ITC’s distribution and procurement
networks and cost-competitiveness.
ITC was also planning to get into newer product categories like packaged fruit pulps and
organically grown branded fruits. “We are already exporting organic fruit pulps to institutions and
the export turnover is estimated at Rs. 4 crore (Rs.40 million). We could soon launch organic fruits
and pulps in the domestic market,”44 said S Sivakumar, head of ITC’s agri business. However, as
of March 2006, the company had not decided on the specifics of the project, like the brand name
for the products and the plan of action on the sales and distribution front.

42
According to FICCI food and beverage survey 2006, total output addition in IT and Pharmaceuticals was
Rs. 300 billion and Rs. 150 billion respectively whereas food manufacturing recorded an output addition of Rs.900
billion.
43
www.ibef.org.
44
“Now, ITC to launch organically farmed branded fruits,” www.timesofindia.com, March 25, 2006.

11
 ITC Foods’ Growth and Future Prospects

ITC’s Foods division was optimistic of breaking even in 2007. Its turnover in the foods business45
was around Rs. 8 billion in 2005-06. But the company had larger ambitions. “We want to become
the number one foods company in India within the next five years,”46 said Naware. However,
given the intensity of competition facing the company, this was not going to be easy.

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No
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45
As per ITC’s 2005-06 financials, the businesses under ‘FMCG-others’ brought in revenues of Rs. 10,134.7 million
of which close to Rs. 8,000 million came from the foods division. The other businesses under the ‘FMCG-others’
head include branded garments, greeting, gifting & stationery, incense sticks, and safety matches.
46
Surajeet Das Gupta, “The amazing story of ITC’s rise,” www.rediff.com, October 31, 2005.

12
 ITC Foods’ Growth and Future Prospects

Exhibit I
ITC Balance Sheet
In million Rs.

S.No March, 2005 March, 2004

1 Shareholder’s funds
a) Capital 2482.2 2476.8
b) Share capital suspense 12.1 –
c) Reserves and surplus 76461.8 78956.1 61623.8 64100.6
2 Loan funds
a) Secured loans 886.9 315.6
b) Unsecured loans 1566.7 2453.6 892.9 1208.5
3 Deferred tax net 3760.9 877.4

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Total 85170.6 66186.5

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Profit and Loss Account

For the Year ended

March 31, 2005
For the Year ended
March 31, 2004
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(Rs. in Millions) (Rs. in Millions)
IA. Gross Income 135853.9 120399.2
IB. Net Income
No

Gross Sales 133495.8 118150.4

Less: Excise Duties and Taxes on Sales of 57101.3 53446.0
Products and Services
Net Sales (after Considering provision for taxes 76394.5 64704.4
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of Rs. 214.75 Crores)

Other Income 2358.1 2248.8
78752.6 66953.2
II. Other Expenditure
Raw Materials etc. 27695.5 23877.8
Manufacturing, Selling etc. Expenses 21197.7 1,7468.6
Depreciation 3128.7 2416.2
52021.9 43762.6
III. Profit
Profit before Taxation and Exceptional items 26730.7 23190.6
Provision for Taxation 8360.0 7262.1
Profit after Taxation before Exceptional Items 18370.7 15928.5
Exceptional items (net of taxes) 3543.3

13
 ITC Foods’ Growth and Future Prospects

Profit after taxation 21914.0

Profit brought forward 3878.4 3438.8
25792.4 19367.3
Transfer to Hotel Foreign Exchange – (50.0)
Release from Hotel Foreign Exchange Earnings 151.4 151.4 40.0 (10.0)
Reserve
Available for appropriation 25943.8 19357.3
IV. Appropriations
Release from Debenture Redemption Reserve – 109.4
General Reserve 11000.0 10000.0
Proposed Dividend 7732.5 4953.6
Income on proposed dividend (2005 – including 1097.2 634.7

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Rs. 1.27 crores for earlier years)
Profit Carried Forward 6114.1 3878.4

Earnings per Share

op 25943.8 19357.3
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(Face Value Rs.10.00 each)
On profit after taxation before exceptional items
Basic Rs.73.74 Rs.64.34
No

Diluted Rs.73.52 Rs.64.22

On Profit after Taxation
Basic Rs.87.97 Rs.64.34
Diluted Rs.87.70 Rs.64.22
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Source: www.itcportal.com.

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 ITC Foods’ Growth and Future Prospects

Exhibit II
The ITC Group

S.No. Division Description

1 Cigarettes & Cigarettes and leaf tobacco business is the primary business of ITC.
Leaf Tobacco ITC is the undisputed market leader in the Indian cigarette market,
with more than 70% market share in the filtered cigarettes category.
ITC is also the number one buyer, processor and exporter of
cigarette tobaccos in India. The company’s popular brands include
Wills, India Kings, Gold Flake, Navy Cut, Scissors, Capstan,
Berkeley, and Bristol.

2 Packaging And ITC provides value-added packaging solutions for several

Printing industries like food and beverages, personal products, cigarettes,
liquor, etc. Over the years it has emerged as one of the largest
converter of paperboard into packaging. Its product range includes

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flip-top boxes, display outers, shells and slides, soft cup and strap,
labels, bundle wraps, flap boxes, inner frames, coupon inserts,

3 Hotels Business
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folding cartons, shoulder boxes, and pre-printed cork tipping.

ITC’s chains of hotels include the high-end WelcomHeritage

hotels, and the Fortune hotels targeted at mid-level business and
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leisure travelers. In early 2006, it owned over 60 hotels across more
than 50 destinations in India.

4 Paperboards & ITC’s paperboard products include packaging boards like coated
No

Specialty Papers folding box boards, solid bleached sulphate boards, white lined
chipboards, liquid packing boards, poly extruded coated boards for
food and barrier packaging and cast coated papers and boards. At
the end of 2005, it had a manufacturing capacity of 360,000 tons.
ITC’s market share in paperboards industry grew from 17% in
2004-05 to 25% in 2005-06.47
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5 Agri Exports In 2005-06, the division was one of India’s largest exporters of
agri-commodities with exports worth more than Rs.5 billion. ITC
was the first Indian company to receive the $100,000
‘Development Gateway Award 2005’ for its e-Choupal initiative. It
deals mainly with exports of feed ingredients, food grains, edible
nuts, marine products, and processed fruits.

6 Greeting, The product range includes gift wrappers, autograph books and
Gifting & slam books, notebooks and stationery products for school, college
Stationery and office use. At the end of 2005, greeting cards were available at
over 11,500 multi-brand outlets over 700 cities in India.

47
Sumana Guha Reddy, “ECF ‘misthi’ boxes help ITC board sales,” Business Standard, January 29, 2006.

15
 ITC Foods’ Growth and Future Prospects

7 Lifestyle The Lifestyle Retailing Business Division (LRDB) was set up in

Retailing 2000 to exclusively retail the Wills Sport brand. The retail outlets
were named Wills Lifestyle. In 2002, the product range was
expanded to include formal wear (Wills Classic). And in 2003, a
new line of evening wear (Wills Clublife) was introduced. Both
were targeted at the premium consumer. Wills Lifestyle also offers
a wide range of designer accessories to complement its fabrics. In
2003, another brand – John Players was introduced.

8 Safety Matches The popular brands are iKno, Mangaldeep, VaxLit, Delite, and Aim.
Mangaldeep matches target housewives where as the other four
brands targeted smokers.

9 Incense Sticks ITC has two brands called Spriha and Mangaldeep in this category
(Agarbattis) with a wide range of fragrances like rose, jasmine, bouquet,
sandalwood, madhur, mogra, etc. Mangaldeep brand is exported to

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the US, the UAE, Bahrain, Nepal, Singapore, and Malaysia.
Source: www.itcportal.com.
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No
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16
 ITC Foods’ Growth and Future Prospects

Exhibit III
Products under ‘Kitchens of India’
S.No Category Variety
1 Ready-To-Eat Dal Bukhara (dal bukhara), Dum Pukht (mirch ka
(‘Heat and Eat’ products) salan), Dakshin (chicken chettinad, chicken stew),
and Gharana (paneer darbari, chicken darbari,
murgh methi), Biryani (Noor mahal, Bohri, Yakhni
pulao, Hyderabad biryani, etc)
2 Curry Pastes (Ready made Butter chicken curry paste, Hyderabadi biryani
pastes made by blending paste, Fish curry paste, Vegetable biryani paste,
different types of spices) Chicken curry paste, and Mutton curry paste.
3 Conserves Strawberry and mint, Pineapple and green pepper,
(Fruit and spice preserves) Apple and cinnamon, Plum and star anise conserve.
4 Chutneys (A kind of thick syrup Shredded mango chutney, Tamarind and date
made of different kinds of fruits chutney, Mango and jeera chutney, Mango and

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and vegetables) garlic chutney.
5 Desserts (Traditional sweet Jodhpuri moong dal halwa, Hazoori petha halwa,
dishes from different regions of
India)
Source: www.itcportal.com.
op Awadhi badam halwa, Shahi jamun, Khoya mutter
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Exhibit IV
Kitchens of India Desserts
No
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Source: www.kitchensofindia.com.
Exhibit V
Products under Aashirvaad

S.No Category Variety

1 Ready-to-Eat Rajma Masala, Nav Ratan Korma, Dal Makhani, Aloo Mutter, Palak
Paneer, Pindi Chana, Pav Bhaji, Mutter Paneer, etc.
2 Cooking paste A multipurpose cooking paste using onion, tomato, ginger, garlic, etc.
3 Staples Wheat flour, Salt
4 Spices Chilli, Turmeric, Coriander powder.
5 Instant Mixes Rice Idli, Rava Idli, Rice Dosa, Gulab Jamun and Khaman Dhokla
Source: www.itcportal.com.

17
 ITC Foods’ Growth and Future Prospects

Exhibit VI
Market Shares in the Indian Organized Biscuits Market

Market Share in %
Company
2004-05 2005-06
ITC 2.7 5.3
Parle 42.2 40.3
Britannia* 35.8 31.6
Surya 6.4 5.7
Anmol 3.9 3.9
Priya 1.9 1.5
Others 7.1 11.7
*includes Kwality

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Source: ACNielsen Retail Audit, Financial year data.

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Exhibit VII
ITC’s Competitors in the Ready-to-Eat Segment
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S.No Company Description
1 MTR (Mavalli The market leader in the ready-to-eat sector, MTR had a
Tiffin Rooms) humble start as a small food outlet at Bangalore in 1924. MTR
No

Foods launched its packaged and processed food products in the

late 1970s. The products were Rava Idly mix and Khara Bhaath
Mix. In the next three decades, it expanded its range of products
and by 2006, it had a varied product range with 15 curries and
seven south Indian specialties.
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2 Satnam Overseas One of India’s largest exporters of basmati rice under the
Limited flagship of Kohinoor brand, Satnam had entered the packaged
food market with heat-and-eat North Indian curries and lentils
in 1989. It has regional appeal, especially in the state of Punjab.
3 Tasty Bites Tasty Bites was incorporated in 1987 but it was not able to
Eatables Limited make much headway and the products were withdrawn after a
(TBEL) year. It was taken over by US multinational Preferred Brands
Inc in 1998. The Rs. 200 million export-driven company offers
nine curries and six south Indian ready-to-eat dishes like avial
and pongal and also ready-to-cook curry pastes.
4 Priya Foods Priya Foods was incorporated in 1980 by the Ramoji group. It
offers a variety of products in categories like pickles, spice
powder, culinary pastes, instant mixes etc.
5 Gits Gits Food Products Pvt. Ltd was established in 1963. It markets
a wide range of Indian food specialties like snacks, ready-to-eat
meals, desserts, dairy products, and biscuits.
Compiled from various sources.

18
 ITC Foods’ Growth and Future Prospects

Exhibit VIII
ITC’s Competitors in the Confectionery Market

S.No Company Product Brands

Category
1 Perfetti Van Melle: It started operations Sugar Alpenliebe, Big Babool,
in India in 1994, and by 2006, had confectionery, Center shock, Chlor-mint,
emerged as the market leader in sugar Gums Cofitos, Happydent,
confectionery in India with 30% market Center-fresh, Chatar-
share. patar, Choco-tella,
Mentos, Fruit-tella, etc.
2 Nutrine Confectionery Company Sugar Mahalacto, Kokonaka,
Limited: Founded in 1952 by Sri confectionery, Aasay, Wild Koffy,
Venkatarama Reddy, the company has Gums, Chocolate Eclairs, Aam
more than 72 varieties of candies, toffees, Fruit bars ras, Nutrine Gold,
lozenges, etc., with 26% share in the total Caramella etc.

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confectionery market, as of 2006.
3
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Parry’s Confectionery Limited: The Sugar
company, originally a part of the confectionery
Murugappa Group, started manufacturing
confectionary in 1954. It was acquired by
Lacto King, Coconut
Punch, Coffy Bite,
Caramilk, Shakti, etc.
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Lotte Confectionary Limited in 2003.
4 Parle: It started manufacturing sweets and Sugar Melody, Mango Bite,
toffees in 1929 near Mumbai. A decade confectionery Kismi Toffee Bar,
later in 1939, it entered into the business of Poppins, Peppermint,
No

manufacturing biscuits. It has a 15% share Rol-a-Cola. etc.

of the total confectionery market.
5 Joyco India: It is a subsidiary of Joyco Gum, sugar Solano, Boomer, Bonker,
International, Spain. confectionery Actimint, Pim Pom
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Compiled from various sources.

19
 ITC Foods’ Growth and Future Prospects

Additional Reading & References:

1. ITC adds 10 more items to Kitchens of India, www.fnbnews.com, May 13, 2006.
2. Pritie S. Jadhav, ISA Seminar Day 2: There is more to India than IT,
www.exchange4media.com, April 24, 2006.
3. ITC Foods plans own facility to make biscuits, www.thehindubusinessline.com, March
27, 2006.
4. Now, ITC to launch organically farmed branded fruits, www.timesofindia.com, March
25, 2006.
5. Shah Rukh to launch ITC’s Sunfeast in US, www.fe.com, March 22, 2006.
6. Sabyasachi Samajdar, Biscuit makers seek relief, www.fnbnews.com, February 4, 2006.
7. Venkatesh Babu, Hungry for more, www.business-today.com, February 3, 2006.
8. Surajeet Das Gupta, The amazing story of ITC’s rise, www.rediff.com, October 31,
2005.
9. ITC Foods forays into cookies segment, www.sify.com, August 11, 2005

y
10. Purvita Chatterjee, ITC’s thought for foods, www.blonnet.com, September 09, 2004.
11.
12. op
How ITC ate competition’s lunch, www.safexpress.com, September 05, 2004.
Kiran Pandya, Ready-to-Eat meals gaining popularity, ww1.mid-day.com, November
06, 2003.
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13. ITC launches Aashirvaad ReadyMeals, www.economictimes.com, July 09, 2003.
14. Food and beverages survey, www.ficci.com.
15. www.itcportal.com.
16. www.indiainfoline.com.
No

17. www.kitchensofindia.com.
18. www.myiris.com.
19. www.mtrfoods.com.
20. www.lotteindia.com.
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21. www.perfettivanmelle.in.
22. www.ibef.org.

20