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Press Report

Coming up from behind

Business Standard, 27 Jun 2006

Govindkrishna Seshan

Mumbai

How ITC got around its late entrydisadvantage to chew off a chunk of the biscuits market.

Biscuits and tea in the morning were aroutine. So were the key market players and their favourite

products.

The two major players Britannia and Parlewere busy biting of chunks of the national market among

themselves, with a host of smallerbrands in various regions.

While the business was still verycompetitive, there wasnt anything groundbreaking. In 2003, with

ITC foraying intothe 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 heldby smaller players like Priya Gold which had a strong presence in the

north. So, inessence, the market already had strong well entrenched players. So how could a

lateentrant like ITC make its mark?

Three years down the line, however, thingshave changed a lot. It is a classic story of the hare and

the tortoise. While it is farfrom winning the race, slowly and steadily, the tortoise is gaining ground.

The late entrant is already on the podiumin the third place with as much as 7 per cent of the market

in terms of value. ITCmade hay when the sun wasnt shining, says a consultant whos beentracking

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 segmentbecause its a Rs 550,000 crore market in India. But only 6

per cent of this isbranded and packaged. In developed markets, nearly 95 per cent of the food

market isbranded and packaged. So there was lot of scope for a branded player.

In foods, biscuits was tempting. The Rs4,000-crore Indian biscuits market has grown at 12-14 per

cent year-on-year. Then, therewas a business synergy. ITC was already value-adding to wheat with

its branded attapresence. By entering the biscuits segment, it could also improve its bottomline

further.

But despite the fast growth rates, thebiscuits industry was not all rosy. Over the years, even giants

like Hindustan Lever hadfailed.

For instance, HLL which had flirted withbiscuits under the Max brand exited in 2005. But ITCs

Sunfeast has a different storyto tell so far. the strategist looks at the gameplan of a late entrant and

how thebiscuits industry has responded.

New recipe

Before entering the segment, ITC dug into market research. Research revealed that thecategory

had gaps which ITC could settle into. Findings revealed that consumers wished totaste new and

innovative products. That was precisel what the competition had not done ina bi wa .

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Says Naware, The biscuits industryhad witnessed little innovation; Glucose was Glucose and Marie

was still Marie. Thecompany decided that this could be its biggest point of attack. In 2003, ITC

launchedSunfeast with six ranges. But it was a calculated risk. ITC stuck to category favouriteslike

Glucose, Marie and Bourbon cream.

Along with that, it also launchedinnovations such as orange-flavoured Marie, Marie light and

butterscotch-flavoured creambiscuits. In 2004, Sunfeast followed this up with the launch of Sunfeast

Milky Magic. Morerecently, it also has launched the Sunfeast Snacky and Sunfeast Golden Bakes.

Analysts believe that just because Sunfeastwas a new brand, helped matters. Says a consultant,

The biscuits industry had notwitnessed any major product innovation in years. Consumers were just

waiting for somethingnew, something fresh, when Sunfeast happened.

Even the competition had not made thingsbetter. 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 atmore than just products. Richa Arora, general manager and

head of marketing andinnovations, Britannia Industries, says, We are not just looking at new

products,but tapping newer opportunities such as different occasions as well as out-of-

homeconsumptions.

In 2005, before Diwali, Britannia launchedOccasions boxes of assorted biscuits priced between Rs

50 and Rs 200 whichthe company claims has been very successful.

In 2006, however, the industry has seen aflurry of innovations from the big two. Digestive Marie

was launched by Par le inearly February 2006. Britannia launched its new double-flavoured Mariegold

and 50-50Chakkar. And Parle is all set to launch at least two new products before the end of

thisyear.

Distribution mazeIts common knowledge, that for FMCG products, distribution channels are veryimportant.

Says Pravin Kulkarni, general manager,marketing, Parle Products, For biscuits, distribution and

visibility are extremelyimportant as its partly a impulse purchase product. And in biscuits, settingup

a distribution channel is anything but easy.

Consider this. Priya Gold, which enteredthe western region in 2000, is struggling to find its feet even

five years later.

However, in this regard, Sunfeast has beenfortunate: thanks to its tobacco business, ITC already

had a good understanding ofdistribution channels.

The company used its existing network ofconvenience stores the companys name for the hole-in-

the-wall pan-beedi shops for Sunfeast. Not content with the existing resources, the company also

looked atgrocery stores and other retail formats.

The company says the brand is now availablein nearly 1.8 million outlets. Britannia claims it has a

superior distribution clout withits presence in nearly 3.3 million outlets. Parle, the seasoned player

itself, says it isavailable in 1.5 million outlets. Sunfeasts next step was to step up its brandingand

promotion.

Ad thrust

In August 2003, a month after its launch, the company undertook a major sampling exerciseto

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 yourfavourite newspaper and so on.

Well differentiated advertisements, somewhich showed a complete cream world with cream rive rs,

cream mountains and cream trees,were targeted at kids watching cartoon channels.

At the same time, on general entertainmentchannels, mothers received information on the

importance of glucose, the wholeness ofwheat and so on. Also, the company tied up with Bey

Blades, the popular television seriesthat was a rage among children, to promote itself.

In April 2005, Sunfeast launched its majorcampaign. It signed on Hindi film actor, Shah Rukh Khanas its brand ambassador.

In the same year, as the official sponsorof the WTA tennis championship titled the Sunfeast Open

the company hadteenage sensations Sania Mirza and Mahesh Bhupathi campaigning for it. But

thats notall. For promotions in southern states, Sunfeast has signed Tamil super star Surya as

abrand ambassador.

Analysts say that ITCs deep pocketshave helped Sunfeast in many ways.

The company claims that it has beenspending 35-40 per cent of its turnover from the biscuits

segment on advertising andpromotions. Going by that number, ITCs annual marketing spends are

estimated to be in theregion of about Rs 115-120 crore.

Until last year, Priya Gold spent close toRs 45-50 crore, nearly 10 per cent of its turnover on

marketing. Even market leaderBritannia with spends of Rs 100 crore (2004-05) spends about 10 per

cent of sales onmarketing.




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But Arora says that the figure willincrease substantially in 2006-07. ITC is clearly among the largest

spender on ads andpromotions in the biscuits category.

Analysts predict that these figures are allset to rise this year. But industry experts arent impressed.

Says a consultant, AlthoughSunfeasts Shah Rukh Khan association is interesting, it is yet to do

somethinggroundbreaking, like Britannia khao world cup jhao or the Lagaan promotion for

thatmatter.

Pric ing models

The biscuits industry now has two clear models. Parle products plays the low price game atall

varieties of biscuits from glucose to cream.

Essentially, Parle plays a high volume, lowmargin game. But Britannia and Sunfeast look at a two-

pronged strategy. High margins incream variants and volumes from the Marie and Glucose

segments.

For instance, cream biscuits from bothBritannia and Sunfeast cost Rs 10 for 100 grams. Parle,

however, only charges Rs 5 for itscream variants. Except for Hide & Seek , all of Parles products lie

in the pricerange between Rs 4 and Rs 6 for 100 gram packs.

To be fair, in Glucose and Marie, thecompanies have little choice. As there is little differentiation,

consumers are extremelyprice sensitive. But these segments are important. Marie and the popular

glucose varietiesmake up for nearly 55 per cent of the Rs 4,000 crore biscuits segment a

significantRs 2,200 crore.

Says Sunil Alagh, chairman, SKA Advisors,and former CEO of Britannia Industries, the biscuit

consumer is willing to pay moreonly when he sees a clearly differentiated product. Hence companies

have little choice interms of pricing. No wonder all the Glucose and Marie variants straddle price

pointsof Rs 4-6 (for 100 grams).

Key challenges

Back in 2003, nobody thought Sunfeast would have consumers eating out of its hands. SaysNaware,

Seven per cent in less than three years is something that we could have onlydreamt about.

Importantly, industry barometer AC Nielsenhas indicated that both Parle and Britannia are losing

market shares. According to the ACNielsen retail sales audit in March 2006, both Britannia and Parle

have lost volumes.Britannias shares have dropped from 35.8 per cent in 2004-05 to 30.5 per cent in

May2006 (volumes). Parles shares have also dropped from 42.2 to 38.4 per cent in thesame period.

Even Priya Gold has seen a minor dip from6.4 per cent to 5 per cent. ITCs Sunfeast has been a big

gainer with its shareincreasing from 2.7 to 6.7 per cent.

In terms of value, Britannia leads themarket with 37 per cent market share, followed by Parles 31.3

per cent andITCs 6.3 per cent. Nevertheless, the gap is still wide. Sunfeast still has a longway to go.

But what can the bigger players do? Alaghhas an interesting observation. Says he, Biscuits have

always been a low margin,high volume game. Both Britannia and Parle have very high volumes andcan easily a fford tolower their margins.

A potential after-effect? Sunfeast too mayhave to drop its prices to be in the reckoning and this will

squeeze its margin evenlower. While the full game is yet to be played out, for the moment the sun

seems to beshining on Sunfeast.

QUICKBITE

Creaming the ma rket ...

Innovation in the product line biscuits withbutterscotch

cream with actual granules in the cream, strawberry cream

withflavour-enhancers and orange-flavoured marie.

Gained an edge from the well established distributionnetwork

of its tobacco business.

Signed up big film stars like Shah Rukh Khan and

southernstar Surya as brand ambassadors for Sunfeast.

Branded the WTA tennis tournament with promos

starringtennis stars, Mahesh Bhupati and Sania Mirza.




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[ Back ]

... needs fur ther embell ishments

Big brand ambassadors, but not strong enough

advertisingcampaigns for big brand recall.

The gap between the number three and the top two slots istoo

wide

Competitors can play the low price game as they

havevolumes to support.

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