--------------------------------------------------------------------------------

How ITC turned biscuits business around

Govindkrishna Seshan | BS | June 28, 2006 | 11:20 IST

Biscuits and tea in the morning were a routine. So were the key market players a
nd their favourite products.
The two major players Britannia and Parle were busy biting of chunks of the nati
onal market among themselves, with a host of smaller brands in various regions.
While the business was still very competitive, there wasn't anything groundbreak
ing. 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 mar
ket in value terms. The rest too was firmly held by smaller players like Priya G
old 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 i
ts mark?
Three years down the line, however, things have changed a lot. It is a classic s
tory 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 p
er cent of the market in terms of value. "ITC made hay when the sun wasn't shini
ng," says a consultant who's been tracking the industry for a long time. But fir
st, why did ITC? train its eye on biscuits? Ravi Naware, chief executive, ITC Fo
ods, makes it sound simple.
"We decided to enter the foods segment because it's a Rs 550,000 crore (Rs billi
on) market in India. But only 6 per cent of this is branded and packaged. In dev
eloped markets, nearly 95 per cent of the food market is branded and packaged. S
o 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 syn
ergy. ITC was already value-adding to wheat with its branded atta presence. By e
ntering 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 lo
oks at the gameplan of a late entrant and how the biscuits industry has responde
d.
New recipe
Before entering the segment, ITC dug into market research. Research revealed tha
t the category had gaps which ITC could settle into. Findings revealed that cons
umers wished to taste new and innovative products. That was precisely what the c
ompetition had not done in a big way.
Says Naware, "The? biscuits industry had witnessed little innovation; Glucose wa
s 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, Ma
rie light and butterscotch-flavoured cream biscuits. In 2004, Sunfeast followed
this up with the launch of Sunfeast Milky Magic. More recently, it also has laun
ched the Sunfeast Snacky and Sunfeast? Golden Bakes.
Analysts believe that just because Sunfeast was a new brand, helped matters. Say
s a consultant, "The biscuits industry had not witnessed any major product innov
ation 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 P
arle 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, sa
ys, "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 biscui
ts priced between Rs 50 and Rs 200 -- which the company claims has been very suc
cessful.
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 la
unched its new double-flavoured Mariegold and 50-50 Chakkar. And Parle is all se
t to launch at least two new products before the end of this year.
Distribution maze
It's common knowledge, that for FMCG products, distribution channels are very im
portant.
Says Pravin Kulkarni, general manager, marketing, Parle Products, "For biscuits,
distribution and visibility are extremely important as it's partly a impulse pu
rchase 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 struggli
ng to find its feet even five years later.
However, in this regard, Sunfeast has been fortunate: thanks to its tobacco busi
ness, ITC already had a good understanding of distribution channels.
The company used its existing network of convenience stores -- the company's nam
e 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. Brit
annia 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 promoti
on.
Ad thrust
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 usua
l 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 wit
h cream rivers, cream mountains and cream trees, were targeted at kids watching
cartoon channels.
At the same time, on general entertainment channels, mothers received informatio
n on the importance of glucose, the wholeness of wheat and so on. Also, the comp
any 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 act
or, Shah Rukh Khan as its brand ambassador.
In the same year, as the official sponsor of? the WTA tennis championship -- tit
led the Sunfeast Open -- the company had teenage sensations Sania Mirza and Mahe
sh Bhupathi campaigning for it. But that's not all. For promotions in southern s
tates, 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 cr
ore (Rs billion).?
Until last year, Priya Gold spent close to Rs 45-50 crore (Rs billion), nearly 1
0 per cent of its turnover on marketing. Even market leader Britannia with spend
s of Rs 100 crore (Rs billion) (2004-05) spends about 10 per cent of sales on ma
rketing.
But Arora says that the figure will increase substantially in 2006-07. ITC is cl
early? 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 interestin
g, it is yet to do something groundbreaking, like Britannia khao world cup jhao
or the Lagaan promotion for that matter."
Pricing models
The biscuits industry now has two clear models. Parle products plays the low pri
ce game at all varieties of biscuits from glucose to cream.
Essentially, Parle plays a high volume, low margin game. But Britannia and Sunfe
ast look at a two-pronged strategy. High margins in cream variants and volumes f
rom 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 Hid
e & Seek, all of Parle's products lie in the price range between Rs 4 and Rs 6 f
or 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 segme
nts 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 R
s 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 diffe
rentiated product. Hence companies have little choice in terms of pricing." No w
onder all the Glucose and Marie variants straddle price points of Rs 4-6 (for 10
0 grams).
Key challenges
Back in 2003, nobody thought? Sunfeast would have consumers eating out of its ha
nds. 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 Bri
tannia 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 ha
ve 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 Sunf
east 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, fo
llowed? by Parle's 31.3 per cent and ITC's 6.3 per cent. Nevertheless, the gap i
s still wide. Sunfeast still has a long way to go.
But what can the bigger players do? Alagh has an interesting observation. Says h
e, "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 ye
t to be played out, for the moment the sun seems to be shining on Sunfeast.

Creaming the market. . .

Innovation in the product line -- biscuits with butterscotch cream with actual g
ranules in the cream, strawberry cream with flavour-enhancers and orange-flavour
ed marie.
Gained an edge from the well established distribution network of its tobacco bus
iness.
Signed up big film stars like Shah Rukh Khan and southern star Surya as brand am
bassadors for Sunfeast.
Branded the WTA tennis tournament with promos starring tennis stars, Mahesh Bhup
ati and Sania Mirza.
. . . needs further embellishments
Big brand ambassadors, but not strong enough advertising campaigns for big brand
recall.
The gap between the number three and the top two slots is too wide.
Competitors can play the low price game as they have volumes to support.

--------------------------------------------------------------------------------
URL for this article:
http://www.rediff.com///money/2006/jun/28spec.htm
--------------------------------------------------------------------------------
© 2003 rediff.com India Limited. All Rights Reserved. This material may not be pub
lished, broadcast, rewritten, or redistributed.
\

site : http://en.wikipedia.org/wiki/Promotional_mix