ITC: "Will"(s) "Gold Flake" assist "Ashirwad" to win "Bingo!"?

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1157

Yes, I have read that. I would say that online sales for any FMCG will be less compared to physical stores’ sales unless a brand has started selling only online. There are small regional startup brands which don’t have any distribution network, because they cannot afford it and sell only online. So if ITC does have a distribution problem as mentioned in the thread, it does need to take care of this first. Culture first, digital or physical comes later.

It is also implied, at least I could interpret that, ITC is eyeing brands with good traction in online channels and buying a stake, in this case. Not that this will not yield any results, but I would say, this is paltry, insignificant compared to the size of the FMCG business. Even if they buy the brand fully, would they be selling the brand only online? If they want it to have a pan India presence, they have to distribute, but this is where their problem lies.

Digital is easy, in a sense, in this day and age, but if online sales are less compared to offline sales, then they should strengthen their distribution network. Also, when it comes to digital there is high competition, not just the availability of the products from different companies, branded, generic and private, but also the simplistic way of looking at products from different companies at the same time, with the visuals of the products getting displayed right there in the same page at once. In a physical store, you have to spend extra time to check a few products, you can never know what they are, no reviews, space constraint exists etc.

If one of the reasons why people buy a particular brand of FMCG products, is the ready availability, then distribution should be strengthened. If the shopkeeper does not give a customer the chance of thinking about another brand, asking about another brand, because he has the first product that the customer asked for, that is distribution.

Even in online channel, with ITC estore, if it does not serve all the areas, and the products are unavailable on websites which serve all areas, what difference does the presence of online bring to the top line and bottom line?

I am yet to experience this unavailability in physical stores, but it has been mentioned many times by different members.

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1158

Yes, but these small mushrooms will keep on popping up in the very many states of our country, in the many categories ITC is present in. So ITC should keep a reserve, just like the provision financial companies do, for acquiring new businesses.

This is a strategy, I know, but as with a lot of things with ITC, this strategy too will test the patience, because this is FMCG, and to some extent, there is no stickiness of products, more so with online products, because of the sheer webs pace that is available on websites, so a better product will emerge after sometime, or a similar product will be available at a lower cost, getting displayed right next to ITC owned subsidiary.

1159

Also available on bigbasket

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1161

To sum up my opinion on the acquisition, ITC is basically targetting a new market. None of the current ITC products are targetted at infants and mothers or have an ayurvedic /organic offering.

The positive is these ayurvedic/herbal/ organic infant-mother brands have newfound trust factor of being preservatives, SLS, mineral oil, paraben, sulphate free. The negative side is that as you mentioned is nano sized ayurved/ organic startups open shop everyday. Unileve pushed Ayush, RPSG Ventures is also pushing Dr. Vaidyas ayurvedic and Naturali herbal products as people venture away from chemical laced FMCG.

Nimyle doesn’t compete in the same segment and Shower to shower only exists in news articles. Sadly, ITC didn’t have talcum powders on shelves or online during summers. Shower2shower is a powerful brand which has failed to take off due to neglect. If ITC doesn’t do justice to mothersparsh, it will meet the same fate.

Regarding Fabelle, there is no awareness or promotion of the brand. There is total neglect on retail front. But I see it growing in a few years based on feedback and taste. Cadburys chocolates usually leave a very sugary aftertaste compared to Fabelle or even Nestle.
It’s not available locally even where bingo sunfeast and dark fantasy are available and I have to order via bigbasket. Sadyly. Even bigbasket does not have complete range at anytime.

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1162

I know lot has been written on ITC ability to distribute products … If ITC is so bad at distribution then

  1. Why is Aashirwaad Atta easily available compared to HUL or General Mills atta across stores ??
  2. Why is Yippee more visible and has higher share as compared Knoor noodles of HUL ??
  3. Why Savlon became bigger distribution & marketing success in such a short time when J&J inspite of lot of efforts could not scale it up ?? and it had great competitors like Dettol and Lifebouy
  4. Why Engage sells more than AXE when HUL is great in distribution ??

Shelf space in Retail store has huge premium … Any Retailer has to think a lot which brands to place on shelf … It is not easy for smaller brands and new brands to get shelf and find space …and Retailer patience will not be long if product does not move in say few weeks …

Hence FMCG brands have higher Moat as people will remember just two brands or max three brands in each category

Now it ITC case it will have 10000 + skus in FMCG … Is it worth discussing availability of the same in this thread to such an extent .

We as investors we should look at overall FMCG performance to gauge management is doing well or not … Discussing individual brands & skus and their availability is wasting lot of space on this thread …

We may miss important points that are both good and bad that is happening within company …

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1163

I know you have contributed to this thread and you have certain nuanced insights into ITC’s businesses. You may even have high regard for ITC. So with all due respect, I differ.

As ITC also wants to be an FMCG company, and it generates almost half of its revenue from FMCG division, this aspect of non availability of products sounds silly and hurtful to the top line and bottom line, in my view.

The discussion is not about individual brands, some do well, some will be duds, some will tag along in the backseat. This is about a simple problem that many have reported. It is understandable if a product has disappeared because of no takers, but if the unavailability of many products persists both in physical stores and online, this has to be taken care of because the market is getting more fragmented.

When ITC started its FMCG division, the competition may have been with established companies alone. But now we have private labels, online only startups, along with the local small brands which have loyal customers for decades. Even Oligopoly does not have a chance in certain segments in the current market scenario, and one cannot tie the profitability of the company to a handful of brands when the portfolio is increased by leaps and bounds each year. There were 120 launches in FY 21. ITC claims it is the market leader in notebooks, dhoop and 2nd in agarbatti. HUL claims it has leadership of >80% in 15 categories.

They can reduce the dividend, and focus on the visibility of many products, and not on select few brands, as much as they focus on expanding the portfolio. We cannot blame BAT or SUUTI for this and they spend 1000 crores for A&P.

Otherwise, cigarette sales will not improve, FMCG sales may not grow fast given the competition, agriculture division has lumpy structure, paper is not a high growth business, IT could grow due to the tailwinds. So despite the strengths, the might, the synergies, the stock does not move.

After all, even if we are investing in good companies, the companies should be good stocks too.

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1164

ITC always prefer to acquire a business which is small yet have unique characters and possibilities to expand the business line…

Nimyle - A small business during acquisition. But it has a USP - neem based herbal floor cleaner

Bnatural - A small player then. USP - 0% concentrated fruit juice

Savlon - not small. But only 2nd player next to Dettol. USP - Does not hurt when applying on wounds… They failed miserably in India. JJ failed to market or expand the business in India before acquisition…

All the above business has been expanded successfully expanded by ITC and made decent success in recent time

Product expansion :

Nimyle - dish wash, veg wash, surface cleaning spray

Bnatural - vegetable juice, soups…

Savlon - disinfectant spray, laundry sanitizer, surface cleaner, multi purpose cleaner, body wash, now nascal spray…

Mother sprash has all the qualities. USP -Ayurvedic beauty and baby care product.
It already had forayed into personal, hair care… ITC has to only expand their business with its distribution strength…

1165

Being all said the only problem with ITC Is they fail miserably in making the product available in physical store…
We can argue saying that aashirvaad and sunfeast are available in stores… They both have first mover advantage…

Aashirvaad was the only branded atta when pillsbury failed in India

Sunfeast - Dark Fantasy was only premium chocolate filled biscuit when they launched it during that time…

Even in these 2 brands we could see only atta, dark fantasy available in stores. Other variants could not occupy self space… Pls do not consider supermarket at this point because 95% of retail stores in India are still small Kirana stores…

We can not take estore also into consideration, because when a person buying 5 times in estore, goes to a physical store 6th time and couldn’t find the product. Obviously he will move to other brands…

Brands like biotique, wow, mamaearth have more visibility than vivel and fiama

Brands like licious doing more brand promotion than ITC master chef

Brands like country delight doing more promotion through social media influencers than aashirvaad svasti

Brands like sleepy owl and Rage have more social media presence than sunbean…

The list goes on… We can say that these new age companies do not have distribution strength that and these… What if HUL, dabur, Godrej buy those brand and expand their reach…?

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1166

Hi,

Thank you for the message

Regarding the acquisitions front I have some points to mention.

I don’t see B naturals as a good competitor to other established brands.And they are selling at discounts than other premium brands which indicates less pricing power.

And regarding the blockbuster acquisition of Savlon,I think it is mostly due to onset of corona the sales just ballooned.Same case is with Nimyle.If there would not have been corona the sales wouldn’t have seen any significant jump compared to Dettol.

I still remember I read an article ITC opedout of Horlicks brand acquisition race because of high valuation,And HUL happily lapped up the brand.I find it difficult to understand when you have a brand whose cash flow visibility is beyond one’s life time,will it be available cheap??or do we think HUL doesn’t care about valuations??

These small ticket acquisitions can work when we have significant tailwind in the business in future(like corona happened which helped Savlon & Nimyle).otherwise they are minuscule when we compare to ITC’s overall revenue and profitability.

The views are personal and I may be wrong.

Thanks,
Deb

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1167

Just a question, which brand people usually find on shelfs when ITC is missing? I mean, ITC x brand is missing but TATA y brand is always there.
I want to know that, is it nature of the business? I mean where ITC lacks and any one other benefits? If there are multiple brands which have these issues, it should also benefit ITC as they might switch to Itc when the competitor’s brand is not available…

1168

The person responsible for foods division is mr. Hemant Malik and Mr. Sameer Satpathy looks after personal care as per ITC website.

If many ( not just one)product SKUs are not even available easily on Amazon, bigbasket, jiomart or flipkart, Who questions these guys? Who are they answerable to? Does ITC have divisional periodic sales targets?

We as investors cannot just turn a blind eye to the problems. Masking the issues won’t solve them.

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1169

Their whole range of products are not available on bigbasket even. People who want to buy things are not getting a chance. I went to Lulu Hypermaket recently opened in Bangalore. I couldn’t see anything except sunfeast and ashirwaad and some Yippee. Searched for Fabelle and candyman, there was nothing. Even foreign brands and brands I was seeing for first time were present.
There is something seriously wrong with their FMCG marketing if even very small players are finding shelf space in one of the biggest hypermarkets in Bangalore and they cannot.

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1170

Well … though I had decided not to intervene in shelf availability related post

The point raised by you is on basics of organisation structure and how incentives are structured to drive business performance so I thought I will try to answer it . This is true for most FMCG companies

If you read Annual Report or website you will see a division in ITC called Trade Marketing & Distribution which is headed by CEO - Mr Sandeep Sule … who reports directly to ED Mr Sumant like Mr Malik and Mr Satpathy does

This Trade Marketing and Distribution is responsible for overall Sales & Promotion and Distribution across Product verticals like Foods , Personal Care , Agarbatti , Cigarettes etc …
The goals for Trade Marketing Division ( TM&D) is on basis of shelf availability , freshness - higher ROI for distributors/ Retailers so that Retailers have loyalty to the company versus competitors

The goals for Food CEO , Personal Care CEO , Cigarette CEO etc will be Product / category Sales and profitability …

All these CEOs will have to convince TM&D the right product market fit and decide which market / channel they will prioritise the product distribution - so not all markets and channels will receive X products … Once that is done TM&D will launch & place the products depending upon market they will service - thrice a day in some market or once a week in others

In that FMCG servicing rounds if product does not seems to moving - they rework sales promotion / distribution strategy - If that does not work … Product is picked off the shelf otherwise TM&D will fail on freshness criteria. Since TM&D represent Retailers in the company -

Each Division like FOOD / PC etc will do their own field check and review with local , state and National TM&D team - There is a common dashboard which they have highlighted in Investor presentation for such reviews . These dashboards are highly quantitive and tells if TM&D division has failed in their objective and in which geography as it is with most Supply chain division across HUL , Asian paints etc …

Hope that answers your query

On overall distribution - I still feel as I have stated in my earlier post as investors we should be less bothered by individual product sales rather focus on Overall FMCG sales & profitability and leave that part to management … ( if you believe in management ) . If you don’t believe/ trust management you should exit the stock irrespective on price .

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1171

We can look at it this way also - what if that is precisely what the management intends to do or re-plan for each individual sub brand? If it’s a conscious choice because of the way they decide to market and push any particular sub brand based on feedback they get with time?

Point is, we don’t know… unless this question was asked in any concall and there is concrete answer on strategy…

With so much SKU s it’s impossible for management to share the plan updates for each and every I believe though…

If anyone has insight in such question’s answers directly from management, that may help…

Disc. Invested, biased. Views personal and for academic purposes only. I can be wrong in my assessment.

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1172

This forum is a wonderful place. Everybody is free to post or refrain from posting. The same also goes stock exchanges. Everybody is free to buy or refrain from buying a stock. Peace:

Anyways, thank you for the amazing and detailed write-up on ‘Trade, Marketing and Distribution’ division. Amazing and impressive feat. in the consumer focused business space, isn’t it? Sophisticated jargons and divisions aside, is there money in a particular brands cash register? no. Does that take away the responsibility of failure of a brand to take off from the respective ED’s? no. Does that relieve the ED’s of their responsibility to be accountable for lack of products availability and successive failure? The basics like availability on the shelf and cash in the register count for many of us here.

Some investors are happy with a particular company performing poorly and giving mediocre targets and dividend payouts. Some investors are not. There is a reason why cases like Apollo tyres (apollo tyres investors vote out - Google Search) and Eicher motors (Eicher Motors’ minority shareholders oppose appointment of Siddhartha Lal as MD) exist.

I am sure the mangement of ITC is burning midnight oil. But that doesn’t mean investors (who own the company “conceptually”) should not question and be happy about the decisions taken. The noise on Demerger, Hotels business and margins on FMCG-others is proof of this. Constructive criticism holds equal importance in the success of an enterprise.

At the end of the day, ITC ltd has 25,68,030 shareholders. ‘Different folks, different strokes.’

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1174
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1175

Tobacco Business Risk are Real

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1176

I have been reading a little about Yogi Deveshwar. It looks to me like he saw this coming from quite far away, and literally stood ITC up on its tail and turned it around, while fighting a bunch of other battles (BAT, involving SUUTI and GOI, starting off FMCG, royalty payoff standoff, part time break for Air India) at the same time. Another decade of him being around when the agri, fmcg, paper (and not to forget itc infotech) thrusters have actually started firing would probably have put ITC in a different league. Sanjiv Puri et al, while capable, do not really look comparable to Yogi (on either vision or execution front).

Edit - Pls flag if this adds no value to the conversation.

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1177

Hi,

ITC will have analyst meet on 14th December.

A surprise move for sure in mid of a month… Seems like some positive news is in store. Lets see… Fingers crossed.

Thanks,
Deb

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1178

Hi,

outcome of first Analyst day held by ITC in its history

Thanks,
Deb

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